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01/11 03:33
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture. Positive aspects include increased EBITDA driven by Water Solutions and successful repurchase plans. However, challenges like declining Grand Mesa pipeline volumes, reduced Liquids Logistics EBITDA, and reliance on butane blending pose concerns. The Q&A shows management's strategic flexibility, but lack of clear guidance and dependency on market conditions add uncertainty. Overall, the positives and negatives balance out, suggesting a neutral stock price movement.
Consolidated Adjusted EBITDA $144 million, a 4% increase year-over-year from $138.6 million. This increase was primarily driven by the performance of the Water Solutions business segment.
Water Solutions Adjusted EBITDA $142.9 million, a 13.8% increase year-over-year from $125.6 million. The increase was driven by higher disposal revenues due to an increase in produced water volumes processed from contracted customers and higher water pipeline revenue from the LEX II pipeline commencing operations.
Physical Water Disposal Volumes 2.77 million barrels per day, a 12.4% increase year-over-year from 2.47 million barrels per day. This was due to increased activity and contracted customer volumes.
Total Water Disposal Volumes (including deficiency volumes) 3.1 million barrels per day, an 18% increase year-over-year from 2.6 million barrels per day. This was driven by higher contracted customer volumes and operational improvements.
Operating Expenses in Water Solutions $0.22 per barrel, a $0.02 decrease year-over-year. This reflects cost efficiencies achieved in operations.
Crude Oil Logistics Adjusted EBITDA $9.6 million, a decrease from $18.6 million year-over-year. The decline was due to reduced sales from lower production on acreage dedicated in the DJ Basin and lower crude oil prices.
Volumes on Grand Mesa Pipeline 55,000 barrels per day, a decrease from 63,000 barrels per day year-over-year. This was due to reduced sales and lower production on dedicated acreage.
Liquids Logistics Adjusted EBITDA $2.9 million, a decrease from $5.7 million year-over-year. This was adjusted for asset sales during the quarter, with the butane blending business being the primary contributor moving forward.
Asset Sales: Closed on the sale of Rack marketing business, Limestone Ranch interest, and majority of wholesale propane business including 17 terminals. Proceeds were used to pay down debt and improve capital structure.
Water Solutions Performance: Adjusted EBITDA increased by 13.8% to $142.9 million, driven by higher disposal revenues and increased water pipeline revenue from LEX II pipeline operations. Operating expenses per barrel decreased by $0.02.
Crude Oil Logistics Performance: Adjusted EBITDA decreased to $9.6 million due to lower production and crude oil prices. However, July volumes were 25% higher than June, indicating potential improvement in future quarters.
Liquids Logistics Performance: Adjusted EBITDA decreased to $2.9 million, primarily due to asset sales. The butane blending business remains the main contributor to this segment.
Debt and Equity Management: Used free cash flow to purchase $19 million of 2032 notes, pay off $17 million of ABL debt, repurchase 70,000 Class D preferred units, and buy back 4.7 million common units.
Strategic Focus: Continuing multiyear strategy to rightsize asset footprint, pay down debt, and reduce leverage. Opportunistic use of free cash flow to improve financial position.
Market Sentiment and Oil Price Uncertainty: The company has not seen a drop-off in activity from customers in the core basin, but there is ongoing monitoring of macroeconomic impacts on the Water Solutions segment.
Crude Oil Logistics Segment Performance: Adjusted EBITDA for this segment decreased significantly from $18.6 million to $9.6 million year-over-year due to reduced sales from lower production on dedicated acreage and lower crude oil prices.
Liquids Logistics Segment Challenges: Adjusted EBITDA dropped from $5.7 million to $2.9 million year-over-year, primarily due to asset sales. The segment's future performance is heavily reliant on the butane blending business, which is seasonal.
Debt and Leverage Management: The company is focused on reducing leverage and debt, but this strategy depends on market conditions and the ability to generate free cash flow. Temporary bond price declines due to tariff announcements highlight sensitivity to external factors.
Asset Sales and Strategic Execution: The company is shrinking its Liquids segment footprint through asset sales, which could impact future revenue streams. The success of this strategy depends on market conditions and execution.
Grand Mesa Pipeline Volume Decline: Volumes on the Grand Mesa pipeline decreased from 63,000 barrels per day to 55,000 barrels per day year-over-year, impacting the Crude Oil Logistics segment's performance.
Full Year Adjusted EBITDA Guidance: The company reaffirmed its full year adjusted EBITDA guidance of $615 million to $625 million. They will reevaluate this guidance after the second quarter closes.
Water Solutions Segment Performance: The Water Solutions segment is performing above expectations. The company expects continued strength in this segment, driven by higher disposal revenues and increased water pipeline revenue.
Crude Oil Logistics Segment Outlook: The company anticipates stronger quarters ahead for the Crude Oil Logistics segment, with volumes on the Grand Mesa pipeline expected to increase. July volumes were approximately 25% higher than June volumes.
Liquids Logistics Segment Outlook: The primary EBITDA contributor for this segment will be the butane blending business, with the majority of EBITDA expected in the back half of the fiscal year.
Potential Guidance Revision: If results continue to exceed expectations, the company will consider raising guidance during the second quarter earnings call in early November.
Debt and Equity Strategy: The company is focused on using free cash flow to purchase and repay debt and equity, prioritizing actions that provide the highest return and greatest benefit to the partnership. They anticipate additional purchases of Class D preferred units this fiscal year.
Repurchase of Class D Preferred Units: Repurchased 70,000 units, approximately 12% of outstanding Class D preferred units. The company has begun the process of redeeming Class D preferred units and anticipates additional purchases this fiscal year.
Common Unit Repurchase Plan: Under the Board authorized plan, repurchased approximately 4.7 million common units at an average price of $4.30 per unit, representing approximately 3.5% of the outstanding common units.
The earnings call summary and Q&A reveal strong performance in the Water Solutions segment and strategic repurchases of units, indicating positive financial health. The reaffirmation of full-year EBITDA guidance and potential for guidance revision add optimism. Risks are acknowledged but seem manageable. The Q&A supports a positive sentiment with clear responses and no evasive answers. The unit repurchase plan and Class D preferred units repurchase enhance shareholder returns, contributing to a positive outlook.
The earnings call presents a mixed picture. Positive aspects include increased EBITDA driven by Water Solutions and successful repurchase plans. However, challenges like declining Grand Mesa pipeline volumes, reduced Liquids Logistics EBITDA, and reliance on butane blending pose concerns. The Q&A shows management's strategic flexibility, but lack of clear guidance and dependency on market conditions add uncertainty. Overall, the positives and negatives balance out, suggesting a neutral stock price movement.
The company's strong financial performance, with EBITDA exceeding guidance and increased water disposal volumes, is a positive indicator. Despite some segment declines, the overall financial health is solid. Asset sales have provided significant capital, and the focus on reducing leverage by repurchasing preferred shares is prudent. While management's responses in the Q&A lacked clarity on some points, the market strategy and financial health remain strong, supporting a positive sentiment.
The earnings call shows mixed results: strong performance in Water Solutions and exceeding EBITDA guidance are positives, but declines in Crude and Liquids Logistics, along with unclear management responses, create uncertainty. The market's reaction may be tempered by these mixed signals, leading to a neutral stock price movement.
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