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

Rhea-AI Summary

Rattler Midstream LP (NASDAQ: RTLR) announced its Q4 2020 results, reporting a consolidated net income of $38.9 million and Adjusted EBITDA of $77.6 million. The Board approved a cash distribution of $0.20 per common unit, yielding 7.5% based on a unit price of $10.72. Full year 2020 net income totaled $144.7 million, with a 7% increase in Adjusted EBITDA year-over-year. The company reported a 43% reduction in capital expenditures, forecasting continued free cash flow generation and declining operated capital investments in 2021.

Positive

• Q4 2020 consolidated net income of $38.9 million, flat compared to Q3 2020.
• Full year 2020 Adjusted EBITDA of $283.8 million, up 7% from 2019.
• Cash distribution of $0.20 per common unit, reflecting a 7.5% annual yield.
• 43% reduction in full year capital expenditures compared to 2019.

Negative

• Flat Q4 2020 net income compared to Q3 2020.
• Decline in sourced water volumes to 287 MBbl/d in Q4 2020, down from 478 MBbl/d in Q4 2019.

MIDLAND, Texas, Feb. 24, 2021 (GLOBE NEWSWIRE) -- Rattler Midstream LP (NASDAQ: RTLR) (“Rattler” or the “Company”), a subsidiary of Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback”), today announced financial and operating results for the fourth quarter and full year ended December 31, 2020.

FOURTH QUARTER 2020 HIGHLIGHTS

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

FULL YEAR 2020 HIGHLIGHTS

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

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

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

OPERATIONS AND FINANCIAL UPDATE

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

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

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

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

CASH DISTRIBUTION

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

COMMON UNIT REPURCHASE PROGRAM

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

GUIDANCE UPDATE

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

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

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

CONFERENCE CALL

Rattler will host a conference call and webcast for investors and analysts to discuss its results for the fourth quarter and full year of 2020 on Thursday, February 25, 2021 at 9:00 a.m. CT. Participants should call (877) 288-2756 (United States/Canada) or (470) 495-9481 (International) and use the confirmation code 5272909. A telephonic replay will be available from 12:00 p.m. CT on Thursday, February 25, 2021 through Thursday, March 4, 2021 at 12:00 p.m. CT. To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 5272909. A live broadcast of the earnings conference call will also be available via the internet at www.rattlermidstream.com under the “Investors” section of the site. A replay will also be available on the website following the call.

About Rattler Midstream LP

Rattler Midstream LP is a Delaware limited partnership formed by Diamondback Energy to own, operate, develop and acquire midstream and energy-related infrastructure assets. Rattler owns crude oil, natural gas and water-related midstream assets in the Permian Basin that provide services to Diamondback Energy and third party customers under primarily long-term, fixed-fee contracts. For more information, please visit www.rattlermidstream.com.

About Diamondback Energy, Inc.

Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than historical facts, that address activities that Rattler assumes, plans, expects, believes, intends or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events, including specifically the statements regarding expectations of plans, strategies, objectives and anticipated financial and operating results of Rattler, including Rattler's capital expenditure levels and other guidance discussed above. These forward-looking statements involve certain risks and uncertainties that could cause the results to differ materially from those expected by the management of Rattler. Information concerning these risks and other factors can be found in Rattler’s filings with the Securities and Exchange Commission (“SEC”), including its Forms 10-K, 10-Q and 8-K, which can be obtained free of charge on the SEC’s web site at http://www.sec.gov. Rattler undertakes no obligation to update or revise any forward-looking statement.

Rattler Midstream LP
Consolidated Balance Sheets
(unaudited, in thousands)
	December 31,				December 31,
	2020				2019
Assets
Current assets:
Cash	$	23,927			$	10,633
Accounts receivable—related party	57,447				50,270
Accounts receivable—third party, net	5,658				9,071
Sourced water inventory	10,108				14,325
Other current assets	1,127				1,428
Total current assets	98,267				85,727
Property, plant and equipment:
Land	85,826				86,072
Property, plant and equipment	1,012,777				930,768
Accumulated depreciation, amortization and accretion	(100,728		)		(61,132		)
Property, plant and equipment, net	997,875				955,708
Right of use assets	574				418
Equity method investments	532,927				479,558
Real estate assets, net	96,687				101,116
Intangible lease assets, net	4,262				8,070
Deferred tax asset	73,264				—
Other assets	4,732				5,796
Total assets	$	1,808,588			$	1,636,393

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

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

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

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

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

Rattler Midstream LP
Capacity/Capability
(unaudited)
	As of December 31, 2020
(capacity/capability)(a)	Delaware Basin			Midland Basin			Permian Total			Utilization
Crude oil gathering (Bbl/d)	210,000			65,000			275,000			36	%
Natural gas compression (Mcf/d)	151,000			—			151,000			60	%
Natural gas gathering (Mcf/d)	170,000			—			170,000			54	%
Produced water gathering and disposal (Bbl/d)	1,310,000			1,810,000			3,120,000			26	%
Sourced water gathering (Bbl/d)	120,000			455,000			575,000			44	%

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

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

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

NON-GAAP FINANCIAL MEASURES

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

The Company defines Adjusted EBITDA as net income before income taxes, interest expense, net of amount capitalized, depreciation, amortization and accretion on assets and liabilities of Rattler Midstream Operating LLC, its proportional depreciation and interest expense related to equity method investments, its proportional impairments and abandonments related to equity method investments, non-cash general and administrative expense and other non-cash transactions. Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles in the United States ("GAAP"). The GAAP measure most directly comparable to Adjusted EBITDA is net income. Adjusted EBITDA excludes some, but not all, items that affect net income, and these measures may vary from those of other companies. As a result, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.

The Company does not provide guidance on the reconciling items between forecasted Net Income and forecasted Adjusted EBITDA due to the uncertainty regarding timing and estimates of these items. Rattler provides a range for the forecasts of Net Income and Adjusted EBITDA to allow for the variability in timing and uncertainty of estimates of reconciling items between forecasted Net Income and forecasted Adjusted EBITDA. Therefore, the Company cannot reconcile forecasted Net Income to forecasted Adjusted EBITDA without unreasonable effort.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure for each of the periods indicated:

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

Adjusted net income is a supplemental non-GAAP financial measure equal to net income adjusted for impairments and abandonments related to equity method investments and related income tax adjustments. Management believes adjusted net income is useful because the measure provides useful information to analysts and investors for analysis of its operating results on a consistent, comparable basis from period to period. The Company's computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.

Rattler Midstream LP
Adjusted Net Income
(unaudited, in thousands, except per unit data)
	Three Months Ended December 31, 2020			Year Ended December 31, 2020
Reconciliation of Net Income to Adjusted Net Income:
Net income	$	38,859		$	144,705
Impairments and abandonments related to equity method investments	28			16,543
Adjusted income excluding above items	38,887			161,248
Income tax adjustment for above items	(2		)	(1,132		)
Adjusted net income(1)	38,885			160,116
Less: Adjusted net income attributable to non-controlling interest	29,259			121,763
Adjusted net income attributable to Rattler Midstream LP	$	9,626		$	38,353
Adjusted net income attributable to limited partners per common unit	$	0.22		$	0.83

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

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

FAQ

What were Rattler Midstream's Q4 2020 financial results?

Rattler Midstream reported a consolidated net income of $38.9 million and Adjusted EBITDA of $77.6 million for Q4 2020.

What is the cash distribution approved by Rattler Midstream for Q4 2020?

The cash distribution approved is $0.20 per common unit, payable on March 15, 2021.

How did Rattler Midstream's full year 2020 performance compare to 2019?

In full year 2020, Rattler Midstream achieved a net income of $144.7 million and a 7% increase in Adjusted EBITDA compared to 2019.

What are Rattler Midstream's capital expenditure plans for 2021?

Rattler plans to reduce operated capital expenditures by approximately 50% from 2020 levels.

What is the outlook for Rattler Midstream's 2021 performance?

Rattler expects continued strong results in 2021, with increasing free cash flow supported by stable operated business and equity method distributions.