Chronicle Journal: Finance

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

MIDLAND, Texas, Feb. 24, 2021 (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 fourth quarter and full year ended December 31, 2020.

FOURTH QUARTER 2020 HIGHLIGHTS

  • Q4 2020 consolidated net income (including non-controlling interest) of $38.9 million
  • Q4 2020 consolidated Adjusted EBITDA (as defined and reconciled below) of $77.6 million
  • Board of Directors of Rattler's general partner approved a cash distribution for the fourth quarter of 2020 of $0.20 per common unit ($0.80 annualized); implies a 7.5% annualized yield based on the February 23, 2021 closing unit price of $10.72
  • Repurchased 1,650,000 common units at an average unit price of $8.93 for a total cost of $14.7 million
  • Q4 2020 cash operated capital expenditures of $11.8 million
  • Q4 2020 average produced water gathering and disposal volumes of 810 MBbl/d
  • Q4 2020 average sourced water volumes of 287 MBbl/d; 8% of total sourced water volumes in Q4 2020 sourced from recycled produced water
  • Q4 2020 average crude oil gathering volumes of 89 MBbl/d
  • Q4 2020 average gas gathering volumes of 141 BBtu/d

FULL YEAR 2020 HIGHLIGHTS

  • Full year 2020 consolidated net income (including non-controlling interest) of $144.7 million
  • Full year 2020 consolidated Adjusted EBITDA (as defined and reconciled below) of $283.8 million; up 7% from full year 2019
  • Full year 2020 operated capital expenditures of $136.8 million; down 43% from full year 2019
  • Full year 2020 average produced water gathering and disposal volumes of 822 MBbl/d
  • Full year 2020 average sourced water volumes of 254 MBbl/d
  • Full year 2020 average crude oil gathering volumes of 92 MBbl/d
  • Full year 2020 average gas gathering volumes of 122 BBtu/d

“Rattler’s performance in the fourth quarter of 2020 reflects our continued progress in reducing capital spend after Diamondback’s growth trajectory dramatically slowed in the second quarter of 2020. We are also near the end of our multi-year investment cycle in non-operated equity method investments, with distributions from equity method investments nearly reaching parity with contributions in the fourth quarter. In 2021, we expect distributions from these investments to significantly exceed remaining contributions. Also, as previously announced, operated capital expenditures are expected to decrease by ~50% from 2020 levels. With our operated volumes normalizing in the fourth quarter, cash flow from our fixed fee agreements combined with declining capital investment resulted in robust free cash flow generation that was returned to unitholders via our distribution and repurchase program,” stated Travis Stice, Chief Executive Officer of Rattler’s general partner.

Mr. Stice continued, “Looking forward to 2021, with Diamondback planning to keep fourth quarter 2020 oil production volumes relatively flat, Rattler's 2021 guidance reflects a continuation of the strong results seen in the second half of 2020. The stable operated business, underpinned by Diamondback's low-cost development of its top tier Permian assets, along with equity method distributions outpacing contributions, is expected to deliver increasing free cash flow to Rattler’s unitholders. Taken together with Rattler's conservative leverage profile and visibility into Diamondback's development plan, we believe Rattler presents a compelling story of financial strength and free cash flow generation with tangible returns to unitholders."

OPERATIONS AND FINANCIAL UPDATE

During the fourth quarter of 2020, the Company recorded total operating income of $48.2 million, an increase of 9% compared to the third quarter of 2020. During the fourth quarter of 2020, the Company recorded consolidated net income (including non-controlling interest) of $38.9 million, flat from the third quarter of 2020. Fourth quarter 2020 Adjusted EBITDA (as defined and reconciled below) was $77.6 million, an increase of 9% from the third quarter of 2020.

Fourth quarter operated capital expenditures totaled $11.8 million, and aggregate contributions to equity method joint ventures were $12.7 million. Rattler also received proceeds of $12.3 million in distributions from equity method investments during the quarter.

The following table summarizes the Company's throughput on its operated assets.

 Three Months Ended
December 31,
 Year Ended December 31,
 2020 2019 2020 2019
Crude oil gathering volumes (Bbl/d)        88,634   98,725   92,056   85,164  
Natural gas gathering volumes (MMBtu/d)        141,140   104,169   121,637   85,283  
Produced water gathering and disposal volumes (Bbl/d)        810,493   894,693   821,543   806,078  
Sourced water gathering volumes (Bbl/d)        287,255   478,232   253,907   415,939  

CASH DISTRIBUTION

On February 17, 2021, the Board of Directors of Rattler's general partner approved a cash distribution for the fourth quarter of 2020 of $0.20 per common unit, payable on March 15, 2021 to unitholders of record at the close of business on March 8, 2021.

COMMON UNIT REPURCHASE PROGRAM

On October 29, 2020, the Board of Directors of Rattler's general partner approved a common unit repurchase program to acquire up to $100 million of our outstanding common units through December 31, 2021. Pursuant to this program, during the fourth quarter of 2020, the Company repurchased 1,650,000 common units at an average unit price of $8.93 per unit for a total cost of $14.7 million. From the end of the fourth quarter of 2020 through February 12, 2021, Rattler repurchased an additional 664,610 common units for a total cost of $6.6 million. In total through February 12, 2021, Rattler repurchased 2,314,610 common units for a total cost of $21.4 million, utilizing 21% of the $100 million approved by the Board for the repurchase program.

GUIDANCE UPDATE

Below is Rattler's initial guidance for the full year 2021.

  
 Rattler Midstream LP Guidance
 2021
  
Rattler Operated Volumes (a) 
Produced Water Gathering and Disposal Volumes (MBbl/d)800 - 900
Sourced Water Volumes (MBbl/d)200 - 300
Crude Oil Gathering Volumes (MBbl/d)75 - 85
Gas Gathering Volumes (BBtu/d)120 - 140
  
Financial Metrics ($ millions except per unit metrics) 
Net Income$140 - $180
Adjusted EBITDA$280 - $320
Operated Midstream Capex$60 - $80
Equity Method Investment Contributions(b)$10 - $20
Equity Method Investment Distributions(b)$35 - $45
Depreciation, Amortization & Accretion$50 - $70

(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

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 2020 on Thursday, February 25, 2021 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 5272909. A telephonic replay will be available from 12:00 p.m. CT on Thursday, February 25, 2021 through Thursday, March 4, 2021 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 5272909. 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 Delaware limited partnership formed by Diamondback Energy to own, operate, develop and acquire midstream and energy-related infrastructure assets. Rattler owns crude oil, natural gas and water-related midstream assets in the Permian Basin that provide services to Diamondback Energy and third party customers under primarily 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”), including its Forms 10-K, 10-Q and 8-K, 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
Consolidated Balance Sheets
(unaudited, in thousands)
    
 December 31, December 31,
 2020 2019
Assets   
Current assets:   
Cash        $23,927  $10,633 
Accounts receivable—related party        57,447  50,270 
Accounts receivable—third party, net        5,658  9,071 
Sourced water inventory        10,108  14,325 
Other current assets        1,127  1,428 
Total current assets        98,267  85,727 
Property, plant and equipment:   
Land        85,826  86,072 
Property, plant and equipment        1,012,777  930,768 
Accumulated depreciation, amortization and accretion        (100,728) (61,132)
Property, plant and equipment, net        997,875  955,708 
Right of use assets        574  418 
Equity method investments        532,927  479,558 
Real estate assets, net        96,687  101,116 
Intangible lease assets, net        4,262  8,070 
Deferred tax asset        73,264   
Other assets        4,732  5,796 
Total assets        $1,808,588  $1,636,393 


Rattler Midstream LP
Consolidated Balance Sheets - Continued
(unaudited, in thousands, except unit amounts)
    
 December 31, December 31,
 2020 2019
Liabilities and Unitholders’ Equity   
Current liabilities:   
Accounts payable        $139  $147 
Accrued liabilities        42,508  76,625 
Taxes payable        192  189 
Short-term lease liability        574  418 
Asset retirement obligations        35   
Total current liabilities        43,448  77,379 
Long-term debt        569,947  424,000 
Asset retirement obligations        15,093  11,347 
Deferred income taxes          7,827 
Total liabilities        628,488  520,553 
Commitment and contingencies   
Unitholders’ equity:   
General partner—Diamondback        899  979 
Common units—public (42,356,637 units issued and outstanding as of December 31, 2020 and 43,700,000 units issued and outstanding as of December 31, 2019)        385,189  737,777 
Class B units—Diamondback (107,815,152 units issued and outstanding as of December 31, 2020 and as of December 31, 2019)        899  979 
Accumulated other comprehensive income (loss)        (123) (198)
Total Rattler Midstream LP unitholders’ equity        386,864  739,537 
Non-controlling interest        793,638  376,928 
Non-controlling interest in accumulated other comprehensive income (loss)        (402) (625)
Total equity        1,180,100  1,115,840 
Total liabilities and unitholders’ equity        $1,808,588  $1,636,393 


Rattler Midstream LP
Consolidated Statements of Operations
(unaudited, in thousands, except per unit data)
        
 Three Months Ended
December 31,
 Year Ended December 31,
 2020 2019 2020 2019
Revenues:       
Revenues—related party        $98,629  $112,612  $379,089  $409,120 
Revenues—third party        7,620  8,919  31,124  24,324 
Rental income—related party        2,394  1,401  7,495  4,771 
Rental income—third party        687  1,891  5,340  7,890 
Other real estate income—related party        (12) 114  306  379 
Other real estate income—third party        (82) 371  551  1,189 
Total revenues        109,236  125,308  423,905  447,673 
Costs and expenses:       
Direct operating expenses        29,968  29,930  131,393  106,311 
Cost of goods sold (exclusive of depreciation and amortization)        11,002  16,604  38,370  62,856 
Real estate operating expenses        549  680  2,361  2,643 
Depreciation, amortization and accretion        17,527  10,538  53,123  42,336 
Impairment        918    918   
General and administrative expenses        4,538  4,986  16,367  12,663 
(Gain) loss on disposal of property, plant and equipment        (3,494) 1,528  (729) 1,524 
Total costs and expenses        61,008  64,266  241,803  228,333 
Income (loss) from operations        48,228  61,042  182,102  219,340 
Other income (expense):       
Interest income (expense), net        (6,923) (401) (17,287) (1,039)
Income (loss) from equity method investments        29  (5,634) (9,881) (6,329)
Total other income (expense), net        (6,894) (6,035) (27,168) (7,368)
Net income (loss) before income taxes        41,334  55,007  154,934  211,972 
Provision for (benefit from) income taxes        2,475  3,403  10,229  26,253 
Net income (loss)        38,859  51,604  144,705  185,719 
Less: Net income (loss) before initial public offering              65,995 
Net income (loss) subsequent to initial public offering        38,859  51,604  144,705  119,724 
Less: Net income (loss) attributable to non-controlling interest         29,239  39,136  110,014  90,922 
Net income (loss) attributable to Rattler Midstream LP        $9,620  $12,468  $34,691  $28,802 
Net income (loss) attributable to limited partners per common unit:       
Basic        $0.21  $0.27  $0.74  $0.64 
Diluted        $0.21  $0.27  $0.74  $0.64 
Weighted average number of limited partner common units outstanding:       
Basic        43,448  43,700  43,739  43,622 
Diluted        43,448  43,700  43,739  43,622 


Rattler Midstream LP
Consolidated Statements of Cash Flows
(unaudited, in thousands)
        
 Three Months Ended
December 31, 2020
 Year Ended December 31,
 2020 2019 2020 2019
Cash flows from operating activities:       
Net income (loss)        $38,859  $51,604  $144,705  $185,719 
Adjustments to reconcile net income to net cash provided by operating activities:       
Provision for deferred income taxes        2,475  3,403  10,229  26,253 
Depreciation, amortization and accretion        17,527  10,538  53,123  42,336 
Unit-based compensation expense        2,340  2,219  8,895  5,208 
Impairment        918    918   
(Income) loss from equity method investments        (29) 5,634  9,881  6,329 
Other        (2,991) 1,528  241  1,524 
Changes in operating assets and liabilities:       
Accounts receivable—related party        (8,826) (19,735) (7,177) (65,032)
Accounts payable, accrued liabilities and taxes payable        2,625  3,508  2,742  34,299 
Other        (373) (4,370) 6,342  (18,443)
Net cash provided by (used in) operating activities        52,525  54,329  229,899  218,193 
Cash flows from investing activities:       
Additions to property, plant and equipment        (11,831) (54,242) (136,820) (241,786)
Contributions to equity method investments        (12,748) (260,460) (102,499) (336,601)
Distributions from equity method investments        12,277    39,767   
Proceeds from the sale of fixed assets        18,701    18,743  18 
Net cash provided by (used in) investing activities        6,399  (314,702) (180,809) (578,369)
Cash flows from financing activities:       
Proceeds from Note Offering            500,000   
Proceeds from borrowings from credit facility        32,000  351,000  211,000  463,000 
Payments on credit facility        (38,000) (30,000) (556,000) (39,000)
Debt issuance costs        (9) (381) (10,023) (4,310)
Net proceeds from initial public offering—public           1    719,377 
Repurchased units as part of unit buyback        (14,741)   (14,741)  
Distribution to public         (8,802) (14,858) (46,906) (14,858)
Distribution to Diamondback         (21,582) (36,678) (115,442) (763,191)
Other        (439) (772) (3,684) 1,227 
Net cash provided by (used in) financing activities        (51,573) 268,312  (35,796) 362,245 
Net increase (decrease) in cash        7,351  7,939  13,294  2,069 
Cash at beginning of period        16,576  2,694  10,633  8,564 
Cash at end of period        $23,927  $10,633  $23,927  $10,633 
        
Supplemental disclosure of cash flow information:       
Interest paid        $612  $1,932  $7,381  $2,707 
Supplemental disclosure of non-cash financing activity:       
Contributions from Diamondback        $  $  $  $456,055 
Supplemental disclosure of non-cash investing activity:       
Increase in long-term assets and inventory due to contributions from Diamondback        $  $  $  $456,055 


Rattler Midstream LP
Pipeline Infrastructure Assets
(unaudited)
      
 As of December 31, 2020
(miles)(a)Delaware Basin  Midland Basin  Permian Total
Crude oil        108   46   154  
Natural gas        155   —   155  
Produced water        269   248   517  
Sourced water        27   74   101  
Total        559   368   927  

(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 December 31, 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   60 %
Natural gas gathering (Mcf/d)        170,000   —   170,000   54 %
Produced water gathering and disposal (Bbl/d)        1,310,000   1,810,000   3,120,000   26 %
Sourced water gathering (Bbl/d)        120,000   455,000   575,000   44 %

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

Rattler Midstream LP
Throughput
(unaudited)
        
 Three Months Ended
December 31,
 Year Ended December 31,
(throughput)(a)2020 2019 2020 2019
Crude oil gathering (Bbl/d)        88,634   98,725   92,056   85,164  
Natural gas gathering (MMBtu/d)        141,140   104,169   121,637   85,283  
Produced water gathering and disposal (Bbl/d)        810,493   894,693   821,543   806,078  
Sourced water gathering (Bbl/d)        287,255   478,232   253,907   415,939  

(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, depreciation, amortization and accretion on assets and liabilities of Rattler Midstream Operating LLC, its proportional depreciation and interest expense related to equity method investments, its proportional impairments and abandonments related to equity method investments, non-cash general and administrative expense 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
December 31,
 Year Ended December 31,
 2020 2019 2020 2019
Reconciliation of Net Income to Adjusted EBITDA:       
Net income        $38,859  $51,604  $144,705  $185,719 
Interest expense, net of amount capitalized        6,923  401  17,287  1,039 
Depreciation, amortization and accretion        17,527  10,538  53,123  42,336 
Depreciation and interest expense related to equity method investments         12,116  1,287  32,456  2,641 
Impairments and abandonments related to equity method investments        28    16,543   
Non-cash general and administrative        2,762  2,219  9,317  5,208 
Other non-cash transactions        (3,047) 1,528  189  1,528 
Provision for income taxes        2,475  3,403  10,229  26,253 
Adjusted EBITDA        77,643  70,980  283,849  264,724 
Less: Adjusted EBITDA prior to the IPO              100,743 
Adjusted EBITDA subsequent to the IPO        77,643  70,980  283,849  163,981 
Less: Adjusted EBITDA attributable to non-controlling interest        55,411  50,508  201,994  116,685 
Adjusted EBITDA attributable to Rattler Midstream LP        $22,232  $20,472  $81,855  $47,296 

Adjusted net income is a supplemental non-GAAP financial measure equal to net income adjusted for impairments and abandonments related to equity method investments and related income tax adjustments. Management believes adjusted net income is useful because the measure provides useful information to analysts and investors for analysis of its operating results on a consistent, comparable basis from period to period. The Company'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
December 31, 2020
Year Ended
December 31, 2020
Reconciliation of Net Income to Adjusted Net Income:  
Net income        $38,859 $144,705 
Impairments and abandonments related to equity method investments        28 16,543 
Adjusted income excluding above items        38,887 161,248 
Income tax adjustment for above items        (2)(1,132)
Adjusted net income(1)        38,885 160,116 
Less: Adjusted net income attributable to non-controlling interest        29,259 121,763 
Adjusted net income attributable to Rattler Midstream LP        $9,626 $38,353 
   
Adjusted net income attributable to limited partners per common unit        $0.22 $0.83 

(1) Adjusted net income was equal to net income for the three months and year ended December 31, 2019.

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


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