NGL Energy (NGL) Q3 2026 Earnings Call Transcript

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Date

Tuesday, Feb. 3, 2026 at 5 p.m. ET

Call participants

• Chief Executive Officer — H. Michael Krimbill
• President and Chief Operating Officer — Doug White
• Chief Financial Officer — Brad Cooper

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Takeaways

• Adjusted EBITDA -- $172.5 million, up 9.2% from $158 million.
• Water Solutions Adjusted EBITDA -- $154.5 million, an increase of 16.5% from $132.7 million.
• Physical Water Disposal Volumes -- 3.07 million barrels per day, up 17.1% from 2.6 million barrels per day.
• Total Paid Disposal Volumes -- 3.13 million barrels per day, an approximate 7% increase from the prior year.
• Operating Expenses (Water Solutions) -- $0.18 per barrel, reflecting nonrecurring expense reductions.
• Crude Oil Logistics Adjusted EBITDA -- $15.4 million, down from $17.3 million.
• Grand Mesa Pipeline Volumes -- 85,000 barrels per day, up from 61,000 barrels per day, but with lower margins due to decreased oil prices and reduced high-tariff committed producer volumes.
• Liquids Logistics adjusted EBITDA -- $15.2 million, a decline from $18.6 million.
• Segment Repositioning -- Sold wholesale propane and 17 terminals, exited refined products, and wound down biodiesel marketing; now focused on Centennial butane blending.
• Class D Preferred Equity Redemption -- 15% of original Class D outstanding has been redeemed; further redemptions are a near-term priority.
• Common Unit Repurchases -- 1.6 million units repurchased this quarter, totaling approximately 8.7 million since program inception, representing nearly 7% of units outstanding at an average price of $5.70 per unit; repurchase plan nearly exhausted.
• Unit Warrant Repurchase Impact -- 23.3 million long-term common unit warrants purchased for $6.9 million in November 2024, eliminating approximately 18% of future dilution; combined with unit buybacks, total dilution eliminated is roughly 25%.
• Leverage -- Leverage declined to the low 4.0x area, supporting capital allocation flexibility.
• Capital Expenditures -- Growth capital increased by over $100 million in the second and third quarters for new customer projects, which are now in service.
• Record Water Disposal -- Exceeded 3.5 million barrels per day in early January, including an all-time daily record of approximately 3.3 million barrels and a single-day record on January 16.
• Impact of Cold Weather -- Brief disposal volume decrease in mid-January to under 3 million barrels per day due to extreme cold, with no expected material impact to full-year guidance.
• Contracted Volumes Under MVC or CBC -- Over 1.5 million barrels per day covered, providing payment even if not disposed of physically.
• EBITDA Guidance -- Full-year EBITDA guidance confirmed at $650 million to $660 million, with a projection to exceed $700 million in fiscal 2027.
• Delaware Basin Projects -- Several new volume commitment contracts initiated, with asset development completed ahead of schedule and under budget, directly contributing to new volumes.
• Pipeline Expansion -- Completed a 27-mile, 24-inch Western Express pipeline expansion, increasing capacity and flexibility for water transport.
• AI Initiative -- In second year of machine-based learning project using SCADA system data to identify opportunities for revenue growth and expense reductions.
• Desalination/Discharge Permit -- Entered into an MOU with Natura Resources for potential nuclear-powered thermal desalination in Reeves County; final draft TPDES discharge permit expected this month, with issuance anticipated early this year.
• Seasonality Mitigation -- "this effectively eliminates the seasonality of our cash flows and improves the consistency and predictability of those cash flows."

Summary

NGL Energy Partners (NYSE:NGL) delivered quarterly adjusted EBITDA growth and record water disposal volumes, supported by higher long-term contracted volumes. Management indicated that recently completed Delaware Basin infrastructure projects and new customer contracts have contributed to current metrics and are expected to power continued growth into the next fiscal year. The company confirmed full-year EBITDA guidance and projects further increase in fiscal 2027, reinforcing a strategic focus on Water Solutions and capital efficiency. Material segment repositioning and strategic asset sales have concentrated the liquids platform on Centennial butane blending, while advances in artificial intelligence and desalination technology are under active development, targeting operational improvements and long-term water treatment capabilities.

• Krimbill stated, "we continue to move towards a predominantly water solutions company as we grow our water footprint and shed non-water assets."
• Doug White notified that "Our development team executed these projects ahead of schedule and under budget," referring to new contracted water volumes in the Delaware Basin.
• Management emphasized no change to capital expenditure outlook associated with the Natura Resources partnership, clarifying that "it will have no CapEx demand to NGL on the nuclear side."
• New AI and machine learning projects are improving business efficiencies, though management said, "If you are looking for just a dollar amount or a percentage, right now, I do not feel comfortable saying what that is."

Industry glossary

• MVC (Minimum Volume Commitment): Contractual arrangement guaranteeing the company payment for a set minimum water disposal volume, regardless of actual deliveries.
• CBC (Capacity-Based Commitment): Contract structure providing revenue based on committed disposal capacity, even if physical volumes fall below the commitment.
• TPDES (Texas Pollutant Discharge Elimination System): Texas state permitting program regulating the discharge of pollutants, including treated water, into surface waters.
• SCADA (Supervisory Control and Data Acquisition): Automated real-time data system used to monitor and control industrial processes, such as pipeline operations and water treatment.
• Centennial butane blending: Operations centering on the blending of butane for refined products, primarily at the Centennial facility following divestiture of other liquid assets.

Full Conference Call Transcript

We delivered another strong quarter highlighted by record water disposal volumes in Water Solutions and continued execution on our financial strategy. For the quarter, adjusted EBITDA from continuing operations was $172.5 million, up from $158 million a year ago, a 9.2% increase. On the financial strategy front, we executed on two of our priorities: reducing higher-cost preferred equity and repurchasing common units. During the quarter, we redeemed an additional 15% of the original Class D outstanding. On the common units, we repurchased 1.6 million units during the quarter and have now repurchased approximately 8.7 million units since program inception, which is almost 7% of the outstanding units at an average price of $5.70 per unit. We have almost fully exhausted the board-approved common unit repurchase plan. At current unit price levels, we are primarily focused on eliminating the Class D preferred units. With the water growth projects we have line of sight into, and the Class D preferreds, we will be targeting these two over the next fiscal year.

Doug will provide prepared remarks shortly, but in early January, we eclipsed 3.5 million barrels per day of disposal volumes, which is a record for the partnership. We experienced a few days in mid-January when volumes were under 3 million barrels a day due to the extreme cold weather most of the Midwest and Southeast experienced. We do not expect this to have a material impact on our full-year guide for fiscal 2026 due to the nature of how we contract. Recall that over 1.5 million barrels per day of our water disposal volume is under MVC or CBC, which allows us to get paid on volumes even if they are not disposed of.

The new contracted volumes that Mike mentioned on the previous earnings call are coming online, and we anticipate a strong close to fiscal 2026. We are still guiding our full-year EBITDA to a range of $650 to $660 million. These new contracted volumes that have recently come online set us up for a strong start to fiscal 2027, where we are still projecting to exceed $700 million of EBITDA for the first time in the history of the partnership. In 2026, the Water Solutions segment generated adjusted EBITDA of $154.5 million versus $132.7 million in the prior year third quarter, an increase of 16.5%.

Again, we set a physical disposal volume record, processing 3.07 million barrels per day of physical produced water versus 2.6 million barrels per day in the prior year third quarter, an increase of 17.1%. Total volumes we were paid to dispose of, including deficiency volumes, were 3.13 million barrels per day in the third quarter, versus 2.91 million barrels per day in the prior year third quarter. So total volumes we were paid to dispose of were up approximately 7% in 2026 over 2025. Operating expenses for the quarter were $0.18 per barrel due to nonrecurring expense reductions. Crude Oil Logistics adjusted EBITDA was $15.4 million in 2026, versus $17.3 million in the prior year's third quarter.

Physical volumes on the Grand Mesa pipeline averaged approximately 85,000 barrels per day, up significantly from 61,000 barrels per day in the prior year quarter. Margins for barrels on Grand Mesa were lower in 2026 compared to the prior year's third quarter due to lower oil prices as well as a reduction in volumes from committed producers with higher contracted tariffs. Liquids Logistics adjusted EBITDA was $15.2 million in 2026, versus $18.6 million in the prior year's third quarter. Strategically, we executed a significant repositioning in April 2025 with this segment. We sold our wholesale propane business and 17 NGL terminals, exited the refined products business, and wound down our biodiesel marketing business.

Today's liquid platform is more focused and anchored by our Centennial butane blending business. The streamlined footprint is performing as expected for the full year. I will turn the call over to Doug White. Doug?

Doug White: Thank you, Brad. As Brad mentioned earlier, we entered into several volume commitment contracts in the Delaware Basin that included a large amount of asset development. Our development team executed these projects ahead of schedule and under budget. We are happy to report the water volumes associated with these projects are flowing and have been at or above our expectations. The capital investment included the Western Express pipeline expansion of 27 miles of 24-inch pipeline, further expanding our reach into our customer footprint and providing flexibility to transport water to areas of underutilized capacity and away from areas burdened by seismicity and pore pressure constraints. I want to thank the operations team for their successful execution of these projects.

In the quarter, we achieved an all-time daily record of approximately 3.3 million barrels of water, and on January 16, we received over 3.5 million barrels of water in a single day. This reflects the capacity increase from the capital investment I just mentioned. Our ability to execute large growth projects at attractive multiples over the last several years, combined with our operational capabilities, is allowing us to deliver consistent economic results. We continue to engage our producer customers with opportunities, and we are working to secure additional disposal contracts in fiscal year 2027.

We continue to improve the business, and as an example, we are in our second year of development of our AI machine-based learning project, which will begin to contribute to operational efficiencies in this calendar year. We are utilizing the millions of data points collected through our SCADA system, automated electric power consumption meters, and system flow models, which are fed into our proprietary AI model. It is identifying opportunities to increase revenues and decrease expenses. We are excited to continue to grow this project over time and increase the AI impact on our business.

As an update to our large-scale produced water treatment strategy in the Delaware Basin, we recently entered into an MOU with Natura Resources, a leading advanced modular nuclear reactor developer. We are pursuing a combination of nuclear power applied to thermal desalination technology in Reeves County, Texas, where our outfall for the TPDES discharge permit is located. We are progressing toward a final draft of that permit this month and expect to receive an issued permit early this year. These steps lead us closer to realizing our medium to long-term goals of large-scale disposition of produced water. I will now turn the call over to our CEO, H. Michael Krimbill.

H. Michael Krimbill: Thanks, Doug, and good afternoon, everyone. I have some just brief comments. With respect to current operations, you have heard that we achieved another great quarter exhibiting continued growth. There are several takeaways worth mentioning. One, we continue to move towards a predominantly water solutions company as we grow our water footprint and shed non-water assets. Two, this effectively eliminates the seasonality of our cash flows and improves the consistency and predictability of those cash flows. And three, we already have significant growth contracted for fiscal 2027 beginning April 1. So now let's look at our capital allocation priorities first. Our capital must finance internal growth projects for our producer customers.

As we discussed on the previous quarter's earnings call, our growth capital increased by over $100 million in the second and third quarters of this fiscal year as new opportunities presented themselves. And as Doug said, these projects are currently in service. Next, we focused on redeeming the Class D. As Brad said, we have redeemed about 15% of the outstanding preferreds. But importantly, our leverage has declined to the low 4.0 times area. So we will be looking to take out a significant portion of the remaining Class D's in the very near future. So stay tuned for that. Finally, we look at our common units, opportunistically to purchase and retire them at attractive prices.

The board and management team have acted proactively to eliminate dilution and actually reduce the common unit count outstanding. So going back to November '24, you may remember we purchased 23.3 million long-term common unit warrants that had strike prices from $13.50 to about $17.50. We paid $6.9 million. These purchases eliminated approximately 18% of future dilution. Currently, we have reduced the outstanding, as Brad said, by nearly 7% through our board-approved unit repurchase plan. So combined, we should not lose sight. We have eliminated dilution of our common by approximately 25%. We will continue taking advantage of attractive common unit prices while balancing liquidity and leverage requirements.

In closing, we believe the future of our business five to twenty-plus years from now is not dependent upon drilling more and more SWDs. That is our situation presently and in the near future. But ultimately, we must treat the produced water to a quality that can be released on the surface for irrigation, industrial, and municipal use. We are closer to that goal. The Natura agreement and the anticipated discharge permit are two of the steps in that direction. Not all of our initiatives on this journey will work, but time and technology are on our side. I think with that, we open it up for questions.

Operator: Thank you. At this time, we will be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Before pressing the star keys. One moment, please, while we poll for questions. And the first question today is coming from Eric Whitfield from Texas Capital.

Eric Whitfield: Good afternoon, guys. Derrick Whitfield with Texas Capital. So congrats on your quarter and also on the strong operating performance of your water business. Maybe just starting there on the macro environment, given the volatility in crude prices, can you speak to the firmness of the growth projects you highlighted in 2Q and really speak to the appetite of producers to further address and commit to future water disposal needs given the volatility we are currently seeing in crude prices?

H. Michael Krimbill: Yeah. Derrick, I mean, I think Mike hit on it. I mean, the projects and the capital spend that we outlined in the last call, those projects are online here at the beginning of this calendar year. Doug, you want to kind of take what you are seeing maybe into this current year and maybe through the end of next fiscal year for us?

Doug White: Yeah. Eric, when we look at the projects that we have completed, you know, those came with volume commitments and those were for the long term. So those are very financially firm. You know, as we see the oil price fluctuate, even when it dipped down to, you know, the $55 range, we really did not see a big change from our customers as the consolidations happen, certainly in the Delaware Basin. We saw some more of that announced today. That consolidation has created more of a level activity level versus what it may have been, you know, a few years ago when there was a lot more private equity type of producers in the basin.

But as it has matured, we are seeing our customers and our large customers just on a continuous, drilling forward and, you know, frac spreads, etcetera. The other real big driver for us is, you know, asking about what does it look like, you know, prospectively. The other big driver is there is such a large wedge of foundational volumes of produced water in the Delaware Basin that when we saw, for an example, you know, we hit that record on Friday, the sixteenth in January, that was right before the storm. We saw some people drop some frack crews or pause some frack crews.

The uptick of water that happens when there is even a small slowdown is reflective positive for our business. You know, we are not active recyclers like some others are. When that recycling may slow down because it does not have, you know, a frac crew to send water to, all of that produced water has to go somewhere, and that comes to us. So we are continuing to see large opportunities for large-scale projects prospectively and expect to, you know, nail down some of those firmly in the coming months.

Eric Whitfield: Terrific. And specific to Natura's release this morning, it seems the market was concerned about the near-term capital obligations for a project that might not be material for several quarters, if not years? I guess, a, how would you characterize this water treatment opportunity and volume and values? And then b, how material is the current CapEx obligation?

Doug White: Yeah. Good question. So we continue to explore the alternatives to injection based on, you know, seismicity, pore pressure, increasing, you know, just being prudent operators, we have continued for several years to be looking for other alternatives to injection. You know, you might remember, you know, our very successful desalination project in Pinedale, Wyoming. You know, we have a history and experience in the side of the desal part of the business. We know it takes several factors to come together for those projects to coalesce. You know, what has happened in the past year, you know, Texas has passed the water bill. Right? A billion dollars a year of support for new water in Texas.

The federal government support of production of domestically sourced critical minerals, requests from our customers. You know, our customers are paying attention. What opportunities are there for the producers, and saying, hey. We are hey, NGL. Where are you going to take my water? Something different rather than, you know, Loving or Reeves County? You know, we have addressed a lot of that in the short to medium term. You know, and some percentages of the very long term with our Andrews County out-of-base assets. But then we have to look at and say, what does it take to create large-scale desalination, which we very, very firmly believe is part of the future in the portfolio going forward.

Basic requirements for that, first, have to have produced water volumes that support an economic scaled plant. We check that box. Right? Our large system. There is a reason we applied for our outfalls on our TPDES permit in a particular location in Reeves County. That is because we can deliver, you know, 800,000 barrels a day of water to that location. You need those economies of scale to have an economic project. Second is an available energy source. You have to have this energy source for the treatment plant. Or as it goes with Natura, it becomes a means of treatment itself. And very interestingly, nuclear power generation produces about 60% waste heat of its energy.

We would use that waste heat to be able to do thermal desalination of our water. It is not really even about the electricity, the 40% electricity that is produced. It is really about the waste heat. We will be taking waste heat and treating wastewater to create new water for the state of Texas, use the waste off of that process, which is condensed brine or concentrated brine, which has concentrated up the minerals within that brine. And then, you know, we are working on recovery of critical minerals through that. So you put all those pieces together, that is what it takes to get there. And our MOU with Natura, we are very excited about.

While it will have no CapEx demand to NGL on the nuclear side, our plan has not changed. And our CapEx forecast and demand has not changed, we are looking forward to developing the scaled treatment, and that will come over time. We will not go straight to a giant scale treatment. Our TPDES discharge permit even has caps and ceilings on the amount of water you can discharge over certain periods of years. So for us to start, you know, maybe we start with a 50,000 barrel a day plant that is able to be scaled. Most likely, we will be using natural gas to power that plant. Not a heavy CapEx demand.

And then as we move forward, we sign contracts with our customers. We sign contracts with downstream users of our new water. Then we can create the economics around a larger CapEx spend to scale the project. Natura, should that, you know, come to fruition, Natura has their own economics of their own capital spend around their project. But we would put the two projects together to really create a really unique and exciting project.

Eric Whitfield: Tremendously helpful. If I could just ask one more, only you piqued my interest on the AI and machine learning side. Maybe speak to the amount of value you have recovered to date and really, the amount of potential value you could recover as you see this starting to take root within the organization?

Doug White: Well, I think you can see in our OpEx numbers how they continue to improve. It is very hard to simply quantify that large move that we achieved this last quarter just down to the AI project. But, certainly, the AI project is having an influence on expenses. What most do not really focus on is the impact on revenues. The more water we can move more efficiently, utilizing, increasing our utilization of our existing assets, saves us capital. We do not have to drill new wells. We do not have to build new facilities. You know, that goes straight to the bottom line.

Obviously, with helping out on reducing the capital spend, we increase our low multiple returns, which is great to pay back returns. If you are looking for just a dollar amount or a percentage, right now, I do not feel comfortable saying what that is. We are seeing increases in just efficiencies to start. As you know, these machine-based products, you know, they learn from themselves and start to continue to create more and more value. So as time goes on, Eric, I think as we see true, I guess, discernible returns on that or dollars, you know, we will be able to share that down the road.

Eric Whitfield: Fantastic. Great update.

Operator: Thank you. And once again, it will be star one on your phone at this time. The next question is coming from Tarek Hamid from JPMorgan.

Nevin Mathew: Hi. Good afternoon. This is Nevin on for Tarek. You had mentioned consolidation a little earlier. So we were just wondering if you had any conversations with Devon following the deal announcement earlier this week. And if so, were there any takeaways on potential changes to activities or volume?

H. Michael Krimbill: We have been so busy with preparing for this call and running the business, Nevin, we have not had the opportunity to have those conversations with Devon.

Nevin Mathew: That's understandable. Alright. Thank you.

Operator: Thank you. And there are no other questions in the queue at this time. I would now like to hand the call back to Brad Cooper for closing remarks.

Brad Cooper: Thanks, everyone, for joining today. We will catch up with you in June on our year-end call.

Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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