Crude producers still wary of recent gains: NGL Energy

OREANDA-NEWS. May 30, 2016. The recent flattening of crude forward curves may not be sustainable into the second half of the year, said Michael Krimbill, chief executive officer of NGL Energy Partners, on the company's earnings call today.

Recent gains in prices reduced the crude contango in recent weeks, Krimbill said.

"Is that because producers are locking in a \\$50 strip?" he asked. "We're not confirmed yet that the contango is permanently reduced."

The Tulsa-based midstream partnership, which includes water pipelines for oilfield services, crude and NGL lines, reported a loss of \\$207mn in the fiscal fourth quarter ended 31 March. That includes an impairment charge of \\$380.2mn related to its water business.

NGL Energy is forecasting fiscal 2017 earnings of \\$500mn before taxes and plans to spend \\$200mn-\\$300mn on capital projects, including \\$110mn to complete its Grand Mesa crude line.

The forecast does not assume an uptick in crude prices, Krimbill said. "We kind of assume the crappy environment we've seen for the last 12 months is continuing. Clearly crude prices are up, but we haven't seen the rig count go up yet, and that is critical for the water business."

NGL Energy expects to commission its 150,000 b/d Grand Mesa crude line, which will carry crude from the Denver-Julesburg basin to storage in Cushing, Oklahoma, in November.

NGL Energy saw wholesale propane volumes fall 11.8pc from year-ago levels and other liquids volumes fall 8pc compared to the quarter ended 31 March 2015. Retail propane volumes fell 16.9pc versus last year because of the warm winter. Margins on wholesale liquids narrowed from 9?/USG last year to only 7?/USG in the most recent quarter.

"We are expecting volumes to rebound next year and are predicting a normalized winter," said chief financial officer Trey Karlovich.