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NGL Energy Partners LP (NYSE:NGL)
Q2 2020 Earnings Call
Nov 8, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter Fiscal Year 2020 NGL Energy Partners LP Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to introduce your host for today's program Trey Karlovich, Chief Financial Officer. Please go ahead, sir.

Trey Karlovich -- Chief Financial Officer

Great. Thank you, and welcome everybody. As a reminder, this conference call includes forward-looking statements and information. Words such as anticipate, project, expect, plan, goal, forecast, intend, could, believe, may and similar expressions and statements are intended to identify forward-looking statements. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. The number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations included in the forward-looking statements.

These factors include: prices and market demand for natural gas, natural gas liquids, refined products and crude oil; level of production of crude oil, natural gas liquids and natural gas; the effect of weather conditions on demand for oil, natural gas and natural gas liquids; and the ability to successfully identify and consummate growth opportunities and strategic acquisitions at costs that are accretive to financial results; and to successfully integrate and operate assets and businesses that are built or acquired.

Other factors that could impact these forward-looking statements are described in risk factors in the Partnership's annual report on Form 10-K, quarterly reports on Form 10-Q and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

This conference call also includes certain non-GAAP measures, namely EBITDA, adjusted EBITDA and distributable cash flow, which management believes are useful in evaluating our financial results. Please see the Partnership's earnings releases, investor presentations and annual and quarterly reports on Form 10-K and Form 10-Q on our website at www.nglenergypartners.com under the Investor Relations tab for more information on our use of non-GAAP measures as well as reconciliations of differences between any non-GAAP measures discussed on this conference call to the most directly comparable GAAP financial measures.

We have on the call with us today our CEO, Mr. Mike Krimbill, as well as our Executive Vice President of Water Solutions, Doug White.

I will now turn the call over to Mike for his prepared remarks.

Mike Krimbill -- Chief Executive Officer

Great. Thank you, Trey, and Doug jump in whenever you think appropriate. This has been an incredible quarter of significant achievements for NGL. We close the Mesquite acquisition, the largest water solutions company in the Delaware with capacity of 1 million barrels per day disposal 95% piped and long-term contracts with large producers. Then we signed the Hillstone PSA, which has one of the best producer contract profiles, MVCs 10 year to 20 year acreage dedications with large credit-worthy producers. And next, we closed on the sale of our Refined Products business, reducing indebtedness by $300 million.

For those of you who look in their rearview mirror to make investment decisions, in the last 20 months, 24 months, we have sold assets for approximately $2.1 billion, while retaining Grand Mesa of course and purchased assets for approximately $1.5 billion, math that would lead one to believe that EBITDA would have declined. But no, EBITDA has actually increased over 50% from about $380 million to nearly $600 million.

So what do we accomplished? The business has become more simplified and focused with three segments versus five. The three businesses are much less volatile with the sale of Refined Products and less seasonal with the sale of Retail Propane. Crude and NGL Logistics are repeatable predictable cash flow streams. Water Solutions, less so currently as a result of the significant growth going forward.

We have reduced total leverage by nearly two turns already and have a couple of $100 million of working capital debt to eliminate by 12/31. We have established the largest water system in the U.S. with nearly 3 million barrels a day of disposal capacity and many hundreds of miles of pipelines. More importantly, we invested in the Delaware Basin with the highest rates of return for producers meaning less commodity risk. It is also the basin with the highest water to oil ratio. We exited the other basins that we felt had greater commodity price or seismic risk.

We are focused on creating a profile for the water business, similar to the G&P business, long-term contracts 5 years to 20 years, significant acreage dedications, minimum volume commitments, a focus on pipe water not truck, Mesquite as I said is 95% piped, Hillstone is 100% piped.

We have created massive redundancy for our producers by building many 24-inch pipelines and two 30-inch pipelines all connected to our SWDs. We are not a water disposal company, but rather Water Solutions partner. We offer many services to our customers. Disposal, of course; second, recycle. This is extremely important in New Mexico where we need to protect and conserve freshwater and utilize recycled water for fracking instead. Recycle is not a small volume mobile unit, but rather an extensive produced water pipe system that provides produced water to recycle ponds throughout Lea and Eddy County.

NGL can provide frac quality water taking out undissolved solids and corrosive metals like iron, so producers don't need to add chemicals. We own ranches in Lea County of approximately 200,000 acres. On our Fee Land we are building recycle ponds, landfills that are important to disposal of the unresolved solids removed from produced water, cliche mines for building roads and drilling pads, and we're even currently evaluating construction of solar fields on our fee land to produce electricity.

So what's in store for the next 18 months? A significant increase in water volumes; we have built the infrastructure to handle large increases in produced and flow back water. Two, we continued reduction in working capital debt, limited if any acquisition opportunities on a much smaller scale; and reduce capex for internal growth. No more than 10 to 20 SWDs may be required annually, in addition to pipeline construction.

Before closing, I would like to address our substantial and exciting ESG efforts for the first time. For over a decade, we have operated our large scale 60,000 barrel a day and declined recycle and discharge facility in Wyoming. We believe we have the most experience and expertise in treating produced water to a recycle standard for reuse and a discharge standard, which is better than drinking water quality for discharge into the New Fork River.

We have treated and discharged over 60 million barrels in this upper most tributary of the Green River, which eventually flows into the Colorado. Our water meets the highest quality specifications of Wyoming, and is personable and supportive of fish. This expertise and our 14-step patented treatment process is ideal for use in New Mexico where there is a shortage of freshwater and a massive amount of produced water.

To that end, we have entered into two research collaborations. First, with the Colorado School of Mines, where we don't need to research facility and equipment by $100. This effort will support research and analysis of produced water. Second, we've recently committed $1 million to the New Mexico State University for a produced water research consortium with the objective of filling scientific data gaps and identifying compounds in produced water and associated testing methods.

We have two specific goals in mind presently. One is to work with the State of New Mexico to create a net zero carbon footprint in the state; and two, is to treat produced water to various standards that can be useful for agricultural purposes, recycle, river discharge and even municipal potable purposes.

With our partners, we are analyzing our ranch soil to determine what can grow and the water treatment cost to support such purpose. This is called fit for purpose. Can we grow non-consumable agricultural products such as cotton and alfalfa. Can we grow agricultural products for human consumption. What is the cost to treat to a standard that allows water to be discharged into the rivers. A substantial amount of carbon can be sequestered in the soil, if we grow prairie grasses and other plants. NGL can produce the water quality that's needed. The question is at what cost and how do we get a return on our investment.

In closing, our future is very bright. Our infrastructure is built, our business simplified and predictable. In spite of fake news, analysts stepping to the sidelines and short-sellers, we have executed the right transactions to create value for our unit holders. One day, we believe it will be reflected in the unit price. In the meantime, smile and continue collecting the $1.56 annual distribution.

Back to you, Tery.

Trey Karlovich -- Chief Financial Officer

Great. Thanks, Mike. There are quite a few things to cover from a financial perspective for the quarter as well as updates on the recent closing of Hillstone. First, for the transactions included in the quarter. As Mike mentioned, we closed Mesquite on July 2, and we closed the Refined Products TPSL sale on September 30. So both transactions are reflected in our quarterly results.

The sale of TPSL is included in discontinued operations in our September 30 financial statements, and prior periods have been adjusted accordingly. This should allow investors to understand the impact this business has had on our historical results. These results are no longer included in our covenant calculations, which is consistent with the treatment of the Retail Propane segment we sold last year. The proceeds from the TPSL sale were used to repay borrowings on the revolving credit facility and delever the business by approximately half a turn in total.

Pro forma for the Mesquite acquisition and the TPSL sale as well as growth capex invested year-to-date, our LTM pro forma adjusted EBITDA at 9/30/2019 is approximately $575 million as calculated for our debt covenant compliance purposes. Compared to a total debt balance of approximately $2.8 billion, which results in total leverage of approximately 4.8 times, which is a reduction of about 0.4 turns from the June 30, 2019 period.

With the recent change in our business strategy and the reduction in working capital needs with the TPSL sale and the expected further wind down of certain remaining Refined Products businesses, we have reallocated our revolving credit facility and adjusted our covenants to be more in line with market.

We are now governed by a total leverage covenant, which will include working capital borrowings going forward, and it's currently subject to a 5.75 times limit with a step down to 5.5 times beginning June 30 of 2020. We expect our leverage to remain at its current level and then reduce once Hillstone volumes ramp with the Poker Lake dedication coming online next year. Our target leverage is below 4 times total leverage. The current total leverage metrics are in line with where they have been over the past year and significantly improved from prior periods. However, we believe the cash flow profile and predictability of earnings, as Mike mentioned, significantly improved with our transition from Retail Propane and Refined Products marketing to Water Solutions infrastructure.

Looking at the changes in our debt balances for the quarter, the TPSL sale resulted in approximately $300 million reduction in working capital at September 30. You should note that our total working capital reduction since June 30 was $252 million with the offset being primarily a seasonal increase in our Liquids working capital. We funded $250 million of the Mesquite acquisition with the new term loan in July.

Our growth capex for the quarter was almost $100 million, almost all of which was incurred in our water segment as we built our pipelines and completed our infrastructure. Additionally, we funded $50 million of the Hillstone acquisition with a deposit in September that was funded on our expansion facility, and which is also reflected on our balance sheet as an increase in borrowings.

Following the end of the quarter, we closed our Hillstone, which was funded with $200 million of incremental preferred equity and the remaining balances funded with proceeds from our credit facility. A portion of this transaction funding will be offset with the remaining wind down of a portion of our Refined Products business, which is expected to be completed during the current quarter and should reduce working capital needs by approximately $200 million to $250 million. That translates to a net debt increase of approximately $150 million to $200 million for Hillstone, well under our 4 times leverage target.

Now, I'll cover the operating results for the quarter as well as our updated guidance for fiscal 2020. Adjusted EBITDA excluding discontinued operations totaled approximately $119 million for the quarter and over $212 million year-to-date. We are adjusting our forecast ranges for fiscal 2020 for each of our business units to the following. Crude increases to $200 million to $220 million of adjusted EBITDA for the year. Water will be $270 million to $300 million, which includes Mesquite for nine months and Hillstone for five months. Liquids increases to $85 million to $95 million, and Refined Products excluding discontinued operations remains the same at $15 million to $30 million for the year.

Our G&A forecast also remains unchanged at $30 million. We are not adjusting our forecasted organic growth capital or maintenance capital expenditures for the fiscal year, and as Mike mentioned, we expect to maintain our $1.56 per unit annualized distribution.

Jumping to the Crude segment. The Crude segment continues to show steady performance and generated approximately $54 million of adjusted EBITDA this quarter and $106 million year-to-date. Grand Mesa volumes averaged 128,000 barrels per day this quarter, very slight decrease the last quarter, but remaining in line with our expectations. We're currently seeing volumes trend higher through October and November on Grand Mesa as producers of ramp production in the DJ Basin which has been facilitated by increased natural gas and NGL takeaway recently coming online. We believe most -- the current crude takeaway is being fully utilized at this time, which benefits our marketing efforts in the basin as well. We have not seen any significant changes in the remaining crude segment as we continue to see high utilization of our cushing storage as well as our logistics assets. The results to date along with our expectations for the remainder of the year have allowed us to increase our earnings target for this segment.

Moving to water. Water adjusted EBITDA was $57 million for the quarter and $98 million year-to-date, which includes one quarter of Mesquite results. Total disposal barrels were 1.26 million barrels per day, and our skim oil volumes totaled 3,100 barrels per day during the quarter. We received an average disposal fee of $0.64 per barrel and realized skim oil after hedges totaled approximately $58 per barrel, with an average skim oil cut of 24 basis points. Approximately 60% of disposal volumes were delivered via pipeline during the quarter.

We are expecting pipe volumes to continue to increase on our existing systems and all the Hillstone Delaware Basin volumes are delivered via pipeline as well, which should result in over 70% of our volumes delivered via pipe once Hillstone is integrated.

Mike discussed some of the Mesquite transition and integration. We're continuing to see an increase in their volumes, which were just under 400,000 barrels per day in October, compared to approximately 350,000 barrels per day average during the quarter. Hillstone volumes were over 300,000 barrels per day in October as well.

Fresh water sales continue to be lower than expected during the quarter. However, we're negotiating agreements that would commit all of our fresh water for next calendar year to certain producers under agreements that cover acreage dedications for multiple years. Additionally, as Mike mentioned, we are developing wastewater recycling projects on our ranches with long-term acreage dedications on those as well.

Our current city, solids facility in the Eagle Ford was down during the last two quarters for unplanned maintenance, but is back operational at this time. The work performed on this facility as well as certain well workovers, pump replacements and upgrades drove our maintenance capital expenditures during the quarter. We are expecting an increase in our solids for the back half of the year, going forward.

Operating expenses were $0.38 per barrel for the quarter compared to $0.40 per barrel year-to-date. OpEx remains higher than budget as we work to automate facilities, increase utilization, integrate acquisitions and streamline operations. We are also moving additional facilities off of diesel generators as we connect them to the power grid. We continue to focus on reducing operating expenses across the system with a target of $0.30 per barrel by the end of the year.

We will continue to see growth in volumes across the system, particularly in our core Northern Delaware Basin operating area, where most of our producer customers are large independent for major integrated companies. Mesquite volumes are increasing and we will start recognizing the Hillstone volumes in November. We are expecting to exit the year with disposal volumes between 1.8 million to 2 million barrels per day, which is reflected in our updated guidance range.

Jumping to Liquids. Adjusted EBITDA for our Liquids segment totaled $19 million this quarter and has totaled almost $32 million year-to-date. We continue to benefit from our recently acquired terminals, including our Chesapeake export facility. And our butane business has shown strong volumes and margins so far this year.

We have already 19 ships at the Chesapeake, Virginia, export facility this fiscal year and completed certain optimization projects contemplated with that acquisition from DCP. This has been a nice addition to our liquids asset mix. Butane sales remained strong as we progressed through the season and we are just entering the heating season for propane where we believe we are well positioned from an inventory and average cost perspective. We are forecasting based on a normal heating degree winter. We increased our guidance range for this segment based on our results to date and our expectations for the remainder of this year.

Finally Refined Products. Our remaining Refined Products business will primarily consist of our rack marketing business, which carries minimal inventory and markets barrels through third-party terminals across the United States, and our Renewables business, which is centered around biofuel marketing.

We are in the process of winding down our other marketing operations which required significant amount of inventory storage and has contributed minimal earnings over the past year. We have maintained our distribution this quarter, and do not expect any changes to the distribution at this time. Our coverage has continued to increase. We are just over 1 times on an LTM basis, and we expect to hit or exceed our 1.3 times LTM coverage target at the end of this fiscal year.

It seems like we always get caught up in the moment over the quarter, but if you look at what we have proactively accomplished to redirect our strategy of this business, reduce leverage, improve cash flow predictability, strengthen contract terms, grow fee-based revenues, extend debt maturities, among other efforts, many of which address the always growing list of marketing concerns. It's pretty remarkable what has been accomplished in NGL in the past two years. Mike said, we have sold over $2.1 billion of assets; acquired $1.1 billion in high quality water assets; and increased our EBITDA and cash flow, and still reduce leverage by about 2 times over this period. We believe we are doing the right things for all of our business stakeholders.

That concludes our prepared remarks. Jonathan, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of TJ Schultz from RBC Capital Markets. Your question please.

TJ Schultz -- RBC Capital Markets -- Analyst

Great, thanks. Maybe for Doug, what percent of the expected Delaware volumes by the end of next year will be on contract or part of an acreage dedication, and what percent is supported by MVCs?

Doug White -- Executive Vice President, Water Solutions

Hey, TJ. Thank you. Right now, I believe we're somewhere close to 70% of all either acreage dedicated or MVCs in the Delaware. That really is pretty in line with the percentage of our piped water. Also really our trucked waters is the undedicated portion of our portfolio in the Delaware. As we continue to bring on more facilities, and then also, we see the Poker Lake contract ramp next year, we'll see that 70% pushing more toward the 80%, 85%. On the MVC basis; I would say on MVC basis in the Delaware, of that 70% of committed, 30% of that's MVC.

TJ Schultz -- RBC Capital Markets -- Analyst

Okay, thanks. And then maybe a question on recycling more high level. You've indicated building these ponds. So what recycling now is done via some of these mobile units and how does that evolve or is that evolving to something different more quickly that would utilize these ponds and pipes. Just trying to understand the opportunity that sits there for you all as you look to contract that recycling business?

Doug White -- Executive Vice President, Water Solutions

Sure. The mobile units are more focused on on-the-fly or lower volume production. With our long history of recycling and treating, we've been down that road and consider them. We didn't see it as an answer for anything we could scale. That's why we do not focus on those. Because we have such a large pipeline system in place now, we're able to strategically place very low capex pits and recycle equipment that is really centralized, but not on a big plant basis, more of a central facility with equipment and pits that store the water.

Our interconnect to our produced water system is where we receive the produced water to treat. Our average facility can treat 50,000 barrels per day, scalable for -- to 100,000 barrels per day for not a lot more capex. And our goal is to -- and what we've already entered into -- we have a 10-year acreage dedication on our first facility on our McCloy Ranch. We are delivering that water through the acre dedication, but then that has opened up opportunities for us and other dedications or other contracts within 8-mile to 10-mile radius of that facility, all delivered by pipe as well.

TJ Schultz -- RBC Capital Markets -- Analyst

Okay. Great. That's helpful. Just lastly, Mike or Trey, the implied valuation on the GP and some recent transactions that were disclosed imply plans I would think to grow the distribution over the next few years. But how do you view distribution growth versus buybacks, just given where the stocks trading right now? Thanks.

Mike Krimbill -- Chief Executive Officer

We think, number one, we probably end up in the midstream space where everyone eliminates their IDRs. So when do you do it, how do you make it, say fair to a GP owner, but very attractive to the Partnership. So when we look at our next few years projections, and we look at more what's the DCF per unit, clearly we're not going to raise the distribution for trading at 12% or 13%, where we currently are. We think it's very attractive to buy GP interest back today at what ultimately would become a multiple below, say, the current market, where we're seeing whatever 9 times to 15 times. I hope that answers the question. Trey, do you have...

Trey Karlovich -- Chief Financial Officer

Just to add, TJ, obviously we're not making decisions in a box. We're obviously looking at the market, looking at what our expectations are for where the units will trade to determine whether we're buying back units or increasing distributions in the future. Obviously, the way that we look at running our business and generating excess cash flow supports distribution growth, but obviously that decision is not going to be made, if you're trading at 13%, 14% yield. At that point in time, you would devote those funds to buying back units which again may not support a higher GP valuation because you don't have the increase in distributions, but that's what is implied in our overall valuation of how we look at the business on a longer-term basis.

So hopefully that helps. Again, I think that at the current unit price level, raising the distribution we would most likely be buying back units rather than doing that. We don't expect the units to stay at this level, again it's as it's proven out that our distribution is predictable study, coverage increases and leverage continues to decrease and hits our target levels, we wouldn't expect to trade at this level, but again the market is -- the market will have to make that decision at the time.

TJ Schultz -- RBC Capital Markets -- Analyst

Okay. That make sense. Thank you.

Operator

Thank you. Our next question comes from the line of Justin Jenkins from Raymond James. Your question please.

Justin Jenkins -- Raymond James -- Analyst

Great, thanks. I guess first on the exit rate for the year for water volumes that's fiscal year and not calendar year, is that right.

Trey Karlovich -- Chief Financial Officer

That's correct, Justin.

Justin Jenkins -- Raymond James -- Analyst

Okay. And then you mentioned, Trey, that the five months of contribution from Hillstone in the updated guidance. Can you give us a better sense of potential financial contribution in the early stages here? And I guess, secondarily, has the outlook changed at all for those assets given what we've seen with operator activity levels heading into calendar 2020?

Trey Karlovich -- Chief Financial Officer

There has been no change to our expectations on the Hillstone assets. Again we closed that business a week ago. The largest dedication is a 20-year Poker Lake dedication. That development comes online a year from now. Between now and then, our expectation is that the Hillstone EBITDA contribution essentially offsets the -- it's not accretive or dilutive. It offsets the financing cost of the business, and that business is financial $200 million of 9% preferred. The remainder is financed with debt doing the simple math that's around $50 million of contribution for the first year. That's how there is a ramp in those volumes over time, but that's the contribution that we're assuming in our fiscal guidance.

Justin Jenkins -- Raymond James -- Analyst

Got it. That's helpful. And last one for me, if I could. Just how we should think about maintenance capex, now that the water business is a meaningfully larger portion on a go-forward basis?

Trey Karlovich -- Chief Financial Officer

Sure. So our maintenance capex obviously is increased as we have grown the water business. There is more infrastructure, more assets. You have regular maintenance on your pumps and your facilities will continue to have a regular maintenance plan. The maintenance capital will be more tied to volumes as well. So as volumes increase we would expect maintenance capital to also increase. We've moved our maintenance capital numbers up for this year. We're still in line with that expectation. It was a range from $50 million to $60 million. I would expect next year's maintenance capital numbers to be slightly higher, but again I don't think it's going to be significant.

Justin Jenkins -- Raymond James -- Analyst

Got it. Thanks, Trey.

Operator

Thank you. Our next question comes from the line of Shneur Gershuni from UBS. Your question please.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, guys. Mike, thank you for the title reference in the prepared remarks. Just to start off, you guys had made a lot of progress on leverage over the last couple of years. And then you sort of turned around and did this acquisition this most recent quarter. When I think about the backdrop, where the rig count is, producer expectations and so forth. At what point do you take a pause in sort of -- produce where you're at in sort of focus on letting the earnings catch up to where your leverage actually is at this stage?

Trey Karlovich -- Chief Financial Officer

So, I'll start Shneur, and then Mike can chime in. As Mike mentioned, we have reduced leverage by two turns over the past two years. We've completed these acquisitions with a significant amount of preferred equity. So we've raised $600 million of preferred Class Ds. We also issued another $100 million of preferred Class B. And so approximately half of these transactions was financed with preferred.

I think what's lost in some of the translation is the amount of debt that's coming off related to the TPSL sale as well as the wind down of remaining refined products. That's going to be $500 million. So from our perspective, we have continued to reduce leverage. Our overall target is lower than where our current leverage is because we do -- we will grow in to these two acquisitions.

The volumes are expected to ramp. But these are two significant transactions that we have actually been discussing for about a year now. These are assets that we identified in our evaluation of the basin, that we thought were core to the further development of the basin. They are underpinned by long-term contracts with the best producers in the basin as well. So we do feel confident in the assets that have been acquired.

The question to what's next, Mike mentioned, our continuing growth capital will be focused on tying these assets together via pipeline, expanding pipeline capacity where necessary. We have 2.8 million barrels a day of disposal capacity in the basin. So over the next 12 months to 18 months, we should see higher utilization of that capacity and a reduction in growth capital. And there is not any significant M&A that we're evaluating at this point in time. Mike, if you want to add anything more to that.

Mike Krimbill -- Chief Executive Officer

Yes. It's wonderful to thank you can just say, I'm going to put the business on pause and I'm not going to lose any competitive advantage, but that's not the way it works. You have -- in this basin, there was a shortage of disposal capacity in New Mexico. So producers were signing contracts to make sure that they get rid of their water. Those producers are larger independents and majors that there is a limited number. So we have to -- get as many contracts as we can for the future growth in health of the business.

So in the basin, you had us, ourselves, Mesquite, Hillstone, [Indecipherable] and Solaris. That was it really, you know for large systems that we felt the two best were Mesquite and Hillstone, with their physical assets, but also their contract profiles. As you know [Indecipherable] and Solaris is doing whatever they're doing today.

So if we just had to purchase these two businesses and leverage will increase somewhat, but it assures our business really of being the franchise in the Delaware. So now what's left, well there's really nothing left. So there may be a few producer systems out there that may come up for sale, but otherwise, there's all the systems are divide up [Phonetic] and the producers are pretty much divide up.

So by getting Hillstone and Mesquite, then I think we're at the point now where we were just waiting for the water to flow to us. And there is nothing in a large -- any kind of larger, medium-scale acquisition to be done.

Shneur Gershuni -- UBS -- Analyst

Okay. So to paraphrase, you're mostly done with acquisitions and we can sort of expect the operating leverage of everything you put into place where you just have the connection capital going forward. And we should see a faster clip or faster growth rate it from an EBITDA perspective on a go forward basis. Does that encapsulate what you're basically saying?

Trey Karlovich -- Chief Financial Officer

Yes. And that we've tried to say that as well with this SWDs next year and the year after being in this 10 to 20. As you know the ones in -- that on the Texas side are $1.5 million to $2 million each. So there is -- we've spent the capital, but it's because we expect the water here. We're seeing it already in November ramp up, but, yes, so I think now it's just that we're going to see the growth in the water EBITDA and leverage should decline or will decline over time.

Shneur Gershuni -- UBS -- Analyst

Okay. One of your peers reported this week and had some really strong water results. Should we expect similar performance in terms of what Rattler posted earlier this week. Do you have like similar metrics to them and so forth? Or are there differences based on where you are and where they are and so forth?

Mike Krimbill -- Chief Executive Officer

[Indecipherable] I will add. So actually, Shneur, Rattler tied specifically to their parent, one primary producer. They are not in the exact same area that we are in the basin. We -- I don't think we should be lost, but we have seen growth in our volumes over the past quarter. It may not be as significant as we had originally thought in the first part of the year, or as the market had anticipated, but it has continued to grow and we're seeing that grow through October and November as well.

So, I think, if you look at our system and you understand the producers that are behind that system, you can see that their rig counts are not really following, either staying steady or even increasing, and their volume expectations are increasing through the remainder of, not just this calendar year, but next calendar year as well. So I think that's the read through and where you should be focused from an NGL perspective.

Shneur Gershuni -- UBS -- Analyst

Perfect. Thank you very much, guys. And have a great weekend.

Mike Krimbill -- Chief Executive Officer

Thanks, Shneur.

Operator

Thank you. Our next question comes from the line of James Spicer from TD Securities. Your question please.

James Spicer -- TD Securities -- Analyst

Yes. Hi. Trey, you mentioned an additional $200 million to $250 million reduction in working capital borrowings, given that the TPSL sale is closed. Can you just clarify exactly what's driving that? And then how much in total is going to be drawn on the credit facility pro forma for all these transactions?

Trey Karlovich -- Chief Financial Officer

Sure, James. So our total -- when you looked at our total borrowings at the end of June, it was about $900 million. That was about $600 million of Refined Products and about $300 million of Crude and Liquids. At September 30, we sold TPSL, working capital came down about $250 million in total, again their TPSL sale was $300 million offset by a slight increase in our Liquids that's seasonal. But the $600 million of Refined Products working capital was only reduced in half. The remaining businesses were utilizing that $300 million -- approximately $300 million of working capital and generating a very small amount of EBITDA. So we are in the process of winding those businesses down and looking for other opportunities associated with those business, and we expect that to be completed by the end of this quarter, which would be December 31.

Our estimate right now, that's another $200 million and $250 million reduction in borrowings under the working capital facility. The way we've reallocated our credit facilities, we have about $1.2 billion available on the expansion facility, $600 million available on the working capital facility. We would expect that working capital facility to be in the $400 million range from an outstandings perspective. And that would cover Crude Logistics NGLs, which at December 31 will still have a fairly significant inventory position for propane as we move through the heating season, and then what is remaining in our Refined Products business, which is primarily the rack marketing and a small piece of renewables business.

James Spicer -- TD Securities -- Analyst

Okay. Great. That's helpful. And then just on capex for next year, I understand this is primarily connection, capital and time things together, but can you just directionally provide a little guidance relative to the $230 million to $330 million this year?

Trey Karlovich -- Chief Financial Officer

So right now we're looking at growth capex in total across all of our businesses of probably $200 million to $250 million range. At this point in time, that would include no M&A activity. I think that's a reasonable number at this point. Now it would primarily be the Water Infrastructure and then as Mike mentioned, you've got a few disposal wells that you would add as needed through the year.

James Spicer -- TD Securities -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Pearce Hammond from Simmons Energy. Your question please.

Pearce Hammond -- Simmons Energy -- Analyst

Good morning and thanks for taking my question. I know this has already been kind of addressed in the Q&A. But I was just curious what attracted you to the Hillstone assets? Is there like one or two attributes that you want to point out about those assets that attracted you especially relative to the other water-related businesses that have been up for sale?

Trey Karlovich -- Chief Financial Officer

That was an easy one. Their contract profile, the contract they have on Poker Lake in particular very attractive. We are not able to tell you who the customers are because of the CAs in the contracts. So it's hard for you necessarily confirm, but with the contract profile they had 19 wells drilled, we can drill wells and get permits easily too. So that's not a big deal, but certainly the contracts. It's difficult, I think for analysts, and you know this better than most. You can look at the rig count in the U.S., you can look at the oil rig count in the U.S. that doesn't matter. You can look at the oil rig count in the Permian. Okay. That really doesn't matter.

You've got some of the companies going bankrupt, others dropping rigs that enters into that account. The only way you can really evaluate us is to look at the rig count for our producers and we're not allowed to tell you all the producers. So we -- it's very frustrating when these analysts come out and tell, hey the rig count is this, this, this. That's nonsense. That they don't -- no one knows except us about that rig count, so we can't say anything. But the contracts are key, Poker Lake was one of the most attractive contracts of the company.

Pearce Hammond -- Simmons Energy -- Analyst

Great. And then as a follow-up to that, if you look at other water companies not your own, but other ones, do you think that there is the chance that they might be facing some pricing related issues as you know from a competitive standpoint, maybe an oversupply of systems that are getting built out there? Just any thoughts on that.

Mike Krimbill -- Chief Executive Officer

I'm thinking -- generally, it would be true that contracts that were signed, let's say five years ago, are probably at a higher rate than the contracts being signed today. You know as any business as you get more competitors, the fees come down. So I think anyone who has contracts from some period of time in history as they come up for renewal, there will probably be some pressure on price.

Pearce Hammond -- Simmons Energy -- Analyst

That's great. Well, thanks for the color.

Operator

Thank you. Our next question comes from the line of Sunil Sibal from Seaport Global Securities. Your question please.

Sunil Sibal -- Seaport Global Securities -- Analyst

Yes, hi. Good morning, guys. Couple of questions from me. So starting out with the customers, I realize that you can't talk about specific customers, etc., but I was wondering if you could categorize your customers, especially in the water business as large integrated energy companies versus independent E&Ps or by even customer credit quality?

Mike Krimbill -- Chief Executive Officer

Trey?

Yes. Sunil, our largest customers are going to be large integrators or very, very large independents, all investment grade, or higher rated. That would -- I think that would cover the majority of our customers and the volumes that we're receiving. Obviously, we have a very large system, so we do have customers of all credit qualities. But the contracts that are incurring the system, the MVCs that we have, the large acreage dedications, those are all from extremely high credit quality customers.

Trey Karlovich -- Chief Financial Officer

Yeah, let me add to that, we clearly -- we want all the producers to be successful. So if we have a line running by a smaller producer, we're very excited to have them connect to our system. I think we all are looking at the smaller guys. What -- are they more likely the financial issues, drop rigs. So you really want to base your business on the larger producers, that are going to drill through any downturn.

But that said, the smaller guys will eventually, I think, be purchased by the larger guys. So it would be -- we don't want to ignore the smaller guys, we want to help them as much as we can. And then if they end up becoming part of a larger group that we do business with will already have their water, and it will be additive to instead of having a portion of our larger customers water going somewhere else.

Sunil Sibal -- Seaport Global Securities -- Analyst

Okay. Just to put a little bit of quantification around that. So when you say large majority, would it be fair to say it's more than 80%, 85%?

Trey Karlovich -- Chief Financial Officer

Yes. [Speech Overlap] I'm sorry, you have to go by shale play. So if you're talking about the Permian, yes, if you're looking at the Delaware Basin, yes. When you look at the DJ, the Eagle Ford, the Midland Basin, no, it would be a smaller number. But the core basin and particularly the assets that we acquired, I think, that's -- around 80% is probably a reasonable number.

Sunil Sibal -- Seaport Global Securities -- Analyst

Got it. Thanks for that. And then just on the leverage question. I think you had set a 3.25 times kind of a leverage metrics for the business, some time back and I realized there have been some changes around the working capital. How that working capital is broken down, etc. So I was just kind of curious, is 3.25 times still the kind of the number that you're targeting? And if so, it seems like you indicated, you will hit forex or so sometime in next year when do we -- when can we expect to get to that 3.25 times.

Trey Karlovich -- Chief Financial Officer

Right. So the 3.25 times that -- that metric excluded working capital. And if you look at where our working capital was three months ago, it was $900 million. That's 1.5 turns. So if you took the 3.25 times and you add a 1.5 turns, you're at 4.75 times, would have been the target at that point in time, we have actually -- for a total leverage comparison.

We've actually lowered that target. We're right at that target today. We're at 4.8 times, but we have reduced our working capital. We're continuing to reduce working capital, continuing to eliminate the business, the primary use of that working capital. However, we will still have a little bit under a turn of working capital. As I indicated earlier, about $400 million, so call it, 0.6 turns, 0.7 turns. So we've really let -- the 3.25 times hasn't changed, it's just been adjusted for how the business is now structured and how the working capital will be impacted for the business. So we've really taken the 3.25 from a compliance basis which excluded working capital to 4 times, including the remaining working capital.

So we really have not changed that target, and we're expecting to be there in about a year, once we see the ramp up of volumes on Hillstone and Mesquite, and again the elimination of the remaining working capital intensive businesses associated with the Refined Products.

Sunil Sibal -- Seaport Global Securities -- Analyst

Okay. Got it. Thanks for that clarification. That's all I had.

Trey Karlovich -- Chief Financial Officer

No problem.

Operator

Thank you. Our next question comes from the line of Spiro Dounis from Credit Suisse. Your question please.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning, guys. Thanks for squeezing me in here. Two quick ones. Just on drilling SWDs next year, seems like there is actually considerable headroom, just with your current injection capacity and relative to where your run rate is. Just curious why you think there is a need to drill that many overall. And then just on that 20 years of figure that you are drilling, should we expect that -- something that probably declines a descend bit the following year?

Doug White -- Executive Vice President, Water Solutions

I can take that Mike?

Mike Krimbill -- Chief Executive Officer

Yes.

Doug White -- Executive Vice President, Water Solutions

This is Doug. We are running a lot of pipe large diameter to move the water from New Mexico to our existing capacities in Texas. Our New Mexico capacities, we only have -- we only drilled seven Devonians, inherited, 17 Devonians from Mesquite. Those are infield. Those are staying very full. When we engaged our three new customers in the Hillstone acquisition, all three of them told us they are outpacing their forecast and they have come and asked us for additional firm capacity above and beyond what was contracted. That basis is where we are coming up with the additional wells that we drilled. That's particularly in Loving County, where the demand on the Hillstone system is.

And to answer your second part of your question, our expectation would then be to only be drilling additional wells in the future based on additional forecast or contract -- new contracts. But we are continuing to see the forecast of the magnitude of water under our contracts, continue to increase. That's what would drive obviously additional investment in new wells.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. I appreciate that color, Doug. Second one, Mike, this one might fall on to the fake news category, but there has been some expanded discussions around risk to drilling on federal lands, depending on the results of the next election. So it sounds like maybe there could be some impact in New Mexico. I'm just wondering what your thoughts are around risk there? And how you'd expect the mix going to react as you're giving up vital energy is now?

Mike Krimbill -- Chief Executive Officer

Yes, that is fake news. Thank you. And we've already been through this once in Colorado with a setback. So we have opinions, but those really don't matter. So we engaged a law firm in the Southwest that was an expert in this area. They have provided us an opinion which took 10 days or so. So it wasn't -- it was well thought out. What really can an executive -- and someone really shut us down or they shut down the producer's next executive order is assuming it doesn't -- it's not something you can get through the Senate house.

Their opinion was that the -- democratic President cannot shut down fracking on the BLM way [Phonetic]. So then we said, OK, what happened in Colorado, there was a rush to the vital producers to get as many additional drilling permits approved as possible. So they would have a large inventory obviously in case it setback passed. That is not happening in New Mexico. There is not a rush on the drilling permit folks to grant thousands and thousands of new permit.

So that's an indication, I think of what the producers are thinking. So we don't believe a change in administration could shut down fracking on the BLM way. Currently, we have some production in not predominantly New Mexico that were our producers are on BLM. We tried to figure out how much water is coming off of those lands. But there is no way for us to know the advantage. Obviously, what we do is all the water is on pipe. But when water is on pipe, you don't know what leases that came from. So there is no way for us to determine how much of our New Mexico waters coming off of the BLM way, but we do think that's fake news. Unfortunately investors who don't know any better may react to their detriment, but we saw the same thing happened in the DJ. At the end of the day in the DJ, we had our biggest water customer come to us and asked for a 15-year contract. So, quite a bit different than the fake news that came out about the setback proposal.

Spiro Dounis -- Credit Suisse -- Analyst

Understood. Yes. I can appreciate. That's a tough one to answer. So I appreciate taking a stab at it. Thanks, guys.

Mike Krimbill -- Chief Executive Officer

Thanks, Spiro.

Operator

Thank you. Our next question comes from the line of Mike Murray, Private Investor. Your question please.

Mike Murray -- Private Investor -- Analyst

My question has been answered.

Mike Krimbill -- Chief Executive Officer

Thank you.

Mike Murray -- Private Investor -- Analyst

Hey, Mike.

Operator

This does conclude the question-and-answer session. I would now like to hand the program back to Mike Krimbill for any further remarks.

Mike Krimbill -- Chief Executive Officer

Again, I have many thoughts that I think I'll keep into myself. So thank you and we'll see you next quarter.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Trey Karlovich -- Chief Financial Officer

Mike Krimbill -- Chief Executive Officer

Doug White -- Executive Vice President, Water Solutions

TJ Schultz -- RBC Capital Markets -- Analyst

Justin Jenkins -- Raymond James -- Analyst

Shneur Gershuni -- UBS -- Analyst

James Spicer -- TD Securities -- Analyst

Pearce Hammond -- Simmons Energy -- Analyst

Sunil Sibal -- Seaport Global Securities -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Mike Murray -- Private Investor -- Analyst

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