Good day, ladies and gentlemen and welcome to the NGL Energy Partners Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Trey Karlovich, Chief Financial Officer. Sir, please go ahead.

Thank you and thank you for joining us this morning. This conference call includes forward-looking statements and information. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors that could cause actual results to differ materially from the projections, anticipated results or other expectations are included in the forward-looking statements. These factors include prices and market demand for natural gas, liquids and crude oil; level of production of crude oil and natural gas; the effect of weather conditions on demand for oil and natural gas and natural gas liquids; and the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results; and to successfully integrate acquired assets and businesses. Other factors that could impact these forward-looking statements are described in the Risk Factors in the partnership’s annual report on Form 10-K, quarterly reports on Form 10-Q and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. Please also see the partnership’s website at www.nglenergypartners.com under the Investor Relations for reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. At this time, we will now turn the call over to Mike Krimbill, our CEO for his remarks.

Thanks, Trey and thank you everyone for being here. I would like to start out with some of the accomplishments in ‘17. The main one of course, Grand Mesa was online, on schedule in November. If you recall, those are deadlines supported by contracts of approximately 10 years of length, all fee based with upside for additional non-committed volumes as the base this production grows. The rig count has doubled in the DJ. We have talked about what we are seeing on the water side as the indicator. But production is not yet online and we expect to see that definitely in the second half of the year, if not – the fiscal year, if not sooner, beginning in June. As you know, Bonanza Creek was having some difficulty. They emerged from bankruptcy. They are planning on adding a rig this summer. And we have a contract for their volume for the next 7 years. So that turned out as well as I think it could be. We also – as you know, we have been moving to get as much fee-based business as we can in contracted business. We placed the Houma Terminal in service and this is a blending terminal with a major oil company as a partner. We also completed the Port of Comfort, Texas terminal, which is between the ship channel and Corpus, this is an export terminal supported by contracted volumes. And we are fortunate to purchase at a very attractive multiple the Murphy assets at Port Hudson and Kingfisher. Port Hudson is supported by a 5-year contract to supply butane, that’s a natural gasoline for gasoline blending. Kingfisher is in Kingfisher County, which is where the new stack pipeline will originate, that we are also building and that takes a wide grade product and…

Alright. Thanks, Mike. So I will be going over our financing activities, financial results for the quarter and the full year, which we released this morning as well as providing our full guidance for fiscal 2018. As Mike mentioned, we have made some significant accomplishments during the year. We have also accomplished many of our goals from a financing perspective and we’ll continue to place our focus on building a stronger balance sheet and maintaining adequate liquidity. We have spoken in the past about our financing goals. During the fourth quarter, we were able to amend and extend our credit facility to October 2021, issue $500 million of unsecured notes that mature in 2025 and issued approximately $250 million in common equity through our February offering and prior to that under our ATM. The results were revamped balance sheet with significant liquidity, reduced secured debt, extended debt maturities and a better debt to equity balance. We will continue to work diligently from a finance perspective to decrease our leverage and maintain ample liquidity as we target compliance leverage of 3x to 5x or better, distribution coverage of 1.3x or better, and a low cost of capital to fund our growth opportunities in the future. Looking at the results for the quarter and the full year, we had approximately $121 million of adjusted EBITDA this quarter and have reported approximately $381 million for the full year. Our quarterly results included the following impacts: initial production volumes for demands at Creek on the Grand Mesa Pipeline, which began on January 1, under our new agreement with them. Grand Mesa has performed very well, averaging 53,000 barrels per day for the quarter, with over 75,000 barrels flowing today on the pipeline and growing every month since startup. We continue to be excited about…

[Operator Instructions] Our first question comes from the line of Torrey Schultz with RBC Capital Markets.

Hi guys, good morning. Just I guess first on the retail propane, so you are budgeting a warmer winter for 2018, you added some new business over the past year and I think the budgeted cash flow is up, call it 10% in 2018 versus 2017, so are you essentially budgeting similar weather over the past 1 year or 2 years, I am just trying to understand, you are talking about upside from a normal winter, just kind of what the degree of magnitude of that upside potential is?

So TJ, what we did this year is not go back to normal. Instead, we took the last 3 years, so we had two of the warmest in a normal and averaged those three. And that’s where we got our margins and our volumes. So I know if you had – I don’t know what these three, let’s say we were down just mathematically 10, 10 and normal, one of the years then you would have 20 divided by 3, so you would be down about 7% from normal.

Okay.

So we – historically, we have always kind of gone back to what normal is. But now, I guess our belief in what is normal is shaken, so now we are using the last 3-year actual.

Got it. And then on the line space issue kind of moving over to refined, just kind of help walk through kind of in your guidance, how you are stepping up that line space value through the year and kind of what the ultimate value is and what gives you comfort to kind of move that back up that you are seeing in the market right now?

So TJ, we have started off the year, obviously as Mike mentioned, it’s – line space is still slightly negative today. Our budget has line space essentially zero to the start of the year and averaging $0.02 for the entire year versus historicals, where it’s averaged slightly above $0.04. So we are expecting the line space to recover, particularly in the second half of the year, but we are starting to see slowly, but surely that the line space move back in the right direction. But it is still negative today.

So to add to that TJ, our fourth quarter, so first calendar ‘18, line space values are positive. I think its $0.01, $0.015. Our third quarter, it’s positive, it’s flat second. So those are the actual quotes out there that we are watching. As we said, the import – the exports out of the Gulf are declining. The Mexican refining runs are increasing. We have seen a lot of, a number of ships, I will say a lot, a number of ships diverted from the harbor. I think we just need to see some draws in harbor gasoline. And so everything is pointing to, which we didn’t expect, obviously until the driving season started, which is coming up here pretty quickly. So we don’t see a systemic change yet and we are – the indicators are we will get back to historical numbers.

Okay, understood. And just lastly on Grand Mesa, you have got contracted volumes and my understanding is you have got potential for kind of walk-up volumes, they are just what you are seeing now or what are your expectations and guidance for kind of that walk-up volume piece on Grand Mesa?

So our guidance assumes that walk-up volumes averaged about 10,000 barrels a day for the year. We are seeing somewhere in this 6,000 to 7,000 barrels a day today. Obviously, our rate is slightly lower than what we had originally forecasted based on our full rate, our guidance would be around $135 million. So we have reduced that slightly for this upcoming fiscal year. But we are optimistic as differentials are getting better, as Mike mentioned, the rig counts doubled. We are seeing significantly higher volumes in water, which will lead to higher crude volumes. So we feel pretty confident that the volumes will be there, the question will be, at what rate.

So we just checked last night. Our June walk-up volumes exceeding our budget by about 10%, actually more than the walk-up pieces, but more than that. But the – all of our producers that will have commitments with us have added rigs. And we are also – it’s really a geographic play. So the other producers in the North have – of the basin have also added rigs. So in a clearly – we are seeing that in the waters. So it’s just not our word for it, you might say. So last year, we were probably averaging, what do you think, 60 a day or in water?

In water in the DJ, around that.

Around 60. We are double that today. So we know all these rigs are at work, we know they are drilling. And what we haven’t seen the big pad come on yet. So that is – when that happens, obviously we are going to be able to ship more from all our producers. And we are going to see much less pressure on prices as folks who are not – producers who are not meeting their MVCs are out there competing for barrels and it’s driving the differentials low, so once all that – everyone is producing what their MVC as it takes the pressure off those differentials.

Got it. Alright, that’s it for me. Thank you.

Thanks T.J. [Operator Instructions] Our next question comes from the line of Lin Shen with HITE.

Hi, this is actually Matt. Thanks for taking the question. So just to give us a sense, when you look at your liquids and propane segment, if it were to get something closer to like a 10-year average or a 30-year average winter, how much EBITDA would that add?

So just on the wholesale business – so on retail, it’s probably 10% or so, so call it $10 million upside potential. On the wholesale business, so that business is typically, call it $25 million to $30 million a year business, it’s probably 10% to 15% on that business as well. So, I think a normal winter is an incremental 15 based on forecast. Obviously, this year we were impacted by the much warmer winter and then the propane phenomenon, which impacted our wholesale business negatively during the quarter.

So the total between the two segments will be worth about $15 million?

Yes, I would say about $15 million upside to our – to the guidance.

I am sorry, 15 or 50?

1-5, $15 million to the guidance. But significantly more than that to this current year. So current year, we estimated that the impact for weather alone was about $30 million between wholesale and retail.

Got it. And then the water, so you said in your guidance that the sort of the guided water number was below the level of volumes that you are actually expecting based on activity on the ground right now in your projections. So, do you have a sense like if that trend continues how much upside that could be to your guidance?

I wish I could tell you we spend a lot of time looking at trying to quantify upside but unfortunately, we are trying to limit the downside.

Limit the downside, yes. We appreciate that.

Okay, right. We were looking at couple of quarters ago, I think we mentioned, we’d run some models, say, what do you need to get $125 million and $150 million EBITDA. And as I recall, the $125 million was close to 800,000 barrels a day for the entire year. So we will end the – and we anticipate ending the year at 800,000. So, if you just said the average, 700,000, maybe its $10 million to $15 million on water for this year and it would be a $25 million for a full year.

Got it, okay. And then you said that you are breaking even on the sort of Crude Logistics, I guess, the tracking business. What are the underlying assumptions on pricing there and is there upside or downside to that?

So this one I did look at yesterday. We have assumed no change in trucking revenues, so no increase in pricing, which we are seeing on the water trucking side. So that would be a positive. And then we would expect to see more volumes. We have held our volumes flat. So, the other piece of transportation is the tows and barges. Historically, those rates – the day rates have been $7,500. Today, we dropped our budget to $6,200 a day. We are seeing some lower day rates out there, but we think that’s doable. So in total, the upside is we looked instead if we got a 10% increase in rates and then more fully utilized, I can’t say how much more that was, but in total, that was going to increase EBITDA probably, I don’t know, maybe $5 million. If you recall, we sold off half of our truck fleet last year when things – when the downturn was at its worst.

Right. Okay, thank you.

[Operator Instructions] Our next question comes from the line of Selman Akyol with Stifel.

Thank you. Two quick ones for me. First of all, you discussed little bit on in terms of drivers’ wages increasing. And I am wondering, first of all, are you seeing any other wage pressures throughout? And then is there any ability to pass that along as I guess most people expect trucking demands to increase across the basins?

Yes. We are seeing probably the same thing that the producers are saying. We, our water personnel in the field are probably being recruited by the upstream guys to run rigs, because I think there is an issue with having enough labor on that side. So we have increased our wages in certain basins by $10 – $1 to $2 an hour. So, we are seeing some of that. On the flipside is we are seeing there is some pricing – some increase in pricing. It’s – as I look at it, we have been very I think fair with our customers and producers. As you know, in the DJ, we reduced the MVC volumes in the first 2 years, in return for a longer contract. We did the same thing on the water side. We reduced rates. We got bumped the same pressure everyone else did. And so we all kind of shared the pain. So now that we are seeing some recovery that we are seeing the producers willing to accept some price increase. So I don’t see wage pressures. We do see that but it don’t see it reducing EBITDA.

Very good. And then more of a housekeeping question. On the DCF statement, your interest expense of $45 million and then your cash interest expense of $28 million seemed to be a little bit wider than what we have been thinking. So I was wondering, was there something going on there?

Some of that’s timing and amortization of debt cost. We do expect that, that interest expense number will be higher than that on a run-rate basis for fiscal ‘18. We are modeling between $150 million and $160 million of interest cost for fiscal ‘18 and it’s pretty ratable quarter-over-quarter.

Alright. Thank you.

Our next question comes from [indiscernible].

Hey, thanks. Trey, I was wondering if you could talk a little bit about your comment during the prepared remarks about the compliance leverage being quite close relative to the covenant level, what are the implication to that, for example, you have got growth CapEx, you need to fund, are there things you are going to look to do in order to create some more room since obviously people always gets nervous when MLPs get close to debt covenant levels?

Right. That’s obviously something we are tied to our covenant. We do have – again we are trying to be pretty conservative on our overall guidance. Based on our current debt levels, we need to generate pro forma EBITDA of about $460 million to be compliant. As I walk through, we are over that as of March 31 we expect to be compliant to the rest of the year, but it will be tight and that’s something that we will be managing. Obviously, our growth capital spending is not significant this year. The goal for that will be to – we do get some pro forma credit for growth opportunities. Obviously, we have our ATM, which we could utilize to manage that growth capital spending as well, but that’s something that we will be paying very close attention to throughout the year.

Okay. So bottom line is you don’t think you are going to be in a position where you are not going to be in compliant with the covenant, but it may constrain you a little bit in terms of how you finance things?

Correct.

Okay.

[Operator Instructions] We have a question from the line of Kali Ramachandran with State Street Capital.

Hi. A follow-up on the prior person’s question. Are you in discussions with your bank group to loosen the covenants and if not, why not?

We do have ongoing discussions with our bank group. We obviously have provided them with our forecasts and our expectations and we will continue to work closely with the group, so….

So right now, you are not in any discussions with them about loosening covenants at this stage, because to your own – by your own acknowledgment, you are pretty tight with the covenants today?

It’s one of those things like I guess I should say that we are managing it proactively. And we – like I said, we are in conversations with the bank group.

Okay, thank you.

I am showing no further questions in queue at this time. I’d like to turn the call back to Mr. Krimbill for any closing remarks.

Okay. Well, thank you all for your time and we will have better news in the future, I hope. Okay.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone, have a great day.