NGL Energy Partners LP (NGL) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q1 2013 NGL Energy Partners LP earnings conference call. My name is Ian. I'll be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions)

As a reminder, the call is being recorded for replay purposes. Now I'd like to turn the call over to Mr. Mike Krimbill, he is the Chief Executive Officer. Please proceed, sir.

Thank you, and welcome to our call. I'll read our typical here paragraph.

This conference call will include forward-looking statements and information, 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 the prices and market demand for propane, the effect of weather conditions on demand for oil, natural gas and propane, and the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results, and to successfully integrate acquired assets and businesses. Other factors that could impact any forward-looking statements are described in risk factors in the Partnership's annual report on Form 10-K, quarterly report 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. Please also see the Partnership's website at www.NGLEnergyPartners.com under Investor Relations for reconciliation of the differences between any non-GAAP measures discussed on this call and the most directly comparable GAAP financial measures.

Okay. Let's get started. As you know, on our press release we reported a net loss of $24.7 million, and an adjusted EBITDA loss of $6.5 million for the three months ended June 30, 2012. In the press release we indicated some items that impacted the loss and that also will impact the adjusted EBITDA loss, so I thought we could go through those so that we're all on the same page. In the calculation of adjusted EBITDA reconciliation, the typical things were added back such as interest expense, depreciation and amortization, unrealized gain on derivative contracts. We also had as a result of the High Sierra merger and the new credit facility, we had to expense or write off the previously capitalized cost facility with our prior credit agreement. And that was the $5.769 million. So those items ended up with about a $6.5 million negative adjusted EBITDA.

In addition, we had G&A costs of $3.5 million related to the merger which were investment banking fees, legal fees, and some accounting fees that would reduce that loss to a $2.7 million. If you looked at those as one-time charges. And then we had a third item we referred to here that has to do with the pricing of our wholesale sales. And the way the accounting works is we have locations where we have the average inventory cost, for instance the individual retail districts, also at some of the storage hubs. So at one of the storage hubs we store the fixed price presales that we'll deliver during the winter months. And those were purchased earlier in the quarter, as well as throughout the quarter, but at higher prices than the rateable barrels we get each day that we use to match with the sales on the common carrier pipelines and to the extent they're not all sold, which is the case in the summertime, they are sold off into the market usually at breakeven or a small margin.

Unfortunately, the cost of the inventory, the weighted average cost, is a combination of the presale gallons at higher prices and the rateable barrels at a much lower price because as the quarter went along, prices fell dramatically. So what all that means is our rateable barrels which we purchased for as little as $0.55 a gallon towards the end of the quarter were priced at the average weighted cost of inventory at the storage hub, which was a little more than $0.25 higher than our actual cost. Of those rateable barrels. So all that said, the bottom line is, we had an additional hit to our cost of sales of approximately $8 million, so that for the quarter if we had not had to use the weighted average cost and we had used the actual cost of those barrels that we sold, our adjusted EBITDA would have been approximately a positive $5.5 million. So long-winded answer or explanation, perhaps.

In addition, we were very pleased to complete the merger with High Sierra and add additional -- an additional NGL logistics business, crude oil logistics and water services business. We also closed on several, I guess three, additional retail propane and distillate businesses, and we refer to those in Georgia, Kansas, Maine and New Hampshire. So with that, why don't we open it up for questions.

Ladies and gentlemen, your question-and-answer session will now begin.

(Operator Instructions)

Ethan Bellamy, Baird.

Mike, you've had some time now to get away from all the mania around the merger with High Sierra. I'm just curious what your kind of pro forma expectations are for M&A possibilities and organic growth, just in terms of total magnitude.

We haven't indicated any numbers but we're very pleased, everything that we had anticipated with High Sierra has materialized and actually been better. The management team there is excellent and the operations are being integrated quickly. As you know, we had some synergies in the NGL logistics side and the overhead side which we're already realizing. In terms of the -- we'll say the acquisitions, as we always are, so it's probably not anything new, we're always working on additional opportunities. We are focused more on the water and the crude oil logistic side of the business, taking advantage of those opportunities in the new shale plays. We also have some additional internal growth projects. On our side, we've been expanding some of our terminals, increasing the most volume and the different NGLs that we can put through those terminals. On the water services side, we're drilling some additional disposal wells at current locations to increase capacity. So plenty to do.

Are you done on the retail propane side for now?

You know, I don't think we'll ever say done. It's always going to make sense for us to acquire smaller businesses in our footprint where we can get some synergies for blend-ins, where we can blend them right into a current district or region. So I'd expect that -- we're looking on the West Coast to get more balance between east and west. As you know, we're predominantly in the northeast which we love but it's always good to get some on the west. The weather can be different on the coast. So limited there, let's say, and I don't see us branching out into any real new areas. Similar on the wholesale supply terminal side, NGL logistics, you're somewhat limited by the number of rail cars you have and the number of terminals. You can try to increase through-put. The big opportunities we think are on the crude oil logistics and the water side.

Okay. And then stepping back to one of the prior big deals, are the synergies you expected in terms of magnitude and timing online for the SemStream deal.

SemStream. You know, on the expense side we didn't really have any great synergies. On the -- we'll call it the terminal and storage side, because as you know we -- not only did we merge their terminals. I think there were 12, 12 or --

12.

Yes, 12. We also stepped in their shoes on some underground storage and that storage has turned out to be very favorable this year because the spreads between the current month and the fourth and first quarter this calendar and first quarter next year have expanded quite a bit. So we're able to fill that storage up and lock in some nice margins that will be recognized in the -- what would be our third and fourth quarters, but fourth calendar and first calendar of next year. So we're very pleased with that transaction and no one will be disappointed with the results.

Okay. And then last question, I asked Norm this but I figured I'd give a chance to comment as well, any partnerships with Sem Group going forward, any thoughts for maybe JVs or anything like that.

Do I get the benefit of Norm's answer or not.

He played his cards pretty close to the vest.

You know, at the moment we don't have any transactions teed up, but we have talked before about finding something that would make sense for both of us to be partners, and certainly from a combined kind of capital perspective, it would make sense if we had a large deal to see if they'd like to participate. So we are very open to it and just wait and see what -- see if something materializes.

Fair enough. Thank you.

Would you like to take the next question?

Yes.

T.J. Schultz, RBC Capital Markets.

Thanks, good afternoon, guys. I guess, Mike, in the latest presentation that you guys posted you have some expectation for growth or acquisition CapEx over the next couple years to be invested I guess around five times EBITDA. If you could just kind of generally comment on what the opportunities are that you see that give you some comfort level to expect this type of multiple. I know you're focused on water and crude. Is it something where -- or how would you characterize your ability to grow into new basins. Is it smaller mom and pops or is it kind of build and grow strategy, maybe.

You're right, it's more the latter. Part of the reason that we believe we don't have real high multiple deals I guess is that we tried not to participate in auctions. We just try to find folks that want to be part of our Company and MLP and like the way that we treat them, and so we think five is a decent, fair multiple. It's a combination of acquisitions and internal growth. The internal growth stuff is going to be more at 2 to 4. As such, we're not out there bidding on packages with 30 other companies, which means really we're going to be dealing with the moms and pops and probably the smaller asset packages and then building our own infrastructure. So we feel good about that. We still are comfortable with the five multiple and several hundred million in dollars in deals each year.

Okay. On the crude logistics business, I guess your expectation would be kind of for growth there, expansions of rail and barge operations. What's kind of the expectation there for increasing capacity near term? Is that a focus really right now over the next 6 to 12 months?

Yes. It would be gathering, and you're right, rail and barging opportunities, so yes, we're working on a number of projects to increase our ability to rail out of the shale plays and either directly to the customer, down to the Gulf Coast or to a port where we were able to barge. But that's definitely a focus and where some of the internal growth projects will be.

Okay. Go ahead.

I was going to say water is similar. You can probably talk to the -- I don't know if they're really mom and pops as much as folks who have an asset base but they may only have one to five wells and they're ready to get some liquidity. And then we just get a foothold in the Marcellus or the Bakken and other basins and then grow from there.

Okay. Thanks. I guess just a kind of modeling question. On G&A, even backing out the $3.5 million, the run rate was a little higher than I guess I would have expected. Do you have any guidance for what we should view as an appropriate run rate for G&A?

Yes, we had used budget internally was about $5 million for the year, just on the NGL side. So combined -- so you divide that by 12 and you kind of get this quarter compared to this quarter. And then going forward, the combined without any significant -- well, really without any synergies we were at $23 million of overhead. But we'll have -- we have synergies that we've already captured going forward.

Okay. Great. Thanks, Mike.

Suzanne Hannigan, Janney Montgomery Scott.

Hi, everyone. Just a quick question on High Sierra. I know you're only showing revenues and costs for a few days of the quarter but the cost of sales are a fair amount above revenues and just wondering if that's a timing issue or something to do with the merger.

That was an unrealized loss.

Okay.

Of about I believe it was $10.1 million I think is what we had in the Q. You back that off of your cost of sales.

Okay.

So we should have ended up with EBITDA there of around $2 million.

Great.

Thank you. No further questions just at the moment.

(Operator Instructions)

There are no further questions.

Okay. Thank you very much.

Thank you for your participation in today's conversation, gentlemen. That concludes your presentation and you may now disconnect. Good day.