Rattler Midstream LP, a Subsidiary of Diamondback Energy, Inc., Reports Fourth Quarter and Full Year 2019 Financial and Operating Results; Increases Distribution

Source Press Release
Company Rattler Midstream LPArcLight Capital Partners, LLC 
Tags Pipelines/ tankers/ distribution, LNG & Gas Storage/Processing, Asset Deals, Deals, Financial & Operating Data
Date February 18, 2020

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 fourth quarter and full year ended December 31, 2019.

FOURTH QUARTER 2019 HIGHLIGHTS

  • Q4 2019 consolidated net income (including non-controlling interest) of $51.6 million, consolidated adjusted EBITDA (as defined and reconciled below) of $71.0 million
  • Board of directors of Rattler's general partner approved a cash distribution for the fourth quarter of 2019 of $0.29 per common unit ($1.16 annualized), up 16% from the initial annualized distribution
  • Q4 2019 capital expenditures of $54.2 million
  • Q4 2019 average produced water gathering and disposal volumes of 895 MBbl/d, up 6% over Q3 2019 and 164% over Q4 2018
  • Q4 2019 average sourced water volumes of 478 MBbl/d, up 25% over Q3 2019 and 137% over Q4 2018; 26% of total sourced water volumes in Q4 2019 was sourced from recycled produced water compared to ~10% for full year 2018
  • Q4 2019 average crude oil gathering volumes of 99 MBbl/d, up 11% over Q3 2019 and 63% over Q4 2018
  • Q4 2019 average gas gathering volumes of 104 BBtu/d, up 14% over Q3 2019 and 125% over Q4 2018
  • Entered into a 50/50 joint venture with Amarillo Midstream, LLC ("Amarillo Midstream"), a portfolio company of ArcLight Capital Partners, to operate a gas gathering and processing system and construct a new 60 MMcf/d cryogenic natural gas processing plant in Martin County for Diamondback's acreage acquired from Ajax Resources
  • Rattler and Oryx Midstream, a portfolio company of Stonepeak Infrastructure Partners, through their newly created joint venture OMOG JV LLC ("OMOG"), acquired Reliance Gathering, LLC (now known as Oryx Midland Oil Gathering LLC)

FULL YEAR 2019 HIGHLIGHTS

  • Full year 2019 consolidated net income (including non-controlling interest) of $185.7 million; up 195% from full year 2018
  • Full year 2019 consolidated adjusted EBITDA (as defined and reconciled below) of $264.7 million; up 151% from full year 2018
  • Full year 2019 capital expenditures of $241.8 million
  • Full year 2019 average produced water gathering and disposal volumes of 806 MBbl/d, up 186% over full year 2018
  • Full year 2019 average sourced water volumes of 416 MBbl/d, up 65% full year 2018
  • Full year 2019 average crude oil gathering volumes of 85 MBbl/d, up 80% over full year 2018
  • Full year 2019 average gas gathering volumes of 85 BBtu/d, up 117% over full year 2018

“Rattler's core business continued to operate extremely well with a strong final quarter of 2019.  Volumes in our produced water gathering and oil gathering service lines organically increased by 26% and 32%, respectively, since just the first quarter of 2019.  Moreover, Adjusted EBITDA of $265 million for full year 2019 exceeded pre-IPO estimates despite a ~$4 million drag from equity method investments for the year as we wait for full service of the EPIC and Gray Oak pipeline projects in 2020.  Looking forward to 2020, Rattler is expected to grow Adjusted EBITDA 42% year over year at the midpoint of guidance, underpinned by strong expected volume growth with declining operated Capex.  Our unchanged business plan in the face of volatility in energy equity and commodity markets highlights the strength and stability we see in our relationship with Diamondback and the insulating structure of fixed fee gathering agreements with a low cost operator,” stated Travis Stice, Chief Executive Officer of Rattler’s general partner.

Mr. Stice continued, “Rattler also announced its entry into the Amarillo Rattler joint venture to develop a gathering, compression and processing system, including a new 60 MMcf/d cryogenic natural gas processing plant in northwest Martin County, an area expected to be a core growth area for Diamondback in the years to come.  This new investment, along with existing investments in the OMOG, EPIC, Gray Oak and Wink to Webster joint ventures, continues Rattler's strategy of leveraging the Diamondback relationship to invest in projects where Diamondback will participate as a major customer.  With all of the remaining projects in our joint ventures expected to reach full service by the end of 2021, and capital expenditures on Rattler's operated midstream assets expected to continue to decrease as various systems grow closer to full capacity, we believe that expected future volume and EBITDA growth will directly lead to sustained and increasing free cash flow.  Rattler, with its conservative capital structure and low leverage, intends to rely on this expected free cash flow to return capital to unitholders through distributions, as represented by a 16% higher distribution per unit for Q4 2019 and 2020."

OPERATIONS AND FINANCIAL UPDATE

During the fourth quarter of 2019, the Company recorded total operating income of $61.0 million, an increase of 16% over the third quarter of 2019 and an increase of 212% over the fourth quarter of 2018.  For the full year 2019, the Company recorded total operating income of $219.3 million, an increase of 173% over full year 2018.

During the fourth quarter of 2019, the Company recorded consolidated net income (including non-controlling interest) of $51.6 million, an increase of 7% over the third quarter of 2019 and an increase of 237% over the fourth quarter of 2018.  For the full year 2019, the Company recorded consolidated net income (including non-controlling interest) of $185.7 million, an increase of 195% over full year 2018.

Fourth quarter 2019 Adjusted EBITDA (as defined and reconciled below) was $71.0 million, up 6% from Q3 2019 and up 164% from Q4 2018.  Full year 2019 Adjusted EBITDA was $264.7 million, up 151% from full year 2018.

During the fourth quarter of 2019, average produced water gathering and disposal volumes were 895 MBbl/d, up 6% over Q3 2019 and 164% over Q4 2018.  Average sourced water volumes were 478 MBbl/d, up 25% over Q3 2019 and 137% over Q4 2018.  Average oil gathering volumes were 99 MBbl/d, up 11% over Q3 2019 and 63% over Q4 2018.  Average gas gathering volumes were 104 BBtu/d, up 14% over Q3 2019 and 125% over Q4 2018.

For the full year 2019, average produced water gathering and disposal volumes were 806 MBbl/d, up 186% over full year 2018.   Average sourced water gathering volumes were 416 MBbl/d, up 65% over full year 2018.  Average oil gathering volumes were 85 MBbl/d, up 80% over full year 2018.  Average gas gathering volumes were 85 BBtu/d, up 117% over full year 2018.

Fourth quarter capital expenditures totaled $54.2 million, and aggregate contributions to equity method joint ventures were $260.5 million.  Full year 2019 capital expenditures totaled $241.8 million, and aggregate contributions to equity method joint ventures were $336.6 million, with Diamondback contributing an additional $149.5 million in equity method investments prior to the Rattler initial public offering that was transferred to Rattler in the form of a non-cash contribution.

As of December 31, 2019, the Company had a cash balance of $10.6 million and $176.0 million available under its $600.0 million revolving credit facility, which is expandable to $1.0 billion upon Rattler's election.

CASH DISTRIBUTION

On February 13, 2020, the board of directors of Rattler's general partner approved a cash distribution for the fourth quarter of 2019 of $0.29 per common unit, payable on March 10, 2020 to unitholders of record at the close of business on March 3, 2020.  In its updated 2020 guidance, Rattler expects to maintain this increased distribution per unit for full year 2020, an increase of 16% from its initial annualized distribution of $1.00 per unit.

AMARILLO RATTLER GAS PROCESSING JOINT VENTURE

On December 20, 2019, Rattler acquired a 50% equity interest in Amarillo Rattler, a joint venture with Amarillo Midstream, a portfolio company of ArcLight Capital Partners.  Amarillo Rattler currently owns and operates the Yellow Rose gas gathering and processing system with estimated total processing capacity of 40 MMcf/d and over 84 miles of gathering and regional transportation pipelines in Dawson, Martin and Andrews Counties, Texas.  This joint venture also intends to construct and operate a new 60 MMcf/d cryogenic natural gas processing plant in Martin County, Texas as well as incremental gas gathering and compression and regional transportation pipelines. The estimated aggregate capital outlay of the joint venture is anticipated to be approximately $100 million (or approximately $50 million from Rattler) to construct the new processing plant, gas gathering and compression, and regional transportation pipelines.

Rattler anticipates that the new processing plant will commence full commercial operations in mid 2021.  Diamondback has dedicated to this joint venture acreage and production from the acreage acquired from the Ajax Resources acquisition in October 2018.  Amarillo Midstream serves as construction manager and operator for this joint venture, and Rattler will account for the investment in the joint venture as an equity method investment.

OMOG JV (RELIANCE GATHERING)

On November 7, 2019, Rattler and Oryx Midstream, a portfolio company of Stonepeak Infrastructure Partners, through their newly created joint venture OMOG JV LLC acquired Reliance Gathering, LLC (now known as Oryx Midland Oil Gathering LLC) for approximately $356 million in cash. Rattler owns 60%, and Oryx owns 40%, of the joint venture.

GUIDANCE UPDATE

Below is Rattler's guidance for 2020, which is the same as the guidance for 2020 released by Rattler in November 2019, except to the extent updated to reflect (i) updated sourced water volumes, (ii) estimated 2020 equity method investment contributions and total remaining equity method investment contributions, (iii) the anticipated annualized increase to Rattler's distribution per unit and (iv) estimated Depreciation, Amortization & Accretion expense.

   
  Rattler Midstream LP Guidance 
  2020 
   
Rattler Operated Volumes (a)   
Produced Water Gathering and Disposal Volumes (MBbl/d)  950 - 1,050 
Sourced Water Volumes (MBbl/d)  400 - 475 
Oil Gathering Volumes (MBbl/d)  100 - 110 
Gas Gathering Volumes (BBtu/d)  100 - 120 
   
Financial Metrics ($ millions except per unit metrics)   
Adjusted EBITDA  $350 - $400 
Equity Method Investment EBITDA(b)  $40 - $60 
Operated Midstream Capex  $200 - $225 
2020 Equity Method Investment Contributions(b)  $135 - $150 
Total Remaining Equity Method Investment Contributions(b)  $170 - $185 
Depreciation, Amortization & Accretion  $45 - $60 
Annualized Distribution per Unit  $1.16 

(a)  Does not include volumes from the EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures
(b)  Includes EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures

CONFERENCE CALL

Rattler will host a conference call and webcast for investors and analysts to discuss its results for the fourth quarter and full year of 2019 on Wednesday, February 19, 2020 at 10:00 a.m. CT.  Participants should call (877) 288-2756 (United States/Canada) or (470) 495-9481 (International) and use the confirmation code 8515009.  A telephonic replay will be available from 1:00 p.m. CT on Wednesday, February 19, 2020 through Wednesday, February 26, 2020 at 1:00 p.m. CT.  To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 8515009.  A live broadcast of the earnings conference call will also be available via the internet at  under the “Investors” section of the site.  A replay will also be available on the website following the call.

Rattler Midstream LP 
Consolidated Balance Sheets 
(unaudited, in thousands) 
       
  December 31,    December 31, 
  2019    2018 
Assets       
Current assets:       
Cash  10,633      8,564   
Accounts receivable—related party  50,270      18,274   
Accounts receivable—third party  9,071      1,849   
Sourced water inventory  14,325      9,200   
Other current assets  1,428      4,209   
Total current assets  85,727      42,096   
Property, plant and equipment:       
Land  88,509      70,373   
Property, plant and equipment  930,768      415,888   
Accumulated depreciation, amortization and accretion  (61,132    (28,317 
Property, plant and equipment, net  958,145      457,944   
Right of use assets  418      —   
Equity method investments  479,558      —   
Real estate assets, net  98,679      93,023   
Intangible lease assets, net  8,070      10,954   
Other assets  5,796      —   
Total assets  1,636,393      604,017   
 
Rattler Midstream LP 
Consolidated Balance Sheets - Continued 
(unaudited, in thousands) 
       
  December 31,    December 31, 
  2019    2018 
Liabilities and Unitholders’ Equity       
Current liabilities:       
Accounts payable  147      100   
Accrued liabilities  76,625      51,804   
Taxes payable  189      11,514   
Short-term lease liability  418      —   
Total current liabilities  77,379      63,418   
Long-term debt  424,000      —   
Asset retirement obligations  11,347      561   
Deferred income taxes  7,827      12,912   
Total liabilities  520,553      76,891   
Commitment and contingencies       
Unitholders' equity:       
Limited partners member's equity—Diamondback  —      527,125   
General partner—Diamondback  979      —   
Common units—public (43,700,000 units issued and outstanding as of December 31, 2019)  737,777      —   
Class B units—Diamondback (107,815,152 units issued and outstanding as of December 31, 2019)  979       
Accumulated other comprehensive loss  (198    —   
Total Rattler Midstream LP unitholders’ equity  739,537      527,126   
Non-controlling interest  376,928      —   
Non-controlling interest in accumulated other comprehensive loss  (625    —   
Total equity  1,115,840      527,126   
Total liabilities and unitholders’ equity  1,636,393      604,017   
 
Rattler Midstream LP 
Consolidated Statements of Operations 
(unaudited, in thousands, except per unit data) 
               
  Three Months Ended December 31,    Year Ended December 31, 
  2019    2018    2019    2018 
      Predecessor        Predecessor 
Revenues:               
Revenues—related party  112,612      45,226      409,120      169,396   
Revenues—third party  8,919      3,013      24,324      3,292   
Rental income—related party  1,401      700      4,771      2,383   
Rental income—third party  1,891      2,072      7,890      8,125   
Other real estate income—related party  114      (551    379      228   
Other real estate income—third party  371      1,043      1,189      1,043   
Total revenues  125,308      51,503      447,673      184,467   
Costs and expenses:               
Direct operating expenses  29,930      9,058      106,311      33,714   
Cost of goods sold (exclusive of depreciation and amortization)  16,604      14,484      62,856      38,852   
Real estate operating expenses  680      501      2,643      1,872   
Depreciation, amortization and accretion  10,538      7,304      42,336      25,134   
General and administrative expenses  4,986      590      12,663      1,999   
Loss on disposal of property, plant and equipment  1,528          1,524      2,577   
Total costs and expenses  64,266      31,946      228,333      104,148   
Income from operations  61,042      19,557      219,340      80,319   
Other income (expense):               
Interest expense, net  (401    —      (1,039    —   
Income (loss) from equity method investments  (5,634    —      (6,329    —   
Total other income (expense), net  (6,035    —      (7,368    —   
Net income before income taxes  55,007      19,557      211,972      80,319   
Provision for income taxes  3,403      4,245      26,253      17,359   
Net income after taxes  51,604      15,312      185,719      62,960   
               
Net income before initial public offering          65,995       
               
Net income subsequent to initial public offering          119,724       
Net income attributable to non-controlling interest subsequent to initial public offering  39,136          90,922       
Net income attributable to Rattler Midstream LP  12,468          28,802       
               
Net income attributable to limited partners per common unit - subsequent to initial public offering:               
Basic  0.27          0.64       
Diluted  0.27          0.64       
Weighted average number of limited partner common units outstanding:               
Basic  43,700          43,622       
Diluted  43,700          43,622       
 
Rattler Midstream LP 
Consolidated Statements of Cash Flows 
(unaudited, in thousands) 
       
  Year Ended December 31, 
  2019    2018 
      Predecessor 
Cash flows from operating activities:       
Net income  185,719      62,960   
Adjustments to reconcile net income to net cash provided by operating activities:       
Provision for deferred income taxes  26,253      5,845   
Depreciation, amortization and accretion  42,336      25,134   
Loss on disposal of property, plant and equipment  1,524      2,577   
Unit-based compensation expense  5,208      —   
Expense (Income) from equity method investment  6,329      —   
Changes in operating assets and liabilities:       
Accounts receivable—related party  (65,032    17,625   
Accounts receivable—third party  (1,212    (1,849 
Accounts payable, accrued liabilities and taxes payable  34,299      61,139   
Other  (17,231    —   
Net cash provided by operating activities  218,193      173,431   
Cash flows from investing activities:       
Additions to property, plant and equipment  (241,786    (164,876 
Contributions to equity method investments  (336,601    —   
Proceeds from the sale of fixed assets  18      —   
Net cash used in investing activities  (578,369    (164,876 
Cash flows from financing activities:       
Proceeds from borrowings from credit facility  463,000      —   
Payments on credit facility  (39,000    —   
Distribution equivalent rights  (751    —   
Debt issuance costs  (4,310    —   
Net proceeds from initial public offering—public  719,377      —   
Net proceeds from initial public offering—General Partner  1,000      —   
Net proceeds from initial public offering—Diamondback  999       
Distribution to General Partner (Note 1)  (21    —   
Distribution to public (Note 1)  (14,858    —   
Distribution to Diamondback (Note 1)  (763,191    —   
Net cash provided by financing activities  362,245       
Net increase in cash  2,069      8,556   
Cash at beginning of period  8,564       
Cash at end of period  10,633      8,564   
Supplemental disclosure of cash flow information:       
Interest paid  2,707      —   
Supplemental disclosure of non-cash financing activity:       
Contributions from Diamondback  456,055      171,557   
       
Supplemental disclosure of non-cash investing activity:       
Increase in long term assets and inventory due to contributions from Diamondback  456,055      171,557   
Change in accrued liabilities related to property, plant and equipment  4,176      2,693   
 
Rattler Midstream LP 
Pipeline Infrastructure Assets 
(unaudited, in miles) 
           
(miles)  Delaware Basin    Midland Basin    Permian Total 
Crude oil  104      44      148   
Natural gas  148      —      148   
Produced water  257      217      474   
Sourced water  26      71      97   
Total  535      332      867   
 
Rattler Midstream LP 
Capacity/Capability 
(unaudited) 
               
(capacity/capability)  Delaware Basin    Midland Basin    Permian Total    Utilization 
Crude oil gathering (Bbl/d)  180,000      56,000      236,000      42% 
Natural gas compression (Mcf/d)  135,000      —      135,000      70% 
Natural gas gathering (Mcf/d)  150,000      —      150,000      56% 
Produced water gathering and disposal (Bbl/d)  1,576,500      1,732,300      3,308,800      27% 
Sourced water (Bbl/d)  120,000      455,000      575,000      83% 
 
Rattler Midstream LP 
Throughput and Volumes 
(unaudited) 
               
  Three Months Ended December 31,    Year Ended December 31, 
(throughput)  2019    2018    2019    2018 
Crude oil gathering volumes (Bbl/d)  98,725      60,581      85,164      47,338   
Natural gas gathering volumes (MMBtu/d)  104,169      46,196      85,283      39,252   
Produced water gathering and disposal volumes (Bbl/d)  894,693      339,110      806,078      281,916   
Sourced water gathering volumes (Bbl/d)  478,232      202,177      415,939      252,118   


NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies.  We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations period to period without regard to our financing methods or capital structure.

Rattler defines Adjusted EBITDA as net income before income taxes, interest expense, net of amount capitalized, interest expense related to equity method investments, non-cash unit-based compensation expense, depreciation, amortization and accretion and other non-cash transactions.  Depreciation, amortization and accretion includes depreciation, amortization and accretion on assets and liabilities of Rattler Midstream Operating LLC, in addition to depreciation, amortization and accretion on our equity method investments.  Interest expense related to equity method investments represents our proportional interest income (expense) from equity method investments. The GAAP measure most directly comparable to Adjusted EBITDA is net income.  Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP.  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 following table presents a reconciliation of Adjusted EBITDA to net income, on a historical basis and pro forma basis, as applicable, for each of the periods indicated:

Rattler Midstream LP 
(unaudited, in thousands) 
               
  Three Months Ended December 31,    Year Ended December 31, 
  2019    2018    2019    2018 
Reconciliation of Net Income to Adjusted EBITDA:               
Net income  51,604      15,312      185,719      62,960   
Depreciation, amortization and accretion  10,538      7,304      42,336      25,134   
Interest expense, net of amount capitalized  401      —      1,039      —   
Interest expense (income) related to equity method investments  (156    —      1,005      —   
Depreciation related to equity method investments  1,443      —      1,636      —   
Non-cash unit-based compensation expense  2,219      —      5,208      —   
Other non-cash transactions  1,528      —      1,528      —   
Provision for income taxes  3,403      4,245      26,253      17,359   
Adjusted EBITDA  70,980      26,861      264,724      105,453   
Less: Adjusted EBITDA prior to the IPO  —          (100,743     
Adjusted EBITDA subsequent to the IPO  70,980          163,981       
Less: Adjusted EBITDA attributable to non-controlling interest  (50,508        (116,685     
Adjusted EBITDA attributable to Rattler Midstream LP  20,472          47,296     

 
Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd