NGL Energy Partners LP (NGL) Q3 2019 Earnings Conference Call Transcript
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NGL Energy Partners LP (NYSE: NGL)
Q3 2019 Earnings Conference Call
Feb. 11, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Q3 2019 NGL Energy Partners LP Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions to further participate will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Mr. Trey Karlovich, Chief Financial Officer. Sir, you may begin.
Robert W. Karlovich -- Chief Financial Officer
Thank you, and welcome, everybody. As a reminder this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, plan, goal, forecast, intend, could, believe, may and similar expressions and statements are intended to identify forward-looking statements. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements. These factors include, prices and market demand for natural gas, natural gas liquids, refined products and crude oil, level of production of crude oil, natural gas liquids and natural gas, the effective market conditions on demand for oil, natural gas and natural gas liquids, and ability to successfully identify and consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results and to successfully integrate and operate assets and businesses that are built or acquired. Other factors that could impact these forward-looking statements are described in the risk factors in the partnership's annual report on Form 10-K, quarterly reports on Form 10-Q and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the partnership's earnings releases, investor presentations and annual and quarterly reports on Form 10-K and Form 10-Q on our website at www.nglenergypartners.com under the Investor Relations tab for more information on our use of non-GAAP measures, as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures.
I will turn the call over to our CEO, Mr. Mike Krimbill for his opening remarks.
H. Michael Krimbill -- Chief Executive Officer
Thanks, Trey. Good morning, and thanks, everyone, for calling in. Another record quarter compared to the prior year. We expect the fourth quarter to continue this trend. Trey will review the results for each business unit, as well as the financial highlights in a minute. I would like to address our strategic initiatives, beginning with the water business. First, asset sales, we closed on the sale of our Bakken SWDs, we were a small player there with only three facilities and five wells. So it made sense to exit and focus on the Permian, which has a much higher water to crude oil ratio. We then signed an agreement to sell our Pecos area water assets, which we expect to close prior to our fiscal year end. NGL was focused on central Reeves County and North to the Texas, New Mexico state-line, and then up into Eddy and Lea Counties, much like the -- retail propane sales we are selling certain non-core assets at attractive multiples and reinvesting the proceeds and higher rate of return opportunities while delevering.
Second, why the Delaware? Five main reasons why we're focused there. The basin has the lowest commodity price risk as it has the highest rates of return for producers, thus the last basin to see rigs laid down. Second, it has one of the highest water to crude oil ratios. We expect over the next five years the produced water volumes to exceed 10 million barrels a day. Third, it has the lowest ratio of flowback to produced water, two mile lateral requires a similar volume of fresh water to frac in all basins, that fresh water returns to the surface as flowback water, but in a three to one water to crude ratio basin is a much lower percentage of the disposed water, that's what some rigs are laid down, it has a smaller impact on disposal volumes.
Fourth, there are decades of drilling locations, and fifth, there is relatively little infrastructure currently in place, which lends itself to pipeline midstream type opportunities. So, onto our infrastructure progress, the Western Express Pipeline from Orla to Mentone is now in service. The second phase of Western Express from Orla North to the state-line will be in service by August this year on the third phase from state-line to Loving, New Mexico is waiting on state and federal approvals, and we expect it to be in service later this year as well.
The Lea County Express east to Andrews County has received all approvals and we have secured right of way, it will be in service by July of this year. We have already begun drilling the disposal wells in Andrews County at the endpoint of the pipeline. Our two ranches are performing to budget, and we are permitting a landfill on each ranch. In addition, we have two water recycling projects proceeding on the ranches, using the knowledge from our recycle and discharge facility in Pinedale, Wyoming, we believe we can provide large volumes of recycled water at a low-cost much lower than the current cost of fresh water.
On to NGL liquids, as you know this business includes wholesale Propane and supplying butane for gasoline blending. We needed to either exit the business or grow to a size that is a significant. One of our largest competitors in the Northeast decided to sell their assets, and we were fortunate to purchase this well run business, part of this package is a butane export terminal, which we believe has substantial upside and is -- our first liquids export terminal. The assets are complementary to our footprint and fill in an area in which NGL has limited assets.
Crude Oil Logistics continues to outperform, filling up Grand Mesa, looking at new opportunities. And then finally, refined products, the profitability has been pushed into our fourth quarter and we expect it will be within our guidance range. We continue to evaluate this business with its working capital requirements.
I'd like to talk some about distributions, common unit buybacks and growth opportunities. First, we have been very clear that distribution increases will not happen with a double-digit yield, even though our common unit coverage ratio is climbing rapidly and will soon be at 1.3 times or better. Our second growth opportunities providing a higher return than common unit buybacks will be the priority. And third with leverage at 2.5 times or less and growth opportunities funded, it makes more economic sense to repurchase equity then delever further.
The MLP space has not been a large purchaser of its equity, but when many of us are trading at a 10% to 20% of the 52-week low, and can capture a 15% yield, it is like purchasing an asset at 6 to 6.5 multiple with no operating risk or maintenance capital requirements, but here we will be opportunistic. Finally, we are again confirming our $450 million EBITDA guidance for this fiscal year.
With that, back to Trey.
Robert W. Karlovich -- Chief Financial Officer
Great. Thanks, Mike. Quite a few items covering our financial results for the quarter and our accomplishments so far this year. However, I believe, the most significant development is our improvement in leverage. When I joined NGL three years ago, we set our compliance leverage target of 3.25 times for the company. We knew it take some time to achieve and we encounter some unexpected obstacles along the way. But we have achieved that goal, actually beat it by more than a quarter turn with compliance leverage for this quarter at 2.96 times. We accomplished this while also growing our business and focusing our strategy. Our leverage has been reduced by over two turns in the past year alone, but we have also increased our adjusted EBITDA by 22%, compared to prior year-to-date results.
We are proud of this accomplishment, which has the partnership on very solid ground from an operational balance sheet and liquidity standpoint. And we intend to stay at this leverage level, while continuing to grow our businesses. We sold assets over the past year at significantly better multiples and we receive credit for in the market. We strategically redeploy these proceeds into new growth opportunities and debt reduction.
We redeemed our 2021 notes in October and expect to redeem our 2019 notes in March, with the proceeds from the South Pecos sale. Our balance sheet is expected to continue to improve for our fiscal year-end at March 31st, with compliance leverage expected to remain under 3 times. All of these efforts have put us in the financial position to be able to repurchase units, should the market continue to discount our unit price. As Mike mentioned, we will continue, however, to put our balance sheet and credit first in any buyback decision. I do appreciate the support of our lender group and recognizing our accomplishments and supporting this amendment to our facility.
Now, onto our results for the quarter. Adjusted EBITDA for the third quarter totaled $132.6 million, a great result considering the significant dip in commodity prices in November and December. With our quarterly results, we remain on track with our year-to-date guidance through December 31, with a total of $308 million of adjusted EBITDA year-to-date, and as a reminder, our adjusted EBITDA guidance remains $450 million for the fiscal year.
Looking at each segment. The crude segment generated approximately $51 million of adjusted EBITDA this quarter with Grand Mesa contributing approximately $50 million on a net basis for this quarter. The remainder of the Crude Logistics segment operated at a breakeven level as the benefit from the Permian to Cushing differential narrowed this quarter.
As a reminder this diff was a positive to our crude business last quarter, but there was an offsetting loss in our Water Solutions business. We saw the same thing this quarter, but in the other direction with water getting a benefit of the lower differential. Grand Mesa volumes averaged 129,000 barrels per day this quarter, which is well above our budget and we expect the volumes on the system to continue around this level through the fourth quarter.
We did recognize a small lower of cost or market adjustment in our crude marketing division during the quarter, which was offset with an unrealized hedge gain on that inventory. These items are non-cash and do not impact EBITDA. Year-to-date, the crude business has performed very well with approximately $130 million in adjusted EBITDA. Our EBITDA guidance range for the Crude Logistics business of a $165 million to $175 million remains. However, we currently expect crude to finish at the upper end of this guidance range.
Water Solutions showed a significant increase in adjusted EBITDA this quarter, as the basin differentials improved and we were able to adjust our skim oil hedge position to align with actual production. Water adjusted EBITDA was $48 million for the quarter, which included a realized gain on skim oil hedges of approximately $6 million. Our year-to-date adjusted EBITDA is $126 million. Water volumes averaged approximately 1 million barrels per day this quarter, which includes the Bakken for only a partial -- for only a partial quarter prior to our sale.
Our Anticline facility was down for a large portion of the quarter as well, which reduced volumes by about 15,000 to 20,000 barrels per day. Additionally, our Permian volumes were relatively flat this quarter compared to the prior quarter as we saw some slowdown toward the end of the year on completion activity due to weather and the completion of some well workovers at some of our facilities. With the Bakken sale this past quarter and the South Pecos sale this upcoming quarter, the water segment results were most likely be lower in the fourth quarter. However, we are expecting volume growth to continue across our system, notably in our core Delaware Basin position, which should make up for these sales over the next couple of quarters.
At this point in time, we are expecting water volumes to average between 1 million and 1.1 million barrels per day during the fourth quarter, pro forma for the asset sales. Skim oil production was approximately 3,600 barrels per day during the quarter with an average crude cut of 0.36%, a nice increase over last quarter. Most of that increase was realized later in the quarter as we executed oil recovery operation upgrades at some of our processes. We are expecting the fourth quarter to continue with some improvement in the skim oil percentage. We were able to take advantage of the lower crude prices during the quarter and have adjusted our volumetric hedge position for calendar 2019. We have now hedged approximately 1,500 barrels per day from January through December at a weighted average price of approximately $62.50 per barrel. So, we remain a nice asset position on our skim oil hedge book. We will look to add additional positions to extend our position into 2020 and 2021. Our fiscal 2019 adjusted EBITDA range for the Water Solutions segment remains $180 million to $120 million(ph), however, with the asset sales and current run rate, we are targeting the low end of this range.
The Liquids business reported another strong quarter -- of strong volumes and margins benefiting from demand and supply for products in the Northeast and Midwest markets, our business development efforts and our new lower cost structure on leased railcars and reduced storage costs. Adjusted EBITDA for our Liquids segment totaled $27 million this quarter and over $58 million year-to-date. December was relatively warm, which somewhat impacted our wholesale propane volumes negatively. However, we are performing well so far this quarter and expect a solid fourth quarter from this business. Mike mentioned our terminal acquisition, which is not expected to close until late this quarter and would have minimal impact on this year's results. Our EBITDA range for Liquids has been between $60 million to $75 million, which we currently expect to end the year at the higher end of this range.
The Refined Products segment had a profitable quarter, which we expect to grow in the fourth quarter as we realize our profit on our hedge inventory. Adjusted EBITDA and refined totaled $10.5 million for the quarter and is $12.4 million year-to-date. Gasoline and diesel prices fell significantly in the Gulf, which impacts our inventory valuation. This decline was offset with our realized and unrealized hedge gain during the quarter. Our inventory valuation adjustment and unrealized hedge gains or non-cash adjustments to our EBITDA for the quarter, however, we do expect to roll gains into our results as the hedges settle in the future.
High demand for diesel in West Texas, driven primarily by oil and gas activity has continued to drive strong volumes and margins for our Rack business in the Refined segment. Our FY 2019 guidance range for Refined Products remains $55 million to $80 million, and we currently expect to be at the lower end of this range as well.
Our corporate costs were down significantly this quarter to $4 million. This decrease was expected as we wrapped up the EPA litigation in the prior quarter and have seen some reduced costs from the asset sales we have completed. Our year-to-date corporate and other expense is approximately $18 million, which includes our G&A, as well as the first quarter Retail Propane results. We now expect Corporate and Other to be around $25 million of net expense for the full year.
Maintenance CapEx was $10 million this quarter, a reduction from last quarter and in line with our new expectations. We are now expecting $45 million in total maintenance CapEx for this fiscal year, which included Retail Propane in the first quarter. We declared a $0.39 per unit, $1.56 annualized distribution for the quarter, and our TTM distribution coverage is now over 1 times. We expect to continue to grow next quarter as well based on our current guidance. And we continue to target 1.3 times coverage or better on a trailing 12-month basis. However, we are also looking at higher coverage levels if needed to fund growth capital expenditures, unit repurchases and other needs.
To wrap up, we are very pleased with where we are performing at this point in time of the year. We have been very clear on our guidance, remain in line with our expectations. We have achieved our leverage target a quarter earlier than originally anticipated. Our credit metrics have improved dramatically, and we are well-positioned for the rest of this year and heading into fiscal 2020 in each of our business segments. We will provide our guidance for next year on our fourth quarter call in May.
Thank you for your continued interest in the partnership. We would now like to open the line for questions. Jimmy?
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question comes from Shneur Gershuni with UBS. Your line is now open.
Shneur Gershuni -- UBS -- Analyst
I'm sorry, I was on mute. Good morning, guys.
H. Michael Krimbill -- Chief Executive Officer
Good morning.
Shneur Gershuni -- UBS -- Analyst
Just first question for you guys. Just to confirm the comments you made around guidance today, the water segment, you're expecting to be at the higher end of your original guidance that you originally put out, I was just wondering if you can clarify that?
H. Michael Krimbill -- Chief Executive Officer
No. Water segment is lower end, so we are expecting to be at the higher end of crude and liquids, lower end on refined and water.
Shneur Gershuni -- UBS -- Analyst
Okay. Perfect. Just a second question more in a 10,000 foot level, I was wondering if you can sort of share your thoughts on Refined Products segment longer-term. Any thoughts on strategic review, it seems that if it were to be sold, it'd actually benefit the proceeds and high-grading your portfolio. And at the same time, you'd be freeing up capital or alternatively do you look to buying capacity from competitors who are struggling and to help tighten the market. Just kind of wondering where your thoughts are on this business longer-term?
H. Michael Krimbill -- Chief Executive Officer
Sure, Shneur. The way we're looking at it is this business we bought in '14, and we had two years, I believe the EBITDA was around $130 million. And now we've had two years -- that $50 million to $60 million. So, what we're doing right now is evaluating -- I'll call it the sector to see -- have there been fundamental changes -- the line space is going to be negative forever, which doesn't help margins at the rack or is this kind of a part of a cycle. So we're in the middle of that analysis. So, I don't have an answer for you, but I think we all can see that the working capital borrowings are very significant compared to the EBITDA, we're currently getting. So, there will be more to come, I think, in our future quarters on that subject.
Shneur Gershuni -- UBS -- Analyst
Okay. Fair enough. And maybe one final question. You've got approval from the -- your revolver commitments to be able to repurchase units, which you talked about in your prepared remarks. Any thoughts about how regular it's going to be -- are we talking about something like $50 million a quarter or is it going to be just kind of a time-to-time. Just trying to gauge the commitment to deploying the capital that you've got available to repurchase units?
Robert W. Karlovich -- Chief Financial Officer
Sure, Shneur. So, we do have a limit of up to $50 million per quarter. And the approval was for $150 million repurchase program, acquiring 50 million per unit based on our float and average daily volume would be a challenge to get to that much without a block trade or something of that nature. I think at this point, we are -- we do not have Board approval for -- to execute today. But it's something that we are watching very closely. As Mike mentioned, our focus was going to be on growth capital, as well as our balance sheet and making sure that we are funding our capital needs, keeping the balance sheet where it needs to be. But at this leverage level, it does not make sense to further reduce indebtedness. So any excess proceeds would be devoted toward that unit repurchase program. I think it's the -- as we look at what that price would be, I think that's to be determined. But at this point in time, we're still trading at a mid-double digit 14% yield. Mike mentioned a 6.5 times acquisition as a comparison, that's how we're thinking about it. I think once we did put it -- if we were to put an -- the actual program in place, it would be pretty ratable, but also have some opportunistic components to it.
Shneur Gershuni -- UBS -- Analyst
All right. Perfect. Appreciate the color.
Robert W. Karlovich -- Chief Financial Officer
Yes, Shneur, let me add to that. I think when you look at what I'll say the empirical data, which is a lot of C corp's and major corporations that have had buyback -- stock buybacks, oftentimes there are 10% to 20% of the all-time highs, not the lows. So, we always look at others and say are we missing something, or have they been effective. I think the MLP space having at this point some pretty high yields. It's a different scenario, and we can see these buybacks being extremely accretive, and in effect, increasing our coverage ratio by a full tenth of a point without having to buy anything and take any operating risks. So, we don't know what the exact prices, but 15% yield's pretty juicy, so if investors want to give us their stock at $10, we're -- we're here to take it.
Shneur Gershuni -- UBS -- Analyst
All right. That makes perfect sense. Thank you very much for the color.
H. Michael Krimbill -- Chief Executive Officer
Thanks, Shneur.
Operator
Thank you. And our next question comes from Justin Jenkins with Raymond James. Your line is now open.
Justin Jenkins -- Raymond James -- Analyst
Great. Thanks. Good morning, everyone. I guess maybe just to follow-up on the last couple of points there on the buyback program. Mike, did you mention that 2.5 times leverage was kind of the target there in terms of getting toward the buyback program getting utilized or is that maybe a goal?
H. Michael Krimbill -- Chief Executive Officer
You know, 3.25 has been our goal to get below. We've actually gotten there faster I think, and further below than we anticipated. So, I don't know that we've (inaudible) too. I don't know that we have a minimum, it just seems like at this -- at a 2.5 times, if you're reducing debt, which has a 4%, 5% or 6% coupon versus buying equity at 15%, that's pretty easy decision.
Robert W. Karlovich -- Chief Financial Officer
Right. I think, Justin, I -- Mike used 2.5 as an example of -- there's no reason to go below that. We really like where we are right at 3 times. I think that's very manageable. If it comes down to 2.5 times, that's great. If it goes back up to 3.25 times, that's OK as well, but we want to stay in kind of this target range.
Justin Jenkins -- Raymond James -- Analyst
Understood. Appreciate that clarification. I guess maybe transitioning the Wholesale Propane business, any more details you can share in terms of purchase amount or maybe EBITDA expectations for that acquired business going forward?
H. Michael Krimbill -- Chief Executive Officer
We can't at this point, just because we haven't -- the stories are not finished. We're working right now on some contracts around the butane export terminal. And I think once we have that, then we can give you some color on what the ultimate multiple is. I think we said it was in the -- I don't know we said high-single digits, but that's -- it's less than nine or eight, I think where we end up.
Justin Jenkins -- Raymond James -- Analyst
Perfect. Thanks. Go ahead, Trey.
Robert W. Karlovich -- Chief Financial Officer
We will most likely give those metrics by the time we close the transaction, which should be late February, early March time frame.
Justin Jenkins -- Raymond James -- Analyst
Got it. Thanks. Last one for me if I could. Appreciate all the color on the Water business, but maybe any updates you can share in terms of what the strategy is going forward or any updates on the water recycling plans going forward?
H. Michael Krimbill -- Chief Executive Officer
Yes. Water recycling, there's certainly a fresh water supply difference between Texas and New Mexico. So New Mexico seems to be short water, Texas long fresh water. So, we're focusing and in fact our two pilots are in Lea County up on the ranches. And New Mexico, we think we've figured out a way to do high volume, very inexpensive recycling -- there'll be more to follow on it's very exciting update or news for us. We're working with one producer already on a recycle program. So you hear a lot about recycle, some really -- to some it's blending fresh with produced. We're looking as a true recycling where we're taking solids out of the water, cleaning it up and sending it back for fracking. But more to follow on that, we think there's a big market here for us.
Justin Jenkins -- Raymond James -- Analyst
Perfect. I'll leave it there. Thanks, guys.
Operator
Thank you. And our next question comes from T.J. Schultz with RBC Capital Markets. Your line is now open.
T.J. Schultz -- RBC Capital Markets -- Analyst
Great. Thanks. Good morning. First, just Delaware water volumes, what percent of produced water volumes are under contract or just maybe more generally how has contracting progressed since the ranch acquisition?
Robert W. Karlovich -- Chief Financial Officer
Well. I don't have a percentage, but we are getting more committed volumes. We're not building these projects without committed volumes. So Lea County expressed to these tests commitments. We have others -- other projects we haven't talked about yet that have commitments. So, yes, we are -- and those commitments are now 10-plus years. They're not a three to five-year. I don't know that we were very interested in a five-year commitment. So it's -- it's increasing and the term is increasing as well.
H. Michael Krimbill -- Chief Executive Officer
And to give a little more color on that, T.J., about 60% of our volume is on pipe. You would assume most of that is contracted for some period of term. We are also getting some truck volumes from contracted parties as well. We don't have a percentage that we've published that what percent is contracted volume at this point in time, but I think that's a good -- the pipe volume is a good rule of thumb to use for this point.
T.J. Schultz -- RBC Capital Markets -- Analyst
Okay. Great. And then on Western Express, I think you said the third phase is dependent on some permits, can you just give some more detail on permits that you need and timeline that you expect to receive?
Robert W. Karlovich -- Chief Financial Officer
Yes. The New Mexico portion is the portion that we're waiting on some BLM approval for right away. So not -- I don't know -- I wouldn't call it permits, but just more right away, that just takes a longer period of time six to nine months.
H. Michael Krimbill -- Chief Executive Officer
And right now, I believe our target for that is September time frame of 2019.
T.J. Schultz -- RBC Capital Markets -- Analyst
Okay. Great. Just last, on crude marketing, clearly Permian spreads narrowing, I understand the offset from skim oil. Is that the way to think about this business and that it's just a breakeven business between crude marketing and skim on the water, or can you just provide any color for crude marketing relative to not just the Permian, but maybe other basins in your expectation for marketing into 4Q, and over the next year?
H. Michael Krimbill -- Chief Executive Officer
Sure. So crude marketing is remains generally a breakeven business. It benefits from basin differentials, which in our second quarter, the July through September period differentials were pretty strong. Those all narrowed Permian significantly, but other differentials narrowed as prices fell during the third quarter. So that did have some -- we were not getting the same benefit. From a breakeven perspective, it is supporting all of its overhead costs and everything associated with the Crude Logistics business, as well as we gave the Grand Mesa numbers on our gross and net basis. So Grand Mesa on a net basis, Crude Logistics was slightly positive. That business is still carrying burden. We'd have alleviated one MVC, it still has one remaining for approximately one-year, little -- a little bit more than one-year. Once that MVC rolls off in the Crude Logistics business on a stand-alone or crude marketing business on a stand-alone basis, would be highly profitable, but we believe it's well-positioned right now. Obviously, Grand Mesa is the crown jewel of the segment. But the rest of that business, we are committed to, we feel good about it. The things we're doing along the Gulf Coast, at Point Comfort and Houma, give us some opportunity, as well as what we're doing around Cushing and looking for some growth opportunities around those assets as well.
T.J. Schultz -- RBC Capital Markets -- Analyst
Okay. Great. Thanks, Trey.
Robert W. Karlovich -- Chief Financial Officer
Yes.
Operator
Thank you. And our next question comes from Dennis Coleman with Bank of America. Your line is now open.
Ujjwal Pradhan -- Bank of America -- Analyst
Good morning, guys. This is Ujjwal Pradhan stepping in for Dennis. Congrats on a great quarter. Just had a quick question on skim oil ratio in the water segment. You mentioned that 4Q ratio is likely higher sequentially. And at the Analyst Day, you had talked about this ratio going down to 0.30%, as you get more pipe water. Are we still in that framework. And also can you tell us what the operational changes in DJ Basin were that you mentioned in release?
H. Michael Krimbill -- Chief Executive Officer
Sure, Ujjwal. So the skim oil percentage, we do expect to increase from the 0.36% slightly in the fourth quarter. And a lot of that's based on what we see in January year-to-date. One of the things that we have -- addressed this previously, but skim oil does have some seasonal component to it when it's colder, you do get a slightly better skim oil percentage. So we are expecting that to increase for the fourth quarter. But our point remains the same going forward, a 0.3% -- 0.3% is how we're looking at it based on pipe volumes what we're seeing particularly in the Delaware and the growth that we're expecting in the Delaware. So, I think that's still a valid assumption. We will be doing -- continue to do some more work on that and we'll provide any update on our next call on what we have included in our forecast for fiscal 2020. And then, your second question Ujjwal?
Ujjwal Pradhan -- Bank of America -- Analyst
The operational changes in DJ Basin that was in the release?
H. Michael Krimbill -- Chief Executive Officer
Sure. So we have seen a decline in the skim oil in the DJ, most of that is also due to pipeline connections. We've added a significant amount of volume via pipe in the DJ. And so -- our thesis and we get lower skim oil out of a pipe -- out of pipe barrels, and we do out of truck barrels has proven, and that's another basin where we're seeing that as well. As we connect more and more of the basins via pipeline -- that's again, we're expecting that percentage to come down slightly, but we're also expecting a large increase in volume, as well as contracts and dedications coming on those pipelines.
Ujjwal Pradhan -- Bank of America -- Analyst
Thanks for that.
H. Michael Krimbill -- Chief Executive Officer
And we believe -- the volume should be an offset -- a very positive offset of loss in skim oil percentage.
Ujjwal Pradhan -- Bank of America -- Analyst
Got it. Thank you. Another quick one, the Liquids segment results were pretty strong this quarter, can you comment on durability of those results going forward?
Robert W. Karlovich -- Chief Financial Officer
Yes. I'll take it. So the quarter did come in very strong, obviously as I mentioned on the call, we are trending toward the higher end of our guidance for the year. We were able to benefit in the Northeast, some of the infrastructure -- did not come online as quickly as producers had anticipated, and so we were able to get a higher utilization rate of railcars, in fact we were using some subleased railcars, some leased railcars that we did not expect during the quarter, so we did see that benefit. I don't want to say that that's not repeatable, because that's the business that we're in is that we do provide a need. But some of that infrastructure is up today, so next year, that we may not see that same type of volume. However, we feel good about what we're doing in that business. We have -- we're growing our footprint, both on the rail side, and on the -- for the butane, as well as on the Propane side, and then the integration of the new assets should continue to benefit that business as well.
Ujjwal Pradhan -- Bank of America -- Analyst
Got it. Thank you. And a final one, could you please share your views on what your ideal asset portfolio is, and any motivations for future M&A, maybe outside of the Refined Products segment? Thank you.
Robert W. Karlovich -- Chief Financial Officer
You want to take that, Mike? So, we still believe in a diversified asset portfolio, obviously water is growing significantly, crude very stable business. You look at those two businesses combined and that's 75% to 80% of our portfolio. We have moved further away from marketing assets, our marketing business and growing assets in the refined products in the Liquids business, I think that would be the trend is continuing to add assets to support those businesses. The diversification we feel like is important. We feel like we get a benefit from that diversification when commodity prices swing, obviously we're not getting that the valuation we would like to see in the marketplace, and that's something that we are working on to figure out what the ideal structure is from a market perspective, but from a business portfolio, I think we're comfortable with what we have, but we're always looking to -- for opportunity, and I see us continuing to grow the water business, I think that's obviously a core strategy and where we're devoting most of our capital, but we have been spending capital in the other businesses as well. There are some potentially very nice opportunities in crude, we've just added a nice acquisition to the Liquids segment and we've done a few things in refined products as well.
Ujjwal Pradhan -- Bank of America -- Analyst
Thank you. That's all for me.
Operator
Thank you. And our next question comes from Michael Blum with Wells Fargo. Your line is now open.
Michael Blum -- Wells Fargo -- Analyst
Thanks. Good morning, guys. I'm wondering, Mike, if you could just elaborate on one of the things you said earlier in your prepared remarks about the NGL wholesale acquisition from DCP, just the strategic rationale and how it kind of fits in your system, if you could just elaborate a little bit on that?
H. Michael Krimbill -- Chief Executive Officer
Yes. Sure. I mean, we had -- Trey, you can correct me -- 2019 or '20 terminals, that were Propane and some also provided butane. We only had one terminal in the Northeast, which was in West Springfield, if you recall, we used to have a Portland terminal, but that one was -- had to move out for the city's instructions. So, we were actually marketing or are marketing off TET(ph)and some others terminals. These terminals on the Propane side fit in perfectly in that New Mexico -- there in the New England area. So, it really allowed us to fill in this void in our footprint. One of the DCP terminals was literally -- I want to say 10 miles away from our terminal West Springfield, so we'll have a bigger market share in the Northeast. The -- they have one terminal in Chesapeake, which is an export terminal and can export butane. We see over the next X number of years, butane supply is going to jump significantly and there's going to be a lot more butane available than actually supply than demand. So, we think that's -- that's the jewel maybe in the -- of all the terminals in terms of upside, but it's a well-run business, you don't expect to go in and double volumes or do anything like that. We just -- we're keeping people and -- really having an even better team going forward. So, we had to get out or we had to grow like this and much rather grow a good business.
Michael Blum -- Wells Fargo -- Analyst
Great. And then just a follow-up to that. In terms of up there in the Northeast. How do you see Mariner East 2 coming into full service, how do you see that changing dynamics up there, if at all for you?
H. Michael Krimbill -- Chief Executive Officer
In general, the more that goes on pipe and export, the less there is for rail. So, you would say that would be perhaps a negative. On the flip side, the production is growing dramatically. So, we still think we can keep our railcars (inaudible). Butane is a big opportunity up there. So net-net, I don't think it's bad, it could be good in the summer time pulling Propane out of the market, it's going to be dramatically oversupplied.
Michael Blum -- Wells Fargo -- Analyst
Okay. Great. And then just one more question on Grand Mesa. So you're obviously seeing really strong volumes, can you just talk about what you're seeing in terms of activity levels in the DJ around new producers, and then your outlook going forward there?
H. Michael Krimbill -- Chief Executive Officer
Yes. I mean, in the prior quarter I think we talked about the lack of sufficient gas gathering and processing or processing and fractionation, since then I think DCP have another nice plant coming in, and I think there's another one plant trade wins. Later this year, maybe -- so that will allow physically the -- our producers to increase their production and drilling activity. So that was a bit of a hurdle. I think we're seeing with the White Cliffs line getting converted, that there is now -- the producers are maybe a little uneasy about having enough takeaway capacity. So that's good in terms of -- I'll say, what we can charge as a shipper. So, we see volumes continuing to increase, we don't have a lot of space left, I think we're 129 average, so that means we only have 21 left, but we do see rates increasing somewhat, I don't -- we don't see them going back to the tariffs. And we're also seeing some interest in taking some more of our space under longer-term contracts. So anything else?
Robert W. Karlovich -- Chief Financial Officer
No. I think that's it.
H. Michael Krimbill -- Chief Executive Officer
That's all good news.
Robert W. Karlovich -- Chief Financial Officer
Producer activity has maintained, we saw an uplift in volumes with processing capacity coming online. We are expecting another uplift with the next plants coming online. The basin differential has stayed about the same, although, as Mike mentioned producers are starting to get concerned about takeaway. So, we like our position, we've always felt like Grand Mesa would be one of the first pipelines to fill up and we're seeing that. And we like what the activity is. So, it's been absolute positive, and it's continuing into this quarter as well.
Michael Blum -- Wells Fargo -- Analyst
Great. Thank you.
Operator
Thank you. Our next question comes from Sunil Sibal with Seaport Global Securities. Your line is now open.
Sunil Sibal -- Seaport Global Securities -- Analyst
Yes. Hi. Good morning, guys, and congrats on a good quarter. Most of my questions have been hit, but I was just trying to get a little bit clarity on how should we be thinking about maintenance capital on your water business, especially when we think about saltwater wells, et cetera, what's the kind of life on those, and what kind of maintenance needs there?
H. Michael Krimbill -- Chief Executive Officer
Sure. So right now, Sunil, we're running about $10 million a quarter of maintenance capital with almost all of that is in the water business. As those volumes continue to increase that maintenance capital will probably increased slightly, but right now the $10 million per quarter, $40 million annual run rate seems to be where we are, we've seen that over the past couple of quarters. We did have some one-offs during this fiscal year, but we are expecting to have a continued growth in that business. So, that's the run rate we're expecting. As far as life of the well, most of our fleet, so to speak, is still relatively young. But we do believe that these wells have 20-year to 30-year lives. Now, the volume capacity in those wells could decline somewhat over the life, but we have yet to see that. Obviously, there are saltwater disposal wells that have been in existence for decades, well beyond a 20-year to 30-year life. However, at the capacity that we're utilizing, we think that's the right time frame. It does require some regular maintenance, it does require a certain amount of chemicals, which to treat the wells, as well as the formation, which we follow a nice program on that, most of the maintenance is on the pumps, that's where we've seen most of our costs, but we have those now on our regular maintenance program as well.
Sunil Sibal -- Seaport Global Securities -- Analyst
Okay. Got it. Thanks. That's all I had.
H. Michael Krimbill -- Chief Executive Officer
No problem.
Operator
Thank you. And our next question comes from Lin Shen with HITE. Your line is now open.
Lin Shen -- HITE -- Analyst
Good morning. Thanks for taking the call. A very quick clarification question. For Grand Mesa, you report a financial volume averaged 129,000 barrels per day, is there any difference between financial volume and the physical volume you're moving now?
H. Michael Krimbill -- Chief Executive Officer
Sure. For this quarter, the physical volume was about 127,000 barrels to 128,000 barrels per day, very, very close to what our financial volumes were. The producers were very much in line or exceeding what their minimum volume commitments are on the pipeline.
Lin Shen -- HITE -- Analyst
Okay. Great. And also the capacity at 150,000, so you have like 21 left?
H. Michael Krimbill -- Chief Executive Officer
That is correct. We can only contract up to 135,000 barrels per day, the remaining 15,000 barrels per day would have -- would be required to take on a spot basis, but we could still fill up the pipeline.
Lin Shen -- HITE -- Analyst
Great. Thank you very much.
H. Michael Krimbill -- Chief Executive Officer
No problem.
Operator
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Mike Krimbill, Chief Executive Officer for any closing remarks.
H. Michael Krimbill -- Chief Executive Officer
Thank you guys very much. We continue to improve and hopefully we'll have a really good fourth quarter. So talk to you soon. Thanks.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program. And you may all disconnect. Everyone, have a good day.
Duration: 47 minutes
Call participants:
Robert W. Karlovich -- Chief Financial Officer
H. Michael Krimbill -- Chief Executive Officer
Shneur Gershuni -- UBS -- Analyst
Justin Jenkins -- Raymond James -- Analyst
T.J. Schultz -- RBC Capital Markets -- Analyst
Ujjwal Pradhan -- Bank of America -- Analyst
Michael Blum -- Wells Fargo -- Analyst
Sunil Sibal -- Seaport Global Securities -- Analyst
Lin Shen -- HITE -- Analyst
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