NGL Energy Partners LP (NGL) Q4 2019 Earnings Call Transcript

NGL Energy Partners LP (NYSE: NGL)Q4 2019 Earnings CallMay 30, 2019, 11:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen, and welcome to the NGL Energy Partners LP Fourth Quarter Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Trey Karlovich, CFO. Sir, you may begin.

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Thanks Joe and thank you everyone for joining this morning. As a reminder, this conference call includes forward-looking statements and information, where 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. A 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.

I'll now turn the call over to our CEO, Mr. Mike Krimbill.

H. Michael Krimbill -- Chief Executive Officer

Thanks Trey. Good morning and thanks for joining us. Fiscal 2019 has been a year of continuing change and repositioning of NGL as you know. This has resulted in a stronger partnership in many ways. So, let's identify these accomplishments by addressing the issues that we faced.

First, we had uncomfortably high financial leverage. We solved this by aggressively selling nearly $2 billion of assets at attractive multiples, reducing compliance leverage to approximately 2.6 times, while increasing EBITDA, not shrinking. We went about this in a very strategic manner, not selling our best assets, but rather selling assets such as Glass Mountain Pipeline, which wasn't part of a larger system, and pruning our Water business to focus on the best basins, where we had a competitive advantage.

Second, our EBITDA has been unpredictable and not as stable as we would all like. Our response has been to substantially reduce seasonality of our cash flows and our weather risk as a result of selling our Retail Propane business. We are adding long-term contracted revenues to the Water Solutions internal and acquisition growth. Plus, we have also increased the repeatable cash flows from Grand Mesa on the Crude Oil Logistics site.

Third, we were described as too complicated. We have reduced our segments from five to four, and are currently reviewing our options in the Refined Products segment.

Fourth, our common unit coverage ratio was too low. We took our medicine early on, by cutting our distribution to a $1.56 and wiping out the entire general partner distribution. We are now in a position, where coverage will exceed 1.3 times this fiscal year and continue to grow. We must have a coverage ratio that allows us to earn our distribution, even in the bad times.

In addition to addressing these unsolved opportunities, we have eliminated a potential $20 million common unit dilution by redeeming the Oaktree convertible preferred. We have also eliminated our near-term debt maturities, as Trey will address, by redeeming the 2019 and issuing the 2026 notes.

So now, we can turn our attention to operating our assets and growing them at attractive multiples with long-term contracts. So, where is our capital to be allocated. Our criteria is both rate of return and scale. Water is Number 1 as the returns are the most attractive for both internal growth and acquisition opportunities. We have scale in the DJ Basin, Eagle Ford and now the Delaware.

Crude Oil and NGL Logistics do not often have the acquisition opportunities at attractive multiples, so they will probably see opportunistic internal growth and acquisitions, where we have significant synergies. We have scale in the DJ for crude and now in NGL liquids as well. We will continue our balance sheet discipline, keeping leverage at 3.25 times or less.

So, where is our excess DCF going to be utilized. We have the ability to buyback units. This will probably happen when our unit price is at a point, where the yield is 15% or higher. So, that is effectively a 6.5 times to 7.0 times acquisition multiple. We are not there now and hope we don't get there.

Debt reduction is an option in order to keep our leverage at 3.25 times or less. And distribution growth is possible, once our yield is below 10% and the market will reward the Partnership through increases. Since unit buybacks and distribution growth are not yet in play and we are well-below our leverage target, funding growth at a 15% to 20% return is our best use of cash currently.

So, with that, I turn it back to Trey.

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Great, thanks Mike. So, as Mike mentioned, we had a very successful year and we are well-positioned financially, heading into fiscal 2020, where we have already accomplished a significant amount from a financing standpoint.

So, first off from a balance sheet management perspective. We finished fiscal 2019 with a compliance leverage ratio of 2.6 times, well inside our target of 3.25 times. And our overall leverage came in at 4.5 times, also inside of our target. These results are tremendous improvement and demonstrates our focus on balance sheet and credit improvement throughout the past year plus.

Subsequent to year-end, we issued $450 million in notes due 2026, and $45 million in Class C preferred units, and utilized the net proceeds to initially repay borrowings on our credit facility and then redeem a portion of the Class A Oaktree preferred units. In May, we've redeemed the remaining amount of the Class A Oaktree preferred units and now have no near-term debt maturities or any preferred unit conversions.

Pro forma for these transactions, we remained just below our target leverage of 3.25 times, have improved our liquidity by over $200 million, since March 31, and that's significantly reduced our cost of capital going forward. These transactions have provided us the opportunity to fund our fiscal 2020 growth projects, and flexibility around the funding of the Mesquite acquisition, where we currently expect to maintain our 3.25 compliance ratio, pro forma for the acquisition and for fiscal 2020.

We currently expect to finance Mesquite with a combination of available liquidity, equity issued to the seller, potential asset sale proceeds and/or proceeds from debt or equity securities transaction. However, we do not plan to issue common units other than potentially the sellers' option to take 6 million units at a $16 per unit price as part of the consideration. While we cannot comment further, we will note that we are optimistic about our financing alternatives for this transaction.

Now looking at our operating results for the fourth quarter and fiscal 2019. Adjusted EBITDA totaled $132 million for the fourth quarter and $440 million for fiscal 2019. Our overall results are in line with our target for the year, noting that we have earned over $23 million in biofuels blending credits that we have not yet been able to recognize in our Refined Products business. We finished the year within 2% of our overall EBITDA target and well-above the low-end of our guidance ranges, in spite of certain asset sales occurring throughout the year and not capturing the bio credits. Should Congress pass the biofuels blenders' credit retroactively for calendar 2018 and 2019, we will recognize those credits at that time.

The Crude segment generated approximately $51 million of adjusted EBITDA this quarter, consistent with prior quarter and matching our expected run rate for this business, which continues to be underpinned by Grand Mesa pipeline. Grand Mesa volumes averaged 129,000 barrels per day this quarter as DJ production remain consistent and we continue to have strong demand for transportation on the pipeline.

Full-year 2019 adjusted EBITDA totalled $181 million, which exceeded the high-end of our guidance, which was $175 million. This was attributable to the volumes on Grand Mesa exceeding budget and benefits in the Crude segment from basin differentials, most notably in the Permian over the summer.

We continue to see strong volumes on Grand Mesa as well as potential improvements in other areas of our crude marketing business for the upcoming year. Basin differentials are also improving across our footprint. Based on stable crude oil prices and production activity, as well as similar run rate of Grand Mesa volumes, our adjusted EBITDA guidance range for the Crude Logistics business for fiscal 2020 is a range of $190 million to $210 million, with our current run rate right in the middle of this range.

Moving to Water, our Water adjusted EBITDA was $40 million for the quarter. As a reminder, we closed on our Bakken sale in November and our South Pecos sale in February, both of which were reflected in our lower fourth quarter results compared to third quarter, and which was expected. Our year-to-date adjusted EBITDA for Water Solutions totaled $166 million, which not only reflects the asset sales, but also the impact in our second quarter with a significant decline in the Permian crude price differential, which impacted our skim oil revenues and associated hedges, and was offset in our Crude segment. Adjusting for these items, we believe the Water Solutions segment would have been very close to our guidance range, which we did not adjust in spite of these items occurring earlier this year. By the way, this was also a 43% increase in EBITDA over the prior year.

Water volumes averaged approximately 860,000 barrels per day this quarter. We saw declines in our quarter-over-quarter volumes in the Eagle Ford and DJ Basin, as activity slowed slightly due to lower commodity prices coming in January and weather delays impacting producer activity. Our Permian and New Mexico volumes were relatively flat this quarter compared to the prior quarter, after adjusting for the South Pecos sale.

We have seen an increase in volumes this spring, and are expecting growth through the remainder of the year, based on recent activity, producer drilling plans and infrastructure coming online, particularly in the Permian and the DJ Basins.

Skim oil production was approximately 3,700 barrels per day during the quarter, with an average crude cut of 43 basis points, which is in line with our expected recovery. We will continue to focus on recovering as much oil as possible from our Water volumes, while noting that incremental pipeline delivered volumes generally contain less crude oil per barrel.

We have now hedged approximately 1,300 barrels per day for fiscal 2020 at a weighted average price of approximately $62.50 per barrel. We have also rolled out hedges for approximately 1,000 barrels per day through December 2020 at approximately $60 per barrel. We will continue to layer-in hedges to cover our commodity price exposure on skim oil.

We're expecting continued growth in our Water Solutions business going forward. Obviously, the Mesquite acquisition will be a significant contributor, but our existing asset base continues to grow as well with incremental gathering pipelines, particularly in the Delaware Basin along the Texas-New Mexico border.

Our adjusted EBITDA expectation for Water Solutions for fiscal year 2020 is a range of $290 million to $320 million, assuming a July closing on Mesquite with the largest quarterly increases between the first and third fiscal quarters as we close the transaction, bring on our major pipeline projects and see incremental volumes from producers behind our system.

Our Liquids segment generated from a strong winter season that extended well into March and even April, and supported volumes and propane pricing. We also benefited slightly from one month of earnings generated by the new terminals acquired from DCP, which closed our first (ph). Adjusted EBITDA for our Liquid segment totaled $32 million this quarter and over $90 million for the year, a significant improvement over the prior couple of years and well-above the $75 million high-end of our guidance range.

Margins were much stronger than prior years with our lower-cost profiles, supportive market structure through the quarter and improvements in our contracting. We also benefited during the year from new producer services arrangements, increased NGL production and pipeline issues in the Northeast, necessitating rail transport. We are excited about the new DCP terminals and are already seeing the benefits of the new Chesapeake terminal, where we are running near capacity.

Our fiscal 2020 guidance for EBITDA takes into account synergies between our legacy assets and the new assets acquired, along with our strategic initiatives. Our EBITDA range for Liquids is between $75 million and $90 million for fiscal 2020.

Finally, Refined Products, adjusted EBITDA on Refined Products and Renewables totaled $16 million for the quarter and $29 million year-to-date, which is below the low-end of our guidance of $55 million. As we previously mentioned, the biodiesel blenders' credit, should it be passed for calendar 2018 and 2019, would generate approximately $23 million for this business, which would have put us in line with our guidance range. We incurred and recognized the costs associated with blending bio to earn those credits during the fiscal year, and should they be passed, we will recognize those credits in earnings at that time.

Mike discussed our current thoughts on this business going forward and the team continues to look for ways to maximize margins, grow volumes and manage inventories. Our fiscal year 2020 guidance range for the Refined Products business has been set at $40 million to $60 million for the year.

Our corporate costs were $30 million for the year, and net of Retail Propane for the first quarter, we came in right in line with our guidance of $25 million net for the full year. We're expecting corporate costs for fiscal 2020 to remain consistent with this past year.

So, overall our Partnership adjusted EBITDA target is set as $600 million for fiscal 2020. This growth in EBITDA for next year is supported by our significant capital investment into our Water Solutions segment over the past year and through fiscal 2020, our recently announced acquisition of Mesquite, the stability of the Crude Logistics business anchored by Grand Mesa and similar combined results from our Liquids and Refined Products businesses last year.

With the growth in Water and Crude, these two segments would now make up approximately 80% of our cash flows and earnings. Maintenance CapEx was $12 million this quarter and totaled $49 million for the year, which included certain costs associated with Retail Propane prior to the sale. We have reassessed our maintenance program, primarily in Water Solutions, and believe we can reduce our cost per barrel. However, overall disposal barrels and assets have grown significantly. So, we are expecting maintenance costs to increase year-over-year. We are expecting fiscal 2020 maintenance CapEx to total between $50 million and $60 million, and to be fairly ratable through the year.

We declared a $0.39 per unit, $1.56 per unit annualized distribution for the quarter. And we expect to maintain this distribution level into fiscal 2020 as we integrate the Mesquite acquisition, fund our growth capital program and build our distribution coverage.

As Mike mentioned, we continue to target 1.3 times coverage or better on a trailing 12-month basis. Should we exceed that coverage level, which we currently expect to be later this year, we would then evaluate the best use of funds for the benefit of our unit holders, including reinvest in the business, repurchasing equity or increasing our distribution rate. That decision will be made based on numerous factors, but keeping our balance sheet healthy will be a priority. We intend to maintain our targeted 3.25 times compliance leverage.

In summary, it has been an eventful year for NGL. We have repositioned the Company with the sale of Retail Propane, continued investment into our Water Solutions business and significant strengthening of our balance sheet and liquidity position with no near-term debt maturities. We have sold assets at significant multiples and redeployed the capital into projects and acquisitions that we believe will generate better returns and even stronger business portfolio across our core segments. We see a lot of opportunity for our partnership and appreciate the continued support.

We will now open the call up for any questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from TJ Schultz with RBC Capital Markets. Your line is now open.

T.J. Schultz -- RBC Capital Markets -- Analyst

Great, thanks. Hey guys.

I think just first for the Water segment EBITDA guidance for fiscal 2020, I'm just looking for any more color you can provide to kind of bridge the increase from a 4Q run rate, if we think about, ex-Pecos is about $150 million to that guidance number in the $300 million range, clearly Mesquite's $90 million to $100 million of that increase, but you're still implying some meaningful growth to the legacy business.

I know, you mentioned, some major pipeline projects on the base business coming online, maybe if I could just start there and any more details about that capacity you're bringing on? How rates are trending? Just some more color there? Thanks.

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Sure. Thanks T.J. So, just to start the major pipeline projects coming online through the summer and into early fall will be the Western Express Pipeline, which is connecting all of our disposal facilities, along Highway 285, essentially from Carlsbad down through Texas, into Orla, which is the kind of the core of our disposal capacity. We'll be bringing barrels onto that pipeline from both New Mexico and Texas.

Additionally, we're bringing on, what we call the LEX or the Lea County Express, which will run from the -- essentially the McCloy Ranch area through New Mexico into to the east into Texas. So, both of those projects will come online, middle of this year. We're expecting a significant ramp in volumes really from from the Delaware. We do expect some increase in the DJ, and a little bit in the Eagle Ford, but the Delaware is where the significant amount of growth is. That's been indicated by volume increases that we're already seeing into March and April, when we look at the fourth quarter run rate in January and February similar to what we saw, and December was a slowdown. We saw that slowdown based on decline in commodity prices, reduction in capital invested by producers and just general weather activity impacting some of the operations in the Permian, in particular. So, we saw a leveling out in volumes there, and a slight decrease in the Eagle Ford and the DJ. We have seen that pickup, so we're expecting an increase there.

Additionally, we have the Mesquite acquisition, as you mentioned coming on in July. We did smaller acquisition that we closed in April, so that will be factored into our forecast. Additionally, we have the impact of the CapEx invested in the prior year, primarily associated with the ranches and freshwater activity, which we had very little of in the prior year or in fourth quarter. So, we are expecting an increase in freshwater sales, which will also benefit the Water business.

Finally, the margin per disposal barrel and our operating cost per barrel will change slightly. So, we are expecting to see an increase in disposable revenue per barrel as we're adding more barrels in New Mexico at higher disposal rates, as well as capturing -- gathering fees along the pipelines. And with the gathering via pipeline, we are expecting our OpEx per barrel to decrease. We've seen that in our recent projects. We see that from Mesquite, and we're expecting some more throughout the year. So, the combination of those things is what's really driving the increase from what looks like a current run rate to where we're expecting to be next fiscal year.

T.J. Schultz -- RBC Capital Markets -- Analyst

Okay. And then the skim oil, I think you said 43 basis points, would you expecting that to come down a bit in the guidance?

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

We are, as I mentioned, skim oil on type barrels is expected to be less. We're targeting something pro forma for Mesquite, something like 30 basis points maybe even a little bit under that for next year. So, on our base assets, it's probably closer to like a 0.35, so, 35 basis points. Well, pro forma for Mesquite, we're looking at something probably just under 0.3 or 30 bips.

T.J. Schultz -- RBC Capital Markets -- Analyst

Okay, great. Just one last one. Just move into Refined Products. As you evaluate that kind of longer term, just any context around thoughts on potentially looking to sell that what may be kind of trough levels here versus the potential leverage benefits to you, kind of regardless of timing? And then what's your timeline there to make a decision on that business?

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Sure. So, obviously the Refined Products has -- we do look at it, it is in a trough period from a performance perspective. However, the leverage benefit is significant when you factor in the working capital and the way many people look at our total leverage. So, we are weighing those two. As we mentioned, we continue to evaluate that business. We are looking at ways to maximize the earnings from that business. That continues to be a focus. At this point in time, that's really all we can say. I think that as we've shown in the past, if we're going to transact on a business, we're going to do it something for value. So, I think that would be the expectation here as well.

T.J. Schultz -- RBC Capital Markets -- Analyst

Okay great. Thanks Trey.

Operator

Thank you.

And our next question comes from Spiro Dounis with Credit Suisse. Your line is now open.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning guys.

First one just on Water. It seems like word maybe is out now in the attractiveness of that business and competition seems to be picking up a bit. So, just curious generally how are you thinking about creating a moat around your business now? And maybe how any of that could sort of change the role of strategy that you guys have been deploying so far?

H. Michael Krimbill -- Chief Executive Officer

I'll start. I think we are probably in a transition period here, where there is more awareness about Water, especially in the Delaware. And there are a number of companies up for sale in the Delaware currently. I think we have synergy, others don't. And as you know, when we take water to our wells, we don't have royalties. We could certainly cut overhead and have some decent synergies. I think we can still be competitive and not pay a nine or 10 times multiple. We'll see how these other processes turn out and we'll know more. It's a double-edged sword, we would love to buy it at a 6.5 times, 7.0 times and then traded at 10 times, but as soon as everyone thinks, it's a 10 times multiple business, then purchase prices will go up to nine. So, with Water, we ought to be careful. Certainly, we are all now aware that truck water is not -- it's more an oilfield service type business uncontracted, where these massive pipe systems with contracts are more G&P like. And so, they should be worth more. So we'll see what happens, I think in the next 90 days to 120 days.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. And then as far as...

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Just to add to that, you said how do you protect your position that's through pipelines, contracting, having term similar to a gathering business, you want to connect directly to the producer, you want dedications, you want long-term contracts, NBC is where you can get them, but that's how you generally protect your position.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. That makes sense.

Sticking with Water. Just in terms of recycling, how are you guys thinking about maybe doing more of that over time? Are you getting any producer pressure to do more of that? I think even from your perspective, our understanding is that recycling would actually be a margin uplift. So, just curious how you're thinking about that instead of the saltwater disposal?

H. Michael Krimbill -- Chief Executive Officer

Yes, I think it's somewhat state-specific. So, New Mexico, not having as much fresh water as Texas, clearly is a place for recycle makes a lot of sense. Fortunately, we've been creating drinking water and discharging it into the river up in Pinedale. So, we're very, very knowledgeable in the chemistry of water. And we believe we can deliver a better recycled quality water barrel to producers than anyone else. So, we're very, very bullish on recycle in New Mexico. I think, Texas is a different story because you would have -- it's a function of freshwater pricing. If freshwater costs $0.50 in one state, it's tougher to recycle. If it's a $1.00 or $1.25 in New Mexico, then recycle makes a lot of economic sense.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Last one, just just outside of Refined and Renewables, any other smaller, maybe non-core assets you're still looking to trim at this point? Or right now you sort of gone through most of the low hanging fruit?

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

I think we've gone through anything significant, there may be some little pruning left in Water perhaps, but I don't see really much left, we've really got a nice asset base in each of our three major businesses. And well, I think we'll just continue to grow those.

Spiro Dounis -- Credit Suisse -- Analyst

Appreciate the color. Thanks guys.

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Thanks Spiro.

Operator

Thank you.

(Operator Instructions)

Our next question comes from Dennis Coleman with Bank of America Merrill Lynch. Your line is now open.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Thank you and good morning everyone.

I just like to start with -- just try and explore a little bit on the financing side. I know you don't want to say much about it for Mesquite, but maybe just around the timing, when do you think we'll get a little more details? And I guess, part of that you mentioned was asset sales and that couldn't help. -- Trey when you were talking about potentially selling the Refined Products business and the leverage impact that maybe that's part of the matrix or the puzzle that you're trying to put together, where that that might help with the leverage target. So, there's a lot of questions there, but anything more you can help us with understanding how you are going to finance the Mesquite transaction?

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Sure. So, our expectation is to close in July. So, that's a little over 30 days away. I would expect to have some color around that between now and hopefully July. So, for timing, I think that's the best I can give you right now. You did hit the nail on the head from some of our thinking around the financing. When we look at this transaction, $890 million, the seller is taking $100 million of preferred equity. They have an option to take approximately $100 million worth of common at a $16 unit price. So, you're looking at $700 million to $800 million to finance based on the guidance that we've given for that acquisition, we can finance with approximately $400 million worth of debt. That keeps keeps you right at your -- that's putting a about a three to five leverage target on the Mesquite projected EBITDA, the remaining could be funded in several different options, but our intent at this point in time is to not issue any common equity.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. That's is helpful. Thanks for the additional color there.

Unidentified Speaker

I guess, one on Grand Mesa. I'm just trying to understand you came in, -- I guess -- it's financial volumes is 129,000 barrels. I guess, just to confirm we expect that to move toward 150,000 of your full capacity over the course of of this year. And then, I guess how much of the $51 million in the quarter was from marketing, if we can sort of separate that out and figure out what's the ramp on the volume might be versus what you're getting from marketing?

H. Michael Krimbill -- Chief Executive Officer

Sure. So, our guidance for next year on Grand Mesa is not to fill the pipeline at this point in time. Our base guidance is at run rate, which is 129,000 barrels per day. Anything above that should point us toward the higher-end of that guidance range. But our midpoint or our run rate is is where our current expectation is on Grand Mesa from a guidance perspective. Round numbers that generates about $45 million net of profitability for Grand Mesa on a combined basis. So, that's all of the activity associated with Grand Mesa within Grand Mesa stand-alone basis, as well as our marketing activities around Grand Mesa. And the remainder is the crude marketing business outside of the DJ.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Got it. This helps me. Thank you for that. And then I guess lastly, if I can just ask you gave some guidance on how you think about increasing the distribution. And if I heard it right, it was sort of a two-pronged test. The first being, I guess, a yield below 10% and then the second bit was there had to be a sense that the market was rewarding distribution growth. And so, I guess that the question is on that second piece of how will you gauge that and how do you sort of make that decision?

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Sure I think it's really just based on the common unit price reaction. Are we being viewed as a growth entity or are we going to be penalized because we're raising our distribution -- sort of doing something else.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for the answers.

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

Thanks Dennis.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mike Krimbill for any closing remarks.

H. Michael Krimbill -- Chief Executive Officer

Well, none. Thank you very much. And we will be back shortly with first quarter results. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect.

Duration: 35 minutes

Call participants:

Robert W. Karlovich -- Executive Vice President & Chief Financial Officer

H. Michael Krimbill -- Chief Executive Officer

Unidentified Speaker

T.J. Schultz -- RBC Capital Markets -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

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