NGL Energy Partners LP Aktie

Greetings. Welcome to the NGL Energy Partners' 4Q '26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

We are pleased to report a strong finish to fiscal 2026, highlighted by record performance in our Water Solutions segment and meaningful progress on our capital structure priorities. For the year, adjusted EBITDA from continuing operations was approximately $660 million, which came in at the high end of our guidance range and represents meaningful growth year-over-year, driven by our Water Solutions segment. In the fourth quarter, we generated adjusted EBITDA of approximately $176 million. Excluding the goodwill impairment charge, income from continuing operations is approximately $70 million.

As we step back and look at the partnership's accomplishments this year, we believe fiscal 2026 encapsulates execution across every tenet of our multiyear strategy. First, in April, we closed on the sale of our wholesale propane and rack marketing businesses. As we are positioning the partnership to be a pure-play water company, the Liquids segment will continue to be rightsized as we work to monetize the noncore assets in this division. The disposition of the wholesale propane and rack marketing businesses significantly reduced the volatility in our quarterly reported EBITDA as well as eliminated swings in our working capital.

Second, we continue to attack and simplify the capital structure. We completed a $950 million refinancing transaction, extending maturities and providing cash to reduce the Class D preferred units outstanding. Over the course of the fiscal year, we redeemed approximately 285,000 Class D preferred units, significantly reducing our highest cost of capital. The redemption of the Class Bs represents approximately 47% of the original amount. Our strategy over the last few years has remained consistent since the refinancing in early 2024. We will continue to chip away at the Class Ds with free cash flow and noncore asset sales. And when leverage is at an appropriate level, we can access the capital markets to further reduce the Class Ds.

We've remained opportunistic with respect to the Term Loan B market and our ability to reprice this debt instrument. This component of our capital structure has allowed us to further reduce interest expense as our operational and financial performance continues to excel.

Third, the partnership bought 8.7 million common units under our buyback program at an attractive price of $5.72. At the time when the Board approved the $50 million buyback program, we believe the common units to be the best return in our portfolio. And I think the recent performance in the unit price validates our investment and belief in our multiyear strategy to allocate this capital to the common units.

Lastly, we continue to deploy capital to our Water Solutions segment that drove growth in our EBITDA year-over-year by 11%. Our disposal volumes committed under volume commitments grew from 45% to 53% during the fiscal year as well. Recall, over 90% of our volumes are contractual volume commitments or are acreage dedicated. We will get into the guide and outlook for fiscal 2027 later, but I would expect us to utilize the same playbook for fiscal '27 that we utilized in fiscal '26 by executing on accretive growth projects in our Water Solutions segment and continuing to simplify our capital structure.

Fiscal '27 is off to a great start. The momentum we exited with in fiscal '26 is carrying through to 2027, as evidenced by the press release issued earlier this month. On May 7, we announced a further expansion of our LEX II system, increasing capacity by 165,000 barrels per day with the capability to transport approximately 560,000 barrels of water per day on the LEX II system. The LEX II expansion is underwritten by a long-term volume commitment contract that includes increased volume commitments and an additional 4 township committed area in Eddy County. Additionally, the LEX II expansion is expandable up to 650,000 barrels of water per day.

Now let's hit the highlights for the fourth quarter of fiscal '26. Starting with Water Solutions, which continues to be the cornerstone of our business. This segment delivered another record year with adjusted EBITDA of approximately $153 million in the fourth quarter and approximately $603 million for the full year. From a volume standpoint, we achieved produced water volumes of approximately 3 million barrels per day in the fourth quarter, a 10% increase in physical volumes disposed compared to the previous year's fourth quarter. Total volumes we were paid on for the fourth quarter were approximately 3.1 million barrels per day compared to approximately 3 million barrels per day in the previous year's fourth quarter. For the full year, disposal volumes averaged approximately 2.9 million barrels per day, up 11% from the prior year.

From a margin and cost perspective, operating costs remained well managed. Our operating expenses per barrel was $0.22 in the quarter, improving when compared to the same quarter from the prior year, reflecting continued efficiency gains and system optimization. As we think about the drivers behind this performance, there are a few key factors. First, the scope and size of our integrated system in the Delaware Basin, which allows us to bolt on additional volume -- pipelines and volumes. Second, strong customer activity levels, particularly from large investment-grade producers. Third, our long-term fee-based contracts with minimum volume commitments and acreage dedications.

Additionally, our infrastructure footprint continues to expand in the Delaware Basin with incremental disposal capacity in Andrews County, where we have millions of barrels of pore space. We believe our Water Solutions segment remains one of the most durable and visible earnings streams in the midstream sector and provides the most attractive returns from internal growth opportunities. It continues to be the primary growth engine of the partnership.

Turning to Crude Oil Logistics. Adjusted EBITDA for the quarter was approximately $17 million. Grand Mesa Pipeline volumes averaged approximately 78,000 barrels per day during the quarter and for the full year, averaged 72,000 barrels per day. We continue to work with producers and gatherers in the DJ Basin to contract more barrels to ship on the pipeline.

In Liquids Logistics, we generated approximately $17 million of adjusted EBITDA in the quarter. As a reminder, this segment has been significantly streamlined following the divestiture of noncore assets, including the wholesale propane business. As a result, this segment is now a smaller, less volatile business. Performance continues to be stable and in line with expectations, with reduced seasonality and lower capital requirements than in previous years.

As I mentioned at the beginning of my prepared remarks, fiscal '26 was an important year in terms of strengthening our balance sheet and positioning the partnership for long-term success. Combined with our growth in adjusted EBITDA, the actions mentioned earlier collectively represent meaningful progress toward our key financial priorities of reducing leverage, lowering our cost of capital and improving overall financial flexibility. We ended the year with solid liquidity, no near-term debt maturities, and we remain focused on further balance sheet improvement.

With that, I'll turn the call over to Mike.

Thanks, Brad. Fiscal 2026 represents another important step forward in our transformation into a more focused, less volatile, higher growth, improved quality business. There are 3 key takeaways I'd highlight. First, Water Solutions continues to deliver strong growth with attractive returns. Second, our business mix transformation is improving adjusted EBITDA stability, reducing volatility and seasonality. And third, we have built a strong pipeline of contracted projects that supports continued growth in fiscal 2027 and into fiscal 2028.

Strategically, we remain focused on 3 priorities: accelerating our transition to a pure-play water company by expanding our water infrastructure and monetizing unrelated assets; continuing to strengthen the balance sheet; and opportunistically repurchasing both preferred and common equity when it creates value.

Our 2027 outlook. We are guiding consolidated adjusted EBITDA to a range of $715 million to $725 million. This represents approximately 10% growth year-over-year at the high end of our adjusted EBITDA guidance in 2027. We expect this growth to be driven primarily by continued expansion in Water Solutions, supported by projects already contracted, the larger of which we have previously announced. Our adjusted EBITDA guidance does not include any new contracts, which may be entered into from this point forward, nor the benefits from the current crude oil price levels.

From a capital standpoint, we're guiding to approximately $200 million of growth capital and about $45 million of maintenance capital. This capital includes the increased cost of the pipeline portion of the new projects, which we are absorbing and not passing on to our customers.

With that, operator, we are ready to open the line for questions.

[Operator Instructions] The first question comes from Derrick Whitfield with Texas Capital.

Congrats on the strength of your water business and the progress you've made just recently in improving the capital structure, been quite overhaul for you guys. I wanted to start first with your growth capital. With regard to the growth CapEx of $200 million for 2027, does that include growth projects beyond the LEX II expansion?

A bulk of that $200 million is the LEX II. There are some incremental projects embedded in that $200 million.

Great. And then just with respect to the LEX II expansion, how would you characterize the split between new and existing clients for underwriting that capacity and candidly, the need for further expansion up to 650,000 barrels based on those discussions?

Yes, it's current customers -- Doug, I don't know if you want to take the latter part of the expansion up to 650,000?

Yes, this is Doug. We really amended and extended an existing agreement, which included longer term additional barrel count, volume commitments and then the large 4 township dedication on this expansion. And then the question -- can you clarify the question on the further expansion, Derrick?

Yes. Just the need for it to further expand to 650,000 based on what your client discussions you're having today?

There is an incredible amount of demand for additional capacity in the basin. That should answer that question. It's continuing to increase and continuing to have a line out the door of demand for additional capacity.

Great. And just on the activity outlook side, I know that you guys stated in your prepared remarks that you didn't place any increased activity into your plans. Having said that, with you guys reporting nearly 1 month after most of the sector, what are you guys hearing around plans of acceleration beyond just the pull forward in activity that most of the independents announced during Q1 earnings?

The pull forward was -- has really been what we've been seeing. Probably more important is what I just mentioned, the dearth of available capacity with the -- at least 10% growth of the water volumes, have really driven a lot of interest in new underwriting and new projects to be underwritten and just more of the deal flow that we're seeing. It's not so much driven by the commodity price as it has just been driven by the acceleration of development over the last couple of years, and it's -- the efficiencies are really driving a lot more demand for the service.

Great. And maybe shifting over to beneficial reuse and other next-gen opportunities. Based on your announcements over the last couple of quarters with material and the progress you guys have talked about on the water desalination side, how would you characterize where those opportunities sit today, and again, the opportunities you see ahead of you for that next-gen type business?

We are continuing to make progress on those previously announced projects. We expect our draft permit from TCEQ any day now in the next -- certainly within the next few weeks, which has taken a lot of effort, making a lot of progress. Lots of progress on the energy campus project, which would include the nuclear power and we're looking at the data center addition to that campus as well as the large-scale desal, but we are making a lot of progress on those projects.

Great. And finally, if I could, maybe shifting over to Crude Logistics segment. While water is clearly the driver here, how are you thinking about EBITDA and production outlook for 2027?

Doug, do you want to maybe talk about what you're seeing in the DJ from producers?

Sure. This is Doug again. We are really seeing very, very good activity in the DJ this year. We're also seeing some of the smaller players, private equity-backed players really have consolidated acreage and have a more cohesive development plan moving forward. So we are seeing certainly an uptick in activity and we see that carrying into this fiscal year and the next couple of fiscal years versus where it has been in the past.

Terrific. And then just maybe to clarify one thing. I had an inbound from the client. But just on the build multiple for the LEX II expansion. Is all of that capital accounted for within 2027 or would there be capital to extend beyond 2027? It looks quite...

It will all be in this fiscal year. The bulk of it is in the first couple of quarters here, 2, 3 quarters of the fiscal year.

We have reached the end of the question-and-answer session. And I will now turn the call over to Brad Cooper for closing remarks.

Thanks, everyone. We'll talk to you in a few months. Take care.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to NGL Energy Partners 3Q '26 Earnings Call.

[Operator Instructions]

Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper, CFO at NGL Partners. You may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

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 2 of our priorities, reducing higher cost preferred equity and repurchasing common units. During the quarter, we redeemed an additional 18,506 Class D preferred units, bringing total redemptions to 88,506, about 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 2 over the next fiscal year.

Doug will provide some 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 have experienced a few days in mid-January where 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 CVC, 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 million 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 the third quarter of fiscal 2026, 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%. We again set a physical disposal volume record processing roughly 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 that includes 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 were up approximately 7%, third quarter of fiscal 2026 over third quarter of fiscal 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 the third quarter of fiscal 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 the third quarter of fiscal 2026 when 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 the third quarter of fiscal 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 streamline footprint is performing as expected for the full year.

Now I will turn the call over to Doug White. Doug?

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 is flowing and has 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 poor 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, and it is identifying opportunities to increase revenues and decrease expense. 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'll now turn the call over to our CEO, Mike 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 of this year.

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 4.0x area. So we will be looking to take out a significant portion of the remaining Class Ds 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 -- common units outstanding. So going back to November of '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, and we paid $6.9 million. These purchases eliminated approximately 18% of future dilution. Currently, we've reduced the outstanding, as Brad said, by nearly 7% through our Board-approved unit repurchase plan. So combined, we shouldn't lose sight. We have eliminated dilution of our common equity 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 5 to 20-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. Natura agreement and the anticipated discharge permit are 2 of the steps in that direction. Not all of our initiatives on this journey will work, but time and technology is on our side.

I think with that, we open it up for questions.

[Operator Instructions]

And the first question today is coming from Derrick Whitfield from Texas Capital.

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're currently seeing in crude prices?

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

Yes, Derrick, when we look at the projects that we have completed, those came with volume commitments and those were for long term. So those are very financially firm. As we see the oil price fluctuate, even when it dipped down to $55 range, we really didn't see a big change from our customers. As the consolidations happen, certainly in the Delaware Basin, and we saw some more of that announced today, that consolidation has created more of a level activity level versus what it may have been a few years ago when there was a lot more private equity type of producers in the basin. But as it has matured, we're seeing our customers and our large customers just on a continuous drilling forward and frac spreads, et cetera.

The other real big driver for us is you're asking about what does it look like 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, we hit that record on Friday, the 16th in January, that was right before the storm, we saw some people drop some frac crews or pause some frac crews. The uptick of water that happens when there is even a small slowdown is reflective positive for our business. We're not active recyclers like some others are. When that recycling may slow down because it doesn't have frac crew to send water to, all of that produced water has to go somewhere, and that comes to us. So we're continuing to see large opportunities for large-scale projects prospectively and expect to nail down some of those firmly in the coming months.

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 in volume and values? And then b, how material is the current CapEx obligation?

Yes. Good question. So we continue to explore the alternatives to injection based on seismicity, poor pressure increasing, just being prudent operators, we've continued for several years to be looking for other alternatives to injection. You might remember our very successful desalination project in Pinedale, Wyoming. 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. What's happened in the past year, the Texas has passed the water bill, right, $1 billion a year of support for new water in Texas. The federal government support of production of domestically sourced critical minerals, requests from our customers. Our customers are paying attention, the producers and saying, hey, NGL, where are you going to take my water? What opportunities are there for something different rather than loving the Reeves County.

We've addressed a lot of that in the short to medium term and some percentages of the very long term with our Andrews County out-of-basin 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 and the portfolio going forward. Basic requirements for that. First, you have to have produced water volumes that support an economic scaled plant. We checked that box, right? Our large system is a reason we applied for our outfalls on our TPDES permit in the particular location in Reeves County. That's because we can deliver 800,000 barrels a day of water to that location that you need those economies of scale to have an economic project.

Second is available energy source. You have to have an 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's not really even about the electricity, the 40% electricity that's produced. It's really about the waste heat. So we will be taking waste heat and produce and treating wastewater to create new water for the state of Texas, use the waste off of that process, which is [indiscernible] brine or concentrated brine, which has concentrated up the minerals within that brine. And then we are working on recovery of critical minerals through that. So you put all those pieces together, that's what it takes to get there. And our MOU with Natura, we're very excited about, while it will take -- 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, and we won't 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 a certain period of years. So for us to start, maybe we start with a 50,000 barrel a day plant that's able to be scaled, most likely, we'll be using natural gas to power that plant, not 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 come to fruition, Natura has their own economics of their own capital spend around their project. But we would put the 2 projects together to really create a really unique and exciting project.

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

Well, I think you can see in our OpEx numbers, how would they continue to improve. It's 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 don't really focus on is the impact on revenues. The more water we can move more efficiently, utilizing and increasing our utilization of our existing assets, saves us capital. We don't have to drill new wells. We don't have to build new facilities. That is -- it goes straight to the bottom line. Obviously, with helping out and reduce the capital spend, we reduced capital spend, we increase our low multiple returns, which is great to payback returns.

So if you're looking for just a dollar amount or a percentage, right now, I don't feel comfortable saying what that is. We are seeing increases in just efficiencies to start. As you know, these machines-based products, they learn from themselves and start to continue to create more and more value. So as time goes on, Derrick, I think as we see true, I guess, discernible returns on that or dollars, we'll be able to share that down the road.

[Operator Instructions]

The next question is coming from Tarek Hamid from JPMorgan.

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?

We've been so busy with preparing for this call and run the business, Nevin, we have not had the opportunity to have those conversations with Devon.

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

Thanks, everyone, for joining today. We'll catch up with you in June on our year-end call.

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

Greetings. Welcome to the NGL Energy Partners 2Q ' 26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

NGL had another solid quarter with record water volumes and 30% growth in Grand Mesa volumes. Consolidated adjusted EBITDA from continuing operations came in at $167.3 million in the second quarter versus $149.4 million the prior year second quarter or approximately 12% higher. The increase was primarily driven by the performance of our Water Solutions business segment.

On the heels of this strong performance in Water Solutions and additional growth opportunities in Water Solutions that Mike will speak to later, we are increasing our full year adjusted EBITDA guidance range from $615 million to $625 million, to $650 million to $660 million. With this increased guidance and operating cash flow associated with this increase, we project a zero ABL balance at the end of the fiscal year and approximately 4x leverage.

Also in the month of October, our Water Solutions segment has averaged over 3 million barrels per day of physical disposal volume. Doug White, EVP of our Water Solutions segment, will be providing a Water Solutions update following my comments.

We continue to be focused on our capital structure and remain opportunistic with how we are addressing it. Since April, we have purchased 88,506 units of the Class D preferred, which represents approximately 15% of the outstanding units. Based on the last Class D distribution, the Class Ds purchased represent $10.4 million in annual distribution savings going forward. We have opportunistically taken advantage of the ability to reprice our Term Loan B as permitted in the documents. In September, we launched a repricing and reduced the SOFR margin from 375 basis points to 350 basis points. This was the second repricing of the Term Loan B since February 2024. When you consider the 2 repricings and Fed rate cuts, we have achieved annual interest savings of $15 million on the Term Loan B.

Under the Board-authorized unit repurchase plan, we have purchased an additional 4.4 million units in the quarter for a total of approximately 6.8 million units, which equates to about 5% of the outstanding units. The average price for the units repurchased since the inception of the plan is $4.57.

With the additional water growth capital projects and the Class D preferred and common unit repurchases, we are demonstrating the optionality we have with our capital allocation. All three of these provide attractive returns to the partnership and our investors.

Water Solutions adjusted EBITDA was $151.9 million in the second quarter versus $128.9 million in the prior second quarter, an 18% increase. Physical water disposal volumes were 2.8 million barrels per day in the second quarter versus 2.68 million barrels per day in the prior year second quarter, a 4% increase. Total volumes we were paid to dispose that includes deficiency volumes were 3.15 million barrels per day in the second quarter versus 2.77 million barrels per day in the prior year second quarter. So total volumes we were paid to dispose were up approximately 14%, second quarter of fiscal '26 over second quarter of fiscal 2025. The increase in EBITDA was primarily driven by higher disposal revenues due to an increase in produced water volumes, processed from contracted customers as well as higher water pipeline revenue due to the LEX II pipeline commencing operations during the quarter ending December 31, 2024, as well as higher revenues for skim oil. The increase in skim oil revenue was due to an increase in skim oil barrels sold due to more skim oil recovered from receiving more produced water.

Operating expenses for the quarter were $0.22 per barrel, in line with previous quarters.

Crude Oil Logistics adjusted EBITDA was $16.6 million in the second quarter of fiscal 2026. During the quarter, physical volumes on the Grand Mesa pipeline averaged approximately 72,000 barrels per day compared to approximately 63,000 barrels per day for the quarter ended September 30, 2024. When compared to our previous fiscal quarter, Grand Mesa volumes are up 17,000 barrels or approximately 30% higher fiscal Q2 over fiscal Q1. Volumes for the fiscal third quarter were strong with October over 80,000 barrels per day for the month.

It's early in the fiscal year for the butane blending business, a bulk of their EBITDA generated for the fiscal year is occurring right now. We will have a better read on the fiscal year for this group at our next earnings call.

With that, I would like to turn the call over to our EVP of our Water Solutions segment, Doug White.

Thank you, Brad. This has been a year of excellent growth, both volumetrically and on an adjusted EBITDA basis. With respect to water disposal volumes during this year, we have recently surpassed 3 million barrels per day of physical volumes for an entire month and over 3 million barrels per day, including deficiency barrels related to volume commitments. We have underwritten new growth capital projects for approximately 750,000 barrels per day of newly contracted volume commitments. These projects are scheduled to be placed into service by the end of this calendar year. As a result of these contracts, we now have 1.5 million barrels per day of total volume commitments going into fiscal 2027. These commitments have an average remaining term of almost 9 years.

Regarding our Delaware Basin asset position, we now have over 5 million barrels per day of permitted injection capacity at 131 injection wells and 57 water processing facilities. We have the largest capacity pipeline system in the Delaware Basin with more than 800 miles of pipe, including approximately 700 miles of 12- to 30-inch diameter pipelines. This is a key metric as it determines the volume of water that is able to be transported directly affecting physical volumes and reliable takeaway.

With respect to permits and pore space, we have maintained a large inventory of legacy injection well permits in Texas. And this year, we have increased our inventory by almost 1 million barrels per day in Andrews County, Texas, where over a year ago, we secured approximately 4 million barrels per day of pore space that is unburdened by legacy injection, legacy vertical production or seismicity. This sets us apart from our competitors, creating a moat for future growth to more than double our current Delaware Basin volumes.

In addition to strategically increasing our pore space portfolio, NGL has been pioneering the effort to bring the Delaware Basin, its first large-scale produced water treatment plant through the Texas Commission on Environmental Quality, TPDES permitting process. We began this effort for a treated produced water discharge permit in 2023. And as of last month, received the first draft permit issued in the state of Texas. Our permit application is for influent volumes of approximately 800,000 barrels per day, which is a material amount of produced water that can be diverted to treatment for beneficial reuse and recharging the Pecos River Basin. This shows our commitment to sustaining our pore space inventory, and adding an alternative disposal option for our producer customers.

Thank you, Doug. This is Mike. As you've heard from Brad and Doug, NGL is firing on all cylinders, both operationally and financially. First, some of this may be a repeat, but I think it's important. So first, let's discuss the operations. Last 60 to 90 days, we've contracted the 500,000 barrels per day of volume commitments that require in-service dates no later than December 31. Our Water Solutions employees have also exceeded our adjusted EBITDA guidance on the base business in addition to the new business. These two business developments have allowed us to increase our fiscal year 2025 adjusted EBITDA to a range of $650 million to $660 million with potential further increases in subsequent quarters.

We began the fiscal year with modest growth expectations as reflected in our initial growth CapEx guidance of about $60 million. The increase in contract volume requires an additional $100 million of growth CapEx, which we are pleased to spend. The majority of adjusted EBITDA will be generated in fiscal 2027 from these new projects. So we are providing initial fiscal 2027 adjusted EBITDA guidance of at least $700 million. So there'll be more to come to that as we progress through this year.

I would like to congratulate the entire Water Solutions team, led by Doug White and Christian Holcomb on their strong operational performance and positioning the business to capture new incremental business driven by the confidence producers have in NGL Water Solutions as the most reliable operator with the largest integrated water disposal network in the Delaware Basin.

Next, I believe there's been some misinformation and literature published recently. So I would like our unitholders to know that your NGL, a, generates the most adjusted EBITDA annually of any water company, transports the greatest volume of water for disposal of any water company, has the largest volume of water under volume commitments of any water company, operates its water business with the lowest cost per barrel of any water company, provides the most capacity to move water predominantly through the pipes, 12 to 30 inches that Doug mentioned of any water company, and has millions of barrels of pore space, as Doug stated.

We are not waiting until calendar '26, '27 or later to grow. Our growth is here today, approximately 10% in fiscal '26, and another 10% estimated next year.

So let's jump to our long-term corporate strategy and where we came from and where we sit today. So several years ago, we were settled with leverage above 4.75x and a dividend arrearage obligation that we needed to repay. So our first initiative was to remedy the situation. So we began identifying excess and idle assets that we sold. Next, we sold our crude oil trucking and marine divisions at very attractive multiples. These were not businesses that provide a real competitive advantage or we could grow. Then we sold the majority of our Liquids Logistics business, that was the most volatile business in terms of adjusted EBITDA that fluctuated quite a bit from year-to-year. Not a great asset for an MLP. Finally, we sold our New Mexico Ranches. All of this cash allowed us to eliminate the dividend arrearage and reduce leverage.

So our next target were the Class D preferred units. As you've heard, we've redeemed 88,000 shares of them at this time with more anticipated in the coming quarters. Under the terms of the pref, we must redeem them in $50 million tranches unless offered to us in small amounts. Each redemption or purchase should be accretive to our common unitholders.

With the increase in adjusted EBITDA, we are deleveraging, which provides greater flexibility to finance our growth capital to attack the capital structure and purchase common units simultaneously. We believe our common unit purchases thus far have been an excellent investment by the partnership.

In terms of valuation, we are seeing the market reward pure-play water companies. We have been simplifying our business and focusing on the water business and providing substantial growth capital to this division. We anticipate becoming more and more a pure-play water company as our adjusted EBITDA from water operations continues to grow.

Our finance group led by Brad Cooper has done an outstanding job financing NGL and managing these equity purchases, while reducing interest expense when the opportunity presents itself. They are also reducing corporate overhead, not taking their eye off the ball even in the good times.

So finally, barring a negative macro event, I believe we're in the final leg of our journey to finish strengthening balance sheet by limiting Class Ds and decreasing leverage to less than 4x. After that, anything is possible.

Thank you. Questions.

[Operator Instructions] First question comes from Derrick Whitfield with Texas Capital.

Congrats on a solid quarter and update, guys. Starting with the growth opportunities you're highlighting. As you guys know, [Technical Difficulty] we are focused in the Delaware water kind of backdrop, if you will. Having said that, I would love if you could maybe just offer some color to the macro, micro events that's leading to this increase in activity from a customer acquisition perspective since your last update? Is it fair to assume that you guys are picking up some opportunities now that Aris has been acquired by WES?

Doug?

I'll take that. Yes, this is Doug. Yes. Thanks, Derrick. Where we see a lot of our growth is in our base customer mix. As many of you know, the larger producers have really been segmented mostly between the few different larger water midstream groups. Some of us have split, some of the business between the super majors, but we also have large -- very large customers that are mostly dedicated to our system. We are really seeing from a macro perspective, the immense growth and commitment to growth from our larger customers. I think that speaks a lot to the maturation of the all infrastructure, including pipeline type takeaway, gas takeaway, but also infield processing, power availability, et cetera. The efficiencies that have been created within the basin have really shown to make them more economic. And we're just seeing a greater dependence on focus on economics that's creating lower econs on the cost side that really lend to more development.

Perfect. And then maybe shifting over to pore space. To your point, 4 million barrels of pore space in Andrews County is a tremendous amount of growth opportunity for you guys and not suggesting you're going to spend all the capital at once. But if you were to think about the amount of capital required to access that pore space, can you help frame that?

Sure. Much like the LEX system, we see continued growth on the pipeline side out of New Mexico to our pore space in Andrews County. Those projects -- those range in the $50 million to $150 million project, much of that includes infrastructure development on the power side, also anything around just the general development of disposal facilities and the injection wells themselves. So as we access that, we expect to pace that over several years' time, of course. I think the important item to note on that topic is we have secured the pore space and is excellent pore space, as I mentioned, unburdened by seismicity, existing injection, legacy vertical production. That's really important. And then as we continue to grow along with our customers, we'll layer in the capital side of things in order to respond to new deals.

Perfect. And one last, if I could. Just with the increase in growth capital this year, is that largely just for drilling SWD wells?

Brad, do you want to answer that?

Go ahead, Doug.

Okay. So with our growth projects that we mentioned, you'll notice that we increased the capital spend from $50 million to $150 million or $160 million. I'm not sure the exact number there. But that addition of the $100 million of capital is all growth related to the water side of the business.

Doug, how many SWDs just give us -- because you have saved these permits for many years, which is why competitors don't necessarily see us applying for permits because we have so many. But is it 10, 15...

We have 35 to 45 legacy permits. We're in the process of drilling 15 to 20 new drills this fiscal year.

We have reached the end of the question-and-answer session. And I will now turn the call over to Brad Cooper for closing remarks.

Yes. Thank you, everyone, for joining us today. Have a safe end of the year, and we'll talk to you guys early next year.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to the NGL Energy Partners 1Q ' 26 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brad Cooper. You may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

During the first quarter, we closed on the sale of our Rack marketing business, the interest in the Limestone Ranch and a majority of the wholesale propane business that included 17 terminals. As discussed on previous calls, we will continue to look for opportunities to shrink the remaining footprint of the Liquids segment with further asset sales. We used a portion of the proceeds to completely pay down the ABL during the quarter. We did end the quarter with a small ABL balance, but this is expected as we began our butane build within the Liquids segment. In addition to paying down the ABL, we opportunistically attacked other pieces of the capital structure with the proceeds.

Mike will elaborate on these efforts during his prepared remarks. We continue to execute on our multiyear strategy of rightsizing the asset footprint, paying down debt and reducing overall leverage of the company. Let's get into the quarterly results. Consolidated adjusted EBITDA for the quarter came in at $144 million versus $138.6 million in the prior year first quarter or approximately 4% higher than the prior year's first quarter. This increase was primarily driven by the performance of our Water Solutions business segment. We are reaffirming our full year adjusted EBITDA guidance of $615 million to $625 million.

Our Water segment continues to perform above our expectations thus far, and we will reevaluate our full year guidance after the second quarter closes. Water Solutions adjusted EBITDA was $142.9 million in the first quarter versus $125.6 million in the prior first quarter, a 13.8% increase. Physical water disposal volumes were 2.77 million barrels per day in the first quarter versus 2.47 million barrels per day in the prior year first quarter, a 12.4% increase.

Total volumes we were paid to dispose that includes deficiency volumes were 3.1 million barrels per day in the first quarter versus 2.6 million barrels per day in the prior year first quarter. So total volumes we were paid to dispose of were up approximately 18% first quarter of fiscal '26 over first quarter of fiscal 2025. The increase in EBITDA was primarily driven by higher disposal revenues due to an increase in produced water volumes processed from contracted customers as well as higher water pipeline revenue due to the LEX II pipeline commencing operations during the quarter ended December 31, 2024.

Operating expenses for the quarter on a per barrel basis were lower by $0.02 when compared to the same quarter of the previous year. For the first quarter, our operating expenses in Water Solutions was $0.22 per barrel. With the current market sentiment and oil price uncertainty, we have not seen any drop-off in activity from our customers in the core of the basin. We have continuous conversations with the producers to monitor activity levels and the impacts the macro backdrop could have on our Water Solutions segment. As highlighted in our earnings call presentation, we are well positioned with 90% of our volumes committed through acreage dedications and MVCs. Recall, 80% of our total volumes are with investment-grade counterparties.

Crude Oil Logistics adjusted EBITDA was $9.6 million in the first quarter of fiscal '26 versus $18.6 million in the prior year's first quarter. During the quarter, volumes on the Grand Mesa pipeline averaged approximately 55,000 barrels per day compared to 63,000 barrels per day for the first quarter of 2025. The decrease was due primarily to reduced sales as a result of lower production on acreage dedicated to us in the DJ Basin and lower crude oil prices.

As we have previously discussed on these calls, we have been anticipating an increase in volumes on the Grand Mesa system for a while now. For the month of July, volumes were approximately 25% higher than June volumes. So we anticipate stronger quarters ahead for the Crude Logistics segment. Liquids Logistics adjusted EBITDA was $2.9 million in the first quarter versus $5.7 million in the prior first quarter. This is adjusted for the previously announced asset sales that closed in the quarter. The primary EBITDA contributor of the Liquids Logistics segment going forward will be our butane blending business. And recall that a majority of the EBITDA from this segment occurs in the back half of the fiscal year.

With that, I would now like to turn the call over to our CEO, Mike Krimbill.

Thanks, Brad. Good afternoon. I have just some brief comments. With respect to the first quarter results, as Brad said, we have exceeded our expectations. Water Solutions experienced a strong quarter, continues to reduce its cost per barrel. We expect strength in the back half of the year from our Crude Oil Logistics segment as volumes on Grand Mesa ramp up. The remaining Liquids Logistics business generates enough adjusted EBITDA to cover our corporate costs. If our results continue to exceed expectations, we will consider raising guidance at the time of our second quarter earnings call in early November.

Now as you can see from our first quarter actions, we are exercising an opportunistic strategy with regards to the use of our free cash flow. Cash is being used to purchase, repay debt and equity that provides the highest return and greatest benefit to the partnership while considering liquidity and leverage. These opportunities may change as the markets continue to move. So first, during the quarter, we purchased $19 million of our outstanding 2032 notes at a discount as our bond prices temporarily declined due to the tariff announcement in early April.

We paid off [ $17 ] million of debt that was outstanding on our ABL at March 31. We then repurchased 70,000 units or approximately 12% of our outstanding Class D preferred units. The successful refinancing in February last year and the full payment of the preferred arrearages allows us to purchase any of our preferred classes B, C and D in the open market or call them at our discretion. We have a couple of years to redeem the Class D preferred, so we are beginning that process now and anticipate additional purchases this fiscal year.

And finally, under the Board authorized common unit repurchase plan, we have purchased a total of approximately 4.7 million common units at an average price of $4.30 per unit. This represents approximately 3.5% of the outstanding common units. So in conclusion, as we move forward, the balance sheet remains a priority, but we are very focused on growing our adjusted EBITDA as it reduces leverage and provides additional cash for the balance sheet improvement.

And so with that, operator, let's open up the line for Q&A.

[Operator Instructions] First question for today is from Tarek Hamid with JPMorgan.

This is Nevin on for Tarek. I know you just mentioned that you'd be remaining opportunistic with capital allocation. But just going forward, do you expect further common unit repurchases? Or is this -- would you consider this quarter more as a one-off and you'll be remaining more concentrated on the Class Ds?

This is Brad. I think we'll continue to be opportunistic. If the unit prices kind of hang out in the same level they've been this last quarter, I think you'll see us nibble at that. If the bonds trade down based on some macro event, we'll nibble at those, and we'll continue to attack the Class Ds. So I don't think we're going to set a path right now in terms of what we're just going to go after solely. It will be a little bit of each at these levels.

Your next question is from Derrick Whitfield with Texas Capital.

Congrats on the opportunistic purchases. With respect to the produced water volumes for the quarter, they were a little bit lighter than what we were expecting. Just wanted to see if you could add some color as to perhaps some of the moving parts for the quarter itself.

Doug, do you want to take kind of Q1's water volume question?

Sure. They were quite a bit close to where we were expecting. There were some were -- in June, there were recycling jobs that ramped up, which we're now seeing those volumes on the takeaway side this quarter. But we feel pretty good about the volumes in Q1. We came in about 79,000 barrels a day over budget for the quarter over our internal budget. So we felt those were pretty solid. We see that continuing for the balance of the year based on our customer forecast at this time.

Very good.

Derrick, let me add to that. So when we look at volumes, we see the physical volumes we move. Then we see the, we call it, financial volumes on the MVCs we get paid for that physically didn't move. And then what we do not recorded in the quarter are additional MVC volumes we will get paid for next quarter. So you're not seeing all the volumes that the system is actually, I'll say, receiving. And you won't see it next quarter when we sell off on an MVC.

Got it. That makes sense. And then maybe just higher level, I wanted to get your thoughts on the Ares acquisition by Western. I mean, from our perspective, while we look at it in question the timing from a value recognition perspective, it definitely supports the Delaware water thesis that we have for your business and the revaluing of that core space over time.

Yes. I'll start, and Doug, you may have some thoughts, too. But I think we congratulate Ares for getting a premium price for their business. That's a price we would never have paid. And our model is a little different, too, as we do not focus on recycling. There are some other companies out there that do a great job who's really focused on that business.

And Doug, do you have any other thoughts?

Yes. I think it's great for the industry, great sign. Consolidation has been positive in the Delaware for -- even on the producer side, once the consolidation happens, they start -- you build and continue to build more of a foundation of an asset base, be it whether the producer side or the midstream side. So we welcome seeing consolidation, which also includes fewer parties at the ball game. The remaining groups that are out there, I think a couple more of them are looking to be consolidated.

So over time, this will come down to a few parties in the midstream water business, and it will then eliminate the spending of CapEx on duplicate assets, duplicating such the existing other competitor assets, which I think is good for the industry. The larger diameter pipes, more centralized operation of a larger contiguous area of assets. I think that's just good for the industry. And it's good for the producers, producers become more efficient, drill more wells and create more water.

We have reached the end of the question-and-answer session, and I will now turn the call over to Brad Cooper for closing remarks.

Thanks, everyone, for your interest in NGL. We look forward to catching up with everyone in early November during our second quarter call for fiscal '26.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings. Welcome to the NGL Energy Partners 4Q '25 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Brad Cooper, CFO. You may begin.

Good afternoon, and thank you to everyone for joining us on the call today. Our comments today will include plans, forecasts and estimates that are forward-looking statements under the U.S. securities law. These comments are subject to assumptions, risks and uncertainties that could cause actual results to differ from the forward-looking statements. Please take note of the cautionary language and risk factors provided in our presentation materials and our other public disclosure materials.

Before I start discussing our fourth quarter and full year results, I would like to thank the NGL employees for executing on our strategic initiatives and executing on the noncore asset sales that have positioned the partnership quite well heading into fiscal 2026.

As we announced in the May 5 press release, we closed on the sale of the 18 natural gas liquids terminals, including Green Bay. In addition to closing these previously announced asset sales, we monetized our Rack Marketing refined products business, our Limestone Ranch ownership and most of our Crude Oil railcar fleet. The total asset sale proceeds inclusive of working capital were monetized for a double-digit multiple.

Also, we completed the full wind-down of the biodiesel business, completing our final deliveries in the fiscal fourth quarter. These noncore asset sales will allow us to focus on our core assets. Additionally, these asset sales reduce our volatility and seasonality of our adjusted EBITDA. The wind-down and divesting of these businesses eliminates, on average, $75 million of working capital and at the peak, over $100 million of working capital based on the prior 12 months of activity. The elimination of this working capital and earnings volatility will allow us to be less leveraged as we continue to further address our capital structure and specifically the Class D preferred units.

The proceeds from these sales have allowed us to pay off the entirety of the outstanding indebtedness on our ABL. Also, we purchased 20,000 units of the Class D preferreds in the open market at a discount. As discussed on previous earnings calls, we will continue to rightsize the portfolio and organization and will look for opportunities to further reduce the asset footprint within the Liquids Logistics segment.

Let's get into the quarterly results. Consolidated adjusted EBITDA from continuing operations for the quarter came in at $176.8 million in the fourth quarter versus $147.9 million the prior year fourth quarter or approximately 20% higher than the prior fourth quarter. The increase was primarily driven by the performance of our Water Solutions business segment.

Our full year adjusted EBITDA from continuing operations was $622.9 million, which exceeds our previous guidance of $620 million.

Water Solutions adjusted EBITDA was $154.9 million in the fourth quarter, an increase from $123.4 million in the prior fourth quarter. Physical water disposal volumes were 2.73 million barrels per day in the fourth quarter versus 2.39 million barrels per day in the prior year fourth quarter. Total volumes we were paid to dispose that includes deficiency volumes were 2.89 million barrels per day in the fourth quarter versus 2.6 million barrels per day in the prior year fourth quarter. So total volumes we were paid to dispose of were up 11% fourth quarter of fiscal 2025 over fourth quarter of fiscal 2024.

The increased EBITDA in Water Solutions is due to overall higher disposal revenues from higher disposal volumes as well as higher fees charged for interruptible spot volumes. We also received a full quarter of the LEX II pipeline contribution that was put in service during our third fiscal quarter.

The Water Solutions team continues to drive operating expense per barrel lower. Operating cost per barrel was $0.22 for fiscal 2025 versus $0.24 per barrel for fiscal 2024. For the quarter ended March 31, 2025, operating cost per barrel was $0.23.

The Water Solutions segment is off to a good start for fiscal 2026 as volumes continue to exceed internal expectations. With the current market sentiment and oil price uncertainty, we have not seen any drop-off in activity from our customers in the core of the basin. We will continue to monitor activity levels and the impacts of commodity prices and tariffs could have on our Water Solutions segment. We are well positioned with 90% of our volumes committed through acreage dedications and MVCs, Recall, 80% of our total volumes are with investment-grade counterparties.

Crude Oil Logistics adjusted EBITDA was $13.1 million in the fourth quarter of fiscal 2025 versus $15.3 million in the prior year's fourth quarter. During the quarter, volumes on the Grand Mesa pipeline averaged approximately 56,000 barrels per day compared to 67,000 barrels per day for the fourth quarter of 2024. The reduction in EBITDA for the quarter compared to the same quarter from the previous year is predominantly driven by lower volumes on Grand Mesa.

As previously discussed, we signed a contract with Prairie Operating where NGL crude marketing will ship their production. We anticipate our first tranche of new volumes on Grand Mesa in early July from this new contract.

Liquids Logistics adjusted EBITDA was $17.7 million in the fourth quarter versus $22.2 million in the prior year fourth quarter. Margins for product sales decreased by about $7.1 million as butane margins declined due to a weak gasoline blending season. Propane margins were essentially flat quarter-over-quarter. Expenses decreased in the fourth quarter of fiscal 2025 due to reduced compensation.

For fiscal 2026, we are guiding EBITDA of $615 million to $625 million, with total capital expenditures of $105 million. Of the $105 million in total capital expenditures, $60 million will be spent on growth projects in the Water Solutions segment. As I mentioned earlier, water disposal volumes are ahead of our internal expectations, and we are off to a nice start for fiscal 2026.

With that, I would now like to turn the call over to our CEO, Mike Krimbill.

Thanks, Brad, and good afternoon, everyone. I think many analysts and investors seem to be focused on quarterly results and may overlook the progress that NGL is making. I'd like to look back over the last 14 months to review our accomplishments.

In February 2024, we began paying off the dividend arrearages on all 3 classes of our outstanding preferred units. It required 3 months and $475 million to complete this effort, such that we are now and have been current on our preferred equity financial obligations. At the same time, we continue to grow our Water Solutions business. We entered into a 5-year 200,000 barrels per day MVC contract that allowed us to construct the LEX II water pipeline. This pipeline was placed into service in November of 2024 contributing 5 months activity to fiscal 2025. We now have 2 large diameter pipelines with total capacity expandable to 500,000 barrels per day, taking water East into Andrews County.

Meanwhile, we continue to grow our Water Solutions business. In the fiscal year 2025 just ended, we achieved both record water disposal volumes and adjusted EBITDA. Through the first 2 months of this quarter, we are exceeding, as Brad said, the total water disposal volumes projected in our 2026 guidance. So we're off to a good start.

Strategically, we have been streamlining our business over the last couple of years. During that time, we have experienced significant volatility and somewhat disappointing results in several of our Liquids Logistics businesses. Very recently, we sold those businesses as well as other noncore assets to raise $270 million. We are becoming more of a Water Solutions business with approximately 85% of our adjusted EBITDA to be generated by this segment.

And now for the first time, we have purchased and retired Class D preferred equity. This is a significant milestone as it is necessary to achieve our goal of simplified capital structure and increasing our free cash flow. Previously, we had purchased and retired over $23 million long-term warrants representing common units, significantly reducing potential dilution of our common equity in the future.

Earlier, Brad provided our adjusted EBITDA guidance for fiscal year 2026. At first glance, the $620 million midpoint approximates our actual results for fiscal year 2025 and appears to suggest no growth. In reality, our guidance makes up for a $20 million decline in skim oil revenues due to a lower crude price compared to the prior year actual and the reduction of another $20 million in adjusted EBITDA associated with asset sales included in the prior year actual.

So going forward, it is now quite simple. We will continue lowering leverage, continue to improve the capital structure by reducing the highest cost of capital, the Class D preferreds, and increase adjusted EBITDA through growth in our Water Solutions segment.

So with that, operator, please open up the line for Q&A.

[Operator Instructions] Our first question comes from Derrick Whitfield with Texas Capital.

Congrats on a strong year-end and your progress with the asset sales. Mike, perhaps starting where you ended in your commentary, your guidance is quite strong when you think about the headwinds that you guys are overcoming, both with asset sales and crude prices. With respect to your 2026 guidance, could you offer some more color on your expectations by business or maybe speak to some of the operating assumptions for the Water and Crude Logistics segments?

Yes. Brad, why don't you address the guidance on water?

Yes. So Derrick, the water guide in that $620 million midpoint of water guidance is an implied number of about $560 million. And recall in Mike's comments, we do have a little bit of a pullback in oil prices for FY '26 relative to what we realized in FY '25 that accounted for -- accounts for about $20 million of EBITDA. And then we had a little bit less than $10 million in asset sales that we won't have in the EBITDA stream going forward that we have in FY '25.

Terrific. And then for my follow-up, maybe shifting over to water macro. It appears 3 larger pipeline projects are moving forward based on the WaterBridge, Western and Arris announcements. While fundamentals remain tight in the Delaware, to your point, I mean, we are seeing lower prices and would expect lower activity at some point. I guess could you guys offer some color around the conversations you're having with customers and if you see opportunities for growth beyond the current announced projects?

I think we'll have Doug answer that question. He's on the line. What are the 3 projects, the WaterBridge, the Western...

Western and Arris.

Derrick, this is Doug. Yes, sir. So we've been busy recontracting our closest exploration, long-term contracts, and there are only a couple. We have one of those fully executed with the new long extension and then we're in the process of extending another. Our focus has been on our base wedge of business. And then when we look at growth, we're seeing -- we've seen growth through our existing agreements. And obviously, the new LEX II agreement comes with the growth as well.

When we look forward to these other options, we were the first mover on the out-of-basin with LEX II. We have in this past year, we have firmed up our further out-of-basin acreage to be able to develop for growth. But right now, in this fiscal year with -- while we see no slowdown in volumes, we are on forecast. And as Mike said, we're a little ahead of forecast in this first quarter. We're really focused on preparing for future growth opportunities with our core customers, of which we have had interest.

Now that interest may be somewhat delayed until everyone gets a good firm feel on where oil prices land this year. But when you bring up these 3 pipelines, I know we've seen what was public on those. I will be curious to see if those get off the ground and if those actually develop and are constructive this year based on maybe a little bit of trepidation by the producers to really grow.

We have seen movement back to the core acreage. That's where our -- really, our large contracts are focused are the really good core acreage there in Central Lea County and somewhat into Eddy County. But when we talk, we look at growth, we look at opportunities of growth under our current long-term contracts, which average almost 10 years on our current long-term contracts and the growth within those.

So I guess, to answer your question on, hey, there's 3 pipeline spec. The Western pipeline is down in Loving County, really not -- that's focused on long term, obviously, with legacy Anadarko Oxy Water, which -- that piece of the pie has been with Western for a long time. That really does not impact anything around our business. And then if you go to the other 2 mentioned in Northern Lea County, we'll -- I guess it's TBD to see how much growth is there to support those projects actually getting off the ground in 2025.

Great color. One last, if I can only because we've received several inbounds on it. Regarding the May 16 Railroad Commission announcement on enhanced guidelines for Permian water disposal, what level of impact will this have with your business as you guys see it today?

Well, fortunately for us, we're always planning out 3 to 5 years ahead. These new guidelines are focused on new permits and new permit applications. We have almost 30 legacy permits in the Reeves and Loving area. We still have opportunities there to go drill those permits. And then as you know, we've been focused on really out-of-basin, Andrews County growth. That's really where our future growth will be. And we have procured almost 25 pre guidelines of valid permits, legacy permits of the 30,000 to 35,000 barrels per day, half PSI per foot. So we beat that time line on any additional obligations within that new notice to operators that came out recently. So we really are in a great position for our future growth for the next several years. So to answer your question, that really does not impact NGL from a new permit or permit opportunity perspective.

[Operator Instructions] The next question comes from Tarek Hamid with JPMorgan.

This is Nevin on for Tarek. You had mentioned that there was some delay in terms of growth opportunities for people to get a feel where oil prices land in the context where the projects are pushed out of fiscal year '26. How much lower could you flex capital spending down? I know it's already low at just a little above $100 million. Is there a room to go lower? Or is there -- if oil prices firm up, is there a room for CapEx to go higher?

On the growth, we're down to $60 million. So I'm not sure -- can you squeeze more out? Maybe, but it's not going to make a difference. And I think on the maintenance capital, it's predominantly water. I think that's probably a pretty low number already. I really don't see us being able to take it down much.

Yes, I definitely understand that. I just was looking to see if there is room to go lower, but it's already at a very low point, so understandable.

Next question comes from Gregg Brody with Bank of America.

As you give the guidance that you put out there, just help us think about how you think about your low and your high range there on volumes. And what drives that variability, specifically in the water?

I'm having some feedback, Gregg, could you maybe speak a little louder and repeat the question?

Yes, hold on 1 second. Can you hear me now?

Yes. Thank you.

Yes, that's better. Just trying to understand when you think about the water business sort of low to the high side for this year, how are you thinking about volumes and help us think about how you're coming up with that?

Doug, do you want to take that?

Sure. As I think everyone has learned over the last few years with the recycling coming to be such a large part of the business, which is a real positive. The midstream water business is really the backstop to those peaks. And then the producers really benefit on the valleys when they get to recycle their own water. Meanwhile, we're maintaining capacity as a backstop when the flowbacks happen. So that has continued.

As I talked about earlier, we have such a good wedge of base water within the portfolio. Our swings -- we might swing 500,000 barrels day to day based on whether the recycling is hitting or the peaks are hitting us. So that will continue. That's a normal part of the business at this point. Where we see variation, maybe from a budget perspective, is that sometimes we will have forecasted directly from our customers. And if several of the customers, for some reason, push their completions into 1 quarter to the next, we'll see those quarterly fluctuations.

An example is this first fiscal quarter started in April, what do we look like through? I guess we're almost through May. We're looking quite above budget for this first quarter on volumes. Why is that? Volumes have been very strong and actually, they're outpacing forecast because there really has been a little bit less recycling based on timing. We might come into July and be a little bit under budget. But we have a pretty good band and pretty good understanding of how to forecast that and when those are going to hit. But it's a base part of the business. We have a very strong wedge. You look at our wedge and we're 2.5 million barrels a day very consistently in the portfolio, and we've peaked and hit records in this fiscal quarter, over 3 million, 3.1 million, 3.2 million some days. So it's just -- like I said, it's part of the business. And as our base wedge grows and grows, that -- really that 500,000 barrels per day swing is pretty normal for us.

And just based on what you've heard from your customers and maybe what you've heard on the call if they haven't communicated with you clearly, what do you think that means for volumes next year just based on this market today? Is it flat? Is it up slightly? How should we think about it? Just obviously, I know it's -- things can change, but I'm just trying to get a sense of how to think about what happens to volumes.

Sure. So everyone's been asking what's happening. Are we seeing changes? We're seeing some of the rigs being laid down. We have not seen or been informed by our customers that the volumes are changing on the water side. I think everyone has been hearing that production will be at least held flat. There may not be a lot of growth.

One of the positive things about recycling is when completions slow down from the growth side, that water doesn't go to recycle, it goes to disposal, a certain percentage of that does. So we expect -- we have some growth in this year in our forecast, and we expect that to be on. We've not heard anything different. That's the alternate aspect to the recycling is that there's -- in any 1 day, there's 20 million, 30 million barrels of water sitting on the surface. If there are any completions that are pushed or delayed into the next, be it quarter or next year, that water comes off the table and our core business is disposal, and we get the benefit of that in our volumes.

So to answer the question is we have not been apprised of any volumetric changes from our customers. And with their endeavor to hold production at least flat, we're still on pace. We're glad to have this be quite a bit ahead in this first fiscal quarter. That obviously helps us throughout the full fiscal year.

Great. And just one more question for you, unrelated to your volumes. I noticed in the 10-K, you had, as part of your business strategy, you pointed out continuing to reduce the 9s of the Class D preferred units. And you also mentioned something about reinstating the common unit distribution. I think in the past you've said that's -- also financing growth projects. In the past, you've said that's a possibility, but you may look at other things like instead just focusing on share repurchases. Is that still the case? Or am I reading this too literally to say that now the goal is to common -- reinstate distributions?

In the near term, we don't see common unit distribution. We're happy to start attacking these Class D. So that will be our focus. And at the same time, trying to reduce leverage. We'd like to get that under 4x. So I wouldn't be looking for a distribution increase in the next few quarters, no, or reinstatement.

Got you. And then in terms of buying back shares, is that a possibility? Or is that it's now focused on the preferred? I know you've focused on the warrants before.

Yes, I think, Gregg, I think it's Class Bs and then we'll be opportunistic with the capital structure. There could be some common sprinkled in there. But Class Ds are our priority. I think you've heard it in my comments, you've heard it in Mike's comments here in Q&A, that's the next piece of the capital structure we need to tackle and we'll get after it this fiscal year.

We have reached the end of the question-and-answer session, and I will now turn the call over to Brad Cooper for closing remarks.

Thanks, everyone, for your interest in NGL. We are well positioned heading into fiscal 2026. Look forward to catching up with everyone in August during our first quarter call for 2026. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.