Good day, ladies and gentlemen, and welcome to the Q4 2018 NGL Energy Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Chief Financial Officer, Mr. Trey Karlovich, Please go ahead sir.

Thank you. And thank you everybody for joining us. As a reminder, this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, plan, goal, forecast, intend, could, believe, may, and similar expressions and statements are intended to identify forward-looking statements. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements. These factors include prices and market demand for natural gas, natural gas liquids, refined products and crude oil, level of production of crude oil, natural gas liquids and natural gas; the effect of weather conditions and demand for oil, natural gas and natural gas liquids; and the ability to successfully identify and consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results and to successfully integrate and operate assets and businesses that are built or acquired. Other factors that could impact these forward-looking statements are described in risk factors in the partnerships annual report on Form 10-K, quarterly reports on Form 10-Q and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the partnership's earnings releases, investor presentations and annual and quarterly reports on Form 10-K and Form 10-Q on our website at www.nglenergypartners.com under the Investor Relations tab for more information on our use of non-GAAP measures as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. At this time, I will now turn the call over to our CEO Mike Krimbill.

Thanks Trey. Good evening and thank you for joining us. We have several important topics to discuss with you today including the strategic direction and future of NGL. Of course this is an average week for us. We don’t expect anything different, but I would like to start addressing the Retail Propane sale transaction. The Retail Propane business is mature with very little internal growth. Its main growth is in the form of M&A which has been achieved at a 6 to 7 times multiple of EBITDA, but in limited quantity as two large propane retailers exist. Maintenance capital requirements exceed 10% of EBITDA, but the cash flows are barely steady over time a good foundation for an MLP. Propane peers have historically traded in the 8 to 11 times EBITDA range. This transaction multiple is 10.7 times 2018 actual EBITDA and 11.5 times cash flow after maintenance capital, clearly at the high end of that range. Thus we have an attractive valuation, but is there a more profitable investment opportunity. As you know, the Delaware portion of the Permian basin is being rapidly developing and is generating water to crude oil ratios of 4 to 6 barrels of water to crude. The water pipeline and disposal infrastructure will require billions of dollars to develop. This presents NGL with large capital investment opportunities at attractive rates of return. The Partnership was an early mover in this space and has the expertise required to partner with producers and capture significant market share provided it has adequate capital resources. Thus it makes sense to divest of a slow to no growth asset at a premium price and invest in a high growth asset at an attractive price. We expect that the Retail Propane EBITDA we are giving up will be replaced by…

Thanks Mike. A few additional items to note related to the sale of the Propane business. We do plan to reduce [indiscernible] proceeds from this transaction especially initially. We obviously look at our near term maturities and higher cost debt initially as well as making sure we maintain liquidity under our credit facility to fund our growth opportunities that Mike discussed. We also evaluate other balance sheet opportunities around the preferred units and be opportunistic, but the goal here is simple, we want to lower leverage and the ability to self fund any internal capital without reliance on the equity capital markets or the debt capital markets. This transaction allows us to manage near term debt maturities, liquidity and growth capital free of any debt capital limitations or need to issue equity. While we may be a smaller company, immediately after the closing of the sale of Retail Propane, as Mike mentioned we are now more focused with crude and water making up a significant part of our earnings portfolio and growing those businesses significantly. The Refined Products business will continue to be an offset to commodity prices and our Liquids business will continue to have a certain amount of seasonality in it. We expect leverage to be around 3.5 times upon the closing of the Propane sale which his almost a full term reduction from our March 31, ratio and nearly 2 turns lower than our peak leverage last September. We continue to target leverage of 3.25 or lower for our business portfolio and will be at that level or lower based on our fiscal 2019 guidance released today. With regards to deleveraging, we reduced debt significantly during the fourth quarter as well with proceeds from the Retail West DCC sale and our JV with Sawtooth being implied to…

Certainly. [Operator Instructions] And our first question comes from the line of Darren Horowitz with Raymond James. Your line is now open.

Hey guys, good afternoon. First Mike, congratulations on the sale of the remaining Retail Propane assets and also on the new strategic initiatives, my first question just with regard to the guidance Trey, as you outlined fiscal 2019 including $140 million to $150 million of Water Solutions segment acquisitions, is that built into the EBITDA guidance? And secondly, I think the prepared commentary mentioned very briefly about swinging from an initial dilutive or possibly neutral stance from a cash flow per unit perspective to future accretion, how accretive are those Water Solutions acquisitions on a per unit basis and how should we think about the return on capital for the new strategic outlook for the partnership?

Thanks Darren. So to start yes, our guidance does include those acquisitions. Those acquisitions have been negotiated and are expected to all close by the end of the first quarter. We have factored those into our guidance for this fiscal year. The remaining CapEx that we identified in the earnings release and discussed on the call has also generally been identified as well. It is organic, it’s related to the facilities of the pipelines that has all been factored into our target for this full fiscal year as well as the distribution and coverage that we discussed. As far as the returns on our Water projects, generally speaking those projects are done at four to five times. Acquisitions maybe slightly above that, but with the blended of those acquisitions into our existing infrastructure, we expect to bring those multiples down to a similar level. As far as the, per unit or DCF multiple we haven’t actually put that together. I don’t know if Mike has any color around that. But they are highly accretive projects and the key to replacing the $83 million of cash flow from Retail Propane which is what this business generated last year approximately $73 million of distributable cash flow, the key to replacing that will be the redeployment of capital into Water and Crude infrastructure going forward. Initially, we will paydown debt and we will get some benefits from the reduction in interest costs for that debt paydown, but ultimate accretion will be delivered through the redeployment of the capital.

So Darren, I would just add our, the multiple on Water in general, it will be less than five times.

Okay. So Trey, you hit on couple of things, with regard to the amount of debt that’s being paid down, can you just outline for us not just what the interest expense savings is going to be, but obviously with the Retail Propane seasonality gone and the ebbing and flowing of what that meant to the working cap facility, how much during peak heating season, how much could that working cap facility flex and what do you think that means in the eyes of the rating agencies with regard to where your debt is currently rated and going forward, how they might view the composition or the intrinsic risk profile of the company?

Right. So we’ll have a minor impact on our working capital. The primary uses of our working capital are is our Refined Products business as well as our Liquids business which we have maintained and we will still have some ebb and flow in that Liquids business as we build propane and butane through the seasons. However, Retail Propane generally speaking is not widely viewed as a credit, highly credit positive business by reducing exposure to Retail Propane that should be a benefit as well as the deleveraging in general. Overall, the agencies are looking for us to have leverage at five times or better from an all-in basis and this transaction gets us very close to that level right out of the gate. So we would expect this to be viewed as a rating positive announcement. Obviously, the key will be delivering earnings post this transaction. As far as interest savings, the key will be in how we go about reducing debt. As I mentioned on the call we have several opportunities. We will obviously look at near term maturities and the higher cost pieces of paper, but again some of that we may have to be opportunistic in evaluating how we go about paying down debt. As Mike mentioned, we will reduce our acquisition facility. So of the $900 million in proceeds when you take the $140 million to $150 million in water acquisitions, that comes off the top and the remainder would go to paydown debt and then be redeployed in the future.

Okay, that’s helpful. And then my last question just on the Water segment EBITDA guidance for this year, as the volumes grow from 900,000 barrels as you I think said is a $1.25 million by the end of fiscal 2019, does that end up being more fiscal third or fiscal fourth quarter weighted or is it more completion timing such that the remaining 10 wells of that 12-well program is linear throughout the year?

Your first thing was correct, so it is more weighted to the third and fourth quarter where April and in fact was over budget, I think we said we’re running at run rate now of about $165 million. So it will ramp up to above our guidance. So I think on the high end it will be 225, so to come to that level we end up kind of fourth quarter at a 250 run rate.

Okay, thanks Mike. I appreciate it.

Okay. Just to add to that Darren, by basin we are expecting the Delaware to be pretty linear as we add disposal facilities. We are expecting a bump second half of the year in the DJ similar to Crude as gas processing and gathering comes online, there is a significant amount of Crude oil and Water that is expected to come online out of that basin.

Thanks Trey.

Thank you. [Operator Instructions] Our next question comes from the line of Sunil Sibal with Seaport Global Securities. Your line is now open.

Yes hi, good afternoon guys and thanks for all the clarity on the call. Couple of questions from me in terms of managing the debt balance, any particular issuance that or is it just a maturity level will be your primary focus when you look at paying down debt?

So obviously as I said we will look at higher cost debt as part of this, but we do have a maturity in July of 2019 that we want to make sure we have the ability to fund at that time or the desire to take it out before that time, that is our only real near term maturity. The next tranche or the 21 which are callable, those are 6 and 7 to 8, so that's something we would obviously look at. The 23s are 7.5% coupon, so that is our highest cost of debt. So obviously we would evaluate that as well depending on obviously where that trades probably not do anything with the 25, we think that’s our longest term debt and also a pretty attractive coupon at 6, 7, 8.

Got it. Thanks for that. And then I think in your comments you mentioned something with regard to losses on the propane inventory vis-à-vis the inventory in the Conway region. Can you talk a little bit about your strategy terms of hedging of that inventory and then how does that kind of roll into your numbers on a quarterly basis?

Sure, so first we are reducing our storage capacity and the amount of volume that we are storing at Conway as well as some other areas in the midcontinent. We are being more strategic in how we’re contracting with our customers to ensure that we don't, we are not left holding product through a downturn in pricing or having that product in transit. So what happened in February was we had barrels coming out of storage in late January on railcars for 30 days through February and delivered at a much lower propane price, so we are changing our contract methodology to alleviate some of that's well. Those are the primary ways that we are looking to mitigate the impact. However, I will say that the decline, the change in price from Conway between December and mid February of $0.30 was abnormal and significant and not something that you can absolutely protect against. Mike, if you have anything to add to that?

So again, net debt, so you are adjusting your strategy, seems like in terms of managing that debt exposure right?

Correct.

Okay thanks for that, and then on the Crude Logistics side most of your logistics assets are focused in DJ basin or what are any other basins if they have any significant exposure?

So obviously the DJ is significant and our largest with Grand Mesa and we also have our Cushing assets. We do market barrels in the Permian, in the Bakken, and the Eagle Ford, as well as in the Mid-Continent, Oklahoma. So we continued to do some of that, as well as our terminals on the Gulf Coast, Oklahoma [ph] in Point Comfort. So the DJ is our largest, but we do have a presence in really all of the active basins.

Okay and then lastly, I think from a timing perspective, you – it seems like you've included one quarter of retail propane in your full year ‘19 guidance correct?

Correct, that's in our other category.

Okay. Got it thanks. That’s all I had.

Thanks Sunil.

Thank you and I'm showing no further questions, so with that I'd like to turn the conference back over to CEO, Mr. Mike Krimbill for closing remarks.

Thank you. Well thank you. We had a pretty good turnout and we appreciate it. We will continue executing and we'll talk to you in three months, well less than that probably, so we'll see you soon. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.