NGL expects few changes in new budget despite oil price war and coronavirus


Despite the oil price war and the spreading impact of the coronavirus, Tulsa’s NGL ENergy Partners LP anticipates few changes in its budget for the new fiscal year.

In a Thursday announcement, the firm said its fiscal year 2020 adjusted EBITDA should remain unchanged at $565 million to $595 million. It also expects to reduce debt by at least $50 million through an agreement to exit the firm’s Gas Blending business by the end of March.

The company still expects to have $1.5 billion outstanding under its $1.9 billion revolving credit facility as of March 31, 2020.

“Like many companies across our industry, the current environment will present us with real challenges going forward, but also presents us with new opportunities,” stated Mike Krimbill, NGL’s CEO. “We must be thoughtful and prudent in our response to greater crude oil supply and lower demand resulting from the effects of the coronavirus. We have taken a number of pro-active steps to solidify our financial position while keeping our operations running smoothly.”

Specifically, the Partnership has taken the following actions:

  • High graded its Fiscal 2021 planned capital expenditure budget to leverage off the significant infrastructure investment made during this past year and the current operating environment. As a result, management expects that for the fiscal year beginning April 1, 2020, growth capital expenditures will approximate $50 million all of which would be funded using free cash flow;
  • Remains fully focused on the health and safety of our employees and continuing to provide best-in-class service to our customers. To this end, the Partnership has instituted several actions to protect our employees’ and contractors’ health and well-being in dealing with the coronavirus. NGL’s management team has established redundancy planning and implemented preventative measures at all our terminals, salt water disposal facilities and pipelines with the goal to provide our customers uninterrupted service.

The Partnership remains in close communication with its customers and will continue to adjust its plans and expectations accordingly as new information warrants. The following points highlight general industry and NGL specific factors in this environment:

  • The Partnership operates in the most economic basins in the United States with some of strongest producers in the country under long-term, fee-based contracts and management views this as an opportunity to grow and strengthen those relationships and demonstrate NGL’s reliability as a midstream service provider;
  • Producers that are significantly hedged in calendar 2020 should continue producing and drilling, albeit at a reduced pace in most basins. NGL has also hedged approximately 3,000 barrels per day of its calendar 2020 skim oil volumes at $55.00 per barrel to limit the Partnership’s direct commodity-price exposure this year. Calendar 2021 will likely be more a challenging period as producers’ hedge positions decline, assuming commodity prices remain at current levels.
  • Due to the recent reduction in interest rates, NGL’s floating rate interest expense is expected to decrease by at least $15 million this year based on the current interest rate curve, which along with expected lower working capital borrowings, will improve cash flows, coverage and leverage.
  • Crude oil forward prices now reflect a contango market from which NGL can benefit by utilizing its approximately 1.5 million barrels of crude oil storage.

Added Mike Krimbill, “We are responding quickly in anticipation of an environment that could get increasingly challenging in calendar 2021. While our businesses continue to perform as expected, we are taking steps that will bolster our operating and financial results should the current commodity price environment continue for an extended period. We will continue to drive our costs down, seek out creative ways to use excess capacity across all of our assets, and maximize our financial position, while maintaining a safe and healthy working environment for our employees. Nothing is off the table.”

Source: BusinessWire