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
"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.
On July 31, 2020, the Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit, payable on August 24, 2020 to unitholders of record at the close of business on August 17, 2020.
Below is Rattler's revised guidance for the full year 2020, with net income, capital expenditure and equity method contribution guidance updated to reflect the latest base case operating plan.
Rattler Midstream LP Guidance 2020 Rattler Operated Volumes Produced Water Gathering and Disposal Volumes (MBbl/d) 800 - 900 Sourced Water Volumes (MBbl/d) 150 - 250 Crude Oil Gathering Volumes (MBbl/d) 85 - 95 Gas Gathering Volumes (BBtu/d) 95 - 115 Financial Metrics ($ millions except per unit metrics) Net Income $120 - $150 Adjusted EBITDA $260 - $300 Equity Method Investment EBITDA $30 - $50 Operated Midstream Capex $125 - $150 2020 Equity Method Investment Contributions $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
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.
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 party 4,456 50,270 Accounts receivable--third party, net 7,694 9,071 Sourced water inventory 10,400 14,325 Other current assets 688 1,428 Total current assets 34,408 85,727 Property, plant and equipment: Land 88,309 88,509 Property, plant and equipment 1,037,264 930,768 Accumulated depreciation, amortization and accretion (81,572 ) (61,132 ) Property, plant and equipment, net 1,044,001 958,145 Right of use assets 86 418 Equity method investments 514,110 479,558 Real estate assets, net 96,473 98,679 Intangible lease assets, net 6,579 8,070 Deferred tax asset 78,134 -- Other assets 5,232 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 liabilities 55,386 76,625 Taxes payable 406 189 Short-term lease liability 86 418 Total current liabilities 56,027 77,379 Long-term debt 523,000 424,000 Asset retirement obligations 13,272 11,347 Deferred income taxes -- 7,827 Total liabilities 592,299 520,553 Commitment and contingencies Unitholders' equity: General partner--Diamondback 939 979 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' equity 402,486 739,537 Non-controlling interest 785,239 376,928 Non-controlling interest in accumulated other comprehensive loss (1,001 ) (625 ) Total equity 1,186,724 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) Delaware Basin Midland Basin Permian Total Crude oil 108 44 152 Natural gas 151 -- 151
(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) 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) 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 Ended Six Months Ended June 30, June 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 capitalized 1,926 85 4,547 85 Depreciation, amortization and accretion 12,100 10,158 24,606 20,062 Depreciation and interest expense related to equity method investments 7,244 149 11,010 149 Impairment related to equity method investments 15,839 -- 15,839 -- Non-cash unit-based compensation expense 2,120 831 4,339 831 Other non-cash transactions 1,105 -- 2,565 -- Provision for income taxes 1,083 8,724 4,903 19,556 Adjusted EBITDA 53,879 66,626 134,859 126,718 Less: Adjusted EBITDA prior to the IPO -- 40,651 -- 100,743 Adjusted EBITDA subsequent to the IPO 53,879 25,975 134,859 25,975 Less: Adjusted EBITDA attributable to non-controlling interest 38,288 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 Months Ended June 30, 2020 Pre-Tax Amounts Net income $ 12,462 Impairment related to equity method investments 15,839 Adjusted income excluding above items 28,301 Income tax adjustment for above items (367 ) Adjusted net income 27,934 Less: Adjusted net income attributable to non-controlling interest 20,889 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.
Source: Rattler Midstream LP; Diamondback Energy, Inc.