Earnings Call Transcript
NGL Energy Partners LP (NGL)
Earnings Call Transcript - NGL Q4 2022
Operator, Operator
Good afternoon, ladies and gentlemen, and welcome to the NGL Energy Partners LP 4Q and Year-End 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host Linda J. Bridges, CFO. The floor is yours.
Linda Bridges, CFO
Hi, and welcome to NGL's fourth quarter and year-end fiscal 2022 earnings call. To start, I'd like to call your attention to our Safe Harbor language, which can be found towards the end of the partnership's earnings release, which was filed after market closed this afternoon. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I would also like to direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in the partnership's annual report on Form 10-K for the year ended March 31, 2022 and in other SEC filings made by the partnership, which are available on our website and on the SEC's website. These, together with the Safe Harbor statement in the earnings release, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. Looking back at fiscal 2022, our financial performance has started to produce results that reflect the quality of our asset base and validation of our strategy. Our Water Solutions segment saw tremendous growth in fiscal '22 with adjusted EBITDA of $342 million, growing 42% or more than $100 million year-over-year as underlying volumes grew over 30% on a volume basis, and as our skim oil sales benefited from higher realized crude oil prices. Fourth quarter volumes grew nearly 5% over the preceding fiscal quarter, and as expected, we exited the year at approximately 2 million barrels of processed volumes per day. Additionally, the Partnership reported total recycled volumes of approximately 34 million barrels for fiscal 2022. We expect processed water volumes for fiscal 2023 to average 2.2 million barrels per day, a level that we have already seen in May. Margin for fiscal 2022 totaled $0.46 per barrel, which includes disposal and skim oil revenue, offset by OpEx per barrel. We believe this is a reasonable estimate for margin going forward. The Liquids logistics segment reported total adjusted EBITDA for fiscal 2022 of $96.5 million. Our wholesale propane business had a challenging fourth quarter and full fiscal year due to lower volumes and margins, as we experienced lower demand and increased competition in the areas in which we operate, as well as challenging market conditions related to a backwardated propane price curve over the course of our fiscal year. Despite a difficult year in propane, our butane refined products and biodiesel businesses performed exceptionally well with elevated margins due to tight supply market, increases in demand for these products, and favorable location differentials. As a whole, this segment should perform slightly better than this past fiscal year, as we expect to see some rebound in our propane business in fiscal 2023 based on current market conditions, as well as earnings from Ambassador Pipeline, which was not in service during fiscal 2022. Please remember, however, the majority of cash flow for the liquids logistics segment is and will continue to be generated in the second half of our fiscal year. Drivers include winter weather and agricultural demand for propane, gasoline demand, refining activity, and market disruptions. Crude logistics reported adjusted EBITDA for the year of $146 million, which was higher than expected due to realized gains on the sale of inventory due to rapidly increasing crude oil prices. These gains are expected to be offset by approximately $12 million to $13 million of net realized losses related to commodity derivatives in the first quarter of fiscal 2023. Similar to what we saw in fiscal '22, going forward, should we continue to experience a highly volatile crude price environment, we would expect to continue to see fluctuations in our quarter-over-quarter adjusted EBITDA numbers due to timing differences between the physical and financial settlements of inventory sales. Again, these fluctuations relate to timing and any increase or decrease due to timing in a particular fiscal quarter will be offset in subsequent fiscal quarters, leaving the underlying business neutral. For fiscal '23, we expect the underlying crude logistics business to perform relatively in line with fiscal 2022. Moving to the balance sheet, we repurchased approximately $86 million of unsecured notes during the fiscal year. The remaining majority of free cash flow generated in fiscal '22 remains on the balance sheet, driven by an increase in inventory values due to higher commodity prices. Should inventory values decrease, we should see this cash flow come back to us, at which time we expect it will be utilized for debt reduction of the 2023 senior notes. Additionally, our distributable cash flow for fiscal 2022 includes approximately $55 million related to certain realized losses on commodity derivatives related to our previously discussed CMA differential hedge strategy that will return to the Partnership in the form of realized gains on or before the expiration of the hedge strategy in December of 2023. Liquidity on March 31 totaled $233 million. In light of rapidly increasing commodity prices, we proactively reached out to our bank group to increase our ABL commitment to accommodate higher working capital needs. Subsequent to the quarter end, our commitment was temporarily increased from $500 million to $600 million with full participation from our bank group. This increase along with certain other initiatives being pursued should give us sufficient liquidity to fund elevated working capital requirements, as well as repay most, if not all, of our 2023 notes by the end of this fiscal year. While we're not prepared to discuss the specifics of these initiatives on this call, we hope to have updates in the coming months. With that, I'll turn it over to Mike for his comments.
Mike Krimbill, CEO
Thank you, Linda. Well, this is a very exciting time for NGL; we are turning the corner and have strong momentum going into fiscal year 2023. Our Water Solutions business is continuing to grow significantly. Our prior year's capital investment is fueling that momentum, allowing us to provide capacity to our upstream customers without delays. Before we get into the specifics, I briefly review our current focus: one, prudent management of the balance sheet, reducing absolute debt and leverage; 2023's are the primary target; two, reduce leverage below $475 million in order to reinstate the preferred dividends and increase our financial flexibility. We will achieve this through a combination of reduced debt and increased EBITDA; three, generate significant free cash flow from operations to provide the cash to repay the debt; four, enhance that free cash flow by reducing working capital requirements, decreasing CapEx and monetizing underutilized assets. While at the same time, continue to pursue growth opportunities, leveraging volume capacity in our Water Solutions network with minimal new investments. We do not turn down any water offered at a reasonable price. Due to the breadth and redundancy of our water pipeline system, our customers know they can depend on NGL while we commit to take theirs. Now let's discuss fiscal '23; our EBITDA guidance is in excess of $600 million. We do not have an upper range as it could vary significantly depending upon the continuing strong commodity price environment. We are increasing our water solutions EBITDA forecast from $385 million to at least $400 million. The fourth quarter of the recently completed fiscal 2022 was the first $90 million EBITDA quarter for Water Solutions. We have clarity into the first quarter of fiscal '23 where it appears we will realize our first $100 million EBITDA quarter. In terms of volume, the fourth quarter of last year averaged 1.93 million barrels a day, and we expect the first quarter of 2023 to average 2.2 million barrels a day, both excluding any recycle volumes. This is more than a 10% increase in just three months. Volumes in excess of this level during the subsequent quarters of this year could allow us to further increase EBITDA guidance. As a result of increased water volumes, we are capturing additional skim oil and realizing higher revenues due to both more volume and higher crude prices. At this time, we do not have clarity into the first quarter estimates for crude oil and liquids logistics segments as they have significant inventory quantities subject to the timing of physical versus financial results; in other words, hedge gains or losses versus the offsetting financial gains and losses. We are cautiously optimistic, but conservative at this time with respect to these segments guiding EBITDA roughly flat for fiscal '23. We will have the Ambassador Pipeline fully operational and in service, connected to Marysville this summer, such that we will realize a full winter performance this year from our investment in Michigan. Continuing with items that determine our free cash flow, interest expense is about 95% fixed for NGL. So the increase in interest rates is not impactful. As we repay indebtedness, lower interest costs provide additional free cash flow each year of $15 million to $25 million depending on the debt reduction. Regarding CapEx, due to our legacy investments, our CapEx should decrease annually. In fiscal '22, maintenance and growth CapEx were $47 million and $75 million respectively, about $120 million. Fiscal '23 is forecasted to be about 20% lower at $39 million and $60 million, respectively. Approximately 50% of the growth CapEx in '23 is committed to the new long-term produced water transportation, recycle, and disposal agreement announced on February 10 this year. This agreement contemplates a 24-inch pipeline with four new SWDs and surface facilities. In addition, we are twinning the 30-inch Poker Lake pipeline to provide combined capacity of the 230-inch lines of 700,000 barrels per day, plus a 16-inch pipeline in SWD for a third customer. We are currently negotiating with additional producers that could result in further dedications and thus connections that would require some capital. We continue to monetize underutilized assets as every dollar helps reduce debt. We realized about $20 million of sales in '22 and we are progressing towards another $20 million this year. In summary, we are expecting a strong beginning to the current year with the potential for an even stronger back half of the year. And finally, I would like to tell KJ-65 and JHH-2020 that, yes, I’m dancing. With that, we'll open it up for questions.
Operator, Operator
Thank you. Ladies and gentlemen, the floor is now open for questions. The first question is coming from Tarek Hamid with JP Morgan. Your line is live.
Tarek Hamid, Analyst
Good afternoon.
Linda Bridges, CFO
Hello.
Tarek Hamid, Analyst
So on the water business, obviously, really strong performance and good to see the guidance of sort of above $400 million of EBITDA there. You sort of touched on a little bit in your opening remarks, but that sort of $600 million of total EBITDA less the $400 million of water EBITDA on the low end would sort of imply $200 million of EBITDA out of crude oil, logistics and liquid logistics and that clearly would be sort of down from about a little over $240 million in fiscal 2022. So you can help maybe just bridge us a little bit about how you're thinking about that? Is that sort of conservatism? Am I sort of being a little bit too precise with those numbers? Just any other color would be helpful.
Linda Bridges, CFO
I think you're missing the offset of corporate expenses to that and that should bridge you.
Tarek Hamid, Analyst
Okay.
Mike Krimbill, CEO
I think when we say corporate overhead, we have that number; it was about $39 million. So that would be your $40 million difference.
Tarek Hamid, Analyst
Okay. So really just think about it as flattish in the crude and liquids logistics.
Mike Krimbill, CEO
Yes.
Tarek Hamid, Analyst
And then, second, on the CMA hedge. I think you talked about $12 million to $13 million if I read the doc correctly of expected EBITDA impact in the next quarter. Obviously, the cash flow impact of the overall hedging program was pretty tough this quarter at about $90 million. Could you sort of give us any color on what you expect the cash flow impact to look like of the commodity hedging program in this upcoming quarter?
Linda Bridges, CFO
Yeah. So I think you’ve remixed a couple of items; the $12 million to $13 million is the net loss on commodity derivatives that we expect to hit in the first quarter. That could offset some of the gains. So that's not relating necessarily to the CMA differential role. Without knowing what the price curve is going to do, it's difficult to predict what the cash flow impact is. Typically, if you are hedging into a backwardated market and prices are realizing on those hedges at higher prices, that would be a cash flow outflow and vice versa on an inflow.
Tarek Hamid, Analyst
What is your expectation for the upcoming quarter compared to the last quarter?
Linda Bridges, CFO
Not without knowing what commodity prices are going to do for the next month.
Tarek Hamid, Analyst
Okay. Fair enough. That’s it from me.
Operator, Operator
Okay. The next question is coming from Jason Mandel with RBC. Your line is live.
Jason Mandel, Analyst
Hi everyone. Thank you for the question. The outlook for the water business looks very promising, but the next few quarters may present some challenges in terms of total cash flow, particularly with settlements and other factors, which I believe contributes to the $100 million increase in the revolver. Are there any additional strategies being considered to enhance liquidity, such as asset sales or adjustments to the capital structure?
Linda Bridges, CFO
Yeah. Yes, I think we referenced in the earnings comments that we are working on a few different initiatives from both liquidity and debt pay down perspective; we specifically stated that we're not prepared to talk about those initiatives at this time, but we would hope to provide updates in the coming months.
Jason Mandel, Analyst
Okay, thank you. And then the $100 million expansion on the facility, it sounds like that is to give a little bit more breathing room over the next couple of quarters when working capital is more challenging? And then I guess that facility drops back down early in '23; is there any hope or plan or expectation to extend that date or is there no need?
Linda Bridges, CFO
Based on what we are seeing today, I would say that; so let me back up the agreement and that will reduce that commitment back down to $500 million by March 31 of this next year. It really depends on what commodity prices do between now and then. The initial reason for requesting the additional $100 million was related to just higher working capital needs, due to increases in commodity prices. If we continue to see these higher levels, we would most likely talk with the bank group going into next year.
Jason Mandel, Analyst
Okay, very good. I'll hop back in the queue. Thanks for the help.
Operator, Operator
Up next, we have Robert Kane with Kane LLC; Robert, your line is live.
Robert Kane, Analyst
Thank you. Good afternoon. I'm curious, I know the goal on the leverage ratio is 4.75; where are we right now?
Linda Bridges, CFO
Right now, I believe we're right around 6.2.
Robert Kane, Analyst
Okay.
Linda Bridges, CFO
We just posted an investor presentation that walks through where we expect to be, where we ended the year, and where we expect to be at the end of next year.
Robert Kane, Analyst
Okay. All right, very good. Do we have an earnings per share number on this quarter?
Linda Bridges, CFO
I don't have that pulled up, it's going to be in our 10-K, though. We would have posted that right after market close today.
Robert Kane, Analyst
Okay. I did look at that and I didn't see it. All right. I thought you would have that number there available.
Mike Krimbill, CEO
Yes. We have.
Linda Bridges, CFO
Yeah. It's not perfect.
Mike Krimbill, CEO
Now just check the 10-K –
Robert Kane, Analyst
Okay.
Mike Krimbill, CEO
That's not a number we really pay any attention to, but we pay attention to the free cash flow and the EBITDA.
Robert Kane, Analyst
All right, very good. All right, I'll take a look at that and you've answered my question.
Operator, Operator
Up next, we have Robert Stetson, Private Investor. Robert, your line is live.
Robert Stetson, Investor
Hi, thank you. I'm an investor primarily in the preferred shares and typically when the preferred shares are in suspension and the dividends being suspended, the preferred shareholders have a right to name one or more Directors to the Board; is that the case here?
Linda Bridges, CFO
No.
Mike Krimbill, CEO
No. The largest preferred share investor is EIG, and they have the right to appoint one board member, but that was part of their investment agreement, not due to the suspension of dividends.
Unidentified Participant, Investor
And do they have any intention of following through on that?
Mike Krimbill, CEO
Yes, they had a Board member since the day of the investment. Yes.
Unidentified Participant, Investor
Okay. So was the dividend suspended at the time they made the investment?
Mike Krimbill, CEO
Subsequent to the investment.
Unidentified Participant, Investor
Okay.
Mike Krimbill, CEO
So they invested, they brought on a Board member and you can check our Board members, that member is, Mr. Randy Wade of EIG and he is currently on the Board and we expect he will be until they repay.
Unidentified Participant, Investor
Okay. All right, thank you.
Operator, Operator
Okay. The next question is coming from John Horton with BMR. Your line is live.
John Horton, Analyst
Thank you. Good afternoon, Michael and Linda. I appreciate the opportunity. Last quarter you gave a lot more color on the status of the Ambassador Pipeline. Do you have a couple of points that you would highlight now as far as the progress there? And with the excitement that was noted by some of the retailers in the region, do you see a favorable contract situation for this next year that will help increase the growth?
Mike Krimbill, CEO
Sure. Jeff Pinter here who runs liquids. So we can give an update on both the pipeline connections, Marysville, etc. and then what we're seeing with the response from retailers.
Jeff Pinter, VP of Liquids
Good afternoon. Yes, the reception in Michigan has been very warm; we had the Wheeler terminal, which, if you'll recall, was built about halfway up the pipeline in the center of the state, a little west of Saginaw. We completed that and brought it in service February 1 of this year and customers were very excited to come to a brand new facility with a very efficient pump and truck loading system. And so we moved, I think, over 1 million gallons in first month in service and the reception has been great. The pipeline connection itself, we have both of the lines ready to go. We're finishing up some of the last pieces of the connection with DCP into their Marysville cavern. As Mike mentioned earlier in the comments, we expect that to be complete this summer and ready for winter service.
Mike Krimbill, CEO
I would like to emphasize that the Marysville connection is a crucial hub for propane production, allowing us to transport propane to Wheeler and then further to Kalkaska. This winter, we lacked this capability and had to rely on rail transport, which limited our production at Kalkaska. This represents a significant improvement. Michigan has very few supply points; products are being sourced from places like Toledo, Chicago, and Detroit.
Jeff Pinter, VP of Liquids
Sarnia.
Mike Krimbill, CEO
Sarnia, and the vast majority by rail and truck. So, this from an environmental point of view, this is also a great asset, because it's going to eliminate a lot of truck miles.
John Horton, Analyst
And that was kind of a follow-up question to that. Do you have the estimates on what it’s saving from an ecological standpoint?
Mike Krimbill, CEO
We look at emissions really from the transports; I don't know that we've got a number. Not that we're ready to share today. We are looking at it for the ESG benefits; the pipeline provides that. Yes, it is a significant amount of efficiency gain. If you think about the haul from Chicago or Toledo to Northern Michigan and then returning empty, you talk about 200 miles to 400 miles round trip and half with trucks empty. And so that much more efficiently brings product up there and I'd say much more reliably. Roads can have potholes and rucks and icy conditions; the pipeline runs smoothly and efficiently underground during the bad weather.
John Horton, Analyst
Well, I was just thinking with the great relationship you have with the Governor of Michigan that they ought to appreciate all those efforts. I guess the next question, it's a very dynamic economic and materials environment that we're in right now. We look with many of our economists and the questions of will we have a recession? And will it be late this year or early next year? It puts a lot of question marks behind the business. So it's good to hear that you've got an action plan in place that can help pay off a significant amount of debt by the end of March in '23. But in the forecast you're considering, are you seeing anything in particular that you're not able to offset? Let's say, if you see oil go back down to $65 a barrel, how does that change the dynamics of the management's getting plan?
Mike Krimbill, CEO
We are observing that all three of our businesses are experiencing increased LNG demand, particularly towards Europe, which we anticipate will happen alongside a lower crude price. The Liquids business is expected to perform well despite this. However, a lower crude price will impact our crude logistics, mainly involving Grand Mesa. On the other hand, we haven't seen a significant rise in volume due to the rig count having fluctuated between 9 and 12 rigs. A lower crude price is unlikely to influence the amount of crude produced in that basin. Therefore, the concern shifts to the water side and how the rig count might change at $65. If I had that information, I could provide a more complete answer.
John Horton, Analyst
Okay. I'm not trying to put you on the spot. Typically, management's strategic plans consider a range of variables, and I'm just trying to understand it. Many believe that Wells Fargo's view of a flat future for NGL raises concerns for investors about the viability of future dividends. This poses a challenge for common shareholders; while preferred shareholders might expect to see returns next year, common shareholders still have lingering questions. You mentioned a few quarters ago that we might not see the price increase until a common dividend is reinstated. Could you share any thoughts or professional insights on that?
Mike Krimbill, CEO
No, we are really focused on the preferred stock first, because you cannot increase common dividends until the preferred stock is reinstated. Our goal is to achieve that reinstatement in 2023. Clearly, the 475 is crucial to that. Afterward, we will determine what actions to take regarding the common units.
John Horton, Analyst
I’m trying to understand how the common shares will be valued in the next two to three years. Typically, we don't focus on earnings per share, so it might not align with a PE multiple. As a result, the value may remain stable, which gives us plenty of time to accumulate shares in that scenario. Thank you.
Mike Krimbill, CEO
Okay, thank you for your call.
Operator, Operator
Okay. Next we have Khalid Jameel, Private Investor. Your line is live.
Unidentified Participant, Investor
Yeah. Thank you, Michael, for dancing. I appreciate that.
Mike Krimbill, CEO
It’s a pretty sight.
Unidentified Participant, Investor
Yes. So couple of questions I had and John Horton covered, but question about the opportunities in Europe. I have not heard anything from management on that. Is there any significant opportunities you are seeing coming quarters?
Mike Krimbill, CEO
We do not export from Europe and we do not have any natural gas or LNG exports. However, increased natural gas production from exports could lead to higher production of liquids. Our focus would then be on moving propane and butane throughout North America. We have a butane export facility located in Chesapeake, Virginia. Regarding crude, we transport it to refineries but do not handle any exports ourselves.
Unidentified Participant, Investor
All right. Now I don't have any further questions. Thank you.
Mike Krimbill, CEO
Thanks.
Operator, Operator
Okay. Next we have James Yoon with Nomura. Your line is live.
James Yoon, Analyst
Hi, thanks for taking my question. I was just wondering in your guidance, what you guys are assuming for crude oil price? What are you guys assuming for crude oil prices and can you provide any sensitivities for EBITDA and free cash flow on what happens if crude oil changes by like $5 or $10?
Mike Krimbill, CEO
Sure. The straightforward one is the skim oil; we've been running between 120,000 and 130,000 barrels a month. So if it's at 12, that amounts to 1.5 million barrels, which means a $5 to $10 change would equate to $15 million. A $10 drop would therefore result in a $15 million impact. Beyond that, we need to consider the effect on the rig count, which would subsequently influence our water volumes.
James Yoon, Analyst
Got it. And then what are you guys assuming for crude oil prices in your adjusted EBITDA guidance?
Linda Bridges, CFO
We haven't disclosed that specifically, James.
Mike Krimbill, CEO
Yeah. James, what we do is we grab the water projections from our customers. So it's not a function of crude prices for us; we don't know what their drilling plans are, different crude prices, but we do have their projections of water volumes for the year.
James Yoon, Analyst
Got it. Okay. And then I think CapEx for '23 is a little bit higher, just because of that new acreage dedication; just curious if there are any changes to your 2024 guidance you guys had provided late last year?
Mike Krimbill, CEO
No, we don't have any really changes; hopefully it changes increasing, but we wanted to increase from a profitability point of view as we get more water. We wanted to decrease from a debt reduction point of view. So Linda would like to see a drop and I’d probably would like to see it go up a little.
Linda Bridges, CFO
No change at this point though, James.
James Yoon, Analyst
Thanks for the information. I'm interested in the economics related to the new acreage dedication you announced for the water business. Can you share what the economics look like for those volumes and what we should expect in terms of margin per barrel as those volumes begin to increase?
Mike Krimbill, CEO
We can't disclose anything like that under our agreement. In general, we can discuss where we see margin scaling. Is Doug White on the line?
Doug White, VP of Water Solutions
I’m here Mike.
Mike Krimbill, CEO
Maybe you could talk a little bit about what we're seeing.
Doug White, VP of Water Solutions
We're observing an increase in margins, largely due to favorable oil prices. On our previous call in February, we discussed revenue per barrel, which has seen a slight decline. However, it appears that we are now witnessing a turnaround and an increase. Linda, I believe our release indicated a margin of $0.46 per barrel, which should be a useful figure for your models. Furthermore, revenue per barrel is rising in conjunction with increased activity and the limited capacity from our competitors, which strengthens our position to elevate fees.
James Yoon, Analyst
Got it. What is the amount of skim oil you are able to obtain from this dedication? Is that better than your current mix or is it in line with it? How should we consider that going forward?
Doug White, VP of Water Solutions
In line. I think we were 15 basis points on the last call and that has ticked up a little bit in this current quarter. And the completions activity drives that, of course. So I think if you take that new dedication and just use our averages, you're going to be very close to the write-up to it.
James Yoon, Analyst
Got it. Okay. Thank you. That's all the questions I had.
Operator, Operator
Okay. And next we have Oliver Moon with Moon Private Cap. Your line is live.
Unidentified Participant, Investor
Hey everyone, how are you? I'm calling from Barcelona, Spain, so I'm quite familiar with the LNG market here in Europe. You mentioned the butane export facility at Chesapeake, and I'm curious if you have any plans to sell wholesale to companies in Europe. With the anticipated increased demand for butane and propane next winter, it seems like a good opportunity. American gas prices are rising, but converting it to LNG won't be feasible for shipping to Europe. Since you produce propane and butane in liquid form, it should be transportable. I'm eager to know if you're making any progress with the butane export facility. Also, Doug, I wanted to ask if you hold any shares in NGL Energy Partners. I've noticed Mike buying around 100,000 shares each quarter and John Ciolek purchased some last quarter, but I haven't seen your name on the insider trading list. Lastly, are there any concerns we should have regarding potential buyout opportunities for NGL Energy Partners in the near term?
Mike Krimbill, CEO
All right. I like when you summarize. So I got them all. Doug, you want to go first?
Doug White, VP of Water Solutions
I am very invested in NGL and in this company.
Unidentified Participant, Investor
Very glad to hear that, because I've been looking online trying to find where your shares and I can’t find them. So, that's super stock then. I think –
Doug White, VP of Water Solutions
Unfortunate that I don't have to report.
Unidentified Participant, Investor
It's great to know that you have them, as it helps to ease everyone's concerns. Thank you for that.
Mike Krimbill, CEO
Butane. Great question about Chesapeake. It's closer to West Africa, the Mediterranean, and Europe from the east coast of the US than from the Gulf Coast, which we appreciate. The facility is nearly fully subscribed for butane exports through the fall, but we still have some capacity available for the winter.
Unidentified Participant, Investor
To where?
Mike Krimbill, CEO
We have been sending shipments to various locations lately, particularly to West Africa, but we have also sent shipments to South America and the Mediterranean. If there are interested parties, I would be happy to discuss that.
Unidentified Participant, Investor
Is the Partnership making money off of selling butane and would you guys be interested in more partners? Because I can hook you up to Turkey if you want Turkey. I mean, I'm sorry to speak like that, but I got a lot of money invested in your company. I want to help this make money, how do we make this happen? How do we get that butane export facility working more?
Mike Krimbill, CEO
We have a –
Unidentified Participant, Investor
How do we increase our propane sales? From what I understand, NGL Energy Partners has NGL Energy Wholesale, and we operate 27 wells that produce butane and propane. We shouldn't limit our sales to the winter season for Michigan; we should be selling year-round to various locations.
Mike Krimbill, CEO
Sure. We have an international trading company that has anchored our facility. So we're not actually the company that's selling; we provide the facility and the butane to the trading company. So I don't know what to tell you, giving us the Turkey connection –
Unidentified Participant, Investor
It just sounds like NGL Energy Partners as a wholesale, we wholesale butane and propane. Correct?
Mike Krimbill, CEO
Yes.
Unidentified Participant, Investor
But we only operate in the United States; we’re not selling to Europe.
Mike Krimbill, CEO
That's correct.
Linda Bridges, CFO
US and Canada.
Mike Krimbill, CEO
Our partner maybe. Just speaking about our partner who is selling to these other countries. Yes.
Unidentified Participant, Investor
Okay. I'll give you a phone call later if you want to get that information. As a fully invested person in NGL Energy Partners, I can say we're completely out of bankruptcy concerns. There’s nothing happening and no worries ahead regarding bankruptcy.
Mike Krimbill, CEO
Yes.
Unidentified Participant, Investor
I’m not a banker from New York; I’m simply a European investor in NGL Energy Partners. We’re stable and doing well, we just need a bit more time.
Mike Krimbill, CEO
That is correct. If there was a problem, the outside auditors would have a qualified opinion which they do not.
Unidentified Participant, Investor
Exactly, that's what we're trying to do. We're focused on increasing water volumes and boosting propane sales, which requires patience over time, if I'm correct.
Mike Krimbill, CEO
That’s correct.
Unidentified Participant, Investor
Hey, it's great to hear from everyone on the call. Thank you for joining. I really appreciate it. Have a wonderful day.
Mike Krimbill, CEO
Thank you.
Operator, Operator
Okay. Up next we have Edward Campana with Countryside Ventures. Your line is live.
Edward Campana, Investor
Good afternoon. I have a question about the water solutions business as it relates to the recycled water component of it. My understanding is, many of your customers might want to not only drill for more oil or complete wells to produce more, but also want to be as environmentally friendly as possible. What are you seeing now in terms of the demand for more recycled water? What kind of premiums can you get for that water? And as it means to enhance margins, my sense is that only about 20% of produced water that most large operators like yourself receive is actually recycled and this kind of goes in tandem with more restrictions on permitting SWDs.
Mike Krimbill, CEO
Hey, Doug.
Doug White, VP of Water Solutions
That's a great topic to mention. In Q3, we produced 53,000 barrels per day, and last year in Q4, it was 146,000 barrels per day. In Q1, we're already exceeding that, and we're hoping to reach 20% of all that water, which is over 400,000 barrels per day. We're very excited about that aspect of our business. From a customer demand perspective, this area continues to grow; more companies are becoming comfortable using produced water in the completions process compared to a year ago. This presents a significant opportunity. Regarding margins, there are two aspects to consider. As you noted, the less capital we need to invest in growth or even maintenance for disposal wells, the better it is for us. We're already seeing some benefits, especially with our ability to sell water from our system in regions where we're experiencing high demand. This brings great advantages. There are also operational cost savings associated with this. On the revenue front, we're seeing increasing value as demand rises. A year ago, people were offloading water from their systems, but we maintained our pricing at $0.10 a barrel. Recent deals in May have seen us selling for $0.40 a barrel, highlighting the rapid increase in the value of our water, both in terms of revenue and volume. It represents a promising future. This also aligns with our ESG goals, benefiting our customers who aim to enhance their own ESG efforts by reducing demand on their fresh water sources. It has also become widely accepted in the industry and is more economical than using fresh water. Thus, it's beneficial for all involved. We consider this to be a significant part of our operations, with NGL's core business focused on securing revenue barrels, which were previously categorized as disposal. We're helping customers manage their water needs so they can focus on oil production. How we use that water afterward is evolving, but our core operations and the numbers we report, as Mike mentioned in his opening, are based on full fee revenue barrels that have traditionally been categorized as disposal. The barrels that are recycled and reused generate a lower fee, so while they don't have as much incremental impact on our bottom line, they are still valuable.
Edward Campana, Investor
Are you required to provide any reporting back to your customers regarding the delineating between what's being recycled and what's being injected DSWs?
Mike Krimbill, CEO
As the water midstream operator, we do not have that. In New Mexico, the OCD, which is the regulatory body for our oil and gas, has requirements for operators to report those volumes, fresh versus breakage versus reused.
Edward Campana, Investor
Great. Thank you very much.
Operator, Operator
Okay. And next we have Craig Thomas with CWT Capital. Your line is live.
Craig Thomas, Analyst
Hi everyone, thank you for taking my call. Could you help me in the water solutions business for water takeaway about what percentage of the business right now is conducted in the spot market?
Mike Krimbill, CEO
Very, very little. On a percentage basis, we would assume that would be trucked water, and that's the spot business. Trucked water is maybe 1% to 1.5% of our total volumes.
Craig Thomas, Analyst
So, very small. And then, is there a goal to get water that flows through pipelines to be more exposed to the spot business given that revenue is climbing?
Doug White, VP of Water Solutions
Yes, Mike mentioned this earlier. This year, we have added interruptible agreements to our portfolio that we did not have before. These agreements continue to come in and are expected to grow while we are in this high commodity environment. Many have inquired about how well our system has been utilized in terms of capacity, given that we may have overbuilt in recent years. Based on what we observe with these new interruptible agreements, they typically range from $0.80 to $1 per quarter as a fee. This allows us to capture water that is allocated to our competitors, whose systems lack the necessary capacity or throughput, enabling us to capture those barrels at very high return fees.
Craig Thomas, Analyst
Right. So then those interruptible contracts are not the trucking contracts because you have pipes that go across Texas, New Mexico and multi-direction. So I guess is there more exposure than maybe I used the wrong word; maybe it should be interruptible; how much of our business is now interruptible?
Doug White, VP of Water Solutions
This year, we had very few interruptible pipeline agreements before this calendar year. In the Delaware region, which is where most of our business is located, we currently have about 100,000 barrels per day of interruptible capacity, averaging around $1, and we're now operating at 2 million barrels per day in that area. This trend is expected to continue.
Mike Krimbill, CEO
Yeah, I imagine it would, given earthquakes and the issues with permitting disposal well. So that's a great strategic asset you all have. So I guess it’s a congratulations on having a great system. And then one little clean-up from the last quarter call, you all indicated on that call that the water solutions did or was doing $30 million in January and February and then was on rate to kind of get to that $32 million level in March; so I calculate that at $92 million. In the call that was at the beginning of February when oil was substantially lower, and obviously, you were able to sell skim oil at higher prices for at least a month and a half higher than it was when you had that call. So I'm just curious, was there something one time in the water solutions business in the last six weeks of the quarter or were there expenses that maybe – sorry, your prepaid expenses declined pretty dramatically. Was there something that was kind of pulled forward from this now fiscal year that suppressed the EBITDA number a bit?
Doug White, VP of Water Solutions
Can I ask about the March actual, Mike or Linda?
Mike Krimbill, CEO
Sure. Yeah.
Doug White, VP of Water Solutions
So the March actual was $34 million EBITDA. And to answer your question, were there any one-time events or other accounting measures? It's been year-end; GAAP accounting gets pretty focused on making sure that we've captured all of our accruals and there were some of those we would have even outpaced at $34 million in March, but there were some one-timers that in the quarter, really, really at the GAAP accounting nothing strategic or operational just to wrap up fiscal year.
Craig Thomas, Analyst
Got it. So are those things normal every year or they just kind of were under maybe accrued in the first nine months and then you've caught up all in the fourth quarter?
Doug White, VP of Water Solutions
It would be the latter. Those are not typical or normal to the magnitude that we had. They were just clean-ups and catch-ups from priors, but we would not expect the same magnitude in this new fiscal year.
Craig Thomas, Analyst
Got it. Well, that's good. That sounds like you're doing quite well, so the exit rate of $34 million was better than the $32 million and it would seem that if that's the exit rate, $34 million, you should do better than $400 million probably dramatically so, given where crude is now. So it seems like in your numbers, you are assuming a very low number for the price of oil in skim oil your realization. Is it like $90 you are assuming? It seems that could be that low?
Mike Krimbill, CEO
No, we're just trying to be make sure we beat our numbers this year.
Craig Thomas, Analyst
Okay, I get it. I understand. And I know you have some things in your business that keep you propane’s a wildcard always; you never know what you're going to get. So I understand that one is a hard one to predict. And we as investors certainly appreciate you hitting your numbers. So I appreciate the conservatism. And one final question on, I'll let you go. Did you all say you're going to pay off the $500 million notes due at the end of 2023 by the end of this fiscal year? Did I hear that right?
Linda Bridges, CFO
I think there were $475 million outstanding at $331 million. We would expect free cash flow generated this year as well as cash flow generated from some of the initiatives that we alluded to earlier to get us to a point where we can either pay off or substantially pay off the 2023 notes by the end of this fiscal year.
Craig Thomas, Analyst
That's fantastic news. So then there is nothing in the pipeline to win '26 in terms of maturities as of '25.
Linda Bridges, CFO
There is a small charge in '25.
Craig Thomas, Analyst
Wow, that's impressive. One final question before I open the queue for others. How much debt has been paid off through the end of May? Have you gone back into the market to repurchase the notes?
Linda Bridges, CFO
It's not a number that we'll disclose. It will come out in our first quarter 10-Q.
Craig Thomas, Analyst
Okay. Wonderful. Thank you very much.
Mike Krimbill, CEO
Thank you.
Operator, Operator
Now I'd like to turn the floor back to management for closing remarks.
Linda Bridges, CFO
All right. Well, thank you guys for your participation in today's call. We look forward to talking to you guys in August when we discuss our first quarter 2023 numbers. Thanks guys.
Mike Krimbill, CEO
Thank you.
Operator, Operator
Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.