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NGL Energy Partners LP (NGL)·Q3 2020 Earnings Summary

Executive Summary

  • Record quarter: Adjusted EBITDA from continuing operations of $200.5M, up 53% YoY, driven by strong Liquids (+156% YoY) and solid Crude performance; management said results were “at least 20% higher than any retail analyst projection,” catalyzing positive sentiment on execution and guidance raises in multiple segments .
  • Mixed headline P&L: Income from continuing operations was $49.1M vs $97.2M YoY; total revenues were $2.23B vs $2.30B YoY, reflecting portfolio simplification and exit of volatile refined products businesses .
  • Guidance shifts: FY2020 Adjusted EBITDA guidance was lowered for Water ($240–$250M) due to a ~3-month ramp delay, but raised for Liquids ($115–$120M), Refined ($35–$40M) and tightened higher for Crude ($215–$220M); total FY2020 guidance now $565–$595M .
  • Strategic catalysts: Hillstone acquisition (closed Oct 31) adds long-term acreage dedications and MVCs; Grand Mesa volumes steady at ~134kbpd; pipeline share of water volumes rising toward >70%, with OpEx targeted to fall materially as diesel generators are replaced by grid power .

What Went Well and What Went Wrong

  • What Went Well

    • Liquids posted a record $69.1M Adjusted EBITDA on strong butane/propane margins and Chesapeake export terminal performance; product margin per gallon rose to $0.098 vs $0.049 YoY .
    • Strategic simplification: sale/wind-down of refined products reduced working capital and volatility; continuing Refined segment benefited from reinstated biodiesel tax credit (recognized $13.8M in continuing ops) and guidance raised to $35–$40M .
    • Management tone confident: “historic quarter with record adjusted EBITDA in excess of $200 million” and LTM coverage improved to ~1.25x; targeting self-funding and deleveraging toward investment-grade metrics .

  • What Went Wrong

    • Water volumes ~3 months behind plan; FY2020 Water guidance reduced to $240–$250M from $270–$300M, with Poker Lake contribution now mid-2020; Q3 Water Adjusted EBITDA was $62.2M .
    • Elevated OpEx: Disposal OpEx was $0.42/bbl (vs target $0.30) as systems are integrated and generators replaced by grid power; margin improvement depends on operating cost reduction .
    • Headline income down YoY: Income from continuing operations fell to $49.1M from $97.2M; reported diluted EPS was $0.18 vs $0.64 YoY, reflecting portfolio changes and discontinued operations dynamics .

Financial Results

Consolidated Metrics vs Prior Quarters

MetricQ1 2020Q2 2020Q3 2020
Revenue ($USD Billions)$6.64B $4.29B $2.23B
Diluted EPS ($USD)$(0.96) $(1.72) $0.18
Operating Income ($USD Millions)$46.6 $46.4 $96.4
Adjusted EBITDA - Continuing Ops ($USD Millions)$86.8 $119.0 $200.5

Year-over-Year Highlights (Q3 FY2020 vs Q3 FY2019)

MetricQ3 2018Q3 2019
Revenue ($USD Billions)$2.30B $2.23B
Income from Continuing Ops ($USD Millions)$97.2 $49.1
Adjusted EBITDA - Continuing Ops ($USD Millions)$131.3 $200.5

Segment Adjusted EBITDA (Continuing Ops)

Segment ($USD Millions)Q1 2020Q2 2020Q3 2020
Crude Oil Logistics$52.1 $54.6 $55.6
Water Solutions$41.1 $56.9 $62.2
Liquids$12.4 $19.3 $69.1
Refined Products & Renewables (continuing)$(11.2) $(0.5) $24.1
Corporate & Other$(7.6) $(11.3) $(10.5)
Total Adjusted EBITDA - Continuing Ops$86.8 $119.0 $200.5

KPIs and Operating Metrics

KPIQ1 2020Q2 2020Q3 2020
Grand Mesa Pipeline volumes (bpd)133,000 128,000 134,000
Produced water processed (bpd, total)848,887 1,258,353 1,585,385
Disposal fee per barrel ($)N/A$0.64 $0.62
Disposal OpEx per barrel ($)N/A$0.38 $0.42
Skim oil volumes (bpd)N/A~3,100 3,429
Realized skim oil revenue ($/bbl)N/A~$58 $56.90
% of disposal volumes via pipelineN/A~60% 67% exiting >70%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Crude Oil Logistics Adjusted EBITDAFY2020$200–$220M $215–$220M Raised/Tightened
Water Solutions Adjusted EBITDAFY2020$270–$300M $240–$250M Lowered
Liquids Adjusted EBITDAFY2020$85–$95M $115–$120M Raised
Refined Products & Renewables Adjusted EBITDAFY2020$15–$30M $35–$40M Raised
Corporate & OtherFY2020$(30)M $(40)–$(35)M Lowered (more negative)
Total Adjusted EBITDAFY2020N/A$565–$595M N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Water volume ramp & Poker LakeExpected strong ramp; exit 1.8–2.0MM bpd by FY year-end; Poker Lake dedication key; Mesquite volumes rising Volumes ~3 months delayed; Poker Lake mid-2020; Q3 total ~1.6MM bpd with 2 months of Hillstone Slight delay, still constructive medium-term
OpEx reduction targetTarget $0.30/bbl by year-end; $0.38/bbl in Q2 with integration work underway $0.42/bbl in Q3; integration and grid power transition ongoing Near-term elevated, improving as grid ties complete
Fresh water & recycling strategyNegotiating long-term fresh water agreements; ESG emphasis and recycling pond strategy Fresh water sales increased; fit-for-purpose recycling via ponds/pipes continues Building recurring non-commodity revenue
Grand Mesa stability & creditVolumes steady ~128kbpd; monitoring customer credit; diversified shipper mix Volumes ~134kbpd; minimal direct commodity exposure; continued close monitoring Stable volumes with vigilant credit oversight
Deleveraging & capital disciplineReduced leverage ~0.4–0.5 turns; working capital down; growth capex ~$200–$250M next year Total leverage ~5.0x; target ≤4x; distribution coverage improved; capex trending lower Continuing progress toward targets

Management Commentary

  • “This is a historic quarter with record adjusted EBITDA in excess of $200 million, at least 20% higher than any retail analyst projection.” — CEO Mike Krimbill .
  • “Our LTM pro forma adjusted EBITDA at 12/31/19 is approximately $660 million…we expect to remain above our target coverage for the foreseeable future.” — CFO Trey Karlovich .
  • “We received an average disposal fee of $0.62 per barrel…Operating expenses…$0.42 per barrel…We continue to focus on reducing disposal operating expense…target of $0.30 per barrel.” — CFO Trey Karlovich .
  • “Grand Mesa volumes averaged 134,000 barrels per day this quarter…very little direct commodity exposure in this segment.” — CFO Trey Karlovich .

Q&A Highlights

  • Water ramp timing: Volumes ~3 months behind; exit rate at low end of 1.8–2.0MM bpd for FYQ4; Poker Lake not in Q4 exit, mid-2020 expected .
  • Margin/OpEx: Net margin expected to improve as OpEx falls; disposal fees ~$0.62/bbl; skim oil contributes ~$0.14/bbl but declines as more barrels move via pipe .
  • Competitive dynamics: Most Delaware dedications/MVCs already inked; focus shifts to fold-ins; NGL holds a large share of commitments via Mesquite, Hillstone, legacy assets .
  • Operational headwinds: New Mexico grid distribution constraints required diesel generation; ~1/3 of generators taken offline in January; further reductions expected by mid/late summer .
  • Grand Mesa credit risk: Diversified customer base; monitoring closely; volumes remain strong; pipeline was built for these producers under long-term contracts .

Estimates Context

  • S&P Global consensus estimates for Q1–Q3 FY2020 were unavailable due to SPGI daily request limit at the time of retrieval; therefore, we cannot provide quantitative vs-consensus comparisons here [Values retrieved from S&P Global unavailable].
  • Management indicated Adjusted EBITDA was “at least 20% higher than any retail analyst projection,” suggesting a significant beat versus sell-side expectations, though not directly comparable to S&P consensus figures .

Key Takeaways for Investors

  • Liquids strength and tax credits drove a broad-based beat in Adjusted EBITDA; Liquids guidance raised materially, indicating sustained margin support from Chesapeake exports and butane/propane positioning .
  • Water segment remains the long-term growth engine; near-term guidance trimmed due to timing, but pipeline share >70% and Poker Lake dedication (20-year) should inflect volumes mid-2020 with low incremental OpEx .
  • Deleveraging trajectory intact: total leverage ~5.0x with target ≤4x; working capital borrowings reduced significantly via refined products exits; distribution coverage improved to ~1.25x LTM .
  • Grand Mesa pipeline volumes stable (~134kbpd) with minimal direct commodity exposure; continues to anchor Crude EBITDA within a tightened guidance range .
  • Operational execution focus: accelerating grid connections to cut disposal OpEx from $0.42 toward $0.30/bbl; integration synergies expected to lift Water margins .
  • Portfolio transformation reduces volatility and capital needs; management emphasizes self-funding model and disciplined capex ($200–$250M contemplated for next year) .
  • Near-term trading: narrative likely driven by Water ramp progress (monthly volumes, pipeline mix, OpEx per barrel) and Liquids margin sustainability; medium-term thesis hinges on Delaware dedications/MVCs and execution on ESG-linked recycling opportunities .

Additional sources read:

  • Q3 FY2020 8-K press release and exhibits .
  • Q3 FY2020 earnings call transcript .
  • Q2 FY2020 8-K and call .
  • Q1 FY2020 8-K and call .