Good day and thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2021 NGL Energy Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I will now hand the conference over to your speaker today, Trey Karlovich, Chief Financial Officer. Please go ahead.

Thanks, Carmen. As a reminder, this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, estimate, plan, goal, forecast, intend, could, believe, may, will, and similar expressions and statements are intended to identify forward-looking statements. 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 and risks could cause actual results to differ materially from the projection, anticipated results or other expectations included in the forward-looking statements. Certain of these factors include changes in general economic conditions, including market and macroeconomic disruptions and related governmental responses, the prices of crude oil, natural gas liquids, gasoline, diesel, biodiesel and energy prices generally, the general level of demand and the availability of supply for crude oil, natural gas liquids, gasoline, diesel and biodiesel, the level of crude oil and natural gas drilling and production in areas where we have operations and facilities, the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel and biodiesel, the availability and cost of capital and our ability to access certain capital sources and political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and sale of crude oil, natural gas, natural gas liquids, gasoline, diesel or biodiesel and other refined products. 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. You should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date hereof and except as may be required by state and federal securities laws, we undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise. This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the Partnership's earnings releases, investor presentations, annual report on Form 10-K and quarterly reports on Form 10-Q for more information on our use of non-GAAP measures, as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measure. This information is also available on our website at www.nglenergypartners.com under the Investor Relations tab. Thank you for joining us for our fourth quarter and fiscal year-end 2021 earnings call. I will cover our financial results for the year and some of the drivers of those results and then turn the call over to Mike to discuss our initial sustainability report and give our closing remarks. We reported a net loss in fiscal 2021 of $637 million, which included the following one-time items. Crude segment goodwill impairment of $238 million and intangible asset impairment of $146 million, both of which were driven by the Extraction bankruptcy and ultimate settlement and were recognized in the fiscal third quarter. Additional long-lived asset impairments in the Water segment totaling $84 million recorded in the fiscal fourth quarter related to obsolete and underutilized assets, none of which were in Delaware Basin. And transaction costs of $103 million related to our refinancing that were required to be expensed and also were recognized in our fiscal fourth quarter. Our adjusted EBITDA from continuing operations for the 2021 fiscal year totaled $448 million, compared to $589 million in fiscal 2020. The most significant variances include the Grand Mesa volume decline, driven by Extraction’s bankruptcy and a decline in DJ Basin production resulting in the $75 million decline in adjusted EBITDA from our Crude Logistics segment last year. Water volumes declined significantly in the Eagle Ford and DJ Basin, and also declined slightly in the Delaware Basin compared to fiscal 2020. We were able to reduce operating costs per barrel to offset this decline in volumes and actually grew Water Solutions EBITDA by $9 million year-over-year with full-year contribution from Mesquite and Hillstone acquisitions. Demand for natural gas liquids primarily butane and refined fuels were severely impacted by the pandemic and drove a decrease of $80 million in adjusted EBITDA in our Liquids segment compared to last year, which I’ll remind everyone was a record year for this segment. We also saved almost $5 million this year in corporate and other costs compared to the prior year and that is after incurring approximately $6 million in costs to defend the Extraction contract throughout the year. Our fiscal fourth quarter results were impacted by the following: Crude Logistics continued to be impacted by lower volumes on Grand Mesa as we saw the Extraction bankruptcy in January and did not see volumes return to the pipeline until February. This segment also incurs some financial derivative losses on its inventory position that we expect to benefit from in fiscal 2022. Winter storm Uri resulted in a pretty significant shut-in of volumes in the Delaware Basin for about two weeks which negatively impacted our water disposal volumes during the period. Additionally, the storm impacted producers' drilling programs and ultimately the increase in volumes we were expecting in the second half of the quarter. We also incurred some incremental operating costs to run generators and keep our system operational through the storm which increased our operating costs per barrel during the period. The good news is that we are seeing volumes pick back up including demand for fresh, reuse and recycle water in the basin through April and May. The winter weather and pattern also impacts our Liquids segment as we saw propane prices spike in February causing a steep backwardation in the propane price curve through March. This price move had a slight negative impact on our net inventory position when considering our financial hedges that offset any benefit we recognized during the polar vortex in February. We managed through the past year and all the challenges it presented and like many of you we are looking forward to the upcoming year and the opportunities in front of us. We believe there are a handful of important factors that will drive our earnings for next year and beyond that you should pay specific attention to as you assess NGL and our performance. First, Delaware Basin oil production and completion activity and the associated water will be the largest driver of our performance next year. We are seeing increases in other basins as well, but the Delaware Basin is easily the most significant and important. Disposal volumes will continue to be the largest driver, but we are also selling produced water for reuse and recently started our first large scale Delaware Basin recycling project in Lake County. Next, DJ Basin production growth will also be important, most notably from the combination of Extraction and Bonanza Creek as our most significant contract in the Crude Logistics segment are with those producers and we will be tied to their production volumes on Grand Mesa. Third, a strong recovery in demand for refined products and blending feedstocks most notably butane to pre-pandemic levels will be important for our Liquids Logistics segment to generate incremental cash flow compared to last year. We will also continue to focus on cost reductions across our segments and at the corporate level, and minimize capital expenditures to meet our operational needs. These will be the most important metrics for us to maximize our earnings and cash flow and drive deleveraging of the balance sheet. We invested significantly in the years leading up to the pandemic and the commodity price collapse, and we’ll be working to maximize the earnings potential of our asset base in fiscal 2022 and beyond. Our liquidity position is much improved from last year and we have a few years to manage our debt balances and maturities. Our current focus will be on repaying our 2023 notes, which mature in November of 2023 as we earn excess cash flow. We will also evaluate non-core asset sales and other options to reduce indebtedness. We do not have a timeline set out to reinstate preferred or common distributions, but we understand and appreciate the importance of both and we’ll be working diligently to improve the balance sheet and ultimately increase stakeholder value. I’ll now turn the call over to Mike to cover our sustainability report and give his thoughts in our closing remarks.

All right. Thanks, Trey. I’d like to provide a few comments on the ESG front. As we mentioned in previous calls, we have been working on gathering data and information in order to give you a picture of some of the things we do every day at NGL from a sustainability perspective. We are excited to share this with you in our inaugural report, which will be posted to our website within the next week. In the meantime, let me give you a couple of high-level thoughts. First of all, we look at our sustainability journey as a tremendous opportunity. Our assets and capabilities give us a unique position to help improve air and water quality, assist our customers in decreasing the amount of fresh water they use in operations, and enhance the extensive natural habitat we have. When you think of our businesses particularly our Water Solutions segment, which includes our extensive ranch holdings where we own or lease over 200,000 acres of ranch land, it is easy to envision the opportunities to enhance the environment to conserve water resources, improve the land holdings, explore opportunities to sequester carbon and protect wildlife. What is also important to keep in mind is in many cases our efforts and initiatives are done in collaboration with others. We collaborate and partner with communities, not-for-profits, industry partners and government agencies. We think these partnerships are critical for our success and lead to the most sustainable solutions. You will see a number of examples of this type of outreach in our report. A few specifics included in the report include the following; through the build-out of our extensive water pipeline system we have either eliminated or avoided millions of truck miles positively impacting air quality in roads. In the area of water conservation, we provide recycled and produced water to our customers for use in their operations thus reducing the need for fresh water. In the last few months, we’ve provided between 100,000 barrels and 150,000 barrels daily of such water. We are focused on fit-for-purpose water reuse, which is where produced water is treated to a standard appropriate for specific applications, such as non-consumable agriculture or growing plants to sequester carbon. NGL was the first to pledge financial support for the New Mexico Produced Water Resource Consortium committing $1 million to this effort at its outset in 2019. The contribution represents NGL’s commitment to science-based decision-making and collaborative industry, academic and government partnerships, all working towards sustainable and safe wastewater treatment and reuse solutions. The consortium is a collaboration between New Mexico Environmental Department and the New Mexico State University. The consortium is working to advance scientific and technological solutions related to the treatment and reuse of wastewater generated by the industry. Fourth, the land conservation opportunities with respect to our ranches are expanding. We are collaborating with the state and federal land managers, wildlife agencies and others to improve the habitat for stock grazing, non-game and game wildlife species, as well as increased native grass growth and distribution. Finally, one of the things we are most proud of is the implementation of the program earlier this year instituted a minimum wage of $20 per hour for every one of our full-time employees. We have always believed that our employees are our most important asset and this program is a reflection of that. So, with that, Trey back to you.

Great. Thanks, Mike. That concludes our prepared remarks. We will now open the call up for any of your questions.

Thank you. Our first question comes from Tarek Hamid with JPMorgan. Your question, please.

Good afternoon, gentlemen.

Hi, Tarek.

Could you maybe just talk a little bit more specifically about sort of the dollar impact to some of those winter storm Uri impacts? I think it’s sort of easier to understand the sort of Water Solutions impact, then maybe just a little bit of help on the Crude Oil Logistics and thinking about the sort of quantum that we can sort of blame on the weather versus the quantum that sort of relates to the kind of tail end of extraction.

From a Crude Oil Logistics perspective, we experienced some impact due to winter storm Uri, particularly because we buy and sell barrels from the Permian Basin, which was affected. Additionally, our transportation assets in the Gulf Coast saw a decline in activity and volumes during that time, which also influenced our Crude Logistics segment. We haven't disclosed the exact figures related to that impact. However, the larger factor for Crude Logistics was the volume on Grand Mesa and the timing and quantity of the volume that flowed from Extraction when they resumed operations in February.

Okay. That’s helpful. And then, as you talked about, you made obviously some pretty positive remarks about sort of the outlook rolling kind of past this quarter. But you did have guidance out for fiscal 2022 of 570 - 600. Should we kind of still think of that guidance given some of these impacts in transitory as being valid or is it maybe trending to lower end of the guidance at this point?

Yeah. We have not changed our guidance. That guidance was put out in January. No change at this point in time and no expectations to change at this point in time. Obviously, it’s the first of the year, we are seeing the volume increase in the Water segment that we anticipated. We’re seeing volumes back online on Grand Mesa. Obviously, $60 plus crude prices is beneficial. The keys will be the items that I pointed out. We need to continue to see growth in production in the Delaware Basin and the DJ Basin to support those large assets being the Grand Mesa pipeline and the DJ and the Water platform in the Delaware. Those are going to be the biggest drivers. Obviously, our Liquids segment was impacted over the past year from a demand perspective. We’re seeing a pickup in that activity as well. That needs to be sustained. And then, obviously, our Propane business is still impacted by the winter heating season. So those are going to be the drivers to focus on.

Got it. And then just last one for me. You touched on the first big recycled water project in the county. Maybe just talk a little bit about sort of your current sort of percentage of recycled water volume and sort of what your kind of ultimate goal is on the system over the next couple of years?

So I will start it, and Mike, please add in. So this one project’s recycling about 120,000 barrels a day initially. So that’s the initial project. So it is a significant scale project. I don’t know if we have a specific goal. I will defer to Mike on that on how many barrels or what percentage we would look to recycle. But we are looking to grow that business with the producers and this is expertise that we have had for a long period of time. We have been promoting this with producers in the Delaware Basin and this seems to be an opportunity that we’ll be able to take advantage of. Mike, I don’t know if you want to add to that?

Yeah. I would add that the producers seem to be more comfortable using the raw produced with some minor treatment and so we’re seeing the, like, I’ll say, the demand in the future is increasing. So as we said, we’re at 100,000 a day to 150,000 a day right now as a percentage of produced water, I mean, of our total water. That would be about on the 150 side that would be 10% of what we disposed of in the fourth quarter. But that water will have to keep going, that water has to keep going up to maintain 10% or better. But I think that’s certainly the trend that we wouldn’t expect it to decrease.

Got it. Folks, I’ll jump back in the queue. Thank you.

Thank you. Our next question comes from Philipp Duffner with Aurelius. Your question, please.

Hi, guys. I’ve one question is on the Crude Logistics segment. It seems like you missed, like, part of the guidance that’s due to that segment. And you said that some of that was due to storm Uri, but was there any, like, did the Extraction volume come back later than what you were expecting and that impacted the guidance or were you saying that just impacted the year-over-year comparison?

The year-over-year comparison shows that their volumes have begun to return, although not to the levels they were at before they went offline last winter. They have added some production and shared their drilling and production plans for this year. Importantly, we no longer have an MBC with Extraction, so we rely solely on their production volume. We do have a dedication in the DJ Basin, which means all of their production comes to us. The critical factor will be their current production rather than what was produced previously in BC. Additionally, we experienced a financial derivative loss during the period due to the increase in commodity prices in the fourth quarter, which we believe has set up the business better for future performance.

Got it. And in terms of the impact from storm Uri, like, as all the production and the volumes have they normalized at this point or are you still seeing them below what you were expecting pre the storm?

We believe the vibes are back to where we had expected them. Again, that’s most of that impact is in our Water business. There was obviously about a two-week period where volumes were significantly offline. We started to see those volumes come back. However, it delayed completion activity and some drilling activity. So it did have an impact into March and early April timeframe. But I believe we’re seeing volumes back to where we expect it to be at this point in time.

Got it. Are you basically saying that in the Water segment the entire mess was due to storm Uri or are there other factors as well?

I think the Water volume impact was pretty much driven by storm Uri. I think there were also some incremental costs that we incurred associated with our system related to the storm that would be the primary drivers.

Got it. Okay. That’s helpful. Thank you.

Yeah.

Thank you. Our next question comes from Jason Stuart with Stuart Holdings. Your question, please.

Thank you, gentlemen. First question is for Trey. During last quarter’s call you mentioned that XOG was able to renegotiate for their reduced rates on Grand Mesa, but that our price attar that kicks in around $50 a barrel would begin to offset that and looked like around $60 a barrel we should expect to get back to a historical rate of $4.40. Does that price attar have a maximum limit or phase out on the upside or should we expect NGL to continue realizing benefits as WTI rates go up?

Yeah. So we talked about the price attar kicking in at $50 that has been a benefit as prices have gone over $50. Again, as we’ve talked before at $60 plus we’re back closer to where our prior rate was on the contract. What I’ll say about that contract. We have not disclosed all of the particulars and neither has Extraction. But what I will say is it is similar to the Bonanza Creek contract.

Okay. You mentioned last quarter about the produced water sales, and earlier in this call, you referenced some produced water and other ongoing programs. Are these new revenue sources, and when can we expect to see more detailed financial results for this Water segment that break down those various revenue sources?

Yeah. Yes. Those are new and really started up in our first quarter. So you should see those numbers in the first quarter queue.

Okay. And then also, Trey, for you last quarter, you mentioned that there were certain contract provisions that allowed producers to retain more the skim oil from produced water has been a contributing factor to lower skim oil revenues. Can you give me some more detail on how much processing removal of minerals, substances customers do before transferring that produced water to NGL? And give some insight as to what NGL’s ownership rights are to that produced water once it’s turned over like the mineral and substance content?

Sure, it varies by producer. Some of the larger, more sophisticated producers that handle most of their own infill gathering implement systems to maximize oil recovery, resulting in us receiving a minimal amount of skim oil. Typically, we collect slightly more skim oil from flowback water compared to produced water, which was evident last year. We are noticing an increase in that as production and drilling activity rise. However, it differs from producer to producer. Our average skim oil recovery rate was about 13 basis points last year, and I don't anticipate significant changes from that figure. With the addition of more barrels, particularly in trucked basins, that number could increase. Nonetheless, larger volumes from major producers like Exxon, EOG, and Devon are managed efficiently, allowing them to extract as much skim oil as possible. Once the skim oil reaches our system, it generally belongs to us, although a few contracts allow producers to reclaim skim oil that we recover for them. This is a limited number and most contracts of this nature have been acquired by NGL, not ones we established. Overall, we maintain ownership of all products we receive at the transfer point.

Okay. What about the other mineral content, specifically lithium? I'm referring to the trend where companies are extracting lithium, hydrogen, and other valuable substances from produced water. I'm interested in understanding NGL’s approach to these types of projects, where we could explore alternative ways to monetize produced water and generate new revenue streams, along with any benefits related to ESG policies.

We have historically explored the possibility of extracting additional minerals from the water in a cost-effective manner. We have identified some that could be extracted, but the volumes are such that they would lower market prices to a level that we do not consider viable. We have also recently examined the potential for lithium extraction, but currently, we do not see it as economically feasible.

Okay.

So at this point we don’t have any additional minerals we think that we can extract economically.

But contractually it may vary from producer to producer, but contractually we should expect that things other than skim oil would remain in that produced water that they’re not going to extract it before passing over to NGL?

I mean they could extract anything they wanted to until they give it to us.

Okay. All right.

But once we have the water, yes, the minerals remain in the water and if we can figure out a way to extract it economically we would.

Fantastic. Thank you, gentlemen.

Thank you.

Our next question comes from Fernando Anser with ABCO, Inc. Your question, please.

Good afternoon, gentlemen. My first question is Intrepid Potash and their earnings call mentioned that they purchased water from third parties to fulfill their contracts. Can we assume that that came from the partnership?

No, you cannot assume that. We have a water sharing agreement with them regarding their Dinwiddie Ranch and our Beckham Ranch. However, I believe they purchase a significant amount of water from other sources rather than from us.

Okay. Second question, there was a press release that I know it’s false or not, NGL supply wholesale acquired a pipeline up in Michigan for net gas from Lambda Energy. Can we assume that is correct or not?

Well, I think, you’re correct on both points. There were several articles that said someone else bought it, but that was incorrect. We did buy that pipeline, and yes, we are putting it in a propane service bidirectional. So that we will be able to supply Northern Michigan with whatever propane they would like.

Okay. And is there a price tag for that or is that confidential?

I’m looking around.

We have disclosed the price…

Yeah.

…but what I’ll say is that, it is not material or significant. There is some incremental disclosure in our 10-K around it. But, again, it is not a significant transaction.

Do we disclose the number anywhere?

We have not.

No. We’re saying we haven’t disclosed it, but it’s not a big number.

Okay. And finally, I guess, from Mike, if you have given the opportunity to eliminate all of the partnerships short- and long-term debt, which is the three sectors would you sale online?

I wouldn’t sell any of the three. I believe we are in the right position. All three businesses are performing well and are in the right markets, so we will not be acquiring. We are not focusing on mergers and acquisitions anymore, and we have unused capacity that we need to fill. No, we would not sell any of our three segments.

Okay. And I guess, finally, I know that all the automakers are becoming fully electric by 2030 some are by 2026. The Bay area announced that it’s going to issue any more construction permits for gasoline stations. My question is where do you see the partnership eight years from now. Do you think it will be a vibrant partnership with the three segments?

I mean really that’s your view of fossil fuels and our view is not that fossil fuels are going to disappear in eight years. So…

All right. Thank you.

I think we will be vibrant, yes. I’m feeling vibrant right now.

Okay. Thank you, gentlemen.

Thank you. Our next question comes from Alan Fragen with Lonestar Capital. Your question, please.

Thanks for taking my question guys. I’d like to focus on the $40 million consent payment that you made to the holders of the Class D Preferred Units. Under what contract did you require that consent?

So as part of our refinancing a requirement of the new bondholders, as well as the bank group was that we would no longer be able to pay any restricted payments until our leverage was reduced to 4.75 times. Restricted payments includes distributions on preferred. Our partnership agreement did not allow us to reduce the distribution on the Class D Preferred Units. So that had to be negotiated with the holders of the Class Ds and so that was a negotiation with the Class D holders to enable us to do the refinancing.

Given that your Class D holders have a representative on your Board, I mean, do you really think that they would have objected your refinancing given that they are junior class of securities?

They were not included.

Not included.

Yeah. They were not included in those discussions and negotiations with the note holders because of independence purposes.

Are you telling me that the note holders required you to obtain the consent of Class D Preferred before they would be willing to finance the 2026 secured notes?

Yeah. We would have been in violation of our partnership agreement if we had not done so.

And a violation of partnership agreement would have caused what sort of ramifications. It’s not like there’s a default on a debt indenture, right?

Not technically. That’s probably more of a legal question. But our partnership agreement is an agreement with all partners not just preferred holders. So the partnership agreement includes at this point Class B, Class C, Class D and common unitholders, and to enter into an agreement that is contradictory to what our partnership agreement I would imagine would subject the partnership to shareholder litigation.

So I’m trying to understand that the past year what you just said, would you have required the Class Bs and Class C Preferred Units were also sub-units partnership agreement to consent to this financing?

That was not required in the partnership agreement. They did not have a provision that would restrict us from not paying that distribution; that distribution is perpetual cumulative and so forth. Therefore, it would not require approval of those holders. However, the Class D Units are structured differently and did require that approval.

Okay. I mean, I think, what I’m driving at. Okay. Okay. Thanks. Good luck.

Yeah. Thank you.

Our next question comes from James Spicer with TD Securities. Your question, please.

Yeah. Hi. Good afternoon, guys. I wanted to start just to follow-up on the price attar feature on that Extraction contract. Just trying to understand a little bit better how it works and what the potential magnitude of the impact could be given that we’re approaching $70 oil today. I don’t know if you can talk about the incremental benefit you received during the quarter or what do you expect that to be going forward, but anything along those lines would be helpful?

Sure. James, I can share a little bit. Again, the price went over the $50 threshold in kind of February timeframe. So we had one month essentially where we had the benefit. That’s also when Extraction in this case had a lower volume on the pipe. They have since had some completions. They’re continuing to ramp up completion activity. They expect to grow volume throughout the year. So that will be a benefit and we have not disclosed what the exact terms of the contract nor has extraction. So I’m limited on that from that perspective. But again, I think, I can refer you back to the Bonanza Creek contract and it is similar.

Okay. Thank you. And then just on the Extraction Bonanza Creek merger itself, have you guys seen any updated plans from them? Are you expecting the production for the pro forma company to be greater than the sum of the volumes you would have expected from each company individually?

I’ll start, and Mike, please chime in. When we announced the settlement with Extraction, I think Mike, even mentioned that we do see consolidation in the basin. So we’re not surprised. We think that this is a good combination of companies that I think their strengths benefit each other. So we are very supportive of the combination. At this point in time, I don’t believe they’ve guided to any incremental volume in the near-term from the combination. So I don’t see that being anything we should be looking at here in the next 12 months. But we do believe that having a stronger counterparty that continues to consolidate the basin is a benefit to NGL and Grand Mesa pipeline. Would you add anything, Mike?

I would add that we are certainly observing that both major and some non-major companies prepared their budgets last November or October with a crude price of $45 and adjusted the number of rigs accordingly to maintain that level of free cash flow. Clearly, the current situation is much different. The majors have largely adhered to their budgets, while some independents have increased their rig counts. For the DJ Basin, the first calendar year of 2021 is seen as a prime opportunity for significant debt repayment. We will wait to see what unfolds in calendar year 2022 regarding whether prices remain above $60 or $65 and if additional rigs will be added. However, we currently share the same insights as you regarding Bonanza and Extraction, and we do not expect any changes from Extraction, which has a one-rig plan. The upstream model is evolving, and many companies now view dividend payouts as a priority. Therefore, I do not anticipate any changes this year, making 2022 a pivotal year to watch.

Yeah. Yeah. Okay. No. That makes sense and I appreciate the color. My last question here is, you have EBITDA guidance out there for fiscal 2022, and obviously, Water Solutions is a big driver. Can you tell us what you’re assuming in your EBITDA guidance in terms of water volumes in the Delaware?

Well, that’s can we or will we. That’s the question. No. Go ahead Trey.

We are expecting growth, and the Delaware will be the main driver. Our current forecast does not anticipate any growth in the other basins. Although we are experiencing some benefits from this commodity price cycle, the Delaware will be the primary focus. We need to achieve volumes that exceed historical levels. Our expectation for this year is that those volumes will increase steadily throughout the year. We don't anticipate that producers, particularly public producers, will significantly increase activity in the higher price environment. However, if this price situation remains stable as we enter the fall and prepare for the 2022 budget, we expect to see a substantial increase beyond this year. Therefore, we anticipate a consistent rise quarter-over-quarter, and that is our current direction. What we've observed so far this quarter is moving in the right direction, and we feel optimistic about our position, but we need to maintain that growth throughout the year.

I will add this to Trey’s point. I need to move a little further away from him. However, logically, with our guidance set between $570 million and $600 million, Water would need to exceed $300 million to reach that target.

Yeah. And I’ll just add, James. Our rates and our OpEx per barrel, they won’t change significantly. I would expect our disposal rates to be pretty consistent with what we’ve had in the past. I think our operating expense, we’ve worked really hard to get that number down, we got close to $0.25 a barrel, that’s really our target. I think if we can achieve that level, that would be a win for this year. That’s really what we’re focused on. Obviously, this past quarter, we had some one-offs with the storm that I think getting to that $0.25 a barrel, keeping our disposal rate cheap, you should be able to get back into pretty reasonable volume number.

Okay. Great. That’s helpful. I’ve just seen what additional information you guys were willing to share. That makes sense. Thank you.

Thank you. Our next question comes from Jason Mandel with RBC Capital Markets. Your question, please.

Hi, guys. Thanks for taking the question. I just want to focus for a moment on cash flow in 2022 and use of it. So it sounds like the EBITDA guidance was effectively affirmed. CapEx the same, I think, 100 to 125 was the last guidance there?

Yeah. No change there, Jason.

Okay. Great. So without distributions we’re looking at some pretty significant anticipated free cash flow. I think you may comment in the prepared remarks about use of cash flow being towards debt reduction. I don’t know if you can give any further guidance, it looks like in this past quarter, the spending was really on the unsecured 26 is versus the front-end bond, so just how to think about discount versus maturity?

At this point, our focus is on maturity. We will concentrate on the 23s. Our bonds are not highly traded, so we sometimes take what we can get. There was a significant discount on the 26s around the time of our transaction, which we acted on in the past quarter. We have a very limited amount we can utilize for the 25s to 26s. Therefore, our attention will be on the 23s, which is something we need to address over the next 18 to 24 months.

Okay.

I would like to add that when we analyze the recovery in the longer-dated bonds in the 85 to 90 range, particularly 85 to 88, there isn’t much deleveraging potential. Therefore, I believe it’s more crucial to focus on pushing out the 23s.

Very helpful. Thank you. And then just one final follow-up on that, in the secure deal that was done, you guys bought some room for second lien capacity. Is that something you just plan on reserving for now or is there any intention to use?

At this point in time, that we would reserve that, but again, we want to make sure we have options and so we’ll evaluate all sorts of opportunities here as the market dictates.

Great. Thank you for your help.

Yes.

Thank you. Our next question comes from Harold Weber with Aegis Capital. Your question, please.

Good afternoon, everyone. I wanted to ask if you could summarize what you think needs to change in terms of how the market views us. I've been observing the energy sector for a long time, and while it has surged, we feel like we're lagging behind. What do you believe is necessary for the market to recognize our progress and restore some credibility in our direction?

Trey, you need an hour for that.

Well, I can start…

No.

Well, if you look at things, it’s very close to two and then back to seven and now we’re two again.

Yeah. Sure.

Yeah. I mean I know you’re there, you bought I know lots of stock at $10 and I did…

Right.

And all the way down and I haven’t seen any manager buy any stock at least while. But I know you guys are there and we are sure that you want to see the thing improve. But this has been very painful and I’m trying to get an idea of how to look at this going forward. What do I tell my clients, I just don’t know how to respond frankly?

Sure, that's a good question. There are a couple of phases to consider. The first phase is that we need to reduce leverage to under 475 times, and we cannot reinstate any distribution until we achieve that. Once we reach that point, we need to increase the distribution to a level that makes sense. For instance, with a 10% yield, the payment needs to be a dollar for every ten dollars. That’s the second phase, and as significant owners of the units, we understand the challenges involved. We're working to bring our EBITDA back to an appropriate level while keeping capital expenditures low, which will provide us with substantial free cash flow. While I can't specify a timeline, we are also considering selling some non-core assets to accelerate the deleveraging process. Our priority is to reinstate the preferred distribution first, followed by the common distribution. Currently, the focus is on monitoring leverage, which is crucial for determining when we can raise and reinstate the distribution.

Okay. Well, I certainly understand that, but looking at the picture I mean the energy space has gone up a lot how much. I don’t think my people are expecting a very substantive improvement from here. Let’s just say slightly open, it hangs around here. That should have a very material effect for us or is there other things that we need to happen, other than that that would mean that the market itself has improved. So hopefully the demand for our services is ramping up as before, but how does the math translate to where we were before? Are we behind the eight ball or even so, can we start to expand our free cash flow based on where the rates are currently?

I think we can't. When we provided our current guidance, we didn't anticipate crude prices at $65 or $70. Producers are being very cautious with their cash flow, focusing on reducing debt and returning capital to shareholders. Our performance will depend on producer activity. However, higher prices will increase volume. If we can navigate through this year in this price environment, I believe it will be advantageous for the company and the services we offer. On the demand side, there is an uptick in transportation activity, such as gasoline, jet fuel, and diesel, which is also a long-term benefit for us, but this increase needs to be sustained.

Okay. Are you considering any non-core assets in this environment? It might be beneficial to use some of that to reduce the shorter-term debt. I assume you're looking into that. The macro numbers in this space seem to be improving, and we hope to capitalize on that after everything we've been through.

Yeah. Absolutely. Last year was not a time to try to sell assets as the market…

Surely. But now things are much better. Now things are much different.

Yeah.

…and there are so many activities going on in the space.

We will continue to evaluate that, ensuring it aligns with a price level or assessment that supports deleveraging.

Certainly. Okay. Thank you.

Thank you. And I’m not showing any further questions in the queue. I would like to turn it back to management for any final remarks.

Great, Carmen. Thank you for your interest. Thank you for the time. We appreciate it and we’ll talk to you next quarter.

Thank you. And this concludes today’s program and you may now disconnect.