Trey Karlovich – Chief Financial Officer Mike Krimbill – Chief Executive Officer

Sunil Sibal – Seaport Global Securities TJ Schultz – RBC Capital Markets Matt Niblack – HITE Michael Blum – Wells Fargo Selman Akyol – Stifel

Good day, ladies and gentlemen, and welcome to the Q1 2017 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 is being recorded. I would now like to introduce your host for today’s conference Mr. Trey Karlovich, Chief Financial Officer. You may begin.

Thank you, Becky, and welcome. This conference call includes forward-looking statements and information, 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 the prices and market demand for natural gas, liquids and crude oil, level of production of crude oil and natural gas, the effect of weather conditions on demand for oil, natural gas and gas liquids, the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results and to successfully integrate acquired assets and businesses. 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. Please also see the Partnership’s website at www.nglenergypartners.com, under Investor Relations for reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures. Good morning. I’ll take a few minutes walking through each of our operating segments and results from our first quarter. I will also highlight our expectations for each of the segments for the rest of our fiscal year. Mike is here, and he and I will answer questions after our prepared remarks. Let’s start with an update of our opportunities and then cover our quarterly results and the primary drivers behind these results. As we have discussed on the last two investor calls, our strategy has been to reduce our committed capital requirements, decrease our debt and leverage, increase liquidity and prove access to capital markets as we executed several – and we executed several transactions to accomplish this strategy. Those transactions are now being reflected in our financial results and will come to full fruition throughout this fiscal year as our distribution coverage grows to approximately 2.0 times by year-end. We continue to manage our business through the commodity cycles and take advantage of our unique asset base. We are focusing on strategic objectives like the completion of Grand Mesa and pursuing other opportunities around our footprint including working with Oaktree on projects that we continue to move NGL into a more asset driven fee based MLP. We invested almost $60 million in Grand Mesa and Cushing during the quarter and have about $50 million to $60 million remaining to complete the pipeline in Cushing infrastructure. Saddlehorn, our joint venture partner, recently announced that the Platteville-to-Cushing segment of the pipeline is complete and taking line fill. Our project remains on track for completion by October and commercial operations beginning November 1st. This quarter, we invested $40 million to acquire additional line space on the Colonial pipeline, where we now have allocated capacity of approximately 750,000 barrels per cycle on Colonial and Plantation. We also completed a $26 million Retail Propane acquisition in late July, which will be a fantastic extension to our existing retail east propane operations. These are two examples of opportunities within our footprint to invest capital between three times to five times EBITDA multiples. Finally, during the quarter, we had an opportunity to purchase and eliminate certain royalty obligations related to our water disposal facilities at what we believe to be an attractive price. Included in this transaction was the acquisition of an additional interest in one of our water pipeline investments, land containing fresh water wells in West Texas and permits for four incremental disposal facilities. This investment totaled approximately $48 million during the quarter. And we estimated that it would be a four to five times EBITDA investment at current crude oil prices and volumes and an even better return at volumes and ore prices improve even modestly. This transaction also significantly reduced the royalty obligations that we had recognized on our balance sheet at year end. We continue to see numerous opportunities ranging in size up to $45 million in and around our existing operating footprints in each of our operating segments. And we are targeting returns on these new projects and acquisitions of five times or better. We will finance these opportunities with a mix of debt and equity, as evidenced by our upsizing of the Class A preferred unit offering from $200 million to $240 million, which is done specifically to fund incremental opportunities like the Colonial line space and the Retail Propane acquisition. We recently filed an S3, which was declared effective last week for our equity ATM. We expect to utilize the ATM for partial funding of any additional opportunities that arise due to the rest of this fiscal year. Now, I’ll go through our financial results, which were included in the earnings release that was distributed this morning. Our overall results continue to demonstrate the effectiveness of our diversified portfolio as we navigate the commodity downturn. Our refined products segment delivered a strong quarter as low priced motor fuels and increased demand drove volumes. Our Retail Propane segment, also performed slightly better than expected. We saw crude prices in the $30 range at the beginning of the quarter and hit a ceiling of $50 towards the end of the quarter, only the recently fall back at the $40 range. While the price increase during the quarter, we saw very little movement to further out the crude curve, resulting in the flattening of the contango market, which impacted our expected results in the crude logistics business. Additionally, our hedges already in place for the skim oil production in our water segment, the expected uplift from this price change went largely unrealized for the quarter. We believe that increased prices will ultimately drive volume growth in the water and crude business segments, but the impact of the quick run up in the price followed by the quick decline was very muted in our results. Finally, our liquid segment was impacted by the oversupply of high pressure railcars, which many of our competitors and even some of our customers are utilizing for storage of propane and butane through the summer. For example, many of the current potential customers [indiscernible] storage caverns have deferred uses of the facility preferring to use their own – their owned or already leased rolling storage. Many of these cars are expected to roll off leases, which we believe will benefit our storage facility. Our net income for the quarter was $183 million, which includes several positive one-time items, including $104 million gain on the TLP common unit sale, a gain of $9 million related to the repurchase of debt and a non-cash adjustment of $125 million related to the final valuation of our goodwill on the water segment, which was completed this quarter by a third-party valuation firm. Adjusted EBITDA for the quarter totaled $63.1 million and we are confirming our guidance of $500 million in adjusted EBITDA for fiscal year 2017. As I have mentioned, our refined products renewables business had another strong quarter with about $37 million of adjusted EBITDA driven by motor fuels demand. As a reminder, our business is primarily servicing high growth population areas, running from the Gulf Coast through the Southeast and all the way to the New York City harbor with the customer base that includes high quality names like Costco, Kroger and benchmark. This segment was somewhat impacted by a shift in the gasoline curve during June, which was earlier than last year and earlier than we had anticipated this year. However, our sales contracts are already in place and we anticipate recovery margin when the contracts settle throughout this fiscal year. We are continuing to forecast robust demand through fiscal year 2017 and with the additional line space acquired, we now expect to generate $150 million of EBITDA in this segment. Our Retail Propane businesses benefited from a late-season [indiscernible] and customers requiring propane supply in April and May. We generated over $7 million of EBITDA in this business for the quarter. As I mentioned in late July, we acquired a propane business, which will be a fantastic extension to our existing retail east division for about $26 million. We’re expecting this acquisition to contribute approximately $5 million in incremental EBITDA this year to our Retail Propane business, increasing our forecasted EBITDA to approximately $100 for the fiscal year. I will reiterate, we are basing this guidance on normal winter weather in our operating areas, with most of these earnings generated in the third and fourth fiscal quarters. Our liquids logistics business generated almost $6 million in EBITDA this quarter and was impacted by the railcar length I mentioned previously. With a significant amount of excess railcars, many companies are utilizing these whether leased or owned to store propane, butane and other hydrocarbons. This is affected our ability to contract our fifth Sawtooth cavern. And as a result, we are continuing to watch the cavern and expand capacity from 1.2 million barrels to 2 million barrels upon completion. We’re now forecasting approximately $85 million of adjusted EBITDA for the liquids logistics segment for this fiscal year. However, this decrease could be made up through our wholesale butane businesses as we move through the year. The Crude logistics business generated $10 million of adjusted EBITDA during the quarter. As I mentioned, the increase in prompt crude prices decreased our expected margins in this contango market for the quarter. However, the recent decline in prices has provided additional opportunities for our storage and logistics business and we will continue to take advantage of that market, whenever it is available. Overall volumes in this segment continue to decline with the overall U.S. production and our team remains focused on optimizing margins and managing costs throughout this cycle. We continue to expect Grand Mesa to come online in November and generate approximately $50 million of EBITDA in fiscal 2017 and $133 million in fiscal 2018 with our one-year guidance of EBITDA of $120 million and our year two guidance of $150 million for the project. One of our largest shippers has plans to add a drilling rig in the DJ Basin and another has recently added acreage in close proximity to our stations, both viewed as very positive events for our project. At this point in time, we are expecting the crude business to generate $115 million of EBITDA for the year including the $50 million from Grand Mesa. Our water solutions segment recognized adjusted EBITDA of $10 million for the quarter. Overall, volumes were inline with our expectations, however skim oil volumes were lower than anticipated. Additionally, we fully hedge our skim oil volumes at an average price of around $36 per barrel for the quarter, resulting in an opportunity cost of $3.7 million. We are seeing increased volumes in the Permian and with certain water pipelines coming online and the elimination of the royalties, we do expect to see increased quarterly EBITDA in this segment going forward. We are currently forecasting $70 million of adjusted EBITDA in fiscal year 2017 for this segment. Our distributable cash flow was $30 million for the quarter and has totaled $255 million for the past 12 months, resulting in a trailing 12 month coverage of just over one times. We expect this trailing 12 month coverage to increase slightly in our second fiscal quarter with the third and fourth fiscal quarters delivering significant excess coverage as we start-up Grand Mesa, complete several other projects like the home of crude terminal and Collins refined product storage as well as entering the heating season. We are expecting distribution coverage of $175 million or approximately two times coverage for the all the fiscal year 2017. Beyond fiscal year 2017, we will target distribution coverage of 1.3 to 1.5 times on a trailing 12 month basis. Moving to our balance sheet, our debt outstanding was $2.2 billion excluding $656 million under our working capital facility, which is fully secured by receivables and inventory. We expect our compliance leverage to be approximately four times compared to our covenant level of 4.75 times. This calculation includes our trailing 12 month EBITDA and certain pro forma additions for capital projects including Grand Mesa and excludes the balance of our working capital facility from the calculation. We are targeting compliance leverage of 3.25 times or below and we'll continue to manage our business with that target in mind. We expect to trend towards that level in the third and fourth quarters and to meet that level by the end of our 2018 fiscal year. As I noted, we will fund our growth opportunities with the mix of equity and debt capital as well as using excess distribution coverage to grow our business. As we stated in the last earnings call, we have made some tremendous strides to better position NGL for success throughout the commodity cycle. We have a great set of opportunities and we have positioned ourselves to take advantage of those opportunities. The next six months will be exciting with the startup of the Grand Mesa pipeline, which is a major milestone for NGL. We continue to focus on optimizing earnings, maintaining a strong balance sheet and delivering value to our stakeholders. With that we would now like to open the line for questions. Becky?

Thank you. [Operator Instructions] And our first question comes from line of Sunil Sibal with Seaport Global Securities. Your line is now open.

Hi. Good morning, guys.

Hi, Sunil. How are you?

I am doing good. A couple of questions for me. First, I think, I missed you comment in terms of what was your covenant compliance leverage ratio for the quarter?

We’re right at 4.0 times.

4.0 times. And then do you expect to trend towards the 3.25 towards the second half of the fiscal year 2017 I guess, right?

We will start to trend towards 3.25, and we would expect to hit that by the end of fiscal year 2018.

Okay, got it. And then in terms of the acquisition opportunities, which you mentioned, it seems like you executed on a couple. With regard to your maintaining guidance, are you assuming certain amount of further acquisitions for that making the guidance or how should we think about that for the remainder of the year?

Our guidance does not include any additional acquisitions. It includes our growth capital guidance of $200 million to $300 million with what we’ve included in the guidance at this point in time. We would be at the higher end of that range.

Okay.

No additional acquisitions or growth capital in excess of our $200 million to $300 million is included in the EBITDA guidance that we’ve provided.

Okay. Thanks for that. And then lastly, these acquisition opportunities, which you mentioned, I was just curious, you know, who are the people you normally selling these assets and then you mentioned about 5x kind of EBITDA targets for those, what kind of visibility you have on the cash flows in terms of contact lens et cetera, if you can just touch upon that?

Yes, this is Mike. The line space is obviously on a Colonial pipeline and so that’s the line wants in allocation all year long. So that’s we value that – when you look historically at about $0.05 a gallon is the value of that. So we bought about 100,000 barrels per cycle and a 5-day cycle, so we paid around $40 million, so that would be a three times or less multiple. And that’s – there’s not a contract there. We have contracts with our customers like the Costco and others, Trey mentioned. But being on allocation that’s what really makes it a long-term asset. On the Retail Propane side, those are thousands and thousands of homeowners. And so, those are very sticky. So, again, we don’t have long-term contracts, but it’s dysfunctional and run out of fuel or priced too high, you’re going to retain all your customers.

Got it.

We like the retail that’s really [indiscernible] utility like and an asset within the MLP. So if we can do more of those we will.

Thanks for that. And just one quick follow-up on your contract with Costco and Kroger’s. So those are kinds of long-term contracts with them.

They’re one-year contracts that’s just pretty much the standard lengths for the Colonial – customers off Colonial plantation. But as I said, when you’re on allocation, there is no more products for a customer in cities. They are very sticky. There is not somewhere else they can go to get a company – no one else can really has product to take them away from us, nor can we take or steal the customer from someone else.

And these have been long-term customers of the company and expect to continue to be.

Okay, got it. Thanks, guys.

Thank you.

And our next question comes from the line of TJ Schultz with RBC Capital Markets. Your line is now open.

Great, thanks. Good morning guys. Just first on Grand Mesa. So any of the recent activity changes there, I think you commented on in the basin. Does any of that change your view on timing to ramp cash flow above that $120 million year one guidance sooner than expected?

The answer is probably no. If it’s very positive you know synergy and PDC of acquired Noble acreage around our Lucerne truck station. So there has been some positive activity, meaning there is going to be rigs drilling that acreage sooner than the Noble would have drilled it. On the flip side though, we’re all waiting like everyone else, I think on the finance accrete situation and to see what the answer is for their issues. Now, we haircut that that contract by 50% when we issued our guidance of $120 million going to $150 million. So, it could be that we’re right on target. It could be better. It could be worse. So net of all that, I think, we’re just being cautious to say no change.

Okay, thanks. That makes sense. On Sawtooth, you talked about some of the rail competition, just timing on when you’d expect some of that to ease out?

Yes. What’s happened there is I think we’re seeing propane production have declined at some of the facilities such as the Zayo [ph] facility that we have to keep dry. So we’re seeing somewhat of a decline in production, but we’re also seeing some of the refiners had ordered brand new high pressure cars that came on this year. So, we’ve seen an increase in cars and a decline in production. So that what we think is going to happen is next year the balance will occur because those that have leased cars, they can get back will return them. So, we’ll right-size the fleet. And so we think it’s a one-year issue and that we will be back on target next year, which is why we’re taking the opportunity to expand that cavern from 1.2 million to 2 million barrels. It’s very cheap to do so. It’s almost like doing the six caverns for a fraction of the cost and then we’d expect to fill it next year.

Okay, thanks. So on Retail Propane, just big picture, it sounds like you do like the nature of that business. Obviously, are you active on looking at more opportunities there that could be executed on this year or sooner rather than later?

Active is a good – is probably the question. We are only looking at things that are for sale in our footprint. So, if it’s more or like – if the sellers – an owner that wants to sell then yes we’ll be active, otherwise we’re not actively calling on all the retailers. We’re not sending out literature to all the retailers and mass mailing, it’s kind of things that you would do if you are really just trying – if you only did Retail Propane. So, we’re active if there’s a seller, but otherwise we’re not. Now, the answer maybe that the net of all that is there has been a little more activity this year and in particular, some really high quality regionals. So, it’s possible we have another acquisition that brings the net EBITDA of $5 million to $10 million range.

Okay. So similar higher quality regionals are active sellers?

Yes.

Okay. And just lastly, just any update now that sometimes passed on your relationship with Oaktree, just conversations there and you kind of mentioned the opportunity to look at new investment potential alongside Oaktree. And that’s it for me. Thanks.

Well, Oaktree is like I’m already married, otherwise, I’d want to marry them, we’d love Oaktree and they are great partners. So we are working with them to see where we can buy an asset that’s got long-term contracts and then do a 50:50 JV. So, I’ll let Trey Karlovich, do you want to say anything?

No, I have to expand on my comment. We have discussed quite a few opportunities. We’ve looked at a few assets together. I think Oaktree and NGL think a lot alike. We are targeting, as Mike mentioned, fee-based assets with long-term contracts, that’s what we’re targeting. Again Oaktree sees that as a great benefit to NGL as well as themselves from a value perspective, especially in this marketplace. So, we’re continuing to look at things and we’re excited about some of the opportunities that we see on the horizon.

And TJ, I think in this capital market environment, we’re seeing improvement in the high yield market, we’re not there yet. The equity price for us is still not very attractive. So, doing a JV and only having [indiscernible] half the money is very attractive. And it develops a drop down story in the future. So, we’re actively looking at assets with Oaktree.

Okay, perfect. Thanks, Mike. Thanks, Trey.

Thanks, TJ.

[Operator Instructions] And our next question comes from the line of Matt Niblack with HITE. Your line is now open.

Hey, thanks for taking the question, and congratulations on the several actions here again in this quarter. So, thank you. Just make sure I understand the guidance. So, it sounds like you’re maintaining the guidance and based on this kind of four to five multiple, these acquisitions you’ve done should add kind of $15 million to $20 million in EBITDA in the back half of the year. And I guess that’s offsetting the weakness that you’re seeing predominantly in the liquids segment. Is that high level the right way to think about this?

I’d say no. We’re not increasing guidance yet due to the acquisitions. But that the base business, we’re seeing some movement that crude could be down, refined products up. So, our guidance for what assets we have at the beginning of the year is the same.

I got it.

We’d anticipate, we should do better, but at this point it’s just the first quarter, so we haven’t raised guidance.

And the acquisition – everything that we’ve completed during this quarter was contemplated and included in our $200 million to $300 million, which is why we gave the range. We weren’t positive that some of those would come to fruition, they ultimately did. We are within our CapEx range of $300 million for the year, which factored into how we gave original $500 million guidance. So anything we do over and above any investments over and above $300 million and that’s what I would look at as adding – as additive to the guidance that we’ve given.

Got it. So toward the high end of that guidance, and so, I guess, they are included at some level, but anything additional you do wouldn’t…

Correct.

Got it. Okay that makes sense. And then a lot of people right now, I think, are worried about this liquids logistics business beyond this railcar issue, particularly as propane in particular gets less tract in the Northeast within Mariner platforms coming on line from Sunoco Logistics and I think that's caused a lot of concern for both you and for Crestwood in the investor community. And I think Crestwood just got this terrible number, which might have probably do the railcars that may be is due to some of that dynamic. So for you guys, does that matter or is your sort of I guess, emphasis, first of all on butane on the one hand then on kind of – almost wellhead to retail logistics and propane on the other does that insulate from some of that dynamic?

No, I think we took really that into account our $500 million tough guidance. So we have the – in the liquids, we have the wholesale propane, which is really presold gallons to the retail propane dealer that doesn’t change at all. That’s just really affected by the weather in quantities and that’s about $30 million of the EBITDA and then Sawtooth were down because the fifth caverns not in service and that’s probably $7 million or $8 million. But on the other side, which is our butane supply business. Last year we did about 55 million in that business and we reduced that in our guidance to 30 million. So we feel very good about the 30 million and have a chance to do – there’s upside there. So we’ve already taken that into account in the numbers we gave you.

Got it, got it, and the dynamic in the butane business is you’re buying those – you’re buying the butane from who and selling it to who?

Several sources will buy it from the refineries in the summer, right. And then just take it back in the winter and then we’re buying it from the fractionators and taking that too refiners as well.

Okay, about how much in that east side the refiner.

I don’t know how much we buy it from refiners versus non-refiners.

Okay, got it. And then – see if I had another question. I think that’s it. Thank you.

Thank you.

And our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Hey, thanks guys. Just one quick question from me that hasn’t been asked, do you want me to understand this royalty, transaction unit for $47.5 million. So, are you basically saying based on strip pricing, it’s basically, a 4 to 5 times multiple payback and then its prices move up over time, it will be a better multiple than that. Is that just the right – is that the right way to think about that?

Yes. So just to give a little color, we were – we negotiated this transaction in March when prices were in the $30 to $35 range. As we noted in our 10-K, we had to record the royalty obligations. This transaction kind of lead-in to that accounting treatment, so when we recorded all of this. We already had an agreement in principle to repurchase those royalties. It was based on a price of about, between $30 and $35 at the time of the acquisition, we used the curve at that time to forecast out, I would say the prices would increase that with definitely lower that multiple. But the transaction we did was – was that approximately 5 times multiple when we completed it.

And Michael, those are both oil and water volume royalty, so you typically may pay a $0.05 or $0.10 a barrel for what’s disposed in 5% or 10% of the crude proceeds, so we bought them both back. So as volumes increase we’ll have a greater savings there as well since that all price related.

Okay, great. Thank you for that.

And our next question comes from the line of Selman Akyol with Stifel. Your line is now open.

Thank you, good morning.

Hi, Selman.

Is it relates to the crude side and backing out this quarter, backing at your guidance for Grand Mesa still implies a pretty good ramp over the remainder of the year. Can you just expand on what you’re seeing and why confident there?

Yes, we are more confident now – what we’re seeing on the Contango side we’ve got the next four months I think all between $0.70 to $0.80 a barrel, we also going to see more in the – as we think the trucking side as Grand Mesa comes online will have most of the barrels will be trucked into Lucerne/Riverside. So, that the margins are still challenged and the volumes of course are dropping on the crude marketing side. So we’re not anticipating a huge increase in margins or volumes other than stuff we’re trucking.

All right, that does it for me. Thanks very much.

Thank you.

[Operator Instructions] And I’m showing no further questions at this – I’m sorry we do have a question from Kim White [ph]. Your line is now open.

Good morning, gentlemen. I just have a quick question about the future dividend, our distribution I should say. If everything goes according to your guidance, do you see management recommending to the Board that you will reinstate the distribution to the original level?

Great question. And I won’t – unfortunately I don’t have short answer, in our Board meeting, actually that came up this is our second quarter we had $0.39, so we have two more quarters and then we would our managements steps are going to recommend an increase in the distribution. So then the question becomes what’s the right number and we look it today. We really think of our distribution not at $1.56, we think of it as and we make our decisions on investing based on $2.50 distribution. So when you see unit price that’s makes the math easy at $16 and if we were to pay $2.56, again, that’s a 16% yield. I think we all agree that paying that kind of yield is nonsense, but the money, a portion of that money is better spent reinvested in the business earning 20% to 25% returns. So we will be recommending an increase. At this point, I can’t tell you how much of an increase but I can tell you we think of it as 250 distribution.

Okay. Thank you very much.

And I’m showing no further questions at this time. I would now like to turn the call back over to Mr. Krimbill for closing remarks.

Well, I just want to thank everyone. And we will keep doing what we’re doing and get that distribution up in a few quarters. All right, thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.