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

August 5, 2020 4:01 PM EDT

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MIDLAND, Texas, Aug. 05, 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 second quarter ended June 30, 2020.

SECOND QUARTER 2020 HIGHLIGHTS

  • Q2 2020 consolidated net income (including non-controlling interest) of $12.5 million, consolidated adjusted net income (as defined and reconciled below) of $27.9 million
  • Consolidated Adjusted EBITDA (as defined and reconciled below) of $53.9 million
  • Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit ($1.16 annualized); implies a 14% annualized yield based on the August 4, 2020 unit closing price of $8.06
  • Q2 2020 cash operated capital expenditures of $39.5 million
  • Q2 2020 average produced water gathering and disposal volumes of 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020
  • Q2 2020 average sourced water volumes of 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020; 30% of total sourced water volumes in Q2 2020 sourced from recycled produced water
  • Q2 2020 average crude oil gathering volumes of 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020
  • Q2 2020 average gas gathering volumes of 108 BBtu/d, up 27% over Q2 2019 and down 9% from Q1 2020

“The second quarter of 2020 presented historic volatility in global energy demand and commodity prices.  Rattler, despite all of its operations being located in the premier low-cost shale basin and operated by a low-cost operator in Diamondback, was not spared from this volatility.  Diamondback made the prudent decision to suspend completion activity and curtail production in the quarter, directly impacting Rattler’s second quarter volumes,” stated Travis Stice, Chief Executive Officer of Rattler’s general partner.

Mr. Stice continued, “Looking ahead, while this quarter reflected the effects of a severe disruption in the pace of expected development activity on Rattler’s assets, we are focused on reducing capital expenditures and operating costs across our asset base to increase free cash flow in a lower growth environment.  Additionally, with three of our major equity method investments in full service, and minimal operated growth capex expected to be required in the future, Rattler is positioned to provide significant free cash flow to support its distribution.  Rattler, with its equity method investment build cycle nearing completion, operated assets generating free cash flow and conservative financial leverage, is well-situated to weather this commodity cycle."

OPERATIONS AND FINANCIAL UPDATE

During the second quarter of 2020, the Company recorded total operating income of $28.5 million, down 53% compared to the first quarter of 2020 and a decrease of 49% from the second quarter of 2019. During the second quarter of 2020, the Company recorded consolidated net income (including non-controlling interest) of $12.5 million, inclusive of a $15.8 million impairment charge associated with goodwill related to its interest in the OMOG JV, a decrease of 77% from the first quarter of 2020 and a decrease of 73% from the second quarter of 2019. Second quarter 2020 adjusted net income (as defined and reconciled below) was $27.9 million, down 49% from the first quarter of 2020 and down 40% from the second quarter of 2019. Second quarter 2020 Adjusted EBITDA (as defined and reconciled below) was $53.9 million, down 33% from the first quarter of 2020 and down 19% from the second quarter of 2019.

Average produced water gathering and disposal volumes for Q2 2020 were 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020.  Average sourced water volumes were 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020 due to Diamondback suspending almost all completion activity between mid April and late June.  Average crude oil gathering volumes were 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020.  Average gas gathering volumes were 108 BBtu/d, down 9% from Q1 2020 and up 27% over Q2 2019.

Second quarter operated capital expenditures totaled $39.5 million, and aggregate contributions to equity method joint ventures were $33.5 million.  Rattler also received proceeds of $8.1 million in distributions from equity method investments.  As of June 30, 2020, the Company had $11.2 million of cash and $77.0 million available under its $600.0 million revolving credit facility.

SENIOR NOTES OFFERING

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. The Company loaned the gross proceeds to Rattler Midstream LLC, which used such proceeds to pay down borrowings under its revolving credit facility. As of June 30, 2020, pro forma for this offering, Rattler had $11.2 million of cash and $566.5 million available under its $600.0 million revolving credit facility, resulting in total liquidity of $577.7 million.

CASH DISTRIBUTION

On July 31, 2020, the Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit, payable on August 24, 2020 to unitholders of record at the close of business on August 17, 2020.GUIDANCE UPDATE

Below is Rattler's revised guidance for the full year 2020, with net income, capital expenditure and equity method contribution 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
Annualized Distribution per Unit$1.16

(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 second quarter and full year of 2020 on Thursday, August 6, 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 1608579.  A telephonic replay will be available from 11:20 a.m. CT on Thursday, August 6, 2020 through Thursday, August 13, 2020 at 11:20 a.m. CT.  To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 1608579.  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
Consolidated Balance Sheets
(unaudited, in thousands)
    
 June 30, December 31,
 2020 2019
Assets   
Current assets:   
Cash$11,170  $10,633 
Accounts receivable—related party4,456  50,270 
Accounts receivable—third party, net7,694  9,071 
Sourced water inventory10,400  14,325 
Other current assets688  1,428 
Total current assets34,408  85,727 
Property, plant and equipment:   
Land88,309  88,509 
Property, plant and equipment1,037,264  930,768 
Accumulated depreciation, amortization and accretion(81,572) (61,132)
Property, plant and equipment, net1,044,001  958,145 
Right of use assets86  418 
Equity method investments514,110  479,558 
Real estate assets, net96,473  98,679 
Intangible lease assets, net6,579  8,070 
Deferred tax asset78,134   
Other assets5,232  5,796 
Total assets$1,779,023  $1,636,393 
        
        
Rattler Midstream LP
Consolidated Balance Sheets - Continued
(unaudited, in thousands, except unit amounts)
    
 June 30, December 31,
 2020 2019
Liabilities and Unitholders’ Equity   
Current liabilities:   
Accounts payable$149  $147 
Accrued liabilities55,386  76,625 
Taxes payable406  189 
Short-term lease liability86  418 
Total current liabilities56,027  77,379 
Long-term debt523,000  424,000 
Asset retirement obligations13,272  11,347 
Deferred income taxes  7,827 
Total liabilities592,299  520,553 
Commitment and contingencies   
Unitholders’ equity:   
General partner—Diamondback939  979 
Common units—public (43,996,243 units issued and outstanding as of June 30, 2020 and 43,700,000 units issued and outstanding as of December 31, 2019)400,928  737,777 
Class B units—Diamondback (107,815,152 units issued and outstanding as of June 30, 2020 and as of December 31, 2019)939  979 
Accumulated other comprehensive loss(320) (198)
Total Rattler Midstream LP unitholders’ equity402,486  739,537 
Non-controlling interest785,239  376,928 
Non-controlling interest in accumulated other comprehensive loss(1,001) (625)
Total equity1,186,724  1,115,840 
Total liabilities and unitholders’ equity$1,779,023  $1,636,393 
        

Rattler Midstream LP
Consolidated Statements of Operations
(unaudited, in thousands, except per unit data)
                 
  Three Months Ended June 30,   Six Months Ended June 30,  
  2020   2019   2020   2019  
Revenues:                
Revenues—related party$78,031  $103,066  $194,614  $191,642  
Revenues—third party 7,175   5,078   16,275   8,565  
Rental income—related party 1,417   1,256   2,819   1,971  
Rental income—third party 1,885   2,038   3,786   4,105  
Other real estate income—related party 53   81   169   154  
Other real estate income—third party 174   255   467   513  
Total revenues 88,735   111,774   218,130   206,950  
Costs and expenses:                
Direct operating expenses 37,378   26,406   70,252   46,592  
Cost of goods sold (exclusive of depreciation and amortization) 4,744   15,849   20,705   28,902  
Real estate operating expenses 590   695   1,318   1,221  
Depreciation, amortization and accretion 12,100   10,158   24,606   20,062  
General and administrative expenses 4,175   3,068   8,689   4,437  
Loss (gain) on disposal of property, plant and equipment 1,243   (4)  2,781   (4) 
Total costs and expenses 60,230   56,172   128,351   101,210  
Income from operations 28,505   55,602   89,779   105,740  
Other expense:                
Interest expense, net (1,926)  (85)  (4,547)  (85) 
Loss from equity method investments (13,034)  (114)  (13,279)  (64) 
Total other expense, net (14,960)  (199)  (17,826)  (149) 
Net income before income taxes 13,545   55,403   71,953   105,591  
Provision for income taxes 1,083   8,724   4,903   19,556  
Net income$12,462  $46,679  $67,050  $86,035  
Net income before initial public offering$  $26,639  $—   $65,995  
Net income subsequent to initial public offering$  $20,040  $—   $20,040  
Net income attributable to non-controlling interest 9,640   15,237   51,197   15,237  
Net income attributable to Rattler Midstream LP$2,822  $4,803   $15,853  $4,803  
Net income attributable to limited partners per common unit:                
Basic$0.05  $0.11  $0.33  $0.11  
Diluted$0.05  $0.11  $0.33  $0.11  
Weighted average number of limited partner common units outstanding:                
Basic 43,812   43,197   43,756   43,197  
Diluted 43,812   44,340   43,756   44,340  
                 
                 
Rattler Midstream LP  
Consolidated Statements of Cash Flows  
(unaudited, in thousands)  
                 
          Six Months Ended June 30, 
Cash flows from operating activities:         2020   2019  
Net income        $67,050  86,035   
Adjustments to reconcile net income to net cash provided by operating activities:               
Provision for deferred income taxes         4,903   19,556  
Depreciation, amortization and accretion         24,606   20,062  
Loss (gain) on disposal of property, plant and equipment         2,781   (4 
Unit-based compensation expense         4,339   831  
Loss from equity method investments         13,279   64  
Changes in operating assets and liabilities:                
Accounts receivable—related party         28,166   (15,439) 
Accounts receivable—third party         130   173  
Accounts payable, accrued liabilities and taxes payable         (18,787  44,842  
Other         5,397   (16,723) 
Net cash provided by operating activities         131,864   139,397   
Cash flows from investing activities:                
Additions to property, plant and equipment         (91,587)  (102,935 
Contributions to equity method investments         (66,032)  (37,420 
Distributions from equity method investments         17,870     
Proceeds from the sale of fixed assets         42   18  
Net cash used in investing activities         (139,707)  (140,337) 
Cash flows from financing activities:                
Proceeds from borrowings from credit facility         99,000   10,000  
Payments on credit facility            (9,000) 
Distribution equivalent rights         (1,296)    
Net proceeds from initial public offering—public            719,627  
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         (40)    
Distribution to public         (25,346)    
Distribution to Diamondback         (62,573)  (726,513 
Net cash provided by (used in) financing activities         8,380   (3,887 
Net increase (decrease) in cash         537   (4,827) 
Cash at beginning of period         10,633   8,564  
Cash at end of period        $11,170  $3,737  
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  
Accounts payable related to capital expenditures        $57,357  $68,617  
                 
                 
Rattler Midstream LP  
Pipeline Infrastructure Assets   
(unaudited, in miles)   
                 
      As of June 30, 2020 
(miles)(a)     Delaware Basin Midland Basin    Permian Total   
Crude oil     108 44   152  
Natural gas     151    151  
Produced water     266 237   503  
Sourced water     27 74   101  
Total     552 355   907  
                

(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 June 30, 2020
(capacity/capability)(a)Delaware Basin  Midland Basin  Permian Total  Utilization
Crude oil gathering (Bbl/d)180,000  56,000  236,000  39%
Natural gas compression (Mcf/d)135,000    135,000  59%
Natural gas gathering (Mcf/d)150,000    150,000  53%
Produced water gathering and disposal (Bbl/d)1,481,500  1,842,300  3,323,800  23%
Sourced water (Bbl/d)120,000  455,000  575,000  14%

(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 June 30, Six Months Ended June 30,
(throughput)(a)2020 2019 2020 2019
Crude oil gathering volumes (Bbl/d)91,256  78,066  94,275  76,326 
Natural gas gathering volumes (MMBtu/d)107,502  84,426  112,631  72,546 
Produced water gathering and disposal volumes (Bbl/d)771,337  770,091  856,483  740,807 
Sourced water gathering volumes (Bbl/d)78,059  447,823  262,386  400,476 

(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 impairment 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 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 EndedJune 30, Six Months EndedJune 30,
 2020 2019 2020 2019
Reconciliation of Net Income to Adjusted EBITDA:       
Net income$12,462  $46,679  $67,050  $86,035 
Interest expense, net of amount capitalized1,926  85  4,547  85 
Depreciation, amortization and accretion12,100  10,158  24,606  20,062 
Depreciation and interest expense related to equity method investments7,244  149  11,010  149 
Impairment related to equity method investments15,839    15,839   
Non-cash unit-based compensation expense2,120  831  4,339  831 
Other non-cash transactions1,105    2,565   
Provision for income taxes1,083  8,724  4,903  19,556 
Adjusted EBITDA53,879   66,626  134,859   126,718 
Less: Adjusted EBITDA prior to the IPO  40,651    100,743 
Adjusted EBITDA subsequent to the IPO53,879  25,975  134,859  25,975 
Less: Adjusted EBITDA attributable to non-controlling interest38,288  18,483  95,912  18,483 
Adjusted EBITDA attributable to Rattler Midstream LP$15,591  $7,492  $38,947  $7,492 
                

Adjusted net income is a non-GAAP financial measure equal to net income adjusted for impairment 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 MonthsEnded June 30, 2020
 Pre-TaxAmounts
Net income$12,462   
Impairment related to equity method investments15,839   
Adjusted income excluding above items28,301   
Income tax adjustment for above items(367) 
Adjusted net income(1)27,934   
Less: Adjusted net income attributable to non-controlling interest20,889   
Adjusted net income attributable to Rattler Midstream LP$7,045   
  
Adjusted net income attributable to limited partners per common unit$0.15   

(1) Adjusted net income was equal to net income for the three months ended March 31, 2020 and three months ended June 30, 2019.

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

Rattler Midstream Logo.png

Source: Rattler Midstream LP


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