Rattler Midstream LP
Q4 2021 Earnings Call Transcript

Published: 24 Feb 2022

[Company Representatives:]

Travis Stice - Chief Executive Officer Kaes Van’t Hof - President Adam Lawlis - Vice President of Investor Relations

[Operator:]

Thank you for standing by, and welcome to Rattler Midstream's Fourth Quarter 2021 Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. I would now like to hand the call over to Adam Lawlis, Vice President of Investor Relations. Please go ahead.

[Adam Lawlis:]

Thank you, Otive . Good morning and welcome to Rattler Midstream’s Fourth Quarter 2021 Conference Call. During our call today we will reference an updated investor presentation which can be found on Rattler’s website. Representing Rattler today are Travis Stice, CEO and Kaes Van’t Hof, President. During this conference call the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations within appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Travis Stice.

[Travis Stice:]

Thank you, Adam. Welcome everyone, and thank you for listening to Rattler Midstream’s Fourth Quarter Earnings Call. The fourth quarter of 2021 was another great operation corner with volumes increasing sequentially from the third quarter, while operational expenses and CapEx remained constrained. The resulting free cash flow at $54 million from the fourth quarter of 2021 continued the strong performance of the business. That generated a total of $260 million of free cash flow for the full year 2021. This free cash flow was largely returned to shareholders in the form of Rattler distribution and Common Unit Repurchase Program. Rattler also executed a series of strategic transactions during the quarter that repositions the company for growth, while maintaining its strong financial position. During the fourth quarter Rattler divested its operated gas gathering assets and acquired an interest in the WTG gas processing business, in addition to purchasing substantially all water Midstream assets owned by Diamondback after the QEP and guide-on transactions in early 2021. The net result is that Rattler has maximum exposure to Diamondback’s activity, which is expected to be focused in the Midland basin for years to come. The announcement of Rattler’s entry into the BANGL joint venture further increases Rattler’s exposure to Diamondback’s activity and diversifies the Rattler business into long haul NGL transportation. Looking forward to 2022, Rattler is continuing to grow the business on both the operated side and through its equity method joint ventures, which are collectively building the necessary oil, gas and water infrastructure through Diamondback’s and third party operators up-stream development. In particular, Rattler was focused on building out significant large scale produced water recycling and storage facilities in the Midland basin, in Greenfield areas Rattler acquired through the drop down transactions where Diamondback is expected to concentrate development activity. This build out of recycling and other infrastructure will require higher CapEx in the short term, but will have lasting benefit over the long term as the combination of growing earnings and declining CapEx increases the free cash flow of the business. Even in a scenario in which Diamondback keeps oil and production flat. It is with this confidence and the long term visibility of the operated business and the equity method investment joint ventures, all of which are now fully operational, but Rattler is increasing the common unit distribution by 20% to $1.20 per unit annually. With these comments now complete, operator please open the line for questions.

[Operator:]

Thank you. Our first question comes from the line of Michael Lapides of GS. Your line is open.

[Michael Lapides:]

Thanks for taking my question. Actually I have a few of them. First of all, you’re up and very active on the transaction front at Rattler. Just curious how you're thinking about the market now, meaning kind of for small tuck-in’s do you think it's more of a buyer’s market going forward, a seller market going forward. Do you think this kind of robust level of transactions will kind of continues that pace? Just kind of curious, kind of your broader overall view.

[Travis Stice:]

Yes, thanks Michael. You know I think it's going to slow down a little bit. You know the two new deals that we announced with the BANGL pipeline investment, as well as the WTG gas investment, kind of you know came as a result of the QEP and guide on transactions with Diamondback. You know so we had a lot more exposure to WTG and then put our balance sheet to work to invest in the downstream pipeline associated with that take away. So I think you know a flurry of activity in the second half of the year. I think it's going to slow down. You know there’s certainly some smaller business development opportunities on the water side to build out our systems, but from a large scale perspective I think we're done for now.

[Michael Lapides:]

Got it. Then the other question, lots of discussion obviously about gas takeaway and this in Permian and there are several options, whether it's the you know expansion in Whistler or the projects that energy transfer talked about recently. Just curious, are you concerned that if we don't get a solution in the next two to three years, it could cause a back-up and therefore impact kind of production and therefore volumes for Rattler? And would Rattler have an interest in owning a stake in one of these projects?

[Travis Stice:]

Yeah, a couple of questions there. Certainly would be interested in owning a stake in a pipe if Diamondback was a large producer on it. You know I think we discussed at length on the Diamondback call that you know we need taking timed rights at the parent company to be able to contribute to these pipes, and if we don't have that, you know we're going to keep pressing our Midstream partners to put their balance sheets to work to commit the pipes. You know using Whistler as an example, WTG relinquished their take in time rights at Diamondback and then Diamondback used our balance sheet to make the commitment on the pipe. So I think that's a playbook to follow. You know secondly, I certainly think the basin needs a new pipe or two and we've seen some announcements recently. I think you know there's more to come. It’s kind of been a daily topic here for the last month. So I think whoever can get the FID first is going to being in good shape, but certainly with the growth of the gas volumes out of the Permian, it needs to get fixed as soon as possible.

[Michael Lapides:]

Got it. Thank you, guys. Much appreciated.

[Travis Stice:]

Thank you, Michael.

[Operator:]

Thank you. As there are no questions in queue, we can turn the call back over to Travis Stice, CEO for closing remarks. Sir?

[Travis Stice:]

Thanks again to everyone participating in today's call. If you got any questions, please reach out using the contact information provided.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.