NGL Energy Partners LP (NYSE:NGL) Q1 2021 Earnings Conference Call - Final Transcript

Aug 10, 2020 • 05:00 pm ET


NGL Energy Partners LP (NYSE:NGL) Q1 2021 Earnings Conference Call - Final Transcript


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Robert W. Karlovich

expect FY 2021 coverage to exceed 2.5 times based on our adjusted EBITDA guidance, and also continue to expect fiscal 2021 to be free cash flow positive with excess cash flow used to reduce indebtedness and improve leverage. Our leverage remains around 5.3 times at June 30, and we expect to stay at this level for the next couple of quarters under current operating conditions. We're also evaluating other opportunities to reduce leverage, including joint ventures and noncore assets.

Finally, as a general matter, we do not generally comment on pending litigation. However, as many of you are aware, one of our customers is taking the steps within its Chapter 11 bankruptcy to attempt to reject our transportation contracts related to the Grand Mesa pipeline. Unfortunately, those contracts are currently subject to litigation. Last week, we filed an objection to their motions to reject the two contracts, and we separately filed a motion to lift the automatic stay so that we can seek the proper input from FERC, which we believe has jurisdiction over the contracts. The hearing related to these matters is set with the court for September 3.Obviously, our filings are public record, and you're welcome to review them. Basically, at this time, I cannot add anything additional here that isn't contained in those filings. As in any disputed matter, NGL is always amicable to resolving matters in a commercially reasonable way, but there are times where we owe it to our unitholders to seek validation of our contractual rights and use the courts to do so, and we believe this circumstance is one of those matters. So we will be considering all legal possibilities with respect to defending the value in these contracts for our stakeholders.

That concludes my prepared remarks. I will now turn it over to Mike.

H. Michael Krimbill

Thanks, Trey. The past quarter presented us with many challenges and opportunities, which we have been managing, like all of our peers and most companies in general. We have seen unprecedented volatility in crude prices and other commodities, significant reductions in demand for crude, refined fuels and certain liquid products, and an increase in upstream producers facing significant financial difficulties.We have taken numerous steps to reduce operating costs and capital expenditures while optimizing our assets. We've been working closely with our producer customers to make sure we are meeting their operational needs and helping them to manage through this environment as well. We took advantage of an extremely steep contango crude environment in April/May, only to see the forward curve flatten considerably in June and through July.

As Trey said, a significant portion of our profits are embedded in our inventory at June 30, and we expect to recognize these margins when the product is sold in our second quarter. We held skim oil barrels in tank and expect to monetize those in the upcoming quarter as well, at higher average pricing than we saw throughout the first quarter. We've also taken this opportunity to add acreage dedications,