NGL Energy Partners ((NGL)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call of NGL Energy Partners painted a mixed landscape for the company, with strategic maneuvers aimed at asset sales and a heightened focus on the Water Solutions and Crude Oil Logistics segments. While these efforts signify a positive shift towards debt reduction and operational simplification, the financial performance remains under strain, particularly in the Liquid Logistics segment and the fallout from winding down the biodiesel business.
New Customer Deals on Grand Mesa
NGL Energy Partners announced a significant long-term deal with Prairie Operating, securing acreage dedication for water disposal services and crude oil gathering and shipping on the Grand Mesa. This partnership, along with other newly signed contracts, is expected to boost future volumes to an impressive 100,000 barrels per day, indicating a strong strategic move in the crude oil logistics sector.
Asset Sales Generating Significant Proceeds
The company has entered into agreements to divest 18 natural gas liquids terminals for approximately $95 million and 143 railcars for $12.5 million. These transactions, expected to generate around $20 million in total proceeds, are part of a broader strategy to reduce debt and streamline the asset base, demonstrating NGL Energy Partners’ commitment to strengthening its financial health.
Water Solutions Segment Performance
The Water Solutions segment showed robust performance with an increase in adjusted EBITDA to $132.7 million, up from $121.3 million the previous year. Disposal volumes rose by 12%, while operating expenses decreased, resulting in lower per barrel costs from $0.25 to $0.21. This segment’s performance underscores its pivotal role in the company’s operational focus.
Structural Changes and Debt Reduction
NGL Energy Partners’ exit from the biodiesel business has reduced its working capital needs by $30-$40 million annually. Coupled with sales in the propane business, this move aims to smooth EBITDA seasonality and significantly cut down on debt, aligning with the company’s strategic objectives.
LEX II Project Commencement
Operations for the LEX II project commenced in October and are reported to be performing as expected. This project contributes to the operational stability and is a vital component of NGL Energy Partners’ future growth strategy.
Decline in Consolidated Adjusted EBITDA
The third quarter saw a decline in consolidated adjusted EBITDA, falling to $147.7 million from $151.7 million in the previous year. This decrease was chiefly attributed to a $12.1 million negative impact from the winding down of the biodiesel business, highlighting the financial challenges faced during this transition.
Challenges in Liquid Logistics Segment
The Liquid Logistics segment experienced a sharp drop in adjusted EBITDA, down to $8.2 million from $26.3 million the previous year, primarily due to the wind-down of biodiesel operations. However, excluding biodiesel, the remaining businesses generated $20.3 million, reflecting the segment’s resilience amidst challenges.
Grand Mesa Volume Decline
Fiscal volumes for Grand Mesa crude oil logistics declined to 61,000 barrels per day, from 70,000 barrels per day in the prior year. Despite this decline, the company is optimistic about future volume growth due to new customer deals and strategic initiatives.
Biodiesel Business Financial Impact
The biodiesel marketing business posed significant financial challenges, generating a negative adjusted EBITDA of $10.3 million year-to-date, with a substantial $12.1 million hit in the third quarter alone. This impact underscores the financial difficulties encountered during the business’s wind-down phase.
Forward-Looking Guidance
Looking ahead, NGL Energy Partners has outlined several strategic plans, projecting Grand Mesa pipeline volumes to reach 100,000 barrels per day. The sale of 18 natural gas liquids terminals is anticipated to close by March 31, reducing annual working capital needs significantly. Despite the challenges from the biodiesel segment, the company expects an adjusted EBITDA of $620 million for the full year, reflecting a cautious yet optimistic outlook.
In conclusion, the earnings call highlighted both opportunities and challenges for NGL Energy Partners. While strategic asset sales and new customer deals on the Grand Mesa signal promising growth, the financial strain from the biodiesel business and Liquid Logistics segment presents hurdles to overcome. The company’s proactive measures to reduce debt and streamline operations are commendable steps towards future stability and growth.
