Robert Karlovich - CFO, EVP & Treasurer Michael Krimbill - CEO

Shneur Gershuni - UBS T.J. Schultz - RBC Capital Markets Matt Niblack - HITE Hedge Asset Management Ned Baramov - Wells Fargo Sunil Sibal - Seaport Global

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 NGL Energy Partners 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 be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the cal over to CFO, Mr. Trey Karlovich, Please go ahead.

Thank you and welcome 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 partnerships 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 will turn the call over to Mr. Mike Krimbill our CEO for his opening remarks.

Thank you, Trey, and good morning everyone. I am very, very pleased with the results and what we see for this fiscal year in particularly and as well as the future. What difference a year makes. In fiscal 2017, we faced the worst possible conditions in most of our businesses, record warm winter temperatures, low crude prices and the decimated rig count and negative line space values. In fiscal 2018, we have experienced significant improvements in our Crude Logistics, Water Solutions, Retail Propane and Wholesale Propane portion of our NGL Logistics business. Colder than normal weather in our markets, higher crude prices and an increased rig count have allowed these businesses to produce strong results in the third fiscal quarter with a tailwind heading into our fourth quarter and beyond. So let’s get into some specifics. For fiscal 2018 versus '17, we project the following. One, in Crude Logistics, we are probably going to double our EBITDA as a result of Grand Mesa. Volumes currently exceed 100,000 barrels a day and are increasing. Water Solutions will nearly double its EBITDA with fourth quarter run rate of a $140 million. Growth in Water volumes pipeline, solids disposal and skim oil are expected to continue in fiscal 2019 and beyond. We currently have 30 permits filed in the Permian Basin alone for future disposal facilities that will have a potential 750,000 barrels a day of new capacity. Retail Propane volume are benefiting with a slight colder than normal weather in our footprint. The recent decline in propane prices at the hubs is very positive for margins. Fiscal 2018 is expected to exceed last year by as much as 30%. NGL Logistics is also benefiting from the cold weather in its Wholesale Propane business, which is anticipated to improve about 60% over the prior year. The Sawtooth storage cavern facility and the butane railcar sediments are expected to be down as compared to last year. so in total this business will approximate the prior year. The refined products business particularly the southeast segment has continued to underperform in a significant fashion. In July, we eliminated the impact of negative line space values on our sales volumes, but the absence of positive line space previously included in margins pre-2018, reduced our overall margins from about $0.05 a gallon to $0.03 a gallon, an annual reduction of nearly $40 million. In addition, the hurricanes reduced refinery production significantly for nearly six weeks and correspondently lowered inventories such that. One, Gulf Coast prices did not weaken when compared to New York Harbor. Two, it created a backwardated market as prompt prices increased significantly. And three, it greatly reduced contango markets for gasoline and diesel. So what does all of this mean? We believe there has been at least a short-term structural change in the value of line space such that we will trade in a narrow band around zero with possibly more time negative and positive. We must modify our model to supplement marketing with other activities. First, we’ve hired a gasoline butane blender to better utilize our columns storage and lease additional storage in New York Harbor. This will reduce our product cost. Two, we have reorganized our supply group to enhance margins, arbitrage markets and improve the use of our assets. In addition, we are aggressively optimizing ours and others line space as well as purchasing up line barrels rather shipping when it’s more profitable. Fiscal 2018 performance here as unacceptable and we will actively manage this business to achieve the results we expect. As a result of the hurricanes and one-time impact on our refined products business, net of improvements in our other business, we are only reducing our fiscal 2018 guidance about 6% from the low end of the previous guidance of 475 million. And let me be clear, we would not be reducing our guidance if not for the hurricanes. Our situation is no different than an upstream company that has to shut in product due to a similar event. I think this year also affirms the wisdom of our model of owning multiple businesses that can effect or offset the impact of one business that is underperforming. We expect increased results from all of our businesses in fiscal 2019 with four of our businesses offsetting the margin decline and refined products that is not temporary. With respect to asset sales to improve the balance sheet, we announced two significant deals with expect to proceeds exceeding 500 million and a blended multiple of 12 times EBITDA. We continue to sell liable assets and look for strategic partner for our Sawtooth storage facility. Our growth is primarily focused on waster solutions on organic Crude Logistics projects, which will not require the issuance of any common equity. We have turned corner. We've strengthened the balance sheet. Our EBITDA is improved and we're running our distribution. So with that, back to you Trey.

All right, thanks Mike. So I'm going to start with improvements we made on the balance sheet, primarily around our reduction in debt balances and leverage and then go over our core results and expectations for the fourth quarter and full year. We utilized the 300 million in gross proceeds from the Glass Mountain sale to repurchase the entire $195 million balance of our 2022 senior notes, which include a make-whole payment of $17.5 million. Our rationale for focusing our attention on these notes was a combination of the higher coupon rates of those notes at 8.4% based on our current leverage. The maturity date and amortization of the notes and the relative short-time frame to reduce indebtedness prior to December 31st as well as the elimination of that secured debt from our balance sheet. Our credit facility is now the only secured debt remaining in our apple structure. Additionally, we were able to repurchase in the open market approximately 89 million of unsecured debt at an average price of 98.8% of par value with a weighted average coupon of 6.4%. While the notes repurchased have a longer tenor associated with them, the interest saving and the net discount to par made these repurchase compelling. We will close on a Retail Propane sale at the end of this quarter and we will continue to evaluate our entire capital structure in order to get most benefit for the debt reduction, whether that is in interest saving, maturities or combination of the two. We expected in our fiscal year with the compliant debt balance between 1.6 billion and 1.7 billion, which excludes the working capital facility. We also expect the working capital facility to decrease as we reduced propane and butane inventories throughout the seeding season. All these transactions vastly improved our leverage and credit profile, which will increase our financial flexibility and simplify our capital structure. Our fiscal third quarter is highlighted by the continued improvement in our Water business, volume growth on Grand Mesa and a good start to the winter heating season for our propane businesses. These trends appear to continue into our fourth quarter as Water volumes continue to grow. Crude prices have been $60 or above and remains coal in the eastern and mid-west portion of the United States. Overall, we reported adjusted EBITDA of a 123 million for the quarter and 252 million year-to-date. We had strong quarters in Water, Crude and Retail as Mike mentioned, which is made after the shortfall in refined products. While we debated somewhat adjusting our update, we did update to a range of 440 to 450, as Mike mentioned primarily driven by the hurricane and the impact that's had on our refined products, but which also includes increases in Water and Retail based on performance year-to-date and the expectations for improved results in the fourth quarter. We've reduced our crude forecast slightly due to the sales of Glass Mountain in prior year end. I want to give a little more color on results and expectations for each segment. In crude oil, the crude segment generated approximately $30 million of adjusted EBITDA this quarter with Grand Mesa contributing $43 million and $33 million on a net basis. The remainder of the Crude Logistics segment continues to operate at approximately breakeven levels, which includes funding our commitments on third-party pipeline, operating in our marine, trucking and rail businesses and our stored terminals at Cushing and on the Gulf Coast. Year-to-date, adjusted EBITDA has totaled over $86 million for this segment. These results are in line with our guidance and expectations. Financial volumes on Grand Mesa averaged about 106,000 barrels per day for the quarter and physical volume averaged about 100,000 barrels per day for the quarter, a 12% increase over the prior quarter. We expect to stay around this volume level for the fourth quarter as well. There are 26 rigs running in the DJ Basin-Niobrara and at current commodity prices and economics, we expect drilling and production to continue to increase in the basin. Prior to the sale of Glass Mountain, we funded approximately 7.3 million during the quarter for the extension into the stack, which is included in our total 49 million of invested in growth projects companywide this quarter. We are also working on a few additional crud projects including the addition of some tankage at Lucerne in the DJ to support our footprint in the basin. With the sales of Glass Mountain complete, we are making a slight change to our crude oil segment forecasted EBITDA for the fiscal year, which we are now targeting at a $120 million. Moving to Water, Water adjusted EBITDA was $35 million for the quarter, which is a run rate as Mike mentioned of a 140 million annualized. Year-to-date adjusted EBITDA for the water segment is over $84 million, and we are increasing our fiscal 2018 guidance to a $120 million. Water volumes averaged 780,000 barrels per day this quarter, a 20% increase over the prior quarter and a 53% increase over the same quarter last year. This is significant growth which has continued into the current quarter this month. Every one of our basins has shown volume increase this quarter-over-quarter with the Permian Basin continuing to set the pace. We've invested approximately 15 million of growth CapEx this quarter in the Water business and 64 million year-to-date as we have disposal capacity and gathering pipeline to support our existing and new disposal customers. Our skim oil production was over 3,600 barrels per day during the quarter within an average crude cut of 0.46% of processed water volumes. Our year-to-date skim oil has averaged approximately 2,900 barrels per day with a 0.43% crude tax. As a remainder, we have hedged approximately 90% of our expected skim oil production at just over $50 per barrel through March 2018 to limit any direct impact from crude oil pricing changes, which would include the benefits. Additionally, we have extended our hedged position now with positions out from December 2019, our average hedged price is in mid 50s and we have about half of our forecasted given volumes hedged. Moving to Liquids, our adjusted EBITDA for the Liquids segment totaled 20 million this quarter and 35 million year-to-date. As Mike mentioned, the Wholesale Propane business exceeded budget for the quarter as margins continued to improve. Based on current hitting degree days, we're expecting this division to continue to perform well in the fourth quarter with higher volumes than last year. Similar to last quarter, the Butane business benefited from increased butane prices and volumes; however, it continues to be burdened by tight margins due to railcar lease costs and significant butane supply impacting differentials. This business is lagging our plan year-to-date; however, those impacts should decrease significantly for next fiscal year, as we return railcars from lease and lower our fixed operating cost. There have been no significant changes to our performances to Sawtooth, however, we are entering the contract season for next year and are looking at multiple opportunities to increase utilization of the caverns. Based on year-to-date results and current expectations for the fourth quarter, we are updating our fiscal year '18 EBITDA guidance for the Liquids business unit to $65 million. The Retail Propane EBITDA was 35 million, which is right in line with our budget through December. December was colder than normal driven by the below freezing temperatures across the country during the last week of the month. That benefit will primarily be recognized in January for our Retail Propane. October and November were warmer than normal, however, very much in line with our budget which factored a warmer than a normal heating season. January has been colder than normal and the February and March forecast remains favorable in our core areas of operation. So far, we have seen increased volumes and we are maintaining strong margins across our footprint from our original budget. We will continue to benefit from our mid-western and specific northwest districts through the end of the March and the closing of the Retail Propane sale to DTC. Our remaining footprint will be focused on the eastern portion of the United States where we continue to grow our Propane business and serve our over 350,000 customers. We expect to have over 400,000 customers within the next three years. During the quarter, we invested approximately 11 million in acquisitions and growth capital in Retail Propane including the purchase of certain assets in Michigan from our joint venture of victory Propane. Year-to-date, we have invested growth capital of 41 million in the Retail Propane businesses. The majority of our investment over the past three years has been focused on the eastern portion of our business which we will retain going forward. We have updated our FY18 EBITDA forecast for this fiscal year based on year-to-date results and weather expectations for February and March to a $115 million, which includes an approximately $27 million contribution from the assets we are selling to DCC. Refined Products reported adjusted EBITDA of $9 million this quarter and $24 million year-to-date as we continue to face the headwinds of our position on Colonial Pipeline. The gasoline curve has been backwardated and the basis between the Gulf Coast and the New York Harbor has been highest especially since Hurricane Harvey in early September. A high Gulf Coast gasoline basis lowers the market value of the Colonial line space. While we had a slight benefit from the storm in our prior quarter, the lingering effects along with continued strong exports from the Gulf Coast has been a detriment to our margins and our inventory risk management. The lack of contango market for the upcoming seasonal change in RVP limits our ability to capitalize on approximate 4 million barrel of gasoline inventory position, which we have been able to benefit from historically. We have hedged our carry position for the fourth quarter albeit at a lower margin than we have had in the past or expected for this year. While we no longer have a direct cost related to negative Colonial line space, the current line space market does impact our business, allowing competitors access to on Colonial pipeline at low costs and impacting margins at our terminals. Mike mentioned several of our strategy to improve the results of this business, which we will continue to address. The remaining portion of our Refined Product and Renewables business is in line with our budget with strong diesel margins especially in areas like West Texas, which is tied to increased drilling activity and crude oil transportation, and the benefits to Renewables business with the extension of the fire diesel tax credits. With the impact of the current quarter and our inventory and hedge position going into the fourth quarter, we are updating our FY guidance for Refined Products to $50 million of adjusted EBITDA. Our corporate costs were 6.8 million, 21 million year-to-date and we now expect those to come in 25 million to 27 million for the entire year. Based on our updated EBITDA guidance of 440 million to 450 million and expected 1.6 billion to 1.7 billion debt balance at March 31st, after the Retail Propane sale is complete, we currently expect to be approximately four times levered on the complaint basis by our fiscal year end. This assumes no equity issuances under our ATM or otherwise and we are in compliance with our debt ratio to 12/31/17 and expected to remain in compliance base on our current guidance and expectations going forward. We declared a $0.39 per unit, $1.56 per unit annualized distribution this quarter and w expect to continue this distribution level for the quarter as we rebuild coverage and continue to de-lever the balance sheet. We have invested approximately a 156 million in growth capital so far this year, which includes about 64 million in Water, 41 million in Retail, 21 million related to Glass Mountain extension. We do not anticipate any significant CapEx or acquisitions for the remainder of this year. Our maintenance CapEx was totaled $12 million for the quarter, $27 million year-to-date. We currently expect to come in slightly over $30 million guidance. The increase in the current quarter is primarily associated with increased cost in our Water business driven by significant growth in volumes. In closing, we have made significant strides on the operational and financial front. We are reducing debt with too highly accretive asset sales and expected coverage from our fourth quarter cash flows. We expect to fund our growth capital within our coverage and continue to de-lever and grow coverage going forward. Our target leverage remains at 3.25 times and our target coverage remains at 1.3 times or better. We have growth embedded in our businesses especially as crude and liquid prices remain at current levels and volumes continue to increase across our divisions. Our Crude, Oil and Water businesses are performing at a high level. We have significant cost savings in the future improve that will improve our Liquids business and we are managing the headwinds to our Refined Products business. We look forward to a strong fourth quarter. Thank you for your interest and we would now like to open the line for questions.

[Operator Instructions] And our first question comes from the line of Shneur Gershuni with UBS. Your line is open.

I guess I wanted to start off with the Refined Products and segment, and really if you gave quite a bit of detail. But I was wondering if you had any thought on what kind of the run rate for this segment would be on a go forward basis? And I do recognize you've got Hurricane Harvey impact in there, but I mean if I think about the challenges over the last year, you had exports continuing to Mexico, keeping the spread of kind of challenging on the Colonial Pipeline. What would be the kind of run rate for that business on a go forward basis assuming that those type of market challenges continue?

First, Shneur, one point is, we keep looking at this Mexican refineries and is that really the only factor to line space and what we've concluded and we've referenced to maybe there is some at least short changes. We believe we've seen more terminals build, dock space increased, new dock space built. And it appears that the Gulf Coast is now supplying all product to Florida, which is in the past have been supply some of our Europe. So I think we had to anticipate that exports in the winter may not decline in future. So that’s one reason, we need to do other things and just sit around waiting for the Harbor price to go up and the Gulf Coast to go down. With respect to run rate, I think we really haven't dug in -- we have budgets coming up, but I would say of the decline at least the third of it, is going to come back to us just in the normal none-hurricane environment that knocks out the refined complex for four to six weeks. So that would end about 25 million back to our numbers, which is why said we wouldn’t be here, reducing our guidance, if they haven't been for the hurricane.

And Shneur just to add to that, you remember our first quarter this year was significantly impacted by the lines space, negative line space values in our contracts. So, if you take that into account to where those contracts are performing in the current market which in the first quarter we were -- we actually had some negative margins, there is some improvement associated with those contracts as well as the impact that Mike mentioned on the hurricane. So I think that gives you a basis for what type of improvement we where we're guiding to 50 million for this year.

So when I think about, I mean, you're taking out the hurricane impacts and so forth. I can in theory, add a third back effectively to kind of the run rate that you're annualizing our right now effectively. Is that the way to be thinking about it?

Yes, it is the base and then these changes we’re making will increase the performance over that. So, the butane blender more aggressively trading around and I hate this word, trade. But line space is negative we will buy it and let people pay us to shift, we won't ship on our own space. If up line barrels are less expensive or don’t reflect the tariff then we will buy up barrels and we'll ship it all. So, all of that will add to that base number.

On the second part, the timing of weather for this past quarter, I mean, and there I've recognized the Retail Propane business came in line. I was thinking more along the lines of the Wholesale Propane side. We've heard from some throughout the earnings seasons thus far that weather kind showed up leader in the quarter and some wholesale deliveries weren't made and are being more recognized kind of in the January. Is that something that you're experiencing as well too? Should we see the business actually, potentially, exceed that expectation, if the trend continues for the next four to six weeks?

Yes, so what happens is, we know -- perhaps little different, we have substantial amount of presold gallons, so when the market -- propane prices increase which typically happens with cold weather, you will our customers will full their pre-buys and those have the locked in margin. So once we get through those then we are really selling spot, which is where we can enhance our margins. So that was happening in January and continued to happen more in February.

So with propane prices falling, does your margin actually expand on the pre-buys?

On the pre-buys no, those were locked in, but it can expand on retail. It’s a bit of unique market having cold weather and then having prices in the last couple of weeks fall off a bit. So that gives you the ability to -- if you don’t lower your retail price of course you are going to increase your margins. And on Wholesale, they are taking advantage of the increased volume even though the prices lower.

Shneur, just to add to that if you remember last year when propane prices fell off the clip and the way we had contracted that business with the presales, we got stuck holding inventory at that as those product price were following. The way that we structured the business this year we did not -- we will not have had that impact, but it also limits a little bit some of our potential upside on the spot sales as Mike was talking about.

Shneur, the other thing to check on is, if you look at the propane curve, last year there was a very large backwardation from Feb to March and March to April because of the cold weather that backwadation is probably down to $0.02. So, we are short in March also the curve is fairly flat.

So, it's just to paraphrase. The Retail segment should do okay or could actually improve because if you don’t lower the price to the customer while the supplies or price for propane is falling in margin expense. Conversely on the Wholesale business, you've got hit negatively last year and it's pretty sizable because you're effectively stuck low propane and then selling it into a market that was falling. But this year if I understood what you just said correctly, that you are effectively going to be short gallons relative to weather, which would mean that you wouldn’t have an inventory management problem this year similar to last year. Is that a fair way to characterize it?

Correct, and I would add that the increased EBITDA is going to be a function more of volumes than margin. For instance in current January, we are seeing our volumes increased approximately, well more than 20% above our budgeted volumes. And you wouldn’t see that from a margin, right. So you were to make the math easy, if you were at $1, you are not going to $1.20. So volume is the key.

And our next question comes from the line of T.J. Schultz with RBC Capital Markets. Your line is now open. T.J. Schultz: Just first back to the Refined Products, I understand kind of the run rate go forward. Mike, you're outlined a lot changes on a kind of go forward strategy just better use of storage to reduce product costs, some personal changes that sort of thing. Just how quickly can those be implemented and when would you expect some for those strategies just to be kind of fully in place?

The restructuring is already occurred, so that’s in place immediately. The blender joined us in mid January. And the increased storage has been signed for and I believe we will be using, beginning to use that at the end of February and certainly all of March going forward. And the aggressive really optimization lines space also started in the last couple of weeks. So everything is in place. The course would -- the butane blending will have some of that for month or so and then of course the summer is not going to be as impactful, but it will be next winter. T.J. Schultz: And then on the Grand Mesa, what were your volumes from your marketing business in the quarter?

So, TJ I think as I referenced, we don't give volumes by shipper. But what you can look at it, that's our physical volumes were 100, our MVCs or our financial volumes were 106. I think it's safe to assume that our marketing business did not make any MVC payments. So there is no MVC volume, so any difference between the two of these associated with other contracts. T.J. Schultz: And then in that crude business you've got some drag from some MVCs on third-party pipes. Can you just kind of quantify the benefit to you all as those go off the next couple of years or that kind of when they do roll off?

So, they roll off over the next two years. In our 10-Question, we do outline what the gross commitment is that the key is what we are able to net out of the basin and that's going to depend on the basin differentials. At this point in time, we are not speculating on what those differentials are. So, that's going to depend on how production ramps and what takeaways like out of those different -- out of the different basins. T.J. Schultz: And then on Water that's moving higher. I think crude cut seems to be trending higher. Are you done hedges for this year? Or do you think you put on more than I think you said you have 50% to be in 2019?

Yes, so we will continue to layer further out in '19 and '20. Into '20, our goal -- also what our goal is just to not go over 90% for 12 months out and to be approximately 50% for the following 12-months. So as the current positions roll off, we will start to layer on positions further out the curve, as we built up that hedge position. We did layer on a pretty significant amount of hedges over the past three or four months further out the curve and would expect to continue to do that. As it related to our crude cut, our crude cut will improve in our fiscal third and fourth quarters as weather driven. So I think it's colder, you actually get a little more condensated and you get a little more crude and out of the water. So, you do get a little bit of a pickup. In third quarter, we're expecting a little bit more of a pickup also in our fiscal fourth quarter and then it would probably will step back down a little bit. Right now, we think that the average for this year is 0.42% is still reasonable and so reasonable assumption used for next year as well.

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

So the Water business, if I understand the guidance correctly here, it looks like the fourth quarter EBITDA is guided to be pretty flat to Q3 which given the speeds of the ramp and kind of where crude prices are. That was little surprising. Is that a conservative number, and first of all? And then secondly, what the oil prices assumed in that number?

Yes, so a couple of things, so one, as I mentioned we're 90% hedged for the quarter. So we did use a current curve on the hedge price. But we give up that based -- on the actual price, but we give that up based on the hedges. So, we are using our advertise price, which is just over $50. We have tried to be conservative in that business. We've been in that base for the entire year, but that's really -- we think this quarter, we at least do what we generated in the current quarter. I'm hopefully volumes continue to try in the right directions. We've had a very significant increase in volumes quarter-over-quarter. It can be little hard to predict that same type of increase every quarter, but right now that's what we're seeing.

So now that we’re 40 days into Q4 here, you're continuing to see growth in volumes over where they were on average in Q3?

Yes.

And then on that 10% open skim oil, you are assuming something close to the $50 that you hedge at?

No, it would have been closer to $60 to next two months. It was the curve based on.

The forward go, right. Got it.

Yes, but then letting our hedge, the various small amount of volume, we’re talking about 350 to 370 barrels a day that actually is commodity sensitive, the rest adage.

And then in the Liquids business, you've mentioned the impact of returning railcars. I know you've got railcars that you're using here as well as in crude logistics and some mix. Could you quantify what you think the net EBITDA improvement will be from returning the railcars you're not using or otherwise optimizing that fleet as you roll out contracts for FY19 and FY20?

Yes, I think last year and this coming year, we're going to have where we turned back 700 cars each year, so 1,000 that’s 8.4 million each year. Now some of those we may release at a smaller, obviously much smaller rate. I don’t know how many of those were actually downsizing our fleet, so some of them will never come back. So, that’s the gross number 8 million each year so.

So, the gross number would be 8.4 million and the timing of that is sort of end of year FY18 end of year FY19, so that we see that impact in ‘19, '20?

A portion of that will be realized in this coming year, a portion will be realized in the following year as well because once the car rolls off, there are some costs to clean and transport back to the lessor. Or if we release, we would obviously release at a lower price. The price today 50% or so is a reasonable assumption on releasing and then add in the crude business, we are not leasing cars in crude business. We own railcar fleet. We're not turning back any cars in the crude business. So this is all assisted with liquids.

And in terms of the cars you've owned in the crude business, we’ve heard that with some of the pipeline capacity constraints coming out of Canada that there’s starting to be a lot more demand for crude railcars. Are you seeing that and could there be some value in selling some of those assets?

There could be. We have been seeing -- reading the same articles that may be there’s some crude by rail comes back here for a period of time. We have not -- we haven’t experienced that yet, but it's. Put in other way, we haven’t assumed we're going to use any of our cars. So, if we can't use them, it’s just upside.

And two more questions. So first one, on the Sawtooth strategic partnership, any more color you can give on that? When we would expect announcement, how optimistic you are sort of partner et cetera?

Well, I would say stay tuned, probably not, leave it at that.

Fair enough. And then last one, so Refined Products. Just trying to get comfort in the guide here given some of what’s happened and you have provided a decent detail, but may be talk through again the 25 million impact from hurricane is incremental to the secular decline of 40 million?

Right.

So what exactly is that? How's mechanic of how that caused happen? And why would be confident that absent those shutdown, but would continue to export to Mexico et cetera, that we would get that back?

Yes, I will say 15 million of that was due to the structure which meant that the prompt month increased dramatically, out month did not and we were backwarded. And then as we've rolled our inventory, we got whack each month. And that was very similar what happened to years ago in crude before it went contango. So there is 15 of it, the other 10 is contango on gasoline and diesel. They're basically this year because there was so much less production inventories with low and then we had some decent export in both distillates and gasoline. There was basically no contango on distillates. And about half as much on -- I think last year when there was 27 gallon and this year 11. So, those two, we feel pretty good about them. I mean distillate is zero, so it can only go up and gasoline will at least pay the same or do better.

And then just a follow on question there. You also have mentioned that the next year obviously structurally will not have the impact from negative margin on the line space. What is the decent number in terms of that impact you had in Q1 '18 from the negative line choice at 10 million, 20 million?

We can do the math, but it's approximately 150,000 barrels per day that we transported that goods gasoline and diesel on Colonial plantation and our average margin has gone from $0.05 to $0.03. We would hope to improve that per gallon, so you got take that times 42 times the delta. And we would hope to improve that margin slightly next year without the negative piece in our contract, but that will be determined.

And our next question comes from the line of Ned Baramov with Wells Fargo. Your line is open.

A quick question going back to Water segment, so given the strong growth in volumes. Are you seeing any changes in the competitive landscape, maybe new entrants or just other operating looking gain share?

Yes, I'll say yes no, we -- and if you at the Bakken, I think Tallgrass bought Buckhorn. So it still feels Buckhorn well, but there will Tullgrasss. And really nothing in the Anticline or the D.J, the Eagle Ford is very competitive, but I think we’ve seen Water, there is two water bridge and AVX who are I think in the Eagle Ford and Permian, I think Water bridge brought her out of water. Water assets from next there -- otherwise it's just the competitors we have growing. So good, midstream, a Mesquite [ph] then RBJ. So, just Trey, any other color? I think that's.

As they are growing, we're also growing and Water continuous to be a challenge particularly in the Delaware, which is seemed to be where most of the focus is, although you're seeing some of Bakken and Eagle Ford as well. I think that we still are the largest in -- our core areas been the DJ to and the Permian and we're continuing to grow as well. Producers, there are still large number of producers that are doing water disposals for themselves and we're starting to see some of them either some of that assets or look to third party like ourselves to start to take over those operations. So I think there is lot of market share and we’re continuing to grow our business as well.

And then could you provide you updated thoughts with respect to IDR and then secondly may be an update on the timing of a potential resumption in distribution growth.

IDR its, clearly there is some simplification going on and there is some, I think some of that is just a way to cut distribution without cutting the distribution and the market appears not like IDRs. So in our case, we basically on our paying the much at all to the GP, so on the hand we think it will be great time for perhaps for our MNLP bios IDRs. So that is something we have looking at, it's always cheaper to buy before you willing to the high and splits. The downside is when you buy them, but there is not cash flow it's not an accretive, but if you look our five years you may end up having Bakken at four time multiple instead of paying $12 to $15. So we are looking at that for the benefit of the MLP. But at the present moment, it doesn’t -- it's not impacting the MLP where the $1.56, and the high split doesn't kick in until $2.25. On the second part your -- hopefully I answered the first one. Second one now we have always I'll say expect and then wanting to start increasing the distribution after this fiscal year and whether it's a pan year or something. Heading back to the hurricane, we are back to Singapore 75ish that number our coverage is I think 1.3 times and our leverage is going to under four times, so management would be interested in increasing the distribution. The flip side is if we are going to mature the 12% or 13% yield then we are better off to take that money and pay down debt. So I think we just have to wait and see where the unit price shakes at. I think there has been a prior to this call, there has been a misconception that we've some numbers. In my mind, we have not missed number. Our businesses are performing well. We've got hit the Mother Nature. I see other businesses that analysts say okay that’s a one-time event. We have seen that people feel to deserve before even had earnings call.

And our next question comes from the line of Sunil Sibal with Seaport Global. Your line is now open.

I just wanted to consolidate your responses to various questions on the Refined Products and the Renewable. So it seems like what you're saying is, is a normalized year. You would do at least 25 million more because of the negative impact of the hurricanes, and then additional 10 to 12 million more because of the line space different contracting strategy that you had update. Say if I take that into account and the fact that you are guiding to million 50 million for this year full year '18, so it's like 18 million - 18.5 million kind of good run rate for this business if am I understanding that correctly?

Yes.

And then I know you have guided to a leverage metrics of about three in the quarter. So it seems like exiting out of 18 fiscal year it will be announced 4x on leverage on current basis. So how should we think about heading that G&A quarter target in terms of the timeline?

So replacing next year first quarter will be a significant improvement in leverage as well as you remember this current year's fourth quarter -- for first quarter, maybe back up last year's fourth quarter and this year's first quarter are both appeared that we are impacted by the negative line in base as we roll those two quarters out of the leverage capital and that leverage number improves dramatically. We expect to continue to focus on leverage through next fiscal year based on water impacts as we haven’t given guidance for next year. So I would expect this to be close to that target by the end of next year. Based on a lot of different factors we haven't given guidance for next, but I would expect us to be closer to that target by the end of next year. That’s something that remain -- focus as Mark mentioned, if we have excess cash flow, we'll sign that to either fund growth or pay down debt. That something that will continue to be a focus of the management team and then I think the board supports that as well?

And then one last one for me in terms of the CapEx budget with that kind of base assets that you've got. How should be kind of thinking about the normalized kind of the non-CapEx for you guys on the joining that seems like water business is growing pretty well and to all the spending some capital there?

Yes, so we've talked about this I think little bit on the last earnings call too, this year's CapEx but those CapEx budget is o150 to 200, we're going to be in middle of that range. We expect something similar maybe a little bit less going forward with the sale of Glass Mountain with the sale of Retail West. When we look at our growth of CapEx about half of it, is Water related and then other half is split between Retail Propane acquisitions, some crude opportunities I think Mike mentioned a little bit about in his comments and maybe a little bit on Liquids, but those would be the primary areas where we would have growth capitals spending. And when we look at multiple ranges, Water, 5 times are better. Crude and retail is probably something more or like 6.5 to 7.

And that concludes the Q&A session for today. So with that, I would like to turn the call back over to Mr. Mike Krimbill, CEO for closing remarks.

Well, thank you very much, it's been a lengthy call and I appreciate your attention and listening to all of our comments. So, we will talk to you again in the year.

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