Good morning, ladies and gentlemen, and welcome to the Q2 Fiscal Year 2021 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] This call is being recorded. I would now like to turn the conference over to your host, Mr. Trey Karlovich, CFO. Please go ahead, sir.

Great. Thank you, and good evening, everybody. As a 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 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. Good afternoon and thanks for joining us. Our second fiscal quarter EBITDA is $138 million, as you know, as compared to $123.5 million last year. With respect to our Water Solutions business, it appears that volumes have bottomed out this quarter. The rigs working on acreage dedicated to NGL customers and the Delaware is increasing. With October volumes averaging about 1.5 million barrels a day, volumes under the Poker Lake contract began on October 1 and will increase January 1, 2021, so less than 60 days and each year thereafter through January 1, 2024. We have added additional dedications with the focus on increasing our market share in the Delaware during this downturn. We've issued numerous press leases announcing those. Reducing operating costs has been a significant priority this year, even though water volumes have declined, our cost per barrel fell from $0.38 last year to $0.27 per barrel this quarter. As volumes increased, we expect this per barrel cost to fall even further. We have done this to reducing headcount in excess of 25%, consolidating SWDs and eliminating most diesel power generation. With respect to crude oil logistics, they performed well, led by Grand Mesa with financial volumes at 123,000 barrels per. The liquids logistics is performing well in the face of uncertainty. In the first six months or so with COVID, there was a question about how much butane blending would be happening with gasoline demand down so much, but logistics is performing on budget. Regarding the balance sheet, NGL has already built out its Delaware water's super system such that CapEx this fiscal year and going forward is reduced and allow us to be free cash flow positive. Even so, we have reduced CapEx below the guidance provided earlier in the year for this fiscal…

Okay. Thank you. So as Mike mentioned, I would like to spend a little time discussing the credit facility extension, we have in process before going through the results for the quarter. First, I'd like to express my appreciation for the banks and their teams that have been working on this important extension, especially with everything going on in our industry. We launched our extension last month and I've been working with our bank group to finalize terms. Generally speaking, we are looking to extend our credit facility by at least a year. We are working with the group on ways to reduce the commitments under the facility, as well as trying to address certain financial covenants based on the impacts we have had from the pandemic, as well as extraction with bankruptcy filing. We understand our borrowing costs may be going up and there’ll be limits on cash flows leaving the company other than to reduce the debt. These conversations have been constructive and we are working diligently to complete this extension as soon as possible. Our current leverage ratio is about 5.3 times calculated in accordance with our credit facility in line with prior quarter and we are working on opportunities like the ones Mike mentioned to reduce our secure debt and lower leverage. That will be our core focus through the remainder of this year and into fiscal 2022. Since July 1, we have repurchased and retired an additional $75 million notional face value of unsecured notes, bringing our total repurchases for this year to around $125 million space value at about $0.60 cents on the dollar, resulted in a net $50 million debt reduction. Moving to our financial results for the quarter. Mike mentioned how well our operating segments performed during the period, despite some of…

[Operator Instructions] Your first question comes from the line of T.J. Schultz from RBC Capital Markets. Your line is open.

Hey, good afternoon. So you've given the extension proposal on the credit facility to the lenders. Are there any specific terms of that extension proposal that they've come back with at this point, that is moving the process along? Or do you expect to need more resolution on Grand Mesa and maybe some of these JVs first and would that include the JV of your water business?

So TJ, I'll start, Mike, you can chime in. We have gone back and forth on a few items, again, everything's been constructive conversations. Some of these things are going to take longer than a week or two necessarily, but we are moving pretty quickly, particularly on some of these other transactions. Our objective is to have the credit facility extension completed prior to that, again, I think that's something that we're endeavoring towards and we've had positive feedback from the group as well.

Yes. TJ, as the last part of your question there about, there was an article I think about – I don't know three or four weeks ago that discussed, I guess perhaps a rumor that we were looking for JV partner on our water business. So that is correct, we've been through a process, so we are – but when we've referred to JV opportunities that's what we're talking about.

Okay. So – what's the timing on that process for the water business?

Definitely prior to 12/31.

Okay. Understood. And then just on, is extraction currently shipping on Grand Mesa or does it have another viable option to move product as you consider potentially discussing new commercial terms?

So TJ, we can't talk about specific shippers on Grand Mesa, unless they’ve disclosed it publicly. So I can't specifically address that. But what we can say is that physical volumes on the pipe have not significantly changed recently. So, I think that's how we can answer that question right now.

Okay. Fair enough. Thanks guys.

Thanks, TJ.

[Operator Instructions] Your next question comes from Pearce Hammond from Simmons Energy. Your line is open.

Yes. Good afternoon and thanks for taking my questions. Just following up on TJ's question with Mike's comments and Trey's comments. So on the J – perspective JV for the water business, are you referring to part of the water business or the whole water business?

A portion.

A portion. Okay, thank you. And then, congratulations on bringing the operating cost down in the water business to $0.27 a barrel. Just curious if that OpEx number included any royalties and if so, what sort of royalty rates are you in the Delaware basin, both the Texas and New Mexico?

Any royalties we pay are – they are in that number, we have a mix of – we have quite a few as, you know properties, we'd like to own our own land, so there are no royalties and a lot of that land is up and down 285. But we also, take a lot of water over to, one of the ranchers, they're in block 74, so 476, 54. So it's combination of both, but yes, they're all in the numbers.

Okay, great. And then one last one for me, just from a high level, you've mentioned evaluating assets sales and joint venture opportunities. And we just talked about joint venture opportunities, but what are you thinking from a high level, from an asset sales standpoint because you did a good job pairing down the company and simplifying it over the course of the last year to 18 months?

Yes. Trey will jump in too, we looked at our assets to see where are – there are some assets that are perhaps off by themselves. I wouldn't call them stranded, but they're not really connected to the rest of the assets by pipe or, naturally in a certain geographic areas. So there are a few of those that we've looked at this, we are talking to some potential buyers.

Here's just to add. I mean, we talked about any non-core assets. Again, this is a tougher time just from a macro environment perspective, but we have seen some interests. I wouldn't say there's anything significant. We focused on where our competencies are, where our strengths are, within each one of our business segments. So, there are a few things on the fringes, but most of those are relatively small right now.

Okay. Thanks guys. Appreciate it.

Your next question comes from the line of Jason Mandel from RBC Capital Markets. Your line is open.

Hi guys. Good afternoon. Thanks for taking the question. It's two separate questions, first off, the crude oil margin benefit in the quarter, the portion that comes from sort of cheaper purchase inventory barrels. Maybe I just haven't seen it yet, but can you give any kind of quantification for how much of that was, as part of the quarter? And then I have a separate question on Grand Mesa.

Yes. Jason, thanks. We didn't disclose the specific amount, but it's kind of in the low to mid-teens that we captured from first quarter and the second quarter so that has been rolled, that was deferred from first quarter and captured into the second quarter. And then, your second question again.

Sorry, that's low to mid-teens, what…

EBITDA calculation.

Great. Thank you. And then the second question is on the extraction issue, I realized there's limits around where you can talk about but specifically for, any potential for commercial negotiations or renegotiations of the contract, any impacts we should be considering for other shippers that have deals on the pipe that could potentially cause those pricing to come down, or you have able to kind of structure around that?

Well, much like last quarter, we've never heard a peep out of the bondholders. So we are – we sit here continuing to perform. So, we don't have really anything to say in terms of, of that. But we filed a lot of appeals. So for our other, press release, things are active.

And Jason, with regards – just regards to other contracts again. So we can't disclose any specifics on other contracts unless they've been disclosed publicly by the shipper or producer. We do have our tariff, it's public. But within the tariff, there is no most favored nation’s type language within that tariff. Again, it's all based off of volume and term of commitment.

Very good. Thanks for help.

Yes.

I'm showing no further question at this time. I would now like to turn the conference back to Mr. Mike Krimbill, CEO.

Well, thank you very much and we'll see you next quarter.

And ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.