Good morning, ladies and gentlemen, and welcome to the First Quarter Fiscal Year 2020 NGL Energy Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Trey Karlovich, CFO. You may begin.

Thank you, and welcome everybody. Reminder, this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, plan, goal, forecast, intend, could, believe, may and similar expressions and statements are intended to identify forward-looking statements. 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 could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements. These factors include prices and market demand for natural gas, natural gas liquids, refined products and crude oil; level of production of crude oil, natural gas liquids and natural gas; the effect of weather conditions on demand for oil, natural gas and natural gas liquids; and the ability to successfully identify and consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results and to successfully integrate and operate assets and businesses that are built or acquired. 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. This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the partnership's earnings releases, investor presentations and annual and quarterly reports on Form 10-K and Form 10-Q on our website at www.nglenergypartners.com under the Investor Relations tab for more information on our use of non-GAAP measures as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. I’ll now turn the call over to our CEO, Mr. Mike Krimbill. Mike?

Thanks, Trey. Thanks for joining us. I'd like to set the stage and really start-off in a constructive positive manner. We have as you know signed an agreement to sell refined. We thought that would crater the stock price going down at least a dollar or two. We're only down $0.38 cents, so we have a lot to celebrate. So as you know, we are continuing our trend of significant events today. As we announced the signing of an agreement to sell TransMontaigne five products units, the proceeds based on June 30 values, will approximate $300 million and be used to reduce debt. There will also be a reduction in our letters of credit. Both the cash and LC reductions will increase availability on our bank line of credit, for growth opportunities that may arise. This transaction in our opinion should increase the value of NGL common units and reward our unit holders. Of course, that is yet to be seen. Under the Mesquite transaction, the Mesquite assets are being connected to the NGL infrastructure namely our 24 inch pipelines. The Lee County Express to the east is now in-service taking water and the Western Express is in construction with an expected in-service date in late September. There are numerous opportunities that we are working on to fill these pipelines as well as the Mesquite system. The liquid assets which we had purchased earlier this year are performing very well, particularly at the Chesapeake butane export facility. We are expanding the railcar capacity there to bring in more butane. Going forward, we expect more stability and predictability cash flows. We continue to focus on long-term contracts in all three businesses, so repeatability of our cash flows increases. Finally, we are positioned for organic growth in our business at attractive multiples. With that, I'll turn it back to Trey for specifics.

All right. Thanks, Mike. So first off, here's how I think about the TPSL sales. This business has been significantly volatile over the past five years. However, the EBITDA over the past 12 months is essentially zero. The volatility now been removed. The proceeds we receive will be used to pay off all of the working capital associated with this business plus about 10%. So assume our total debt is reduced from $2.6 billion to $2.3 billion with no reduction in LTM EBITDA. This reduces leverage by about half a term. Additionally, the value assigned to this business based on guidance was generally a $100 million assuming a four times to five times EBITDA multiplied by the market. But the debt level was $300 million to $350 million depending on working capital values, resulting in a negative sum of the parts valuation of $200 million to $250 million. We didn't sell the business for just a $100 million. We eliminated all of the debt associated with it which should increase our overall valuation by almost $2 per unit using the sum of the parts. We also reduced our interest cost savings from the sale by $15 million per year, which is not factored in to the EBITDA valuation. Looking at some multiples, if you look at last year's multiples, this is over 35 times multiple on fiscal 2019 results. It was an infinite multiple based on the last 12 months. And based on our current year guidance as originally published, it would be about a 16 times to 17 times multiple. This was a great transaction for NGL in this market. Market on some of the other benefits of this transaction and also talked about Mesquite. One of the questions that we've been getting quite frequently is around our financing…

[Operator Instructions] Our first question comes from TJ Schultz, RBC Capital. Your line is now open.

Great. Thanks. First on the CapEx spend in the first quarter $215 million. Can you break out what was acquisition related versus organic. How much is spent on some of the private projects you have and any change to expectation for the organic growth CapEx range that you gave earlier this year?

Sure. So about $250 million T.J. almost $200 million was in water, about $82 million of that was on acquisitions. The rest was on growth CapEx including the pipeline. We did make a pretty significant payment on pipe water for both the Western Express and Lee County express projects. So we've purchased that pipe that will all be installed over the next quarter or so.

Okay and no change to your expectation for organic growth for the rest of the year?

No. No changes to the growth CapEx guidance.

Okay. And then just sticking with water, as we think about trajectory of volumes going forward, just any commentary on what you're seeing from producer activity plans for the year now versus when you gave guidance earlier? And then maybe when you get Mesquite tied in to expectations on where you think you can exit the share on water volumes?

If you're going to -- water or exit. T.J. there’s we see -- I'll call it a wall of water coming starting at the end of September. So the second half of the year is going to be, I think much, much greater volumes. I don't know if we have a -- end of year where do we come out on our budget.

We didn't guide to a water…

So I don't see a change. The timing maybe a month or two behind where we thought it was going to be. But – and this – the next quarter we should see the exit at September 30 we'll see, I think much higher volumes.

T.J. what I’ll add is disposable items, we're really right on through the first quarter. We had - we did our budget in April and May. We're not seeing any significant change. We do, it was a little bit slower ramp the first part of this year, but we are expecting a very significant ramp through the back half of the year. As we guided, we'll obviously see the big jump in the Ski volumes in the second quarter. But we are expecting legacy volumes to grow in the second quarter as well.

Okay. Got it.

But the biggest jump will be through third quarter.

Got it. Okay, understood. On the Intrepid joint marketing deal, can you just expand on that benefit to you all and is there any cost sharing arrangements on development of fresh water or disposals services?

Intrepid, I believe, they have more water rights in New Mexico than any other entity. They bought the Dinwiddie ranch which is sandwiched in between McCloy and Beckham. And so they have water on their ranch from the same aquifer as us. So they clearly are -- I think should be the ones that markets both our water. So they'll be marketing Dinwiddie as well as Beckham water. Then we'll also work together on disposal water off the three ranches. So we're very excited that they're just a great group of people. And we're not out there trying to buy fresh water, really that's the Intrepid folks have their own fresh water, so it makes sense to team up there and then team up on the produce water of all three ranches.

Okay, understood. Just last on trade, just to clarify the guidance on refined products, I think you said 15 to 30, does that include the negative contribution of 11 in the first quarter or is it pro forma, just trying to understand what to expect there?

That does include the negative 11 from the first quarter. We are expecting to make up some of that in second quarter prior to the sale on TPSL and then the remaining businesses will make up the difference.

Got it. Thanks, guys.

Next question is from Dennis Coleman from Bank of America. Your line is now open.

Yes. Thanks. I guess maybe just to pick up on that last question to start with Trey please. Can you just -- can you say again the businesses what's left in refining? And can you give us a little bit better sense of what the run rate is on those?

Sure. So what will be retained is our -- what we call our rack marketing business, which is our flash tile business. Very little working capital, we market across the United States at terminals. That business has been the most profitable refined products business over the past couple of years as it does not carry inventory risk. So we are maintaining that business. We are maintaining our gas blending business. We started that business about a year and a half ago. That business has been profitable, but it does carry some inventory risk. That business did have a loss during the first quarter. However, we are expecting to make that up as we go into blending season in the fall. So we'll maintain that business. And then, finally, our renewables business, which is a very small component, where we market ethanol and biodiesel. So when you look at historical – obviously, it's a little bit challenging because of some of the volatility. But generally speaking, the TPSL business has made up about 60% of our overall portfolio. There have been years that have been much higher than that. And there have been years that have been lower because of the challenged performance. But approximately 60% of the working capital in the entire business is associated with TPSL. Additionally, we are looking to minimize inventories in the businesses that we're retaining, so that we can continue to reduce working capital lower the cost of operating that business. At this point in time, it becomes 5% of the overall portfolio, so much smaller component. And again, we've got some opportunities that we think we can continue to either improve that business or reduce the cost associated with it.

Okay. That's helpful. And then, if you can just remind me the tax credits the 25 million that was not in the original guidance right.

That is not -- we have not included that in guidance. So that -- the way that we think about that is if the tax credit is realized, we ought to be above the higher end of the guidance range.

Okay. And with the assets that are being sold, the buyer gets that tax credit if it tricks beyond the closing date.

Not, not for what has been earned to date. So if it is passed subsequent to the sale, we retain the rights to those credits as we incur the costs to build those credits. Anything generated subsequent to the sale would go to the buyer.

I got it. Okay, okay. That's helpful. And then I guess switching gears, Mike you obviously have continued to expand in the water business, and I think there the M&A market in that sector remains pretty active. Can you maybe talk about what you're seeing there or how are you thinking about M&A additional opportunities, particularly now that you've sort of approve the balance sheet?

Yeah. I think first of all, we're not going to skew the balance sheet, but now that we fixed it. So, I'm not going to go on a buying spree. But I think there are one or two attractive assets remaining in the Permian from our perspective. So we will participate in any processes that are initiated. As you know, we have the EIG folks come-in and invest there's a $200 million preferred basket there and that's there on purpose. So they'll have an equity ability to fund an additional acquisition with properly with equity and debt. So we are actively looking to really enhance our position in the Delaware, if there's an opportunity, but not at the expense of the balance sheet.

Okay, okay. And any updated thoughts on the share repo?

Well, it's much more attractive today than it was Friday. So we – that something that we are looking at seriously, when you start trending up here 11%, 12% its cuckoo, after everything we've done over the last 18 months to 24 months, and continue doing. So it's certainly something we're going to seriously consider.

Okay. That's it for me. Thank you.

Thanks, Dennis.

The next question is from Shneur Gershuni from UBS. Your line is now open.

Hi. This is Michelle on for Shneur. Just a quick one for me, I might have missed it earlier, but is there a working capital release or how much less is needed going forward as a result of the sale?

Thanks, Michelle. It depends obviously on market prices. Working capital was lower as of June 30, values were lower and our inventory balances were a little bit lower. But generally, speaking it's about $300 million to $350 million of working capital plus LC that could make up another $25 to $50 million.

Okay. Perfect. That’s it for me.

Thank you.

[Operator Instructions] We have Pearce Hammond from Simmons Energy. Your line is now open.

Good morning and thank you for taking my questions. My first question is what drove the strong results during the quarter in the crude oil logistics business?

Hi, Pearce, so the biggest driver is obviously Grand Mesa, our forecaster Grand Mesa, as we gave guidance was 129,000 barrels a day. We ran slightly above that at 133,000 barrels a day. So we did get a benefit there are -- the rest of our logistic assets performed right in line with plan. So, that increases our marine business and our rail and trucking business as well as our business out of Cushing or other terminals in Cushing and Point Comfort along the Gulf Coast. Commodity crude priced, absolute crude price does not have a significant impact on our crude business. It's really a differential or patient differential is what we have the most significant impact. And we did not see a lot of selling there. So generally speaking, the base business operated at budget. The Grand Mesa asset performs slightly ahead of budget, which drove that the midpoint of our guidance is $200 million for the year which is $50 million in a quarter, which should be consistent throughout the fiscal year.

Great, thanks for the color, Trey. And then my follow-up is I know it's really early days, but how's the integration of Mesquite proceeding.

Actually, I mean, it's very, very well. We only have one month of an indication what's going on there. But we're connected them to our infrastructure. We're actually expanding their pipe system for some new customers. And we're seeing the skim oil hitting our budgeted quantities. But as Trey may have spoken to the hedging, what we've hedged, what percentage of our -- for this fiscal year I think for the next three or four months, we're about a 100% hedged. So for the current quarter, we're about 90% hedged. For the entire fiscal year, we're at 75% to 80% hedged on skim oil volumes and that includes the mesquite volumes. And we hedge, when we had the run up to $60.

Great, well, thank you for the color.

I am showing no further questions, at this time. I would now like to turn the conference back to Mike Krimbill.

Well, I have many more thoughts. But you probably don't want to hear them. So, thank you. And we'll end the call.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect.