NGL Energy Partners LP, which transports oil and also treats, recycles and disposes of water generated as part of the energy production process – said it got off to a slow start in calendar 2021 because of Winter Storm Uri and lingering effects of the pandemic.
But the Tulsa-based company sees brighter days ahead with crude prices comfortably above $60/bbl and signs of activity picking up in the oil-producing Permian Delaware sub-basin in West Texas and New Mexico as well as the Denver-Julesburg (DJ) Basin in Colorado.
NGL “is well positioned going into its fiscal 2022, as crude prices, producer volumes and demand for commodities have all increased following a challenging fiscal 2021,” CEO Michael Krimbill said.
“Our water solutions segment continues to drive” growth “and we look to fully capitalize on our Delaware Basin platform in the coming year,” he added.
Krimbill offered that outlook Thursday along with the fiscal fourth quarter 2021 results, covering the three-month period ended March 31.
During that stretch, Uri wreaked havoc, bringing freezing conditions as far south as the Texas border with Mexico. That interrupted oil production, refinery activity and related work for about two weeks in February.
NGL processed 1.4 million barrels/day of water during the latest quarter, down 18% year/year, because of Uri as well as lower development activity and production volumes linked to the energy industry’s response to coronavirus outbreaks since March 2020.
In its crude logistics unit, volumes on the Grand Mesa Pipeline averaged 66,000 b/d in the latest quarter, down from 131,000 b/d a year earlier. In addition to a client’s bankruptcy issues, the company noted lower refinery demand because of Uri-related outages on the Gulf Coast. Grand Mesa originates in Colorado and extends southeast to NGL’s crude oil storage terminal at the Cushing hub in Oklahoma, providing takeaway capacity for oil producers in the DJ.
Speaking on a call with analysts, however, executives said Uri’s impacts were short-lived and, more importantly, the oil industry is on the rebound as coronavirus vaccines prove effective, economic activity accelerates and demand for transportation fuels derived from crude mounts.
“We are excited about rising and stabilizing crude oil prices and the return of production growth in the DJ Basin and expect to see increased producer demand for capacity on our Grand Mesa Pipeline as well,” Krimbill said.
While large U.S. public companies have kept oil production in check so far this year, smaller, private companies have begun to reopen taps and, if oil prices hold above $60/bbl as they have most of 2021, bigger players could follow suit yet this year. That would benefit NGL’s transport, treatment and disposal operations.
Increased activity and volumes in both the DJ Basin and Delaware sub-basin will be key to the company’s performance during its fiscal year that started in April, CFO Robert Karlovich said.
“Delaware Basin oil production and completion activity and the associated water will be the largest driver of our performance,” Karlovich said on the earning call. “We are seeing increases in other basins as well, but the Delaware Basin is easily the most significant and important. Disposal volumes will continue to be the largest driver.”
He also noted the Bonanza Creek Energy Inc. and Extraction Oil & Gas Inc. deal in May to merge in an all-stock transaction valued at around $2.6 billion. The combined exploration and production company, to be called Civitas Resources Inc., would operate across roughly 425,000 net acres in the DJ Basin.
“DJ Basin production growth will also be important, most notably from the combination of Extraction and Bonanza Creek as our most significant contracts in the crude logistics segment are with those producers, and we will be tied to their production volumes on Grand Mesa.”
NGL reported a net loss of $229.2 million for its fiscal 2021 fourth quarter, down from $223.0 million a year earlier.
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