NGL Energy Partners LP (NGL) 2017 Q2 法說會逐字稿

Welcome to the NGL Energy Partners Q2 2017 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to Trey Karlovich, Chief Financial Officer. Please go ahead.

Thank you, Candace, and welcome everybody to our third -- second-quarter earnings call. This conference call includes 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 that 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 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 and 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 businesses and assets.

Other factors that could impact these forward-looking statements are described in the 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. 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 reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial information. I will now turn the call over to our CEO, Mike Krimbill.

Thanks, Trey. Thanks everyone for joining us. I wanted to give some color before we get into specifics. So, number one Grand Mesa, as you all know, we started line fill in October. We are under budget on the CapEx side. Saddlehorn, to their credit, was also -- did a great job. They are under budget and so we received a piece of the amount under budget on that project.

We started shipping in November. So we don't have any change to our guidance on Grand Mesa. Everything is working perfectly, truck stations, the pipe and the batching. So very excited and, of course, we only get a piece, less than half of the EBITDA this year. Next year, we'll see the remainder and as you know, it's all take it or pay contracts with shippers who, if you've watched over the last couple of months, have either gone public or have been successful in raising debt and equity in the public markets as well increasing their acreage positions around our two truck stations.

With respect to Colonial, we've had a few questions. Unfortunately, Colonial has had a little bad luck. It's a great company in the pipeline. The latest incident does not have a negative impact on NGL. If you recall, we purchased additional line space in July of this year, approximately 100,000 barrels so that's about 20,000 barrels per day on a five-day cycle.

So when there was this incident, we had additional gasoline because line one was the one that was affected primarily in our terminals. The main thing being we could service and provide 100% of the contracted volumes to all of our customers. We did take -- line space values jumped so we did sell some of our excess line space into the market to help others.

The growth strategy going forward, we wanted to comment on that and I think Trey will have more to say about it. We are really focused on the organic projects. We are very fortunate that we have already invested the capital necessary to generate EBITDA in our next fiscal year, beginning April 1, of at least $600 million. So we're not worried about how we're going to grow this. We've got to go participate in auctions and pay 15 times for things, that's just not going to happen.

On the M&A front, I will say that if we do anything, it's going to be probably be with Oaktree and it will be done in the correct way and financed properly. So we're focused on the organic. High rate of return; low multiple, meaning 5 times or less on the multiple side ; 20% or more on the rates of return. You're not going to have a lot of those but you only have to spend half as much at a 5 multiple to get the same EBITDA that you're spending at a 10 multiple.

We are very, very fortunate, I think that we've spent the money to get the growth. Now we just need to run the business. And keep our coverage in that 1.3 to 1.5 times and Trey will have more to say about that because, obviously, we are higher than that.

Maybe the types of businesses, we're not necessarily focused on any one of our five businesses. We love, on the crude side, the STACK, the DJ and the Permian, things are obviously very expensive in the Permian. But if there was an opportunity to do something on the organic side, we would do that.

We're always looking for high-quality retail propane businesses that are in our footprint. We want the northern half of the US, where you're going to end up with some degree days even in a warm winter and it looks like, at least, October was fairly warm. We're hoping we're -- the weather prognosticators are correct and we start seeing some cold weather in the middle of November.

We're also looking if there anything -- terminals perhaps, building storage would be great on the refined products side. So we're not actually out there trying to find deals. So we're really more looking at things we can build ourselves.

We've had a lot of comments about the distribution -- or maybe it's questions. For the first six months of the fiscal year, as you know, those are our two lowest EBITDA quarters due to the seasonality of some of our businesses. So it didn't seem appropriate to say, yes, we're going to do something big if we really hadn't -- the -- we were not able to see what's going to happen for the entire year. I think we're now with Grand Mesa on, in particular to what's going on in the refined products side, which is very positive that we can now give you some guidance that's based on some -- a line of sight.

The -- there's -- we describe it as a chicken-and-egg situation here. Because we're -- we don't have any interest and I don't think it's in the MLP's best interest to be paying a double-digit yield. So we don't want to get back to this 12%, 14%, 15% situation we were in late last year and early this year. On the other hand, we could fairly easily rate the distribution to $2.00 -- or $0.50 and still have coverage in the 1.6% or higher level and management is leaning in that direction.

Our goal has always been to get back to where we were at one time, but do it prudently and do it while we are still maintaining that 1.3% to 1.5% coverage. So at $17, are we going to see paying $2? That -- we don't think that's in our best interest. So for over $20, would we pay -- would we be willing to recommend $2.00? Probably yes. So I don't have an answer but those are the side boards or the range and how we look at it.

We also want to be able to have some meaningful increases in subsequent years. We don't want to just step it up at one time then have a 2% or some low number. We think somewhere in the -- shooting from the hip perhaps, and Trey will -- you won't be able to see him if he hits me but we'll be somewhere, I think, in that upper single-digit range going forward, if we're staying out of this double-digit yield scenario.

I would also say that some of you may drop off before the end of the call if we get boring but we are very confident and very bullish on NGL's future. We've -- we don't have to worry about buying anything. We've got tremendous coverage. We've got EBITDA that's going to be north of $600 million next year.

So, again, we have the luxury of not worrying about growth and focusing -- continuing to focus on the balance sheet. We will pay down debt further this second half of the year. So people who are worried about the crude price tomorrow or today, we're -- that's not how we run the business. It's -- crude markets are very volatile. It's -- one day, it's down $1.50 and the next day it's up $1.00. We just have to ignore that. It's only one of our five segments. The water business, for instance, even though you have low crude prices, there are basins that can still thrive like the Permian, in a $45 environment. So we are -- we think we've hit bottom, for instance, in that segment. We're seeing it turn up.

We're getting increased volumes of water so in this lower crude price environment, it's mainly a portion of our crude segment that's -- that suffers. But we're converting that from some marketing to the fee-based business going forward. So we feel very comfortable with our guidance and we adjust it as we see what the market is doing to us each quarter. So I think with that, Trey, I will shut up and go back to you.

Thanks, Mike. First off, I would like to cover our recent senior notes offering, the use of the proceeds and our financing plans going forward. After that, I will spend a few minutes walking through each of our operating segments and the results from our second quarter. I'll also talk about expectations for each segment for the rest of this fiscal year. And as a follow-on to Mike's comments on our distribution policy, I plan to give some color on how we're looking at FY18.

Our senior notes offering was highly successful and closed on October 24. We launched a $400 million offering and with the overwhelming demand, we were able to upsize the offering to $700 million. The investors we met with were excited about Grand Mesa coming online, our FY17 distribution coverage, and the thoughts around our financial metrics and our focus on the structured growth of our business going forward.

This transaction was leveraged and debt neutral, a s we use the proceeds from the offering to reduce our outstanding balance on the revolving credit facility. So it allowed us to balance out our secured and unsecured borrowings and increase our liquidity to approximately $1.1 billion. It also extended the debt maturities to November of 2023. With the upcoming election, Fed meetings, OPEC discussions and their market risks, we determined that this was an appropriate time to complete this transaction.

As we have discussed over the past several months, our financing strategy has been to reduce our committed capital requirements, decrease our leverage, increase liquidity, improve access to capital markets. This transaction is a significant step in execution of this strategy. Looking forward, we will be focusing our attention on an extension of our revolving credit facility and continue to ensure that we have adequate capital and the appropriate mix of capital to fund our operations and internal growth projects.

As an example, we announced acquisition of a terminal project at the Port of Point Comfort in early October. This acquisition, along with the expected cost to complete the project, is expected to be a $30 million to $35 million project. During the past few months, we have issued approximately $13 million in total under our ATM program, and the proceeds of which will help fund this project.

So far this year, we have invested $342 million in capital into our business, including Grand Mesa, additional Colonial line space, retail propane expansions, crude terminals, and water disposal facilities, including water pipelines in the Permian. All of these projects have attractive return profiles. And we have raised over $250 million in equity to finance these opportunities. We continue to see opportunities ranging in size up to $50 million in and around our existing operating footprints in each of our segments. And we are targeting returns, as Mike mentioned, on these projects and acquisitions of 20% or better.

However, we expect our growth capital spending for the remainder of this fiscal year to be significantly lower than what has been invested over the first six months of the year and we are now guiding the market to approximately $400 million to $425 million of capital investment for the entire fiscal year.

Now I'll spend time and go through the financial results and thoughts for this year for each of our operating segments. This information was included in the earnings release that was distributed this morning. Our net income for the quarter was a loss of $67 million, which is a reminder we expect to generate losses during this time of year without the benefit of Grand Mesa and the seasonality of our propane businesses.

We generated just over $75 million of adjusted EBITDA this quarter and have reported approximately $140 million for the first half of our fiscal year. Our target adjusted EBITDA is $500 million for FY17, with the majority of our cash flows generated over the next two quarters with winter months in the start-up of Grand Mesa. However, with continued headwinds in the crude marketing business, we are updating our guidance to a range. A range of $485 million to $500 million for this fiscal year.

Our refined products segment delivered another strong quarter as volumes remained high and inventory values increased. We set the bar high for this business at the beginning of the year. And we remain on track to meet or exceed those expectations.

We generated $46 million of adjusted EBITDA in this business segment during the quarter, which included a benefit for the inventory values at the end of September due to supply issues on the Colonial pipeline. Mike covered our expectations of the impact of the recent incident on the Colonial pipeline to our business, but to reiterate, we do not see any long-term impact or anything that changes our expectations for the year significantly. We are continuing to forecast robust demand throughout FY17 and are maintaining our guidance for this segment of $150 million of EBITDA.

Our water disposal business has improved. We recognized adjusted EBITDA of $18 million for the quarter. Overall, volumes were in line with our expectations and have grown 12% since last quarter. We gave our guidance for the year with the expectation that volumes would increase throughout year and we continue to see this trend. This business has seen increased volumes and has also benefited from water pipelines going into place and our reduced royalty costs.

We continued to see robust drilling and production in the Permian, specifically in the Delaware, where the water-to-crude ratio is a approximately 4-to-1. Most of our disposal efforts have been focused in this area, but we continue to see positive signs in the DJ and the Eagle Ford and our other primary areas of operation. We remain on track in this business with our guidance and currently expect to generate $75 million this year.

We saw crude prices range between $40 to $50 per barrel during the quarter; however, there continues to be very little movement of the curve price going forward. This continues to limit the contango market which has been a headwind for our crude storage assets. Volumes and margins have continued to suffer in this business and as a result, we have not met our expectations at this point in the year. Obviously, Grand Mesa will be a tremendous benefit for the rest of the year, but at this point, we are reducing our overall expectations for this segment.

The crude logistics business generated about $3.5 million of adjusted EBITDA during the quarter. Overall volumes in this segment continue to decline with the overall US production and our team remains focused on optimizing margin and managing costs throughout the cycle.

We continue to expect Grand Mesa to generate approximately $50 million of EBITDA in this fiscal year and $130 million to $135 million in FY18. Our largest shipper recently completed a successful IPO and also announced their plans to add another drilling rig in the DJ in early 2017. Our other producers continue to make positive momentum as well, as Mike mentioned, and we are excited about the start-up of this strategic asset. Including the Grand Mesa contribution and our current expectations for the crude marketing and logistics business, we are now projecting the crude business $90 million to $100 million of adjusted EBITDA for the year.

The results of our retail propane division is weather-dependent and we are continuing to expect a normal winter and the volume demand that comes along with it for the rest of this year. We are in a good position heading into the colder months and with the acquisitions we have completed over the summer, we are increasing our expectation slightly in this business segment. We generated about $2 million of adjusted EBITDA in this business for the quarter, a period during which the business has historically operated at or new breakeven levels.

In July and August, we acquired two regional propane businesses, both of which are extensions to our retail lease markets for a total investment of approximately $70 million. We mentioned one of these on our last call.

We are expecting these acquisitions to contribute approximately $10 million of incremental EBITDA to this year, to our retail propane business, increasing our forecasted EBITDA to approximately $105 million for the fiscal year. I will reiterate we are basing this guidance on normal winter weather in our operating areas, with most of these earnings generated the third and fourth quarters.

Finally, our liquids segment performed well this quarter in spite some of the headwinds we expected coming into this year. Our butane business had a very good summer and has made up all of the shortfall we have seen in the first quarter. We're expecting this business to exceed its budget for the year and make up for some of the shortfall we have seen at our Sawtooth facility, which we noted last quarter and was a cause for our reduction guidance at that time. Our wholesale propane business is similarly driven by the heating season and at this point, we remain in line with expectations.

Our liquids logistics business generated approximately $16 million in EBITDA this quarter and while we continue to be impacted by railcar links, our team continues to find opportunities in this market to service our various customers. We are now forecasting approximately $90 million of adjusted EBITDA for liquids logistics for this fiscal year.

Overall, our distributable cash flow was $39 million for this quarter and has totaled $264 million for the past 12 months, resulting in a TTM coverage of 1.2 times. We expect this trailing 12-month coverage to continue to increase with the third and fourth quarters delivering significant excess coverage as we start up Grand Mesa, complete several other projects like the Houma crude terminal, Collins refined products storage, and water pipelines as well as it being heating season.

Once Grand Mesa is online, we would expect cover our distributions in every fiscal quarter going forward. With our updated guidance range and the recent senior notes offering and resulting increase in interest costs for the second half of this year, we are now expecting distribution coverage between $140 million to $155 million, or approximately 1.8 times coverage for all of FY17, including the distributions on our Class A Preferred units, which reduce coverage.

Our total long-term debt outstanding was $2.35 billion, excluding $710 million outstanding under our working capital facility, which as a reminder, is fully secured by our receivables in inventory. We expect our compliance leverage to be approximately 4.15 times compared to our covenant level of 4.75 times. This calculation includes our trailing 12-month EBITDA of approximately $407 million and certain pro forma additions for capital projects totaling approximately $162 million, the majority of which is the Grand Mesa project, and excludes the balance of our working capital facility from the debt side of the calculation.

As we have reiterated, we are targeting compliance leverage of 3.25 times or better and we'll continue to manage our business with that target in mind. We expect to end the fiscal year at approximately 3.8 to 3.9 times based on our guidance and we're targeting to meet our 3.25 times level by the end of our FY18 year, which is in March, the following March, as earnings increase and excess cash flow was utilized to reduce indebtedness.

While we're not providing official guidance for FY18, one way to look at it would be to use our current year target of $500 million of adjusted EBITDA, include a full 12 months of Grand Mesa, which would be an incremental $80 million and use a reasonable assumption for our remaining FY17 capital expenditures. This math, as Mike has noted, would exceed $600 million for FY8 or 20% growth, based primarily in capital already invested in our business, and assuming the $2.00 per unit distribution next year, our coverage would be in excess of 1.6 times.

This is an exciting situation to be in and with the continued disciplined approach to our balance sheet and distribution growth, our business has been set up for long-term success and value generation.

Thank you for your continued interest in the partnership. We will now be opening the line up for questions. Mike and myself will be available as well as Don Robinson, who runs our Crude segment, to answer questions regarding Grand Mesa. Candace?

(Operator Instructions)

Gabe Moreen, Bank of America.

Quick question, Mike. I know you mentioned on M&A doing stuff with Oaktree but it seems like you've done a decent number of tuck-in acquisitions. So just to clarify, should we expect tuck-in acquisitions to continue without Oaktree or are you still looking at those and you're just preferring to do something bigger, if to bring in Oaktree?

You are correct. I really included these tuck-ins such as retail propane as in our organic growth. So we will continue to do the little tuck-ins and as you see individually, they're probably anywhere from $15 million to $30 million to $40 million. We don't have any on our plate at the moment and we just have a couple of organic projects. So fairly low CapEx going forward. But you never know when it's going to come up.

Thanks. In terms of, I know you're not managing the business with crude oil prices here day-to-day but can you just give us an update in terms of where hedges are and broadly speaking, what your crude oil assumptions are in guidance?

We've got to look to Plains to figure out where crude prices are going. But we have very little to know crude hedges on the water business. The volumes actually had fallen, at one point, we had $80, $90 crude. I think we were getting about 4,000 barrels a day. Now we are down to 2, 000 or less. So we haven't put any hedges on in the 40s for instance. We hedge everything else, whether it be the crude marketing business or the refined products and propane. So we are unhedged probably, I'll say, on 2,000 or less barrels of crude per day on the water side.

Got it. Got it. And then -- sorry. Last one for me is just in terms of the decision on the distribution. Do the agencies play into that at all in the negative outlooks there or is it just, you got the bond deal done and it is what it is and the distribution really is kind of independent of where the agencies are at?

Trey works with agencies more closely.

Gabe, so, obviously we're -- we stay in touch with agencies and it's nice to get the bond deal done. But we still have a goal of ultimately getting to investment-grade. So we continue to move up -- our focus on moving up that ladder. But I think running at a distribution coverage over 1.5 times or even within our 1.3 to 1.5 times range would not cause any angst with the agencies.

I don't see that being any -- I don't see the agencies being a holdback to getting to those types of distribution levels or within that coverage. Obviously, they're -- as they look at things, the conversations have been positive, moving in the right direction.

They want to see Grand Mesa come online. That's occurred and they want to see that contribution to EBITDA which is occurring now. So I would expect to be meeting with the agencies in the next quarter or two and hopefully have an update.

Great. Thanks Trey. Thanks Mike.

TJ Schultz, RBC Capital Markets.

Just first on Colonial, if you could quantify the impact you all had from being able to service your customers? If there was upside with that. Then on the most recent issue on Colonial, understand you sold some line space, are there impacts one way or the other we should expect this quarter?

I will start with the incident that occurred in September. We did get some benefit from that and that the value of line space increased the value of inventory that terminal, the long Colonial plantation also increased so that was a net benefit for us. We have not quantified exactly what that benefit is because some of that will be recognized over the next several months.

With regards to the current incident, it's really short-term in nature. We, again, with our excess line space, we were able to sell some line space this week and we were also high on our inventory levels which we were able to take advantage of but I don't think it would be significant, however, positive in nature.

I will add to that. It's -- the good news that we like is our contracts lock us into about $0.05 a gallon margin. So when there's an issue like this for Colonial, we are not out there trying to sell it for $0.10; we can't. In a bad market, we're happy that we're getting $0.05 and then even if there's some opportunity to get more than that, we don't because we are honoring our contracts.

So it's really the excess line space that we bought in July where if there was an ability to help somebody else out and make a little money. I went back and I think the line space sale was not more than $0.5 million so it's not significantly, but it's $0.5 million we haven't budgeted.

Got it. Thanks. On Grand Mesa, I know there were expectations to ramp the $120 million to $130 million of EBITDA over time. Just any update on conversations with customers that would give comfort to hit that ramp in year two?

TJ, the ramp for year two is based on our existing contracts and the growth in those existing contracts of the MBCs. Don Robinson is on the phone. He might be able to give a little bit of color but the guidance that we've given for this year and next year is strictly based on our contracts we have in place and the ramp within those contracts on the MBC. It's not based on any incremental contracts or any new contracts or new customers.

William Challenger, Private Investor.

So if I understand correctly, on your distribution policy, you're trying to guide the markets to $20 so that you don't have that double-digit cost of capital. But are you -- if you get to $2.00, would you guys be in the money on the IRRs for the GP?

Yes, you start out at 0.1% and then you go to 15%. The highest level doesn't start until $2.025 so at $2 (multiple speakers) we would not be at $2. You are -- I think that's what you're asking. We would be in the lower levels but not the higher levels.

Another question, that Comfort Point Terminal acquisition. What EBITDA multiple are you guys going to get on that investment?

We haven't guided to that but I would -- what we would express is that it is in line with our general expectation of about 20% IRR or five times type project.

Okay, great. And then I have another question about your relationship with the Sun Group. I know they own a significant amount of your stock. Have there been any discussions? I know that you folded Rose Rock midstream into their company. Has there been any strategic M&A discussion with them at all?

No, none. They don't -- they sold all of their common units so they just have their GP interest.

Right. And that's about 11%, right? The GP interest?

That's correct.

Okay. Great. Thank you guys. Those are all my questions.

I would like to add, because I think you brought something up that's important to the common unitholder, which is even at $2.00, I think the GP distribution is around $12 million. So the GP owners will continue forfeiting distribution. At $2.56, the distribution was $65 million so at $12 million, you can see the GP is still giving back $50 million annually. And we are -- I am a GP owner and we're very happy to do that as we always want to make sure the MLP is not only treated fairly but taken care of so it's always going to be performing and the GP is just out of luck.

Okay, great. Thank you.

Shneur Gershuni, UBS.

A couple quick questions. One, a follow-up to Gabe's question about propane acquisitions. I think you had responded talking 30 to 40 million gallons. Would you consider something in the 700 to 800 million gallon range or would you assume that to be too large?

That's several questions. I'd say, number one, yes, that is too large. Number two, we do not want to be retail propane company. We love that business as a, really, an annuity and just a steady eddie business but we're keeping it less than 20% of our business and it will shrink over time as our Crude division generates more through the Grand Mesa and others.

I think there's also a basic difference between us and I'll say the public MLPs. We do not have net customer losses. So when we buy something, it's truly growth. It's not a maintenance cap trying to offset something we've lost. To do that you have to be really pricing more with the mom and pops and the regionals, which is where we price so that you don't have net customer losses. So it would be difficult to do a large one when, to make it work, you'd have to lower margins. I just don't think the math works.

Okay. Fair enough. And then secondly, in the prepared remarks, I believe, Trey, you had mentioned that the Water segment had grown, I think it was 16% quarter over quarter. I was wondering if you can comment on how volume is doing versus your expectations. Are we running a little bit ahead of that?

Secondly, can the volume pace continue and could this be an upside surprise given the amount of Permian activity that we're seeing and the 4-to-1 ratio on the amount of water we need for barrel load of crude?

We got so beat up on water last year that we didn't assume any increase. And so yes, we have been pleasantly surprised that the increased activity, particularly out of the Delaware. We're -- we expect to see some increase here in the DJ as these pipelines have come on and more rigs are being placed in the basin.

So it's -- I think we think we will continue seeing an increase in our water volumes. It's really a rig -- a function of the rigs and where you are and to the extent that it's more flowback and we should see increase in the skim oil as well.

Remind me, if I remember correctly, it's 16 wells in the Delaware region?

How many do we -- does anyone know?

In the Delaware region, it's approximately 16. We have 32 currently in the Permian and it's about half Delaware, half Midland basin.

Finally, I was wondering if we can talk about the cadence of how you see distribution growth rates moving over time. Is it a function of hitting your expected leverage target? Is it a function of -- is it the markets bothering to pay for it? You alluded to that in your opening comments. I was just wondering if you can expand on how you expect the cadence to be over time?

Shneur, it's a good question. What our expectation and when we laid out our distribution reduction in April is that we would go one year at $1.56, or $0.39 per quarter. Going into next year, we do expect a, we'll call it, significant increase in the distribution from $1.56 to some level. We mentioned to $2 on the call. That would be the high 20% or 30% type increase in the distribution.

Beyond that, as Mike mentioned, we would like to see a distribution grow high single digits. So as we're thinking about it and looking at our business and how we're forecasting our business to perform, we see being able to achieve that step in a distribution next year and consistent growth thereafter while still maintaining more than adequate coverage, as I pointed out, $2.00 next year, our distribution coverage would be over 1.6 times.

Our target is 1.3 to 1.5 so we have some additional growth just embedded in that cash flow. So that's how we're looking at it from the business side of things and that's how we would present it to our Board. Obviously, our Board will be, as Mike mentioned, watching the market to understand what type of benefit we are getting from the distribution and what our growth story looks like and to make sure we're getting that benefit in the value of the units.

(multiple speakers) Please continue.

I was just going to say, from a leverage perspective, leverage fixes itself in that situation. The increased EBITDA, the cash flow paying down debt, if we're funding our growth with cash flow generated internally, the leverage should not be an issue.

Okay. And on the leverage in your discussions with the agencies, have they specifically committed to upgrading you to IG if you hit certain targets? Or is market cap and enterprise value going to be an issue basically over time and does it make it less important to try and hit those targets as well as, let's say, you're below four times, which would be conventionally [acceptable] metrics.

No, they haven't -- they don't make promises like that. They -- what they have outlined are these are the metrics that we would expect of these types of rated companies. We checked some of those boxes and we will continue to check more of those boxes. It's obviously always in their discretion. I think size will come into question to get to investment grade.

I don't think $600 million to $700 million is probably big enough to be IG but we don't -- we're not looking to be IG in the next 12 to 24 months at this point either. That's a longer-term goal as we continue to grow the business. I think something $800 million to $1 billion probably gets us closer to that size range and that's -- it's not that far off.

Great. Thank you very much, guys. I really appreciate the color.

Thanks Shneur.

Matt Niblack, HITE.

On the distribution, so I understand that you're trying not to have a double-digit yield and clearly, the pricing in the units right now is relatively crazy. But what is the alternative use of that capital? Is it returning it to shareholders through buybacks? Is it further just, more or less, deleveraging? What's the thought on what you would do if you don't raise the distribution as aggressively?

I think you hit on it. It's reducing leverage. If we -- and you saw us do this earlier in the year. If the price gets low enough, then we would repurchase equity just -- it's a great investment if I can make 15% in the equity, why not? That's less likely. Obviously, that's not a delevering event. And then it's just the organic growth, if we can make 20% and not lever up, then that make sense as well.

Right. I guess the -- one view of this is that if you retain something like $150 million of cash or 25% of EBITDA on an 2018 basis or something similar going forward then my math suggests that even if returns come down little bit from that 20% that you're citing, you should still be able to grow cash flow per unit at 10% of -- call it, 8% to 10% a year, and have indefinite self-funded 10% growth. Am I thinking about that, right?

That's how we've looked at it as well.

Got it. So based on that, it seems like you should be able to guide to something like that minimum of high single-digit growth with potential upside depending on available projects. That seems fair, right?

We, definitely as long as we're not getting back to those crazy yields we did earlier.

I'm trying to think through how to get the stock going in the right direction because the thing it's remarkable to me is that your cash flow per share, depending on how you adjust for the GP, from FY16 through FY18 is going to be up at least 40% or 50%. Your leverage is going to be down.

I can't think of many other MLPs, other maybe a few of these in Appalachia, that have comp to that, anything remotely close to that. Yet your share prices underperform the index and you've got analysts who had buys on you two years ago, they have sells on you now. I guess I'm just trying to figure out what the disconnect is and thought maybe it's that lack of visibility that people are looking for.

We wonder about that ourselves. But I think the recent high yield investors get it. That's why it did so well. For some reason, the equity investors don't get it yet. So it's not the whole world that doesn't get it. I think everything you're saying is confirmed by the way the high yield investors looked at the recent offering.

Right. Well, so certainly congratulations. We appreciate what you've done on the fundamentals and hopefully, we can get the share price going the right direction. But think about ways to create more certainty around the distribution growth trajectory even if it's more conservative because I think that's something this marketplace looks for.

Okay. Makes sense. Thank you.

(Operator Instructions)

I'm showing no further questions at this time. I would like to turn the conference over to Mr. Krimbill for closing remarks.

Thank you all for your interest in the partnership. Please reach out if you have any follow-up questions or comments. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Have a great day, everyone.