NGL Energy Partners LP (NGL) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2014 NGL Energy Partners LP earnings conference call. My name is Whitney and I'll be your Operator for today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Mike Krimbill, CEO of NGL Energy Partners. Please proceed.

Thank you. Welcome to the call. I would like to read my usual opening 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 natural gas, liquids and crude oil, level of production of crude oil and natural gas, the effect of weather conditions on demand for oil, natural gas, natural gas liquids, and the ability to successfully identify and consummate strategic acquisitions of 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 Partnerships' annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases. NGL Energy Partners LP 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 Partnerships' website at www.nglenergypartners.com under investor relations for a reconciliation of the differences between any non-GAAP measures discussed on this conference call and the most directly comparable GAAP financial measures. Thank you.

Today, we've got several Execs on the phone, Atanas Atanasov is with us, as well as several of our Operating Execs, David Kehoe, Jim Burke, and Jim Winter. So with that why don't we get started with our prepared comments, then we can get to questions as quickly as possible.

Thank you, Mike, good afternoon, everyone. Our adjusted EBITDA for the current quarter, for the quarter ended December 31, 2013 is $85 million which excludes one-time acquisition costs of about approximately $5 million. This compares to an EBITDA of $74 million for the same period last fiscal year which represents an increase of 15% year over year.

Our guidance for the quarter was $89 million, so we're approximately $4 million lower. NGL reported net income for the quarter ended 12/31/2013 of $24.1 million compared to net income of $40.5 million for the same period last year. The primary driver for the difference in net income is attributable to approximately $16 million to $17 million of additional depreciation and amortization attributable to the acquisitions we completed during the fiscal year.

We started FY14 with EBITDA guidance in the range of $230 million to $235 million. Upon closing two acquisitions in early July, one in Crude Logistics and the other in Water Solutions, we increased our guidance by $10 million to $240 million, $245 million. And after completing our Water acquisition in the Eagle Ford in early August, we increased our guidance to $255 million, $260 million EBITDA.

During last quarters' earnings call we indicated that we're targeting to finish FY14 in the range of $260 million to $270 million of EBITDA. Given the lower than expected results in our Crude Logistics segment this past quarter, we're targeting to end the FY14 in the range of $255 million to $260 million.

At the beginning of the fiscal year, we indicated that our expectation with respect to maintenance CapEx was around $22 million. Later in the fiscal year we increased that number to the range of $25 million to $28 million in view of the acquisitions that we completed during the summer months. And now we believe that we'll be closer to $29 million for FY14.

During the fourth quarter of FY14, we expect to generate EBITDA in the range of $100 million to $105 million, so this is our guidance for the quarter ended 3/31/2014. $15 million of which would be attributable to the Gavilon acquisition, this would put our EBITDA for FY14 in the range of $255 million to $260 million. And so within that number, $20 million would be attributable to Gavilon, which puts our legacy business down $20 million versus public guidance.

We expect to generate approximately $173 million to $178 million of distributable cash flow, which based on interest expense of $53 million and maintenance CapEx of $29 million. As most of you are aware, in October we launched our first high yield notes offering raising $450 million. In November, we upsized our credit facility from $1 billion to $1.7 billion while significantly reducing interest expense and extending the maturity through the end of 2018. In December, we sold $240 million of common units in a private placement used to pre-fund the Gavilon transaction.

And on December 2, we closed the acquisition of Gavilon Energy for $890 million which brings us to our guidance for FY15. So for FY15 we expect to generate EBITDA in the range of $425 million to $430 million and that's exclusive of any future internal growth. So within that number of $425 million to $430 million, approximately 121 -- $120 million of that would be attributable to Gavilon Energy.

We expect maintenance CapEx and interest expense to be $38 million and $72 million respectively and generate discounted cash flows in the range of -- distributable cash flows in the range of $315 million to $320 million. So we expect to maintain distribution growth of 15% over the next four quarters. Our previous guidance for those four quarters was 10%, so increasing our distribution guidance while maintaining distribution coverage of approximately 1.5 times. So very healthy and robust distribution coverage. And with this I'll hand it off to Mike.

Thanks, Atanas. For -- on the CapEx side for 2015, which obviously starts April 1, 2014, due to the businesses we've purchased and merged with, we obviously are going to have more and more internal growth projects come about. So for 2015, we're looking at $300 million of internal growth and that's really across all of our segments, all our businesses.

And then for acquisition CapEx, it's I hate to use history because then those numbers get too big, but assume $200 million to $300 million, so we'd probably -- we expect to be pretty comfortably in the $500 million to $600 million range, again for FY15. So with that, why don't we open it up for questions.

(Operator Instructions)

Shneur Gershuni, UBS.

Wanted to ask two questions, if you don't mind. I wanted to start with the Crude Oil Logistics business. I was wondering if you can expand on the process for the evergreening of historical contracts, spreads have moved around a lot since you last reported.

How should we think about the lagged impact as we see spreads move as to when it'll actually manifest itself in the earnings? Is it something that shows up in this upcoming quarter or is it the next quarter, and so forth? I was wondering if you can expand on that a little bit?

Definitely, and David Kehoe who runs Crude is on the line, so he can give you some good answers. Go ahead, David.

I wish I could give you a one size fits all answer and I can't in this particular instance. It's considerable lag. Theoretically a 30-day evergreen you have to live with 60 days and then you've renegotiated. When you're dealing more with railcars, long movements across different basins as we were with this last spread, there's a longer time frame associated with it and it gets pretty lumpy.

So we saw certainly a very drawn out case this time and the full brunt of it in the third quarter and it was aggravated with the fact that the competitors in the rail space certainly was very competitive, let's put it that way. In a normalized market, I would say that your lag time is 120 days, but certainly this time it extended out closer to 180.

Okay, and as a follow-up question, we've had exceptionally cold winter, we've seen a massive spike in propane prices and so forth. I was wondering if you can comment on how you think margins in the propane business is going to be impacted for the upcoming quarter. And also whether you can all plan on whether it's should result in another better than typical quarter for the NGL Logistics business as a result as well?

On the -- this is Mike, on the Retail side, what happens with some of these prices in the wet barrel market towards the end of January were $2.50, $3 a barrel and then that's at the hub, you add to it and all of a sudden you've got a $4 price for the customer. And so we on the one hand scenario, you say okay well what's the customer going to do, who's it going to go to?

No one else, or the people have a limited amount of propane. But the reality is we probably imposed some margin pressure on ourselves so we don't lose the customer next summer and we're fair to the customers. We don't want to turn a cold winter into a large bad debt expense in the summer. And so we work with the customers to get on a budget pay and make sure that they can get their head above water.

So there's -- we're happy to hit our margins and we think we'll be on target for hitting our margins. And so the upside which we expect is on the volume side.

And then in this cold weather what you try to do is not have to short fill customers and we have been able to continue delivering the most cost efficient delivery amount which allows you to maintain your margins and not see them degraded because of your -- not so much your competitors lowering price but your own expenses exceeding what you normally would do.

So if I answer Retail is probably on for margins and over on volumes. The industry as a whole I don't expect that.

On the NGL liquids side, as what happens is you go into the winter with your lower costs from your summer purchases and then when you get into a market like January, we're getting ratable barrels every day. So at the end of January we're having to take ratable barrels at cost of $2 to $3, so our average -- our [weigh] COG as we call it, but our weighted average cost will be higher going into February. So what all that says is we harvest some of that NGL liquids EBITDA early which we did in October, November, December. And then January, February, March, and particularly in January with these higher costs, we will probably give back some of that and we factored that into the numbers that we've given you for the year.

Great, thank you very much.

Gabe Moreen, Banc of America.

Questions in terms of the $300 million CapEx program laid out. I was wondering if you can go a little more detail in terms of which projects and which segments you're going to be spending that money on? And also I guess the guidance for 2015 sounds like it doesn't incorporate any of those growth capital expenditures, but wondering if in fact we'll see contributions and I guess when from that CapEx?

Yes, great questions. It's about $130 million on the Water side, about $130 million on the Crude side, and Crude does include Gavilon obviously, and then about $50 million on the Liquids side. And those are all again internal growth projects at 3 to 5 multiples.

What we've seen, and it started last year, is you normally like to think you spend money in year one, you get things completed pro rata, so you get half your EBITDA one year, half the next. But we're seeing longer timelines to get projects completed. So we -- I wouldn't say we're going to get half of that this year, I'd say we probably get 25% of the EBITDA at $300 million.

If you took $300 million and you divided by 5 we're at $60 million. If we got a quarter of that in 2015 and the rest of it in 2016 that's probably a fair assumption. And then what we spent in 2014, we'll get some of that in 2015. Some of our projects in 2014 we're getting just completed in December, January so we're not getting much if any impact from on this year. We'll get some of that in 2015.

Got it, that's helpful, thanks, Mike. Hate to ask a generic question but I will since you guys have been so busy on the M&A front. Wondering what you're seeing out there right now and which of your segments you've got the most opportunity and appetite for?

Yes, Retail, we see the small mom and pops from quarter to quarter will buy one or two and they're so small we just don't even -- we don't say anything. So that's all -- there's always a little something there. On Liquids, we did the Keyera transaction which was smaller ones, less than $10 million. We don't see a lot of purchasing there or acquisitions, we do see some internal growth.

Water, we purchased quite a bit. We've established ourselves in four basins and here lately in the Permian and Eagle Ford which are great. We see a lot of water -- increase in water being generated out of those.

So instead of buying we are in a drilling or internal growth mode. So we're drilling quite a few wells. I'm going to say we're between what we're doing and our development partner nearly 10 wells are being drilled in three basins, DJ, Permian and the Eagle Ford. So the Water is going to be I'd say almost all internal growth. ¶

But one issue you have with purchases, if you're buying something and that well has been out there five, six, seven years you really don't now how its been taken care of and what the performance is going to be. So we'd much rather drill our own from this point forward.

Now to enter a new basin, yes we're probably going to have to buy something and establish a small footprint. But at this point we don't have any of those in the pipeline.

And then Crude, very excited about. We had a couple projects that came with Gavilon terminals that we're going to be completing towards the probably third and fourth quarter of this year. And then of course Glass Mountain is starting up so we're real excited about that. Yes, I don't know if I gave you complete answer or not, but if not ask another question.

Well as long as you're prompting me. Last one for me, I promise, which is the language in the Q around some of the dynamics for Crude Oil in this quarter, I think it referenced some competition from pipelines as well as renegotiating some existing contracts in a lower spread environment.

I'm trying to wonder how much of that is temporary versus longer term. But it also sounds like that dynamic is not impacting Gavilon, given what your guidance was for Gavilon for 2015?

Yes, correct and Dave maybe I'll start. Gavilon doesn't own any trucks like we do and they use third-party common carriers. And so to David's point, when you give notice and you're stuck with these spreads coming in and not making money or making lower margins, we did have positive margin, but you're idling your railcars, trucks, some barges. And there were some pipelines completed in South Texas that took some of our South Texas volume away.

So those are recovering, and David, you might speak to where we are on railcars, trucks, barges, et cetera.

Sure, so the answer to the question is first off, the second half of it, pre the acquisition of Gavilon, they had had their issues to deal with it around it as well. So to Mike's point, the legacy NGL Crude Oil business is recovering, we are back in a call it, a normalized market. All of our railcars are back at work at better margins than were available in the third quarter.

And it actually worked well with the Gavilon barrels because of our emphasis on logistical assets, their historical emphasis on using third-party assets. And so marrying those together as we indicated in the calls after the acquisition is helpful to both sides. So we see the business being more normalized, certainly recovering, volumes are coming back up and the Gavilon business complements our asset footprint.

Great. Thanks very much, guys.

Darren Horowitz, Raymond James.

Couple questions for me around some of the specific $130 million of CapEx that you guys are going to allocate towards that Crude Oil side. Thinking about Gavilon, I think the previous target was around $65 million and I'm wondering as you guys consider the supply marketing and Logistics business and overlay that with what's happening with this current crude oil grade quality dislocation across the Lower 48. Has there been any change in the allocation of capital between let's just say crude rail terminal connections versus more build out of pipe and storage or how you think about levering that existing system?

Dave, do you want to give it a shot first?

I can. I'm trying to think of how to best answer that. I'm not sure I'm going to pick the right thing that was embedded in that. With respect to the Gavilon projects that we're completing, those are very much around how to take advantage of, if you will, this dislocation in some of the different grade qualities.

Gavilon was well positioned from a grade standpoint, not only with the Cushing terminal assets but also including the terminals that are under construction. So it's less around massive pipe projects and more around how to connect the different qualities of crudes at a hub.

So I think the gist of the answer is that we like the rail, the blend, the hub terminal type assets and those are the projects on the table today. Those are the type of projects on the table today. We're not -- long haul pipelines are not really what we're focused on. Does that answer your question?

Yes, that's part of it. I'm wondering also if you think about the current slate of projects that were out there, I think you guys had expansion capacity for an incremental three million-barrels at Cushing, but it would seem like there's a greater value on some of the stuff you could do on the Gulf Coast.

And I know that there was aggregate capacity of about 650,000-barrels but maybe a bit more pending. So it would just seem if you look at the proximity of the Eagle Ford and all of the incremental West Texas barrels hitting that Gulf Coast market, maybe you've got more supply and Logistics or asset optimization opportunity driving more capital towards the Gulf Coast.

And then levering the truck and rail and barge distribution network a bit further to get those barrels or those physical products downstream. So I'm thinking about how this business, not just in FY15 but into 2016, how this evolves and how we should think about your capital commitment there?

Right. Well so the capital commitment is, let's put it this way, you're talking from our play book. So that is the focus in the area we're moving.

Okay, and then--

On around additional Cushing storage.

Okay. And then last question for me, Mike. I'm curious and you've outlined the step function of that Gavilon acquisition moving from 7.5 times EBITDA down to below 7 times and I don't think that any synergies were baked into that $120 million FY15 EBITDA forecast. So now that you guys have had a little bit more time thinking about it, can you quantify the synergies, not just in magnitude but maybe in the timing as to when you'll realize them?

Sure. We have identified synergies. As you know, there's a transition service agreement between ourselves and the [Mirravini] folks who are kind enough to help us with our accounting and IT actually all the way through the end of 2014 if we so choose. So there's some expenses to be eliminated there as we integrate.

We've seen some other ones. I'll give you a number. We feel pretty comfortable at $5 million and then we'll see if we can do more than that.

Now that's only expenses. That's nothing to do with synergies of operations. David touched on that. So you're right, the $120 million is our base number and doesn't include the growth projects that we're investing in as well as any synergies.

Thank you.

Ted Durbin, Goldman Sachs.

Thanks. I'm wondering if you can give us a little more detail on in the guidance what kind of margins you're expecting particularly in the NGL Logistics business. Are you expecting some of these blowout spreads to continue through the rest of the year given we've got low propane inventories or what not or are you expecting more normalized numbers there? And then again on the Crude Logistics side, do we have a recovery then on margins off of what looks like was a low third quarter?

Yes, I'll start on the Liquids side or NGL Logistics. We are not going to -- we don't think we're going to see a repeat of January's blowouts. We're seeing the weather maps are warming up here considerably in the second half of February. Not only in the southwest and the south but I think in the 10 to 15 day maps, it's actually warmer than normal in the northeast, so that's a very good thing.

We -- I think a lot of whether it's a processing plant or the crude oil productions get it slowed down because it is so cold, we need to thaw out the assets and get the roads clear. So we don't see the profitability in obviously our fourth quarter first calendar anywhere near what it was in the third quarter. ¶ So if it's on budget, if it's on target we're happy. And any time folks are running out of propane and politicians are involved that's not a good thing, so we'd also like to see a little warm up for that as well. On the Crude side, David, margins?

Well we're back in a period of more normalized margins and Mike, Atanas, we have some internal numbers but I think what we're seeing is a -- more of a traditional margin, if you will, you don't have the wide basin differentials. So we're back in a normalized margin.

But the good part of that is that the volumes are trending up, so it'll be more volume and lower margins than what we've seen during that period where we had the wide basin spreads. So back to a more normalized gathering margin for the Logistical assets.

Got it. So more normalized on both sides in 2015, FY15, that's great. I guess my other question was on the balance sheet and how you're managing some of the issues here with obviously high propane prices. You're going to be having to drop more on the revolver, does it make you want to sell inventory maybe a little quicker just to manage some of the balance sheet issues with the high commodity prices you've got right now?

We typically are in decline on our inventories and working capital usage from January through March. And so a part of what we -- a large part of our [spring] capital are pre sold gallons that we store at the hubs. And of course with this high propane price, there's been quite a demand for folks to get their propane out of storage.

So we're actually in that decline phase even though the price has gone up, the volumes are just dramatically lower. So no we're not seeing greater usage on our working capital line. It's actually declining.

It should be declining through the end of the spring.

And then sorry if I could ask one other one?

Yes.

The industry talking a lot about some of the changes in the specifications on the railcars and what not. Any change that you would see in terms of the lease rates that you'd be out there with? I don't know if you can talk to the types of cars that you're leasing or any change you might see there?

Sure, David?

Well first off, we think the change is going to be slow in coming. There's a lot more behind that than what's just hitting the headlines.

Our fleet is positioned well ahead of the industry in terms of the new cars. So with the schedule that we have and the roll off along with the new cars that we own, we're very well positioned if the marketplace moves to the new cars in a hurry. I have the numbers if you can call me or shoot me an e-mail after this, I'll pull up the exact percentages, but the percentage of our fleet that's at the upgraded cars is pretty significant compared to the industry standard.

We're prepared for it. We have cars in a variety of different services and we have a very staggered set of leases along with a base number of cars that we own that are under the new standards. So we're not anticipating any issues around our cars, and if there were different standards mandated in a very near term future, we would actually I think stand to benefit from it.

Got it. Okay guys, great I appreciate it. That's all for me.

Matt Niblack, HITE.

First set of questions on the Crude Logistics business, so not to harp on this too much, but would like to better understand first of all the characteristics of this more competitive environment apart from the new pipelines which peaked during the quarter and have since receded. I don't understand what exactly changed in the third quarter and what's changed now and to what extent we can have confidence that we won't have another third quarter like event next year?

Sure, I'll start that one. What happened wasn't the characteristics of really new competition, it was what happens when spreads collapse. And so now they're already collapsed. So they're not going to collapse anymore. And those characteristics David when spreads collapse, you have to renegotiate your contracts.

Right and my comment around the competition was probably more directed, and sorry for the lack of clarity around it. For example, you had a tremendous amount of volume moving by railcar, a change in that spread which made railcars uneconomic.

We were a little surprised at the willingness of some of our competitors to run those railcars at a loss, if you will, expecting that spread to come back. So it made the renegotiation with our producers on the pricing more drawn out and much more difficult. That's really more where the conversation around the competition comes from.

There's quite a few new entries into the crude marketing and crude logistics business. And so there was a lot of business that we felt would have come back sooner, however people were willing to do that at a negative margin and we weren't. We've simply parked the cars.

Okay, so it sounds like despite this new competition, you've since adapted and have been able to get back to normalized margins or are at least on your way back there already suggesting that you have a good ability to adapt to the increasing level of competition in the marketplace.

That's correct. And we think there was a big part of that because again with the rail being a relatively new phenomenon and people with railcars not having probably the deeper understanding, or at least that's what we tell ourselves, they operate it at a different level for awhile.

So we have put the cars back to work. We put them back to work in our historical margins. We've got the car cost and that type of thing taken care of and our volumes are moving back up.

So even in a reduced spread environment, once you're over the hump of that initial collapse in spreads, you're able to turn this into a good business again?

That's correct. I mean at the end of the day the barrels still have to move and we're in the Logistics business and they're going to get from point A to point B. It's a question of what is the margin or the return that you derive on your Logistics assets for providing that service. And so we saw a massive compression of that and we're back on track with it.

And do you find that versus some of the perhaps newer competitors that your experience in delivering in this -- delivering the Logistics services is of value to the producers, that and the extensiveness of your asset light network? Doesn't mean that they're looking to that you're able to say hey look there's these new upstarts but we know this business, we can get you the best netbacks or we can guarantee the most reliable service, you should go with us. Is that compelling to producers or is this really just a commoditized business?

No, it's definitely compelling to producers and there have been instances where we have gotten the business back because of the inability of others who had call it lower prices but didn't have the level of service or the level of commitment and so that comes around. Got a lot of new producers in the business too, but again, if you're a producer, you're trying to increase your net back obviously.

Great, and then over to the NGL Logistics business, it looks like volumes were down sequentially for non-propane NGLs, if I read the release correctly. Is that seasonality or did propane volumes squeeze out the other NGLs on your network? The overall segment was terrific but trying to understand what's going on with the X propane?

We're looking that up. All of our Liquids businesses, which is both the wholesale supply but also the butane business were above expectations.

Okay so the sequential decline was probably just seasonality then?

I'm just looking here trying to think if we added anything.

Yes, we're actually are up year over year on other NGLs which is primarily our butane business with Centennial.

Yes, what are you looking at?

I'm not sure what we --

I was looking at the quarter over -- the sequential quarter volumes. Maybe I had the wrong baseline number. Are you saying that sequentially they grew?

Yes, we're looking at page 48 of the Q, quarter to quarter, did we have, yes it looks like we were at this year, [207] versus [161].

Right in the year ago and I was saying versus Q2.

Oh, yes. You're right.

You will have some seasonal --

Absolutely seasonal, yes. Yes, that's all it is because year to date we're well above the prior year.

Below the prior year and above your expectation?

Yes.

Okay, wonderful. And then lastly, the Water Logistics business hasn't gotten a lot of attention on this call and it looks like you're making great progress there. The -- could you maybe speak to your ability to generate a network effect or economy of scale and start to get either pricing power or preferred service provider status with producers based on the scale that you're building in some of your operating areas?

That's a lot of questions. Yes we are -- I think in the DJ in particular and we've gotten -- and we've been there longer of course than the Permian or Eagle Ford. I believe we are the preferred provider and in fact we have I think Jim Winters on the line who runs our Water business and maybe he can give you a flavor. Jim you on still?

Yes, I am, Mike. Mike hit the nail right on the head. The DJ's a prime example, preferred provider status, we've attempted there and in our other locations and other basins to build facilities that are environmentally sound and welcoming to our customer base.

As such, we've been able to establish a very good competitive position in the DJ, and we -- our acquisitions and our upcoming organic growth in the Eagle Ford, we will -- we already have coverage across the entire basin there and we'll be supplementing that coverage by -- through a number of organic projects over the course of FY15.

Permian Basin, I would not put us as a preferred provider there as of yet, but we will be making headway in that direction over the course of this year through strategic locations where we'll be adding facilities. And then one thing that we really don't talk about a whole lot is our Green River Basin, Southwest Wyoming operations. We are -- I would call us definitely a preferred provider there.

And we've got obviously deliver pay contracts and we have pipeline connections into our facilities. So we're trying to build a top notch facility wherever we build and to make it a white glove service operation for our customer base.

Great, one of the things I think the market doesn't appreciate as much as it could is the great track record you have of maintaining margins in the Water business given some concerns that some might have about the competitiveness. So congratulations on the good work thus far and we look forward to continuing to watch the story. That's all. Thanks.

Michael Gaiden, Robert Baird.

Dove tailing with the prior line of discussion about Water, Jim or Mike, could you talk about the levels of competition in the various basins in which you operate and how you expect that to trend from here as we enter calendar 2014?

Yes, I'll start. There's always competition, as you know, and we're out there trying to cut our costs and be the most efficient provider out there. We have more of our producers contracted up in the DJ and the Anticline than we do in the Permian and the Eagle Ford. With that, Jim I'll turn it over to you.

Mike, again I think we are fairly differentiated in the DJ and at our Anticline facility just by the nature of our position in those basins. Where we see the likelihood of increased competition more would be in the Permian and the Eagle Ford. And what we are doing goes back to my last answer in terms of the quality of the facilities and the quality of the service that we're providing, we're also trying to achieve a competitive advantage through economies of scale.

We are very focused on developing facilities that can handle -- single facilities that can handle greater volumes. In so doing, we are able to spread our fixed costs across a greater volume of profit producing.

And we've also made our focus on two other important items, one being pipeline connections which endears the customers to us a bit more. And the other being our capability of providing recycled water and it's not just filtered water. It's water that we fully assess in our R&D facility and we've been successful in coming up with processes that turn out recycled water that are compatible with the variable frac chemistries, the different frac providers are rolling out these days.

So we have to be light on our feet but we're doing everything we can to differentiate ourselves from just the every day guys and to create competitive advantages and barriers to entry that only we can develop.

Great, thanks. And lastly along that line, Jim could you offer any color on what -- maybe by order of magnitude, what kind of pipe volumes, if any, you currently receive in your Water assets and what that might look like at this time in 2015?

Sure. Current volumes would be in the probably about the -- between 12,000 and 15,000-barrels a day. And throughout 2015, we do have a pipeline project in the DJ that is nearing completion. That one will ramp up, initial volumes we anticipate between 3 and 5 and ultimate volumes there as high as potentially 18 a day.

That'll take several years to ramp up. I'd assume two to three years before we start seeing those peak volumes. And thankfully we're in basins that have long term developmental horizons.

So we're looking at, for instance our new deal in the DJ runs all the way through primary term runs through the end of 2018. So we're tying those to long-term contracts with commitments that are included. So we're trying to make it as fee-based as we possibly can.

Great, thanks a lot, Jim. And Mike and Atanas, you were kind enough to break out your expectations for Gavilon's EBITDA contribution next year. Is there any way that I could ask for color on Gavilon's contribution in the calendar fourth quarter that was just completed and what you expect for the next fiscal quarter?

Yes, for the current quarter, Gavilon contributed approximately $4 million. And for next fiscal -- for the fiscal quarter that's going to end on 3/31/2014 we expect approximately $15 million, so $19 million to $20 million for the full FY14.

Great. Thanks, Atanas. And can I lastly ask, Mike when we last heard from you in November, you'd indicated that maybe NGL needed some breathing room to digest all the acquisitions over the prior six months or so, maybe before reengaging aggressively in the acquisition market. Is that still the case? It sounds like there's a good bit of progress being made on these integrations, should we expect maybe some quietude in the near term before things ramp up again? Any of your thoughts there appreciated, and that's it for me.

Sure a couple things. One is good quarterback always takes his lineman out for dinner to make sure he gets protected. So I think I'm going to have to take all of the accounting and IT people out for a party at some point because we definitely are taking our time, whether it's going to be six months, whatever at least to integrate the accounting systems and the business. And I don't know if there's some acquisition activity that pops up, great, but we're not going to see that probably until the third calendar quarter if there is something.

And I would like to make the point as we've talked around it, but when we look at really what's the bottom line here is we've had an event which is the collapse of the crude oil spreads that have impacted one of our quarters. But this is really a great example of why having four businesses lowers our business risk. Because we had a hiccup in a quarter in one business but we had two of our other businesses that were able to pick up the slack.

With our really strong balance sheet, a hiccup here of $10 million to $20 million in a business for the year is less than 5% of our EBITDA. And that's one of the reasons we keep our balance sheet at such a low leverage level and we're still below three times on our leverage.

So I just want to make sure everyone keeps it in perspective. And as you know a couple weeks ago at our Board meeting we raised the distribution, but we also came out and increased our guidance to 15% distribution increase over the next 12 months.

So we don't want anyone to be alarmed, this isn't something that's going to happen all the time. There's a specific event that occur and now it's behind us. All right, whose next?

Adam [Slate], RBC Capital Markets.

Hi, good afternoon. This is actually Jeff and [Schlay] on for Adam. I think both of our questions have been answered but a couple on Crude Logistics maybe we can drill down on Gavilon. You said $4 million for the quarter on EBITDA. Can you quantify the volumes related to Gavilon, and is there any difference versus legacy assets in terms of margin or economics?

I don't know, Dave -- I'll start off real quickly and that is Gavilon also has an ethanol biodiesel and refined fuels business which we really like, and we've recently spent some time with the gentleman running those businesses. So that's a little different than what we have. Those are really we think attractive businesses, albeit they're small at the current time.

With respect to Crude Oil, David, any thought on volumes and margins?

Well historically, we try to keep our margins more internal. I guess in the broad sense the Gavilon volumes historically are higher, margins lower than what you would say legacy NGL. On a go forward basis, the consolidated groups are looking at what's the avails and business out there. So I still just go back to our forward look is very much continue to grow volumes, we should grow at or greater than the rate of production and margins will be in the historical range.

Okay, great thanks, that's helpful. That's it for me.

Michael Blum, Wells Fargo.

My questions were asked and answered, thank you.

You're very patient, Michael.

(Operator Instructions)

David Askew, Wunderlich Securities.

Wondering what progress you might be having in discussions with producers on integrated services for the Water and the Crude business?

That's a good question. David?

Sure, we're moving that strategy forward. Trying to think of how to give you a specific example. We have three different producers that I can think of right now that are customers of each of the three divisions that we're now looking at doing one or the other. For example, a Crude Logistics has two customers that are now visiting and talking to the Water group about being able to tie it together. So we are executing on that strategy.

I'm trying to think of how to answer that clearer for you. The short answer is we have the Liquids, Water and Crude group with half a dozen primary customers ranging from producers to refiners that we are tying different services together with that same customer from organic projects to commercial logistical movements.

Dave one thing--

I don't know if I answered that as well as you might have liked. I can't speak to specifics.

David, I'll maybe mention it here recently, we have changed our -- the face of the Company to our customers because we felt like we were operating under different names and so we have changed the different business to NGL Crude Logistics, NGL Water Solutions and NGL Liquids. So now our customers realize they're dealing with the same Company and we're going back to them and new ones with all of our services.

It's certainly on the Crude, Water side it makes a lot of sense to build if you're going to put in a Crude line, gathering line you ought to put water in the same ditch, so we are -- I think we're getting traction there. Any other thoughts, David?

Well again even with respect to the Liquid side, there's -- we are actively putting into practice the concept that we've talked about that producers have all of our segments fit, all of the larger producers. And so we will be announcing over the course of FY15 some projects that we put together that had Crude, Water and/or NGLs all within the same bundle going to a producer.

Yes, thanks, that's helpful. It sounds pretty powerful especially on the competitive landscape and those businesses.

I guess a little bit further on Crude. What are you guys doing maybe to source more heavy crude or grow the sourcing of heavy crude to the extent that it's not -- you're not already directly sourcing it for the Gavilon business?

Well, we are definitely moving heavy crude. We are actively expanding our Canadian presence and our asset infrastructure as well as our focus is on the heavy crudes and bringing them to the Gulf Coast.

Okay, and then I think bigger picture dovetails with some of the previous questions on where we're going with the Crude business and future acquisitions. As you guys have taken some time to look at the assets and integrate them, are there some obvious pieces you need from a regional standpoint, I know you have -- you've closed the loop with pipeline and storage assets, but do you feel like you need more of a presence in any certain region?

The -- again, the Canadian region is where we're actively trying to expand our presence and become a much larger force. I think with respect to the Rockies, the Mid-Continent, Permian, South Texas, Louisiana, Gulf Coast regions we're very happy about where we're at and what we're doing and the game plan if we had an area that we were needing to expand further, it is in the Canadian segment.

All right, thanks, guys. I appreciate it.

That concludes our question-and-answer session. And now I'd like to turn the call back over to Mr. Mike Krimbill. Please proceed.

Well great, thank you very much. You've been very attentive since this has been our longest call. So I guess if we beat budget by a lot, they're even shorter. But thanks again and we'll talk to you next quarter. Bye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day.