Greetings and welcome to the NGL Energy Partners 3Q 2024 Earnings Call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Good afternoon and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under U.S. Securities Law. These comments are subject to assumptions, risks, and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials. Before we enter into the third quarter financial results, I want to take some time to discuss what we accomplished this quarter. I first want to thank all the NGL employees for their dedication and extra efforts over the last few months. What we have accomplished over the last few months is astonishing and we should be proud of what we have achieved. We have been able to execute on our long-term plan faster than we anticipated. Operationally, we recently held an open season on the Grand Mesa Pipeline. On January 5, we closed the open season on the Grand Mesa Pipeline and had a new 5-year Minimum Volume Commitment with the same counterparty, whose prior contract expired on December 31. Outside of entering into a new 5-year MVC agreement, this counterparty will also be the shipper on the pipeline, freeing up $18 million to $20 million of working capital. This is a permanent release of working capital. As we continue to negotiate new contracts and a free contract on the pipeline, we should continue to see further reductions in working capital. These reductions in working capital require us to hedge fewer barrels, thus reducing earnings volatility and transforming crude logistics into a more stable, long-term fee-based business with more MVCs. A few weeks ago, we issued a press release on the expansion of the LEX produced water pipeline system into Andrews County. This expansion of the Lee County Express Pipeline system takes the existing capacity of 140,000 barrels of water per day up to 340,000 barrels per day in 2024. The addition of a second large diameter pipeline, new disposal wells, and new facilities will greatly expand the capabilities of NGL's existing produced water supersystem and create a significantly larger outlet for Delaware Basin produced water. The construction of the 27-mile 30-inch produced water pipeline will transport water to areas outside the core of the basin, thereby further diversifying NGL's geographic location in its disposal operations. The LEX II expansion is fully underwritten by a recently executed minimum volume commitment contract that includes an acreage dedication extension with an investment-grade oil and gas producer. This is a strong example of the types of transactions we're able to execute upon with our continued demonstration of being the most reliable and dependable water disposal company in the Lower 48. Financially, on February 2, we closed on the refinancing of our debt maturities. With this $2.9 billion refinancing, we extended the weighted average maturity of our debt by approximately 3 years while rebalancing the corporate maturity stack towards prepayable debt, providing us the optionality to further accelerate our deleveraging plans. The new term loan also provides additional exposure to floating interest rates. With projected rate cuts on the horizon, we should be able to capture lower interest expense in the future. The combined 3 tranches were the largest midstream sector financing efforts since 2022, and the most significant capital raise effort in NGL's history. We have been very clear with our strategy over the last few quarters. Our plan was to address the debt maturities in the first half of calendar 2024, and we've been able to execute this refinancing months earlier than anticipated. With high-yield energy spreads trading in a tighter range than over the last 2 years, we decided to accelerate this refinancing while simultaneously amending and extending the Asset-Based Loan. In connection with this transaction, all 3 rating agencies issued new ratings with S&P and Moody's both raising the corporate credit rating one notch to single B. Fitch initiated coverage on the company as well and issued a corporate credit rating of single B and BB minus on the secured notes and term loan. The Asset-Based Loan has been extended 5 years to 2029. The commitment level stayed the same with $600 million of commitments from the Bank Group, while at the same time gaining relief within the documents across a few key covenants that provide us more flexibility. The new debt consists of $2.2 billion of senior secured notes with $900 million of 5-year non-callable notes at 8.125% interest due 2029, and $1.3 billion of 8-year non-callable notes at 8.375% due 2032. In addition to the secured notes, we entered into a 7-year $700 million term loan facility. The term loan facility is floating-rate debt, and as I mentioned earlier, we entered the refinancing wanting a mix of fixed and floating-rate debt. The term loan also gives us the ability to reprice the facility as we continue to execute on our operational plans, as we strengthen the balance sheet along the way. The net proceeds from the transactions are being used to fund the redemption of the '25 unsecured notes, the '26 unsecured notes, and the '26 senior secured notes, including any applicable premiums and accrued and unpaid interest. The funds will also be used to pay fees and expenses in connection with the transaction and to repay borrowings under the Asset-Based Loan. This refinancing allows us to take the next step in addressing our capital structure. On Tuesday of this week, we announced the payment for 50% of the outstanding arrearages on the 3 classes of the preferred securities. Over the last few months, we've been using free cash flow to pay down our Asset-Based Loan and position ourselves to quickly address arrearages after the refinancing. We believe we are catching up on these arrearages quicker than anyone anticipated. The first 50% payment will be made to holders of record as of February 16, with payments being made on February 27. For the holders of the Class B preferred securities, they will receive $4.44 per unit, and each holder of the Class C preferred securities will receive approximately $4.07 per unit. In addition to the payments to the Class B and Class C holders, we are also making a $115 million payment to the holders of the Class D preferreds. The first question we expect to receive in the Q&A session is when we plan to make the second half payment and declare that we are current on the preferred distributions. In the press release we issued after market today, we are raising the full-year guidance on asset sales from $100 million to $150 million. The remaining asset sales should close by March 31. With free cash flow, asset sales, and the release of working capital in the Liquids segment, we will make the remaining 50% payment in the very near future. We will be thoughtful about the timing of this payment as we assess what the fiscal 2025 cash flow and capital budget could be as we kick off the budget process in late February. Over the last several quarters, we have positioned the partnership to take advantage of a market window to address the debt maturities. Our ability to execute quickly allows us the flexibility to take the next step of our long-term strategy, addressing the preferred arrearages. As we achieve these milestones, our long-term strategy will continue to evolve. We have additional steps to complete, but all of our stakeholders should feel comfortable with the progress we have made and our consistent messaging along the way. With that, let's get into the third quarter financial results. Water Solutions' adjusted EBITDA was $121.3 million in the third quarter versus $121.7 million in the prior third quarter. Water disposal volumes were 2.38 million barrels per day in the third quarter versus 2.43 million barrels per day in the prior quarter. As Mike mentioned on the previous earnings call, we expected water disposal volumes would be down versus the fiscal second quarter. There are 2 main drivers that impacted our third-quarter disposal volumes. First, producers are keeping produced water on location for completion activity. This activity will create variations in our disposal volumes going forward. The good news is NGL will receive these disposal volumes once all completion activity is completed at that location. NGL isn't losing any volume; it's just a timing issue on when those volumes will be received. Second, we have a large MVC with an investment-grade integrated energy major. This producer exerted pressure on its own water gathering system and was limited in the amount of water volumes they could send through our system. This producer is currently working on reducing pressures on their water gathering system. The volume impact for the third quarter was approximately 170,000 barrels per day for the quarter. It's important to remember that we get paid for these volumes, and these deficiency volumes are not included in the physical disposal volumes we report. Also, this MVC has approximately 9 years remaining. Water Solutions continues to maintain operating expenses at $0.25 per barrel, the best in the industry. This is primarily due to lower chemical expenses, lower generator rental expenses, and lower utility expenses. These decreases were partially offset by higher repairs and maintenance expenses due to the timing of repairs, the burden of maintenance, and tank cleaning. Crude Oil Logistics adjusted EBITDA was $17 million in the third quarter versus $33.3 million in the prior third quarter. The adjusted EBITDA decrease was primarily due to lower crude sales margins as we received lower contracted rates with certain producers as WTI pricing went below $75. Lower contract differentials negatively impacted certain other sales contracts. Volumes decreased due to lower production on acreage dedicated to the Grand Mesa pipeline. Additionally, our adjusted EBITDA when compared to the same quarter in the previous quarter was slightly impacted by the sale of our marine assets on March 30, 2023. We remain constructive on the DJ Basin and believe the results of the most recent open season on Grand Mesa demonstrate the importance to producers of having long-term capacity contracted on the pipeline. We will continue to work with the producers in the DJ and look forward to having additional contracting updates in the near future. Liquids logistics adjusted EBITDA was $22.4 million in the third quarter versus $20.5 million in the prior third quarter. This increase was due to higher margins and higher demand for butane blending. This was partially offset by lower propane margins and volumes due to warmer weather in the third quarter, along with lower margins on refined products as supply issues seen in certain markets in the prior year have been alleviated and have tightened margins. Corporate and other adjusted EBITDA was a loss of $11.9 million in the third quarter versus income of $19.5 million in the prior third quarter. I want to remind everyone that in the prior year third quarter, it included other income of $29.5 million to settle a dispute associated with commercial activities.

Thanks, Brad. As you have heard over the last year, we have achieved significant milestones as we positioned NGL for success while continuing to exceed expectations. First, as Brad described, we have reduced leverage on the balance sheet faster than expected due to free cash flow and asset sales at attractive multiples. Second, this deleveraging allowed us to complete the refinancing of all our indebtedness earlier than expected, reducing our refinancing risk and providing financial flexibility. Third, we announced the payment of 50% of the preferred dividend arrearages sooner than expected. We are trying not to disappoint, but rather establish a reputation for beating expectations. Looking forward, we are focused on the following: payment of the remaining preferred distribution arrearages as soon as possible, followed by reinstating the Class B, C, and D distributions. Third, we aim for continued deleveraging through debt reduction and increased EBITDA, balanced with addressing the Class D preferred. Debt reduction can begin 6 months after the recent refinancing as the new high-yield debt has non-call provisions of 2 to 3 years, and the term loan incurs breakage fees if repaid within the next 6 months. Fourth, we want to improve our credit rating with the agencies; debt reduction, payment of the distribution arrearages, and increased EBITDA can accelerate this process. Fifth, we want to emphasize internal growth opportunities at attractive rates of return, underwritten and supported by MVCs. Rather than limiting growth capital as we have up until now, we will look for investments to expand our footprint, strengthen our competitive position, and increase the quality, consistency, and amount of our adjusted EBITDA. One example of this is the recently announced expansion of the Lea County Express Pipeline system. The growth capital expenditure and adjusted EBITDA for this project will be included in our fiscal 2025 guidance. Another example is the outcome of the open season Brad spoke about. We are currently working on multiple growth projects and contracts, which we will announce if successful. Finally, we expect to grow adjusted EBITDA each year for the foreseeable future, led by our Delaware Water Solutions business. With respect to our adjusted EBITDA, we are affirming the previous guidance of $500 million plus for water and $645 million for the partnership. Our guidance for adjusted EBITDA and growth capital expenditures in fiscal year '25 will obviously be higher than the current fiscal year, and we will announce that at our year-end earnings call. In closing, over the last few years, we have made tremendous progress in many areas: increased efficiencies, cost reductions, asset sales, reduced leverage, and increased EBITDA. Going forward, we will have fewer opportunities to capitalize on most of these areas. So our renewed focus will be on internal growth with MVCs and achieving our targets. NGL was one of the best-performing equities in the energy space in calendar '23; we will do our utmost to repeat that performance. Thank you, and we’ll open it for questions.

The first question comes from Paul Chambers with Barclays.

I'll surprise you here and not ask about the preferred. Brad, you brought up a working capital release in crude logistics. And obviously, your March quarter historically had the largest swings towards the positive working capital change. I know there are a lot of factors involved, including seasonal inventories. But do you have any color or range you can point us to for what the fourth quarter could look like or what you're targeting for the full year?

Fourth quarter Asset-Based Loan balance?

No, working capital change?

Working capital change. I think the last few quarters, it was like $120 million and I think the previous year it was like $60 million. I know it's a big swing for you every year. Yes, that's probably a decent estimate. It's a little bit challenging to think about the ABL balance because we've been using free cash flow to pay down the ABL to address the preferred distributions. I would think we'd probably be at a $40 million to $50 million working capital number at March 31, Paul.

Yes. So fourth quarter working capital would be somewhere around, you think, in the 50-ish plus or minus range.

Next, we have Patrick Fitzgerald from Baird.

Congrats on the refinancing. If you wouldn't mind, could you provide an update on the Asset-Based Loan balance as of today or recently?

Yes, it's zero today.

Okay. So you're making the preferred payments, I guess, all with free cash flow and asset sales?

Yes. I mean we'll be using a little bit of the Asset-Based Loan balance just because we've been using free cash flow in the third quarter to get the ABL down to zero. So back to the kind of the opening question about the ABL balance at March 31; it will represent a little bit of usage for the preferred. Otherwise, it's free cash flow.

Apologies, having technical difficulties here. On to the next question. Your next question comes from Gregg Brody from Bank of America.

Congrats on all the work you did on refinancing and getting the first slug of preferred addressed. I know it's been a long road. So congrats on all of that. Just my question is more on the asset sales. Can you maybe give us a sense of what some of those might be? And if that will lead to any revision to your guidance once it's done?

Yes, good question. What's really left, and I spoke to the working capital release that's coming our way as a result of the new shipper on the Grand Mesa Pipeline that just occurred through the open season. We've accounted for that $18 million to $20 million of working capital release in our asset sale number because it's a permanent release of working capital. And there's a second transaction that is a land position that generates mid to high single-digit EBITDA that we're close to wrapping up. It would be a similar-type multiple from what we've been executing this year.

And just as you talk about shifting to organic growth opportunities, you've highlighted the one that you announced in the last month. How significant do you think that could be? And do you think it might be possible that it gets delayed as a result of organic growth opportunities? Or do you think you can do it all at the same time?

Yes, we are committed to addressing the preferred arrearages. We have clearly communicated this in the press release that was issued on Tuesday and with the first payment. We would not have made the first payment if we did not have a clear plan for making the second payment. We are expecting to see the release of working capital in the third quarter and the typical free cash flow in the fiscal fourth quarter, which will allow us to make that payment. However, the growth projects that Mike mentioned will not hinder our ability to manage these arrearages.

The next question comes from Paul Chambers with Barclays.

A follow-up question on kind of oil skimming. And I think as we look towards fiscal '25 and the ramp of the new contract commencing in the second half, will the oil skimming daily volumes grow commensurate with that? Or would it be fair to assume that oil skim volumes will be higher in fiscal '25?

Yes. The relationship between skim and disposal volumes that we've had the last couple of years should hold for fiscal '25.

Okay. And then, Brad, clarity. On the income statement, the Water Solutions cost of sales was a benefit. I know it's a small number, but can you add any clarity on why that is?

The cost of sales may be influenced by our hedges. We have hedged the skim oil with costless collars that could be affecting that line item. Let me check on that quickly, and we can follow up later if needed. We had approximately 80% to 90% of our skim oil hedged with collars through the end of the fiscal year.

The next question comes from Ward Blum from UBS.

Great accomplishment on the refinancing. Looking forward perhaps a quarter or so when you have the free cash flow and the asset sale proceeds to bring your preferreds current. How do you view the priorities between getting rid of the B preferred with a 12% coupon or starting to pay distributions to the company unitholders?

I think we have a connection issue. The problem with the Class Ds is that they are set to mature on June 30, 2027. They are not perpetual, so we cannot let them sit unresolved. We also do not like the cost of those funds. We need to take action within the next 3.5 years.

I was referring to the Class B as in boy.

The B is perpetual, but it’s not our first priority. No, it’s not the first secured preferred that we would go after. Getting caught up on the Bs, Cs, and Ds arrearages allows us to now make to start making redemption payments on the Class Bs. To Mike's comment, those have the obligation or the put right in the summer of '27, and we will go after the Ds before we address the Bs and Cs.

Would that preclude you from making common distributions at that point when you were going after the paydown of the D?

Now that we have addressed the arrearages, we have financial flexibility and can reduce debt further. We can buy out the Ds over time, and then we can consider options for the common.

The next question comes from Ned Baramov with Wells Fargo.

Can you talk about how big the contract is with the one shipper that signed up for capacity? And when are the remaining contracts on Grand Mesa rolling off?

Yes. We've got maybe a smaller contract that's rolling off towards the latter part of this calendar year, and then the second contract of size equivalent to the one that just rolled off has another couple of years on it.

Okay. Got it. And on the water system expansion project, can you give us a sense for the CapEx dollars associated with the expansion? I know that you mentioned next year's growth CapEx is going to be higher than the current year, but just looking for additional color there.

Yes. At this time, we can't disclose that. It will be part of our fiscal '25 budget. As Mike spoke about, we'll roll that out at the June year-end call.

The next question comes from Ben Neidermeyer from NBW Capital.

I'm just wondering, with the desire to get a higher debt rating, what you're thinking is on debt-to-EBITDA aspirationally, where you want to see it? I know you've got to counterbalance that with the fact that some of the debt you can't pay down right away, and it's more of an EBITDA growth focus. But nonetheless, where do you see EBITDA 2 to 3 years out?

So, Ben, I think the agencies consider the arrearages as indebtedness, and they also consider the Class Ds as indebtedness. So we're not looking at just your plain vanilla leverage. It's really all 3 of those. By paying down the arrearages and going after the Class Ds, we will reduce leverage from the agencies' perspective.

What are your goals regarding leverage? Are you aiming for a debt-to-EBITDA ratio of 3.5?

Yes, just plain vanilla without the arrearages or the Class Ds. We would like to aim for something below 3.5. While we continue to address the preferred and the Class Ds specifically, I think we're in this 3.75 to 4x range. And then once the Class Ds are taken care of, something below that level, probably 3.5 is a nice long-term goal for us.

Can I do a follow-on question on another topic? The former question on not being able to disclose the cost of the new pipe, I'm interested to know the length of those Minimum Volume Commitments and I'm assuming the return on invested capital is going to be much higher than the company norm because you've got it on an existing right of way that you're building another pipe right next to an existing one. Can you give us some sense of what type of returns, the length of those MVCs, just beyond without disclosing the costs?

Is Doug on? Doug, are you there?

I'm here.

Can we say the length of the MVC?

Yes. As mentioned in the press release, the five-year Minimum Volume Commitments were announced.

And returns, are you putting this up at a very low multiple of EBITDAR? Can you give us some sense of the returns on the project?

Your comment on the right of way is correct. We had previously purchased that right of way. We had 2 and we built the LEX I. This is LEX II. So there isn’t a significant right of way cost. We can’t disclose the return, but I think the important thing here, Ben, to the whole story is we got an extension of the acreage dedication. There's value in that and there's EBITDA from what gets shipped over these 5 years. However, what we're very excited about is the total capacity is 500,000 barrels. So we have a couple of hundred thousand barrels of capacity to sell to other producers. Ultimately, the return or rate of return is going to be very attractive, but we can't give you a number.

I would now like to turn the call back to Brad Cooper for closing remarks.

Well, thanks, everyone, for your interest in the call today. We've accomplished a lot this last quarter and look forward to talking to you all in June with our year-end results and fiscal '25 budget. Thank you.

Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.