Rattler Midstream LP (RTLR) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to Rattler Midstream's Fourth Quarter 2021 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the call over to Adam Lawlis, Vice President of Investor Relations. Please go ahead.

Thank you, Lateef. Good morning, and welcome to Rattler Midstream's Fourth Quarter 2021 Conference Call. During our call today, we will reference an updated investor presentation, which can be found on Rattler's website. Representing Rattler today are Travis Stice, CEO; and Kaes Van't Hof, President.

During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon.

I'll now turn the call over to Travis Stice.

Thank you, Adam. Welcome, everyone, and thank you for listening to Rattler Midstream's fourth quarter earnings call.

The fourth quarter of 2021 was another great operational quarter, with volumes increasing sequentially from the third quarter, while operational expenses and CapEx remained constrained. The resulting free cash flow of $54 million for the fourth quarter of 2021 continued the strong performance of the business that generated a total of $216 million in free cash flow for the full year 2021. This free cash flow was largely returned to shareholders in the form of Rattler distribution and common unit repurchase program.

Rattler also executed a series of strategic transactions during the quarter that repositions the company for growth while maintaining its strong financial position. During the fourth quarter, Rattler divested its operated gas gathering assets and acquired an interest in the WTG Gas Processing business, in addition to purchasing substantially all water midstream assets owned by Diamondback after the QEP and Guidon transactions in early 2021. The net result is that Rattler has maximum exposure to Diamondback's activity, which is expected to be focused in the Midland Basin for years to come. the announcement of Rattler's entry into the BANGL joint venture further increases Rattler's exposure to Diamondback's activity and diversifies the Rattler business into long-haul NGL transportation.

Looking forward to 2022, Rattler is continuing to grow the business on both the operated side and through its equity method joint ventures, which are collectively building the necessary oil, gas, and water infrastructure for Diamondback's and third-party operators upstream development. In particular, Rattler is focused on building out significant large-scale produced water recycling and storage facilities in the Midland Basin in greenfield areas Rattler acquired through the drop-down transaction where Diamondback is expected to concentrate development activity.

This build-out of recycling and other infrastructure will require higher CapEx in the short term, but will have lasting benefit over the long term as the combination of growing earnings and declining CapEx increases the free cash flow of the business, even in a scenario in which Diamondback keeps oil and production flat. It is with this confidence in the long-term visibility of the operating business and the equity method investment joint ventures, all of which are now fully operational, that Rattler is increasing the common unit distribution by 20% to $1.20 unit -- per unit annually.

With these comments now complete, operator, please open the line for questions.

(Operator Instructions) Our first question comes from the line of Michael Lapides.

I actually have a few of them. First of all, you've been very active on the transaction front at Rattler. Just curious how you're thinking about market now. Meaning kind of for small tuck-ins, do you think it's more of a buyer's market going forward, a seller market going forward? Do you think this kind of robust level of transactions will kind of continues at pace? Just kind of curious kind of your broader overall view.

Yes. Thanks, Michael. I think it's going to slow down a little bit. The 2 new deals that we announced with the BANGL pipeline investment as well as the WTG gas investment kind of came as a result of the QEP and Guidon transactions at Diamondback. So we had a lot more exposure to WTG, and then put our balance sheet to work to invest in the downstream pipeline associated with that takeaway. So I think a flurry of activity in the second half of the year, I think it's going to slow down. There's certainly some smaller business development opportunities on the water side to build out our systems. But from a large-scale perspective, I think we're done for now.

Got it. And the other question, lots of discussion obviously about gas takeaway in risk in the Permian. And there are several options, whether it's the expansion of Whistler or the projects that Energy Transfer talked about recently. Just curious, are you concerned that if we don't get a solution in the next 2 to 3 years, it could cause a backup, and therefore, impact kind of production, and therefore, volumes for Rattler? And would Rattler have an interest in owning a stake in one of these projects?

Yes. A couple of questions there. Certainly would be interested in owning a stake in a pipe if Diamondback was a large producer on it. I think we discussed at length on the Diamondback call that we need taking kind rights at the parent company to be able to contribute to these pipes. And if we don't have that, we're going to keep pressing our midstream partners to put their balance sheets to work to commit to pipes. Using Whistler, as an example, WTG relinquished their taking kind rights to Diamondback, and then Diamondback used our balance sheet to make the commitment on the pipe. So I think that's a playbook to follow.

Secondly, I certainly think the basin needs a new pipe or 2. And you've seen some announcements recently. I think there's more to come. It's kind of a -- been a daily topic here for the last month. So I think whoever can get to FID first is going to be in good shape. But certainly, with the growth of the gas volumes out of the Permian, it needs to get fixed as soon as possible.

(Operator Instructions) As there are no questions in queue, we can turn the call back over to Travis Stice, CEO, for closing remarks. Sir?

Thanks again to everyone participating in today's call. If you've got any questions, please reach out using the contact information provided.

And this concludes today's conference call. Thank you for participating. You may now disconnect.