Ladies and gentlemen, thank you for standing by, and welcome to the Q4 Fiscal Year 2020 NGL Energy Partners LP Earnings Conference call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would like to hand the conference over to your host CFO, Trey Karlovich. Sir, you may begin.

Great. Thank you and welcome, everybody. 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 of crude oil, natural gas liquids, gasoline, diesel, and biodiesel, volume of crude oil, natural gas and natural gas liquids production, level of demand and the availability to supply for crude oil and natural gas liquids, gasoline, diesel, and biodiesel, the level of crude oil and natural gas drilling and production in areas where we have operations, effective market and weather conditions on supply and demand for crude oil natural gas liquids, gasoline, diesel and biodiesel, and changes in generation economic conditions including market and macroeconomic disruptions resulting from the novel strain of coronavirus pandemic and related governmental responses. Other factors that could impact these forward-looking statements are described in risk factors in the partnership's recently filed annual report on Form 10-K and other public finlings 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. I’ll now turn the call over to our CEO, Mr. Mike Krimbill. Mike?

Thank you, Trey. Good evening and welcome to the NGL earnings call for fiscal 2020 and what we see ahead in 2021. In addition to Trey and myself, we have our Executive VPs of Crude Oil Logistics, Mr. Don Robinson; NGL Logistics Mr. Jeff Pinter; and Water Solutions, Mr. Doug White who will be available to answer your questions. We are here to report strong fourth quarter and record fiscal year 2020 adjusted EBITDA results from continuing operations of 590 million. On a GAAP basis we reported a net loss due to non-cash impairments that Trey will address. Our transition away from Retail Propane, Refined Products, and certain shale oil basins to those that are the most economic is complete, and we are now performing very well on a combined basis in the three segments we are focused on for the future. To recap 2020 results before turning to the new fiscal year; one, Crude Oil Logistics performed at the high end our of previously announced range; two, NGL Logistics significantly exceeded our expectations in both the butane blending and wholesale propane business components, greatly exceeding the high-end of the range. Water Solutions came in at the low end of expectations due to delayed activity by producers, i.e. lower volumes, and higher costs in several categories including comp [ph], generator, diesel, and repair and maintenance. These costs have been addressed and will be discussed in a few minutes. We averaged 1.7 million barrels per day in the fourth quarter with a high of 1.9 million barrels a day in March. The Delaware represented nearly 80% of the averages. Based on crude prices at the time, the volume trend was increasing and we were on pace to exceed 2 million barrels per day. Our water infrastructure is substantially complete as reflected…

Great. Thanks Mike. The highlights of the quarter from a financial perspective, some of which Mike mentioned include our Crude Logistics segment coming in at the high-end of our guidance range with another quarter of consistent performance, another great quarter from our liquids and refined segment, which exceeded our high-end of guidance by 22 million. Water Volumes continue to grow, particularly in the Delaware basin. All of these items contributed to adjusted EBITDA from continuing operations of approximately 162 million for the quarter and 590 million for the full fiscal year, both at the high-end of our guidance range. As a result, our total leverage at 331, as Mike mentioned, was 4.86x as calculated under our credit facility better than our 5x guide given last quarter. Based on our guidance expectations, leverage should be in the high 4x to low 4x area this upcoming year. We were able to reduce working capital by an additional 97 million this quarter driven by the completion of the gas blending sale, lower inventory volumes, and lower commodity prices. Working capital borrowings have come down 546 million over the past year with our disposal of the TPSL Mid-Con Gas Blending businesses. Following year-end and the closing of the Gas Blending sale, we amended our credit facility to allow for a reallocation of the working capital facility to 350 million and the expansion facility to 1.565 billion. The overall size of our facility remains 1.9 billion, and our liquidity at [3/31/2020] was approximately 400 million. We appreciate the continued support of our bank group. As Mike mentioned, we also actively repurchased some of our bonds in the open market since March 31, utilizing approximately 25 million to repurchase 49 million of phase value for a net 24 million reduction in debt. We will continue to…

Thank you. [Operator Instructions] Our first question comes from a line of Pearce Hammond of Simmons Energy. Your line is open.

Yeah, thank you for taking my questions and really helpful disclosure regarding the produced water volumes you've provided for April, through March, for April and then for May, and May likely the bottom point. And then do you expect it to kind of get back up to that trend line of about 1.9 million barrels a day, and then is Poker Lake still coming online do you think mid-part of this year?

Doug?

Hi, Pearce. As far as volumes go, it will be obviously driven by the commodity price. We're seeing a lot of the wells that were shut-in in May, late April and May, come back online today and going forward through this month. So, the trend is up. You know, we'll leave it open to you know what may happen in the future with commodity price to see what happens there, but our expectation is what we're receiving back from our customers is, you know, they're ready to begin completions and turn production back up in the coming months. Poker Lake is still on schedule with what we had released publicly in prior discussions.

Okay. Thank you, Doug. And then a follow-up for you is, are you in good shape on SWD wells or do you need to permit more? And if so, what does permitting activity look like right now?

For NGLs portfolio, I believe we have about 100 approved permits in place. Many of those – most of them are in the Delaware. So, we have a great inventory to grow. Permitting activity has slowed earlier this spring, but even – maybe everybody was looking for something to do in May, and we've seen activity actually pick up across all companies preparing for the upturn.

Okay. And then, Mike, my final question is, just based upon your experience in the midstream sector and given the big change that's happened with COVID and then the Saudi-Russian market share war and likely production growth may not be as robust as what people thought a few months ago, how do you think the midstream sector looks in a few years' time? Do you think there is more M&A ahead, consolidation, that sort of thing? Just love to get your thoughts on the road map ahead.

Sure. I think the first part of the question was, in a couple of years, so we're watching the strips – crude price strips here for 2021 and 2022, and I think December 2021 is up to 39. Current month I believes, it is 35.60-ish, but in December of 2022, it's over 40. I think it's 41-ish. So, the basins we're in we believe that $40 is maybe the new price that gets rigs back to work because of the fall in the oil field service costs. So we do think we've probably got a one-year delay in where we thought we were going to be. And Doug, you can chime in on that, but we do think we're going to be back. The Poker Lake water under the contract was going to come in October. We're hopeful it comes earlier. We're ready for it. That's why we completed the 30-inch in advance of October. The M&A and I'll even include in there kind of go-private. I think the biggest impediment to that is all this debt trading at a discount. So, if you buy something or merge with someone, it's a change of control event. All of a sudden, either the holders can get out of their investment, and you've got to find other sources of capital or you've taken on 1 billion of – an example, 1 billion of debt that was trading at 500 million. So, I think those kinds of transactions are going to be difficult certainly in the near term.

Well, thank you. That's very helpful color. I appreciate it.

Thank you. [Operator Instructions] Our next question comes from James S. Johnson, Investor. Your line is open.

Thank you very much. I had a couple of quick questions. I'll try to put them all together here. First of all, are there plans to get dividends back up? And if so, what will it take to do so and how long do you estimate for that to happen?

I'm writing your questions down here quickly. Okay. First of all, obviously, we're disappointed to be here at $0.80 on an annual basis. As you know, management owns a lot of common units as well. I think getting through this, we're just – getting to the other side where we can start increasing the distribution, which obviously the Board has to approve, but I think we need to see the Water volumes increasing as we expect. We need to hit our numbers. Leverage needs to be reduced, to Trey's point. We've got our common unit coverage ratio where it needs to be already to raise the distribution. I think with just leverage and getting to the other side of this downturn – frankly, the downturn has happened much faster than anybody thought – or maybe, I should say the recovery. No one ever dreamed we'd be negative prices and now here we are almost $40 within a month. So, it's amazing how quickly it has reversed, and we've had a little benefit having our [fiscal] year end. The other guys that had quarterly calls were having their calls in early May when things looked pretty bleak, and it's a totally different landscape today.

Okay. So, do we expect something like this to happen this year?

I would – I've got to leave it up to the Board. We would love to see it as soon as possible, but again, we got to see the decrease in leverage, and we've got to get through several quarters of increasing water volumes.

Okay. With interest rates going down, it seems like, and even possibly to a negative number in the future, depending on the economy how it ramps up, that should help to get about lower leverage and higher dividends, correct?

Yeah, it definitely will help lower the leverage, the less the interest we pay. We're dreaming of the day when people pay us to borrow money. I don't think it's going to happen.

Okay. Well, thank you very much for your answers.

Thank you.

Thank you. Our next question comes from the line of Shneur Gershuni of UBS. Your question please.

Hi, everyone. I guess, good afternoon or good evening, I guess at this point. I did miss some of your prepared remarks, but I was just wondering if we can go through a couple of things. I assume that you've definitely benefited from the crude storage environment during the quarter and so forth, but the contango has since compressed quite a bit. Did you lock in all of your open storage? If I remember correctly, it's 1 million to 2 million barrels worth of storage for a year, or were you rolling it from a month-to-month basis? Trying to understand kind of how we should think about the storage on a go-forward basis.

Don?

Yes, we rolled in – we basically locked in basically May-June, June-July, and a little bit of August to September, but we did not lock in a year. We basically stayed in the short-term as far as locking into contango, but we were able to capture some really good numbers for especially the first couple of months of that. And then we – as we said, we locked in a little bit in the outer months through September and that was what we ended up doing.

Okay. I mean, is the general strategy to roll a couple of months at a time or is the idea to try and look for an opportunity to lock a full year and so forth?

Yeah, the numbers really never spread out wide enough as far as what we thought would – a number we would do for a year. So, we were looking at one month and two months as far as what we – and obviously it went away quickly. There's still contango there. It's running about $0.35 to $0.40 in July August number and about the same for August-September. So, we're looking at those numbers today to lock in some of that. So, it just won't be the numbers that we were able to achieve in those early months, but yes if it – and historically, when you got out past $2, that was really, really good numbers, and obviously, the numbers were in the $6 and $7 numbers at one time and even higher, but we did get a lot of that achieved in the early months, but we have not done anything other than through basically September.

Shneur, I will add to that. Shneur, would just add to that – with the way – and I'll speak for Trey a little bit here. We look at it – contango is $0.15 or $0.20. It doesn't make sense to borrow the money and deep up the debt because that barely covers your interest cost. So, we do watch and make sure that it makes sense to have that working capital on the book.

Okay that makes sense. Actually that's kind of a good transition to my next set of questions. With respect to working capital, just given the fact that, I guess, crude is back up, but obviously down from where we started, same with everything else. How much should we be thinking about as your true working capital improvement in crude then on a year-on-year basis for 2020 versus 2019, just sort of given where the commodity prices are now?

Sure, Shenur. So we ended 3/31 at $350 million of working capital outstanding. That included some lower inventory values. We exited the winter season. So, propane was at a low volume perspective. We did still have quite a bit of receivables that were based on higher prices. So, as we roll forward with the contango play, working capital increased slightly into the first quarter. We will also start to build for butane and propane season a little bit, but we are seeing lower prices and lower AR just based on what those commodity prices are and the timing of collections of receivables. I think the $350 million is a reasonable estimate, based on where commodity prices are today and how we're operating the business. We do have some levers to pull where we could reduce that if we needed to, and take some inventory off the balance sheet, so to speak. I don't see it going much higher than that. Again, that's something that – leverage is something that we're trying to manage very closely. So, I think that $350 million number, in total, is reasonable.

That makes sense.

And again that's also in line with where we adjusted the working capital facility to and we did that in April.

Okay, got it. Alright. So, the way to think about the change in the facility is that you sort of made your assumptions for the year as to kind of what you needed essentially?

Yeah.

Okay. I was wondering if you can recap because I didn't catch it all. How much debt did you actually buy back in the previous quarter and how much have you bought back since the quarter ended?

Minimal as of March 31, most of our repurchases were in April and early May. We bought back $49 million face for about $25 million in cash costs.

Was last quarter $1.8 million?

Yeah, about $1.8 million and it was repurchased in March for about $400,000.

Okay. And can I assume that this is a strategy given that your debt's trading in the [70s] right now, that business strategy that you're continuing to pursue as free cash is generated.

Sure. We've done this in the past, Shneur. It's not something that's new to us. We balance both leverage and liquidity. Important thing to point out with our notes, they are not very liquid. There is not a significant number of available notes out there. We actually size – we were buying notes if the price of the notes was moving up. So, it's something that we'll continue to evaluate from a strategic perspective and may continue to do, especially as they trade at a discount, like we've done in the past.

Okay.

Shneur, I'd just comment. You've heard me say that the screen is fake news and the screen doesn't tell you how much depth there is in the market. So, we would – we view it as really helping out our investors. We're the perfect the issuer of debt because we issue it at a fair price and we buy it back whenever they have a need for cash.

Right. Okay. That makes sense. I mean have you thought about a strategy of, let's say, putting a tender out for a certain amount, let's say, at [75] or a couple of points higher and seeing if you can create some liquidity that way?

We've thought about a lot of different balance sheet strategies, Shneur, but we're not executed on that at this time.

Okay, fair enough. And then, with respect to guidance by segment, is that something that you're willing to provide this year or you are going to keep it at kind of the more of the higher level?

We can...

Go ahead.

Shneur, we look at what happened last year, we look at what our other midstream peers have done and this year, there seems to be a number of us that are not providing segment guidance because it's so volatile. We're not – you don't know where you are. What happened last year as you know, we were at and over the high end of the range on two and low on one, we're at the low end, but we ended up in the high end of our total range. So, it's two things. Trey can add too as well as there is just uncertainty, but we feel good about the combination of the three. We're very happy with the diversity of our assets, but then the other problem is, when you give segments, if we exceed two out of three, we think that's great. Well, the market picks on the one that didn't and starts criticizing us because we were low on one segment even though we beat on two.

Yeah. And just to add to that, Shneur, I mean even three weeks, four weeks ago, if we had given segment guidance, Crude would probably be higher than where we think it will be now based on contango and Water would have been lower than where we think it is now based off the volumes we're seeing coming back. So, with the market dynamics moving so quickly right now, we felt like it was prudent not to give specific guidance. Now, what we have given and we will continue to give are what impacts the different businesses. We provided a lot of information in the past and we simplified the business to a point that it should be much easier to model. I think with Water volume as the driver, Crude Grand Mesa is still going to be a large – or the largest piece of it, contango is not that difficult to model as we've given our thoughts around how much storage will utilize. And Liquids, Liquids over time has a fairly consistent trend on volume and margin and that information is all available to help you model as well.

Cool. Just figured I would ask, right.

Yeah. [Doesn't hurt].

Yep. Doesn't right. You won't get anything with it, if you don't ask. Appreciate all the color, guys. I think that pretty much exhausts the questions I had. So, thank you very much and have a good evening.

Thanks, Shneur.

Thanks, Shneur.

Thank you. Our next question comes from James Spicer of TD Securities. Your line is open.

Hey guys, good afternoon. I just had a couple of follow-ups. First of all on the Liquids side, obviously, that's been a very strong segment for you over the past couple of quarters. Your Q4 EBITDA was about $22 million higher than guidance, was that all just incremental volumes or with some of that margin and I'm just trying to think about going forward as some of the natural gasoline-related butane volumes are probably going to be a little bit lower. Are we going to be trending back toward sort of the – your more historical levels there or with propane expected to be higher, should we be thinking about a run rate closer to where we were in the third and fourth quarter?

Good evening, James. It's Jeff Pinter. To answer your first question, yes, it was a combination of strong volume and margins for the quarter and forecasting going forward, we're entering our slower season here. So our fiscal 1Q, 2Q are generally lower demand. That's kind of our build season. And we see a ramp up into 3Q, 4Q. Forecasting into this year is a little more difficult, as Mike mentioned earlier in the call with gasoline demand going into the fall, but we are studying that carefully and kind of preparing in constant contact with our customers to supply their needs.

Okay, great, that's helpful. And then secondly, just wondering one of your major shippers on Grand Mesa extraction has been struggling a little bit. Just wondering if you're anticipating – you're hearing anything in terms of potential contract renegotiations or anything of that nature?

Well, obviously, we all know the same public information. Really, all we can tell you is, they are a good customer and we're both performing for each other and they are meeting all their obligations and so are we. So, that's a nice [indiscernible] really tells you nothing, but I'd tell you something if I could.

Okay. Understand. That's all I have. Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Selman Akyol of Stifel. Your line is open.

Thank you. Good afternoon. Just a couple of follow-ups from your prepared comments you talked about volumes bottoming in May and then it was going to be driven by shut-in production coming back online in completions as well. Can you talk about where you see completions coming back at sort of what price level and then the other – I think you also mentioned was drilling sort of at the $40 level given the reduced oilfield services costs. I'm just wondering if your customers are asking or receiving any concessions from you. Thank you.

Thanks. This is Doug.

Doug?

Yes, sir. In the Delaware, we are already beginning to see some completions activity. It's interesting you think during these price levels that everyone just drills DUCs if they're drilling at all and doesn't complete anything. We do have customers that are actually drilling and completing. They've not released their completions crews whether that be by contract that they don't want to turn away and pay for or just that's their philosophy because they believe this is a short-term issue. So, we are seeing completions continue obviously at a much decreased rate, but in the Delaware anywhere between $35 and $40, we are going to see continued completions and that's the feedback we're receiving from our customers. They are not just looking at June. They're looking for – as you know, it's a longer planning horizon for this – for what we do, drilling and completions. We're getting a lot of positive feedback on activity picking up this summer. And then, as far as price concessions go, as you know, we are very heavily contracted for a long-term, but of course we do have interruptible agreements and we do have spot rates and we have worked with customers directly, especially to keep wells from being shut in if Water LOE is of a magnitude of which will help them keep a well on. So, we've been very flexible to help our customers. Some requested, some we've reached out to help, but like I said, those are really concessions on non-contracted services.

Alright, thank you.

Thank you. Our next question comes from John Crawford of Tranquility Partners. Your question please.

Hi, gentlemen. I've got two pieces. First of all, you indicated that your goal is to decrease leverage. Have you actually expressed or articulated a target leverage that you're seeking to get to?

Yeah, John. Our target leverage has been 4x at the total leverage metric. That's been our target here for a while and that remains consistent. So, we're 4.86x as of 3/31, 4x is our target.

Okay. And how do you think about the Class D preferreds in terms of leverage? They are categorized above equity. So, they kind of seem to be a bit of a hybrid security. Do you think about that leverage or not?

That is not included in our leverage metric. It is not included from a covenant perspective, either. That is a mezzanine instrument as from a GAAP accounting perspective, but we really view that as an equity instrument.

Yeah, equity or potential equity.

Yeah.

Last question and I apologize for the battery, but it was an unusual adjustment. I haven't had a chance to get through all the [F pages] and I apologize if this is explained, but you incurred some lower of cost to market adjustments to the downside, probably because of dislocations in commodity prices. Is that just a temporary blip and would you expect that – if there are underlying commodities, they would flip back the other way in what appears to be a better environment for sale of those products?

Sure, it's really timing related, and we have hedges in place that offset that in the future period. So, from a GAAP LCM perspective, we did reduce the cost of inventory, but we do expect to see a – from again, a GAAP perspective, you'll recognize that the profit in the following period.

So, Okay, let me peel that back a little bit. So, what you're saying is even though you have those future sales hedged that you are required to mark-to-market?

That's correct. That was in our – mostly in our crude business.

That seems odd. If you've got it sold forward, then why would you have to mark down what you own?

It's the hedge. So, the hedge has the realized gain to offset it.

So, the realized gain up above is really...

It's an unrealized gain that should offset it.

Okay, but that's already recorded, the unrealized gains on the books. I get it. Alright. Thank you for your time. Appreciate it.

Alright. Good questions.

Thank you. At this time, I'd like to turn the call back over to Mike Krimbill for closing remarks. Sir?

Yeah. Everyone thank you for your attention. If anyone's left, we'll talk to you shortly at the end of the first quarter. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.