NGL Energy Partners LP (NGL) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2014 NGL Energy Partners LP earnings conference call. My name is Regina, and I will be your conference operator for today.

(Operator Instructions)

As a reminder, today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Mike Krimbill, Chief Executive Officer. Please go ahead.

Thank you. This conference call will include forward-looking statements and information. While NGL Energy Partners LP 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, crude oil, the level of production of crude oil and natural gas, the effect of weather conditions on demand for oil and natural gas, natural gas liquids 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 these forward-looking statements are described in risk factors in the Partnership's annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings and press releases. Now NGL 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 reconciliations of the differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. So with that, thank you very much for dialing in, and we will turn it over to our CFO, Atanas to begin the call. Atanas?

Thank you, Mike. Welcome to the call. We are very pleased with our financial results for fiscal 2014. Adjusted EBITDA for fiscal 2014 is $270.5 million, which excludes a total of $15 million of acquisition-related expenses, $6.9 million of which was legal and advisory, and $8.2 million severance and comp expenses related to the Gavilon transaction. This compares to EBITDA of $183.5 million for fiscal 2013, which represents an increase of 47%.

Our guidance for the fiscal year 2014 was in the range of $255 million to $260 million, so we are approximately $10.5 million higher than the top range of that guidance. NGL reported net income of $48.8 million for fiscal year ended 3/31/14, which compares to net income of $48.2 million the previous fiscal year.

During the fourth quarter of fiscal 2014, we expected to generate EBITDA in the range of $100 million to $105 million. We generated EBITDA of $116.1 million, which excludes $8.7 million of acquisition-related expenses incurred in the fourth quarter. So that represents an increase of approximately $11 million over the top range of our 4Q guidance.

At the beginning of the fiscal year, we indicated our expectations to incur approximately $22 million of maintenance CapEx. Later in the year, we increased that guidance to $28 million, in view of the acquisitions that we completed during the summer months of last year, and we ended the fiscal year with maintenance CapEx of $32 million.

For fiscal 2015, we expect to generate EBITDA in the range of $425 million to $430 million. We expect maintenance CapEx and interest expense to be $30 million and $80 million, respectively, which would generate DCF in the range of $315 million to $320 million. We expect our internal growth CapEx to be approximately $500 million.

For Q1 fiscal 2015, so for the first quarter of fiscal 2015 which ends on June 30, 2014, we expect to generate EBITDA of approximately $60 million. We reiterate our guidance to maintain distribution growth of 15% for the calendar year 2014, while targeting distributions of approximately -- distribution coverage of approximately 1.5 times.

So with that, our quarterly guidance for fiscal 2015 is as follows: As I indicated, the first quarter is $60 million; the second quarter is $75 million; the third quarter is $133 million; and the fourth quarter is $157 million. So that is the $425 million guidance, $425 million to $430 million. And with that, I will turn it back to Mike.

Thanks, Atanas. Why don't we open it up for questions right away? And so, operator, if you could open it up?

Certainly.

(Operator Instructions)

Your first question today comes from the line of T.J. Schultz with RBC Capital Markets.

Hey, good morning. Can we start out, a little bit about the guidance for FY15? I think, it is consistent with what you have said previously, but it seems like CapEx maybe has gone up, so maybe you are finding some additional opportunities there. If there is just any kind of contribution from that, that we may see in FY15, where there may be some upside to what you are talking about?

T.J., you are correct. We have not factored that in. It is -- we have always said I think, use a 5 multiple on internal growth, just to be conservative, to estimate the impact of EBITDA. And we don't -- we haven't given any guidance on when these projects can -- get completed, and the EBITDA would begin. But there definitely would be additional EBITDA from those projects.

Okay. And do you think you would look at carrying more coverage here? I mean, is there upside potentially on kind of your distribution growth guidance, if you get some benefit there, or maybe more coverage?

We like the coverage around the 1.5, in -- so there is upside on the -- I think we gave 10% for the next fiscal year, 15% we think is pretty healthy for this year. So there would be upside in future years. Initially, the coverage may increase, because it comes on obviously when the projects are placed in service, and the distributions will follow.

Okay. Great. Just moving on to the Gavilon assets, just maybe if you are seeing additional opportunities there? And then, if you could talk a little bit about Cushing storage and what roll-offs you may have there, the contractual profile at Cushing?

Yes, that part of the increase on internal growth to $500 million is directly related to Gavilon. It is, probably I will say, it has exceeded our expectations. It is fantastic set of assets, and the people are fantastic.

We have taken a hit here on some severance costs, because we have pretty much completed the integration of the people. David Kehoe should be on the line. David, if you could comment on what, where we are in Cushing? But I think we did renegotiate a little bit, and reduce some of our storage, and maybe extend it.

So we, Cushing storage, the tenor around the owned storage is extended out, and we have a contractual profile there. We reduced the amount of leased storage that we control, and did extend that term for a shorter, additional two years.

So Dave, where are we, at $7 million-some now?

$7.7 million, and going down slightly.

Okay. Then T.J., what was your -- I mean, in terms of -- I guess, you are thinking what [backward addition] versus Katango? I mean, we are -- and what our thoughts are, or what else would you like to know?

No, that's fine, Mike. I mean, it's helpful, just on kind of where you are there. I think that's good enough.

The last thing I had, just was on -- there was an article out last week I think, that mentioned you all looking at some of the TLP assets. Just any comments on that acquisition, or generally about kind of acquisition market out there?

This year, we are really focused on the internal growth. Frankly, if you can do $500 million at a 5 multiple, it's like doing $1 billion at an 8 or 9 multiple of acquisitions. So we are not seeing a lot of assets out there that we think are appropriately priced.

There is a number out there that are overpriced in our opinion. And we were just as surprised as everybody else on -- I think it was The Wall Street Journal. I don't believe an online article or what it was. But we were just as surprised as everyone else. And we just can't help anybody with respect to that article.

Fair enough. Thanks.

The next question is from the line of Michael Blum with Wells Fargo.

(Operator Instructions)

And Michael, your line is open.

Great, good morning. Can you -- it looks like you created two new -- I don't know if they are segments or how you are defining them, but you have renewables or refined products. Can you just talk about what exactly is in those new buckets?

Sure. David, you want to comment?

Sure. With the Gavilon acquisition, the groups had ethanol, biodiesel and refined products. The ethanol, biodiesel are a logistics, railcar, truck, terminalling for those two products.

The refined products is a movement from the refiner through the pipeline and rack system to the wholesale distributors. We like those businesses, and see growth potential in them.

A great group of people running them, and we intend to continue them. They are very much midstream, fit our logistics profile.

Okay. Great. And then Mike, I just want to make sure I heard you right. For FY15, you are saying distribution growth guidance is 10%? Did I get that right?

No, we are little off on -- the calendar year 2014, we said 15%.

Okay.

And then, so calendar -- it would be calendar 2015 and on, we said 10%. But we are saying, based on our internal growth projects, there is upside to that.

Okay. Got it. Okay. And then can you just talk a little bit about what is going on in the water business from your perspective? We saw one transaction in the market that was away from you. Was that -- are you still looking at acquisition there? And just generally, if you could just give us an update on how that business is faring in the different regions?

Sure, and I am going to turn it over to Jim Burke who is running water in a second. But I will just say, we had some significant acquisitions in FY14, and out of that we have a development agreement with some previous owners, what we call the OWL acquisition.

And so, we are drilling with them quite a few wells, and that space is just extremely active. But I will, Jim, can you make some comments on kind of what you are seeing?

Sure, Mike. We are still very involved in acquisitions. We are in most of the basins we want to be. We are still looking at some new basins.

We think we are in the most prolific basins out there, and we are definitely still looking at acquisitions and working on those. But most of our [development] is coming internal, both with our owned development, and with the OWL development deal we signed. Most of that will be low multiple internal growth, which we are very fond of. (Multiple Speakers).

Michael, I would add to that. When you are buying someone else's well and it has been around for a while, you are never really sure what you are getting. So we prefer to drill our own now, and we have pretty good footprint, obviously in four basins. And Jim, you might -- if you could, make a comment on what activity you are seeing in the DJ?

Well, the DJ is exploding. We are expanding our facilities as we speak with several facilities, and we are just -- we are doing our best to keep up out there. The volumes are there. We have added contracts, long-term contracts with several producers, and it is going real well, Mike.

Okay. Great. And then last question from me. The $500 million of organic capital, can you just kind of break that down into what -- where is the capital going?

Atanas, do you have some numbers on that?

Yes. About 50% of that is -- close to 50% of that is crude logistics, about 40% or so would be water, and the rest of it would be some targeted projects in NGL logistics. (Multiple Speakers). So [crude logistics] would account for the bulk of that, for that number. And obviously, with crude you will get -- with water, although in totality you may be slightly lower than what you see in crude, the single project, the standalone, they cost more money so.

Okay. And specifically that 50% that is crude, are you -- I mean, are you like leasing new pipes? What exactly are you doing in terms of projects? What is that -- where is that capital going to? What type of crude projects? I mean, I -- (Multiple Speakers).

I could let David and Mike, Atanas, give them a chance to respond first or?

Yes, David, why don't you go ahead.

Those dollars are being spent on capital projects that have fixed fee take-or-pay contracts behind them. They are in the logistics end of it, such as terminals, storage, not leases.

Okay. So you are building new storage then?

We are putting in storage tankage in terminals in various locations, yes. They are logistical based assets.

Okay. Got it. Thank you very much.

Sure.

Our next question is from the line of Matt Niblack with HITE.

On the water business, could you comment on how pricing is holding up?

Sure, Jim.

Pricing is holding up really well. It's holding up just fine. In fact, in some basins we have been able to increase, such as Denver because of the demand, the activity, the drilling activity.

So little bit of pressure in Texas, Denver, down in Eagle Ford just a little bit. Permian is pretty much staying its own, and Denver is increasing.

So it is dependent on region, but we haven't seen much pressure where we are in the Eagle Ford. That is the only place where we have seen some, but not much.

Great. And then, in any of the basins, are you seeing a situation where it is getting harder to get the land or the permitting to drill new disposal wells?

Yes, all over.

What's behind that?

I think the knowledge of the land owners in these extremely active basins has become a little more -- they have become a little more knowledgeable, if you will. And henceforth, the costs has gone up.

Okay. Is there any resistance on the part of land owners to putting disposal wells on their property, because they might be holding out to get royalties off of the hydrocarbons themselves, and they don't see the value of the disposal wells being sufficient?

No, we don't see that.

You don't see that? Okay. Great. Thank you.

Your next question is from the line of Sameer Panjwani with Raymond James.

Good morning.

Hey.

I had a question on the crude oil logistics segment now. I know that you don't provide segment data with this report as you usually do in the quarterly reports. But it seems at least from a revenue perspective that, that segment has kind of been ramping throughout the year, and this quarter it kind of took a dip.

So is that primarily just because of weather, and how should we think about it going forward? Should it just be a continued ramp? Do you think there is going to be continued weakness?

Mike, I will answer that, if you want.

Sure.

We did have a significant weather dip, particularly across the rail segment, and you should expect a continued ramp on the volumes.

Okay. Thank you.

Your next question comes from the line of Adam Leight with RBC Capital Markets.

That would be RBC, we are still in North America. But hello, everybody.

Hello, Adam.

The -- just a couple questions. If I missed it, I apologize. Can you talk a little bit about potential locations for the new logistics assets that you are investing in?

Well, you didn't miss anything. We didn't give any locations. I don't know that we -- we are not going to give you specifics. I don't know, David, do you want to have general -- give a general thought?

We are looking at Western US and Gulf Coast.

If I could go back to your last presentation, is that going to be fairly indicative?

Yes.

Okay. And on the same thread, do you have a sense of what kind of contribution percentage-wise you might be seeing from terminals and that sort of thing in the next year or so?

Are you referring to just -- with respect to the growth projects or the total business?

No, I guess, I am looking at total logistics assets, kind of contracted EBITDA?

I don't know, Atanas? I mean, really -- (Multiple Speakers).

So if we are looking at -- I guess, if the question is, what is our fee-based, repeatable fee-based type of EBITDA? We are targeting to the -- in the range of 60% over the next 12 to 18 months. Currently, we are in the range of 40% to 45%.

So all of these internal growth projects that David and Mike talked about, we are targeting to boost that fee-based, repeatable EBITDA, and which will lead us down the path of investment grade. That's our ultimate goal so

Thank you. That's the response I was looking for. Are you seeing any potential impact of railcar cost increases affecting you?

David?

No, we have made strategic decisions around the ownership of cars and the way that we have staggered leases. So we find ourselves we think in a good position from a railcar standpoint.

Great. That's it from me. Thanks.

Ladies and gentlemen, this concludes the question and answer portion of today's broadcast. I would like to turn the call back over to Mike Krimbill for any closing remarks he would like to make.

Well, thank you very much, and we will try harder. Thanks again. Bye-bye.

Ladies and gentlemen, thank you for your participation. This does conclude the presentation. You may now disconnect. Have a great day.