NGL Energy Partners Q1 Earnings Call Highlights

Key Points

• NGL Energy Partners reported a strong fiscal Q1 2027: Consolidated adjusted EBITDA rose nearly 30% year over year to $186.2 million, driven by record produced-water disposal volumes and a 26% increase in Water Solutions EBITDA.
• Water Solutions growth projects are expanding contracted capacity: Produced-water commitments reached approximately 1.77 million barrels per day, while the LEX II Extension is expected to add transportation capability and enter service by year-end.
• The partnership raised fiscal 2027 guidance to $725 million-$735 million of adjusted EBITDA and expects leverage to decline toward four times by year-end; it also plans to redeem about half of its remaining Class D preferred securities, with a common-unit distribution potentially returning afterward.

NGL Energy Partners NYSE: NGL reported a strong start to fiscal 2027, led by record produced-water disposal volumes and higher earnings from its Water Solutions segment, while raising its full-year adjusted EBITDA outlook by $10 million.

The partnership said consolidated adjusted EBITDA from continuing operations rose to $186.2 million in the fiscal first quarter from $143.9 million a year earlier, an increase of nearly 30%. Water Solutions generated $179.9 million of adjusted EBITDA, up 26% from $142.9 million in the prior-year period and representing 91% of partnership EBITDA for the quarter.

“We are pleased to report a strong start to fiscal 2027 and continued execution on our multi-year strategy of de-leveraging the balance sheet through high-return water growth projects,” CFO Brad Cooper said on the company’s earnings call.

Record Water Volumes Drive Results

NGL physically disposed of approximately 3.32 million barrels per day of produced water during the quarter, a company record and a 19.6% increase from 2.77 million barrels per day in the first quarter of fiscal 2026. Total volumes for which the company was paid, including deficiency volumes, were 3.43 million barrels per day, compared with 3.06 million barrels per day a year earlier.

Cooper attributed the Water Solutions earnings growth primarily to higher disposal volumes from contracted producer customers, as well as increased skim-oil revenue. Skim-oil volumes rose with physical water disposal activity, while a slight increase in skim-oil percentage and higher crude prices on unhedged skim-oil barrels also benefited results.

Water Solutions operating expenses were $0.21 per barrel in the quarter, down $0.01 per barrel from the comparable prior-year period. Cooper said higher volumes should continue to dilute the fixed-cost component of the business over time.

The company said more than 90% of its produced water is delivered by investment-grade counterparties, while Water Solutions accounted for more than 85% of trailing 12-month adjusted EBITDA.

Growth Projects and Contracted Capacity

During the quarter, NGL executed its LEX II Extension project, which will expand the long-haul LEX Pipeline System to 81 miles. The system is expected to have the capability to transport approximately 560,000 barrels per day of produced water from Eddy and Lea counties in New Mexico to Andrews County, Texas.

The extension is supported by a newly signed long-term volume commitment that includes increased volume commitments and an additional four-township committed area in Eddy County. NGL expects the project to enter service by the end of the calendar year.

Including the new agreement and other recently executed commitments, NGL said total produced-water volume commitments reached approximately 1.77 million barrels per day, representing roughly 53% of its total volumes. Permitted injection capacity increased by about 200,000 barrels per day during the quarter to 5.62 million barrels per day.

Doug White, executive vice president of Water Solutions, said the company added 200,000 barrels per day of new capacity for recently signed deals in the quarter and expects to develop another 300,000 barrels per day during the remainder of the fiscal year. The total 500,000 barrels per day of capacity is contracted, he said.

White said NGL is also working on potential fiscal 2028 agreements and expects to bring on between 16 and 18 wells this year, along with surface and pipeline expansions. He said the company does not view its development activity as constrained by capacity, describing execution and the timing of new contracts as the key considerations.

Guidance Raised, Capital Spending Weighted to Early Year

Based on first-quarter outperformance and confidence in customer activity, NGL raised its fiscal 2027 adjusted EBITDA guidance to a range of $725 million to $735 million, from prior guidance of $715 million to $725 million.

CEO Mike Krimbill said Water Solutions is experiencing 10% annual growth while margins remain steady. He added that fiscal 2027 growth capital expenditures will exceed $200 million, with most spending occurring during the first two quarters. A significant portion of the EBITDA from those projects is not expected to be recognized until fiscal 2028.

“If it continues, we anticipate further increases in EBITDA guidance,” Krimbill said of the company’s performance.

Elsewhere, Crude Oil Logistics adjusted EBITDA was $8.96 million, compared with $9.6 million in the year-earlier quarter. Grand Mesa Pipeline volumes averaged about 74,000 barrels per day, up from 55,000 barrels per day a year earlier. Liquids Logistics adjusted EBITDA increased to $10.3 million from $2.9 million, primarily due to additional contracted activity at the company’s remaining butane terminals. Cooper said most earnings from the butane blending business are expected in the back half of the fiscal year.

Class D Preferreds and Distribution Outlook

NGL said it reduced leverage in the first quarter despite growth capital spending being concentrated in the first half of the fiscal year. Krimbill said long-term debt is expected to remain relatively flat until the second half, while leverage declines each quarter.

The company expects to redeem about 50% of its remaining Class D preferred securities during fiscal 2027, while leaving the balance outstanding. Krimbill said NGL has investment opportunities expected to produce returns exceeding the cost of the preferreds, making a full redemption not the company’s highest use of cash.

Class D holders can put the securities to NGL no earlier than Jan. 1, 2028. Krimbill said the company is preparing for that possibility and believes any such obligation could be financed.

Cooper said NGL has line of sight to debt leverage of four times by the end of the fiscal year, excluding preferred securities. He added that restoring a common-unit distribution could return to consideration after the company redeems about half of the Class D preferreds, though the decision would also depend on leverage and capital needs for growth projects.

Looking ahead, Krimbill said NGL is positioning itself to potentially build another large-diameter water pipeline, pursue merger-and-acquisition opportunities, and reinstate a common-unit distribution. He said the company is not currently in discussions regarding acquisitions.

About NGL Energy Partners (NYSE:NGL)

NGL Energy Partners LP is a publicly traded master limited partnership that provides midstream infrastructure and marketing services for the energy industry. The company focuses on the transportation, storage, fractionation and marketing of natural gas liquids (NGLs) and refined petroleum products. Through its integrated operations, NGL Energy Partners serves producers, processors, refiners and industrial customers across key U.S. energy-producing regions.

The partnership's asset base includes pipelines, storage terminals, fractionation plants, and distribution facilities.

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