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Rattler Midstream LP, a Subsidiary of Diamondback Energy, Inc., Reports Third Quarter 2020 Financial and Operating Results

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Rattler Midstream Partners LP
·20 min read
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MIDLAND, Texas, Nov. 04, 2020 (GLOBE NEWSWIRE) -- Rattler Midstream LP (NASDAQ: RTLR) (“Rattler” or the “Company”), a subsidiary of Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback”), today announced financial and operating results for the third quarter ended September 30, 2020.

THIRD QUARTER 2020 HIGHLIGHTS

  • Q3 2020 consolidated net income (including non-controlling interest) of $38.8 million, consolidated adjusted net income (as defined and reconciled below) of $39.4 million

  • Consolidated Adjusted EBITDA (as defined and reconciled below) of $71.3 million

  • Board of Directors of Rattler's general partner approved a cash distribution for the third quarter of 2020 of $0.20 per common unit ($0.80 annualized); implies a 13% annualized yield based on the November 3, 2020 unit closing price of $6.23

  • Board of Directors of Rattler's general partner also approved an up to $100 million common unit repurchase program in conjunction with the reduction in the quarterly distribution from $0.29 to $0.20; repurchase program will be executed with a combination of cash on hand and cash flow from operations, including anticipated cash available as a result of the reduction in the quarterly distribution

  • Q3 2020 cash operated capital expenditures of $33.4 million

  • Q3 2020 average produced water gathering and disposal volumes of 763 MBbl/d, down 10% from Q3 2019 and down 1% from Q2 2020

  • Q3 2020 average sourced water volumes of 204 MBbl/d, down 47% from Q3 2019 and up 161% over Q2 2020; 34% of total sourced water volumes in Q3 2020 sourced from recycled produced water

  • Q3 2020 average crude oil gathering volumes of 91 MBbl/d, up 2% over Q3 2019 and flat from Q2 2020

  • Q3 2020 average gas gathering volumes of 120 BBtu/d, up 31% over Q3 2019 and up 12% over Q2 2020

“Rattler operations in the third quarter of 2020 stabilized after the interruption caused by the historic commodity price volatility in the second quarter of 2020. With Diamondback returning completion activity to stem production declines, and Rattler having adjusted its own operations to this new level of completion and production activity, the third quarter of 2020 offers a new baseline view of Rattler's volumes and earnings potential after the downturn experienced in the first half of the year,” stated Travis Stice, Chief Executive Officer of Rattler’s general partner.

Mr. Stice continued, “Looking to the fourth quarter of 2020 and into 2021, Rattler will continue to reduce operated capex towards its goal of approximately half of 2020 levels, representing less than a third of 2019 operated capex. Combined with our equity method joint venture build cycle nearing its end and inflecting from a net outflow of capital contributions to a net inflow of cash distributions, this stabilized volume outlook presents meaningful free cash generation even in this depressed commodity price environment. We believe the combination of low leverage, current free cash flow generation and long term asset value supported by approximately 14 years of remaining contract life with a premier low cost domestic operator should be attractive not only within the energy industry, but against the broader investment universe. Regardless, we will continue to focus on what we can control, which is continuing to reduce operating and capital costs while providing our services at the highest level of efficiency and maintaining the highest standards of safety and environmental responsibility."

Mr. Stice further stated, "Rattler’s Board has authorized a $100 million common unit repurchase program to be executed through year-end 2021. This program will be funded with cash on hand and cash flow from operations, including with cash anticipated to be available from the announced reduction in the amount of our quarterly distribution. This change in capital allocation is not a change in Rattler’s strategy and is not a buy-in of Rattler by Diamondback, but is simply meant to capitalize on the opportunity presented by the disconnect between the fundamentals of Rattler’s forward outlook versus the market today. We believe that repurchasing units at these prices presents a return better than or comparable to the best capital projects in our plan, and we intend to repurchase units on a leverage neutral basis. We believe we can repurchase a significant percentage of our public float while continuing to pay a distribution with a double-digit yield at today’s prices, all while maintaining a best-in-class balance sheet for a midstream operator."

OPERATIONS AND FINANCIAL UPDATE

During the third quarter of 2020, the Company recorded total operating income of $44.1 million, an increase of 55% compared to the second quarter of 2020 and a decrease of 16% from the third quarter of 2019. During the third quarter of 2020, the Company recorded consolidated net income (including non-controlling interest) of $38.8 million, inclusive of a $0.7 million abandonment charge, an increase of 211% from the second quarter of 2020 and a decrease of 19% from the third quarter of 2019. Third quarter 2020 adjusted net income (as defined and reconciled below) was $39.4 million, up 41% from the second quarter of 2020 and down 18% from the third quarter of 2019. Third quarter 2020 Adjusted EBITDA (as defined and reconciled below) was $71.3 million, up 32% from the second quarter of 2020 and up 6% from the third quarter of 2019.

Average produced water gathering and disposal volumes for Q3 2020 were 763 MBbl/d, down 10% from Q3 2019 and down 1% from Q2 2020. Average sourced water volumes were 204 MBbl/d, down 47% from Q3 2019 and up 161% over Q2 2020. Average crude oil gathering volumes were 91 MBbl/d, up 2% over Q3 2019 and flat from Q2 2020. Average gas gathering volumes were 120 BBtu/d, up 31% over Q3 2019 and up 12% over Q2 2020.

Third quarter operated capital expenditures totaled $33.4 million, and aggregate contributions to equity method joint ventures were $23.7 million. Rattler also received proceeds of $9.6 million in distributions from equity method investments.

On July 14, 2020, the Company completed an offering (the “Notes Offering”) of $500.0 million in aggregate principal amount of its 5.625% Senior Notes due 2025. The Company received net proceeds of approximately $489.5 million from the Notes Offering, which were used to pay down borrowings under its revolving credit facility. As of September 30, 2020, the Company had $16.6 million of cash and $515.0 million available under its $600.0 million revolving credit facility.

CASH DISTRIBUTION

On October 29, 2020, the Board of Directors of Rattler's general partner approved a cash distribution for the third quarter of 2020 of $0.20 per common unit, payable on November 23, 2020 to unitholders of record at the close of business on November 16, 2020.

GUIDANCE UPDATE

Below is Rattler's revised guidance for the full year 2020, with distribution guidance updated to reflect the latest base case operating plan.

Rattler Midstream LP Guidance

2020

Rattler Operated Volumes (a)

Produced Water Gathering and Disposal Volumes (MBbl/d)

800 - 900

Sourced Water Volumes (MBbl/d)

150 - 250

Crude Oil Gathering Volumes (MBbl/d)

85 - 95

Gas Gathering Volumes (BBtu/d)

95 - 115

Financial Metrics ($ millions except per unit metrics)

Net Income

$120 - $150

Adjusted EBITDA

$260 - $300

Equity Method Investment EBITDA(b)

$30 - $50

Operated Midstream Capex

$125 - $150

2020 Equity Method Investment Contributions(b)

$85 - $105

Depreciation, Amortization & Accretion

$45 - $60

Distribution per Unit(c)

$1.07


(a)

Does not include any volumes from the EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures

(b)

Includes the EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures

(c)

Represents distribution paid during calendar year


CONFERENCE CALL

Rattler will host a conference call and webcast for investors and analysts to discuss its results for the third quarter and full year of 2020 on Thursday, November 5, 2020 at 9:00 a.m. CT. Participants should call (877) 288-2756 (United States/Canada) or (470) 495-9481 (International) and use the confirmation code 4374698. A telephonic replay will be available from 12:00 p.m. CT on Thursday, November 5, 2020 through Thursday, November 12, 2020 at 12:00 p.m. CT. To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 4374698. A live broadcast of the earnings conference call will also be available via the internet at www.rattlermidstream.com under the “Investors” section of the site. A replay will also be available on the website following the call.

About Rattler Midstream LP

Rattler Midstream LP is a growth-oriented Delaware limited partnership formed in July 2018 by Diamondback Energy, Inc. to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Rattler provides crude oil, natural gas and water-related midstream services to Diamondback under long-term, fixed-fee contracts. For more information, please visit www.rattlermidstream.com.

About Diamondback Energy, Inc.

Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than historical facts, that address activities that Rattler assumes, plans, expects, believes, intends or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events, including specifically the statements regarding expectations of plans, strategies, objectives and anticipated financial and operating results of Rattler, including Rattler's capital expenditure levels and other guidance discussed above. These forward-looking statements involve certain risks and uncertainties that could cause the results to differ materially from those expected by the management of Rattler. Information concerning these risks and other factors can be found in Rattler’s filings with the Securities and Exchange Commission (“SEC”), Forms 10-Q and 8-K and Annual Report on Form 10-K for the year ended December 31, 2019 which can be obtained free of charge on the SEC’s web site at http://www.sec.gov. Rattler undertakes no obligation to update or revise any forward-looking statement.


Rattler Midstream LP

Condensed Consolidated Balance Sheets

(unaudited, in thousands)

September 30,

December 31,

2020

2019

Assets

Current assets:

Cash

$

16,576

$

10,633

Accounts receivable—related party

39,560

50,270

Accounts receivable—third party, net

8,138

9,071

Sourced water inventory

9,678

14,325

Other current assets

171

1,428

Total current assets

74,123

85,727

Property, plant and equipment:

Land

85,826

86,072

Property, plant and equipment

1,026,212

930,768

Accumulated depreciation, amortization and accretion

(90,456

)

(61,132

)

Property, plant and equipment, net

1,021,582

955,708

Right of use assets

738

418

Equity method investments

532,008

479,558

Real estate assets, net

97,815

101,116

Intangible lease assets, net

5,745

8,070

Deferred tax asset

75,255

Other assets

4,977

5,796

Total assets

$

1,812,243

$

1,636,393



Rattler Midstream LP

Condensed Consolidated Balance Sheets - Continued

(unaudited, in thousands, except unit amounts)

September 30,

December 31,

2020

2019

Liabilities and Unitholders’ Equity

Current liabilities:

Accounts payable

$

263

$

147

Accrued liabilities

37,265

76,625

Taxes payable

406

189

Short-term lease liability

679

418

Total current liabilities

38,613

77,379

Long-term debt

575,454

424,000

Asset retirement obligations

14,567

11,347

Long-term lease liability

59

Deferred income taxes

7,827

Total liabilities

628,693

520,553

Commitment and contingencies

Unitholders’ equity:

General partner—Diamondback

919

979

Common units—public (43,996,243 units issued and outstanding as of September 30, 2020 and 43,700,000 units issued and outstanding as of December 31, 2019)

399,080

737,777

Class B units—Diamondback (107,815,152 units issued and outstanding as of September 30, 2020 and as of December 31, 2019)

919

979

Accumulated other comprehensive income (loss)

(223

)

(198

)

Total Rattler Midstream LP unitholders’ equity

400,695

739,537

Non-controlling interest

783,550

376,928

Non-controlling interest in accumulated other comprehensive loss

(695

)

(625

)

Total equity

1,183,550

1,115,840

Total liabilities and unitholders’ equity

$

1,812,243

$

1,636,393



Rattler Midstream LP

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per unit data)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenues:

Revenues—related party

$

85,846

$

104,866

$

280,460

$

296,508

Revenues—third party

7,229

6,840

23,504

15,405

Rental income—related party

2,282

1,399

5,101

3,370

Rental income—third party

867

1,894

4,653

5,999

Other real estate income—related party

149

111

318

265

Other real estate income—third party

166

305

633

818

Total revenues

96,539

115,415

314,669

322,365

Costs and expenses:

Direct operating expenses

31,173

29,789

101,425

76,381

Cost of goods sold (exclusive of depreciation and amortization)

6,663

17,350

27,368

46,252

Real estate operating expenses

494

742

1,812

1,963

Depreciation, amortization and accretion

10,990

11,736

35,596

31,798

General and administrative expenses

3,140

3,240

11,829

7,677

(Gain) loss on disposal of property, plant and equipment

(16

)

2,765

(4

)

Total costs and expenses

52,444

62,857

180,795

164,067

Income (loss) from operations

44,095

52,558

133,874

158,298

Other income (expense):

Interest income (expense), net

(5,817

)

(553

)

(10,364

)

(638

)

Income (loss) from equity method investments

3,369

(631

)

(9,910

)

(695

)

Total other income (expense), net

(2,448

)

(1,184

)

(20,274

)

(1,333

)

Net income (loss) before income taxes

41,647

51,374

113,600

156,965

Provision for (benefit from) income taxes

2,851

3,294

7,754

22,850

Net income (loss)

38,796

48,080

105,846

134,115

Less: Net income (loss) before initial public offering

65,995

Net income (loss) subsequent to initial public offering

68,120

Less: Net income (loss) attributable to non-controlling interest

29,578

36,549

80,775

51,786

Net income (loss) attributable to Rattler Midstream LP

$

9,218

$

11,531

$

25,071

$

16,334

Net income (loss) attributable to limited partners per common unit:

Basic

$

0.20

$

0.26

$

0.53

$

0.37

Diluted

$

0.20

$

0.26

$

0.53

$

0.37

Weighted average number of limited partner common units outstanding:

Basic

43,996

43,700

43,837

43,564

Diluted

43,996

44,836

43,837

44,710



Rattler Midstream LP

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

Three Months Ended September 30, 2020

Nine Months Ended September 30,

2020

2019

2020

2019

Cash flows from operating activities:

Net income (loss)

$

38,796

$

48,080

$

105,846

$

134,115

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for deferred income taxes

2,851

3,294

7,754

22,850

Depreciation, amortization and accretion

10,990

11,736

35,596

31,798

Amortization of debt issuance costs

467

467

(Gain) loss on disposal of property, plant and equipment

(16

)

2,765

(4

)

Unit-based compensation expense

2,216

2,158

6,555

2,989

(Income) loss from equity method investments

(3,369

)

631

9,910

695

Changes in operating assets and liabilities:

Accounts receivable—related party

(26,517

)

(29,858

)

1,649

(45,297

)

Accounts receivable—third party

(444

)

(1,218

)

(314

)

(1,045

)

Accounts payable, accrued liabilities and taxes payable

18,904

(14,051

)

117

30,791

Other

1,632

3,695

7,029

(13,028

)

Net cash provided by (used in) operating activities

45,510

24,467

177,374

163,864

Cash flows from investing activities:

Additions to property, plant and equipment

(33,402

)

(84,609

)

(124,989

)

(187,544

)

Contributions to equity method investments

(23,719

)

(38,721

)

(89,751

)

(76,141

)

Distributions from equity method investments

9,620

27,490

Proceeds from the sale of fixed assets

42

18

Net cash provided by (used in) investing activities

(47,501

)

(123,330

)

(187,208

)

(263,667

)

Cash flows from financing activities:

Proceeds from senior notes

401,000

500,000

Proceeds from borrowings from credit facility

179,000

102,000

179,000

112,000

Payments on credit facility

(518,000

)

(518,000

)

(9,000

)

Distribution equivalent rights

(524

)

(1,820

)

Debt issuance costs

(10,014

)

(3,929

)

(10,014

)

(3,929

)

Net proceeds from initial public offering—public

(251

)

719,376

Net proceeds from initial public offering—General Partner

1,000

Net proceeds from initial public offering—Diamondback

999

Units repurchased for tax withholding

(1,365

)

Distribution to General Partner

(20

)

(60

)

Distribution to public

(12,758

)

(38,104

)

Distribution to Diamondback

(31,287

)

(93,860

)

(726,513

)

Net cash provided by (used in) financing activities

7,397

97,820

15,777

93,933

Net increase (decrease) in cash

5,406

(1,043

)

5,943

(5,870

)

Cash at beginning of period

11,170

3,737

10,633

8,564

Cash at end of period

$

16,576

$

2,694

$

16,576

$

2,694



Rattler Midstream LP

Pipeline Infrastructure Assets

(unaudited, in miles)

As of September 30, 2020

(miles)(a)

Delaware Basin

Midland Basin

Permian Total

Crude oil

108

46

154

Natural gas

155

155

Produced water

267

241

508

Sourced water

27

74

101

Total

557

361

918

(a) Does not include any assets of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.

Rattler Midstream LP

Capacity/Capability

(unaudited)

As of September 30, 2020

(capacity/capability)(a)

Delaware Basin

Midland Basin

Permian Total

Utilization

Crude oil gathering (Bbl/d)

210,000

65,000

275,000

36

%

Natural gas compression (Mcf/d)

151,000

151,000

56

%

Natural gas gathering (Mcf/d)

170,000

170,000

50

%

Produced water gathering and disposal (Bbl/d)

1,482,000

1,822,000

3,304,000

23

%

Sourced water (Bbl/d)

120,000

455,000

575,000

35

%

(a) Does not include any assets of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.

Rattler Midstream LP

Throughput and Volumes

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

(throughput)(a)

2020

2019

2020

2019

Crude oil gathering volumes (Bbl/d)

91,090

88,990

93,205

80,594

Natural gas gathering volumes (MMBtu/d)

119,951

91,455

115,089

78,918

Produced water gathering and disposal volumes (Bbl/d)

763,475

845,877

825,254

776,215

Sourced water gathering volumes (Bbl/d)

203,785

384,066

242,710

394,946

(a) Does not include any volumes of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.

NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA is a supplemental non-GAAP financial measure used by management and external users of its financial statements, such as industry analysts, investors, lenders and rating agencies. Management believes Adjusted EBITDA is useful because the measure allows it to more effectively evaluate the Company's operating performance and compare the results of its operations period to period without regard to its financing methods or capital structure.

The Company defines Adjusted EBITDA as net income before income taxes, interest expense, net of amount capitalized, its proportional impairments and abandonments related to equity method investments, non-cash unit-based compensation expense, depreciation, amortization and accretion on assets and liabilities of Rattler Midstream Operating LLC, its proportional interest of depreciation and interest expense on its equity method investments and other non-cash transactions. Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles in the United States ("GAAP"). The GAAP measure most directly comparable to Adjusted EBITDA is net income. Adjusted EBITDA excludes some, but not all, items that affect net income, and these measures may vary from those of other companies. As a result, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.

The Company does not provide guidance on the reconciling items between forecasted Net Income and forecasted Adjusted EBITDA due to the uncertainty regarding timing and estimates of these items. Rattler provides a range for the forecasts of Net Income and Adjusted EBITDA to allow for the variability in timing and uncertainty of estimates of reconciling items between forecasted Net Income and forecasted Adjusted EBITDA. Therefore, the Company cannot reconcile forecasted Net Income to forecasted Adjusted EBITDA without unreasonable effort.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure for each of the periods indicated:

Rattler Midstream LP

Adjusted EBITDA

(unaudited, in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Reconciliation of Net Income to Adjusted EBITDA:

Net income

$

38,796

$

48,080

$

105,846

$

134,115

Interest expense, net of amount capitalized

5,817

553

10,364

638

Depreciation, amortization and accretion

10,990

11,736

35,596

31,798

Depreciation and interest expense related to equity method investments

9,330

1,205

20,340

1,354

Impairments and abandonments related to equity method investments

676

16,515

Non-cash unit-based compensation expense

2,216

2,158

6,555

2,989

Other non-cash transactions

671

3,236

Provision for income taxes

2,851

3,294

7,754

22,850

Adjusted EBITDA

71,347

67,026

206,206

193,744

Less: Adjusted EBITDA prior to the IPO

100,743

Adjusted EBITDA subsequent to the IPO

71,347

67,026

206,206

93,001

Less: Adjusted EBITDA attributable to non-controlling interest

50,670

47,694

146,582

66,177

Adjusted EBITDA attributable to Rattler Midstream LP

$

20,677

$

19,332

$

59,624

$

26,824

Adjusted net income is a non-GAAP financial measure equal to net income adjusted for impairments and abandonments related to equity method investments and related income tax adjustments. The Partnership's computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.

Rattler Midstream LP

Adjusted Net Income

(unaudited, in thousands, except per unit data)

Three Months Ended September 30, 2020

Nine Months Ended
September 30, 2020

Pre-Tax Amounts

Pre-Tax Amounts

Reconciliation of Net Income to Adjusted Net Income:

Net income

$

38,796

$

105,846

Impairments and abandonments related to equity method investments

676

16,515

Adjusted income excluding above items

39,472

122,361

Income tax adjustment for above items

(46

)

(1,130

)

Adjusted net income(1)

39,426

121,231

Less: Adjusted net income attributable to non-controlling interest

30,058

92,504

Adjusted net income attributable to Rattler Midstream LP

$

9,368

$

28,727

Adjusted net income attributable to limited partners per common unit

$

0.20

$

0.61

(1) Adjusted net income was equal to net income for the three and nine months ended September 30, 2019.

Investor Contact:
Adam Lawlis
+1 432.221.7467
IR@rattlermidstream.com
Source: Rattler Midstream LP; Diamondback Energy, Inc.