NGL Energy Partners Q2 Earnings Call Highlights

Key Points

• NGL raised its fiscal 2027 adjusted EBITDA outlook by $10 million to $735 million–$745 million and increased growth capital spending guidance to $250 million–$270 million to meet rising water-handling demand.
• Second-quarter adjusted EBITDA rose 15% to $192.4 million, led by Water Solutions, which generated 93% of the total as produced-water disposal volumes hit a record 3.45 million barrels per day. Crude Oil Logistics EBITDA fell, while Liquids Logistics EBITDA increased.
• Most benefits from the higher investment are expected in fiscal 2028; meanwhile, NGL expects leverage to decline to about four times by fiscal year-end and reiterated longer-term plans to reduce preferred units and eventually restore common-unit distributions.

NGL Energy Partners NYSE: NGL raised its fiscal 2027 earnings and growth spending forecasts after record water disposal volumes drove a 15% increase in second-quarter adjusted EBITDA.

The partnership now expects fiscal 2027 adjusted EBITDA of $735 million to $745 million, up $10 million from its previous range. It also increased its growth capital spending guidance to approximately $250 million to $270 million from about $200 million, citing additional demand for water takeaway and disposal capacity.

CFO Brad Cooper said the Delaware Basin remains short of large-scale water handling capacity and that the spending would position the partnership for further growth in fiscal 2028. NGL did not provide a fiscal 2028 forecast.

Water Solutions drives quarterly growth

Consolidated adjusted EBITDA from continuing operations rose to $192.4 million in the second quarter of fiscal 2027 from $167.3 million a year earlier. Water Solutions accounted for $178.3 million, up 17% from approximately $152 million and representing 93% of the partnership’s consolidated adjusted EBITDA for the quarter.

NGL physically disposed of a record 3.45 million barrels of produced water per day, up 23% from 2.8 million barrels a day in the prior-year quarter. Cooper attributed the segment’s EBITDA growth to higher disposal volumes from contracted producers and increased skim oil revenue. The partnership benefited from both higher skim oil volumes and higher crude prices on unhedged barrels, he said.

Water Solutions operating expenses fell to $0.20 per barrel from $0.22 a year earlier. Cooper said higher volumes should continue to spread the segment’s fixed costs over time.

Results varied in NGL’s other businesses. Crude Oil Logistics adjusted EBITDA declined to $11.9 million from $16.6 million, as Grand Mesa pipeline volumes averaged about 64,000 barrels per day, down from 72,000. Liquids Logistics adjusted EBITDA rose to $14.2 million from $10.5 million, primarily because of additional contracted activity at the partnership’s remaining butane terminals.

Expansion spending aimed at next year

Cooper said NGL expects to receive only about one quarter’s worth of EBITDA from its fiscal 2027 growth spending during the current fiscal year, with most of the benefit expected in fiscal 2028. He said the incremental projects have return characteristics consistent with spending over the past two fiscal years.

CEO Mike Krimbill said Water Solutions was more than $20 million ahead of budget in the first half of the fiscal year. The partnership has increased its annual EBITDA guidance by that amount in two steps, he said, adding that NGL does not raise guidance for new contracts until they begin producing EBITDA.

NGL increased permitted injection capacity by approximately 255,000 barrels per day during the quarter, bringing the fiscal-year increase to about 450,000 barrels per day. Doug White, executive vice president of Water Solutions, said the company is using its capacity at a high rate and that wells brought online are supported by existing contracts or prospective forecasts tied to existing or new contracts.

The partnership also expanded its long-haul LEX pipeline system to 81 miles, with capacity to transport approximately 560,000 barrels of produced water per day from New Mexico to Texas. Cooper said the LEX II extension, backed by a new long-term contract with increased minimum volume commitments, was expected to enter service over the following few weeks.

Debt reduction and longer-term plans

NGL expects leverage to fall to approximately four times by the end of the fiscal year. Cooper said the partnership expects deleveraging to accelerate as it generates the majority of its free cash flow from October through March.

On Sept. 16, NGL repriced its Term Loan B, reducing its applicable SOFR margin by 50 basis points. On Oct. 13, it exercised a $50 million increase to its asset-based lending facility, raising total commitments to $475 million. Liquidity was approximately $130 million as of Sept. 30, with about $249 million drawn on the facility. Cooper said NGL expects to pay down the borrowing with free cash flow during the rest of the fiscal year.

Management reiterated its longer-term goals of reducing the Class D preferred units, becoming a pure-play water company and eventually reinstating common-unit distributions. Cooper said EBITDA growth in Water Solutions positions NGL to address the majority of the remaining Class D units later this fiscal year.

White also said NGL is in the early stages of planning desalination facilities in the Barrow Ranch area and at its Orla location at Red Bluff. The partnership has entered into a memorandum of understanding with a data center developer and is holding discussions involving power plants, he said, while cautioning that the arrangements are still being developed.

About NGL Energy Partners (NYSE:NGL)

NGL Energy Partners LP is a publicly traded master limited partnership that provides energy logistics and water-management services in the United States. The company serves producers and other participants in the domestic crude oil and oilfield-water markets through infrastructure, transportation, handling and related services.

NGL's Water Solutions segment gathers, transports, treats, recycles and disposes of produced water generated during oil and natural gas production. Its operations include water pipelines, storage facilities, treatment and recycling assets, disposal wells, freshwater services and truck transportation.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.