Rattler Midstream LP (RTLR) is a Delaware limited partnership focused on owning, operating, developing, and acquiring midstream and energy-related infrastructure assets in the Midland and Delaware Basins of the prolific Permian Basin. The partnership has established itself as a critical midstream service provider to Diamondback Energy, Inc. (FANG), one of the leading exploration and production companies in the region.
Business Overview
Rattler Midstream's operations are centered around providing an array of essential midstream services to Diamondback, including crude oil and water-related infrastructure. The partnership owns and operates extensive gathering systems, saltwater disposal wells, recycling facilities, and sourced water infrastructure that are dedicated to Diamondback's upstream operations. This integrated midstream platform is a key enabler of Diamondback's development plans in the Permian Basin.In addition to its midstream assets, Rattler Midstream holds equity interests in several long-haul crude oil pipelines, including the EPIC Crude Pipeline, Gray Oak Pipeline, Wink to Webster Pipeline, and the OMOG joint venture. These strategic investments provide the partnership with exposure to the growing crude oil takeaway capacity in the region.
Financials
Rattler Midstream has delivered impressive financial results, showcasing the strength of its business model. In 2022, the partnership reported annual revenue of $396.3 million, a 10.5% increase from the prior year. This top-line growth was driven by increased volumes across the partnership's midstream services, particularly in produced water gathering and disposal, as well as sourced water gathering.Net income for 2022 reached $200.6 million, up 11.2% year-over-year, highlighting the partnership's ability to translate volume growth into profitability. Rattler Midstream's annual operating cash flow totaled $248.1 million, providing ample liquidity to fund capital expenditures and distributions to unitholders. Free cash flow for the year amounted to $55.9 million, demonstrating the partnership's strong cash generation capabilities.
Recent Developments
Rattler Midstream's recent quarterly results have been equally impressive. In the second quarter of 2023, the partnership reported revenue of $104.4 million, a 3.1% increase compared to the previous quarter. Net income for the quarter was $55.1 million, up from $37.1 million in the first quarter of 2023.The partnership's midstream volumes have remained robust, with average crude oil gathering volumes of 72,324 barrels per day (Bbl/d) and average produced water gathering and disposal volumes of 840,205 Bbl/d in the second quarter. Sourced water gathering volumes averaged 373,619 Bbl/d during the same period.
Looking ahead, Rattler Midstream remains optimistic about its growth prospects. The partnership expects to increase its capital expenditures in 2023 to more than double the 2022 level, as it continues to build out greenfield water infrastructure and expand gas processing and NGL takeaway capacity. These investments are expected to drive sustainable free cash flow growth in the coming years.
Outlook
Rattler Midstream's strategic positioning within the Permian Basin, its strong operational and financial performance, and its close alignment with Diamondback's development plans position the partnership for continued success. The partnership's fee-based commercial agreements with Diamondback provide a stable revenue stream, while its equity investments in key pipeline projects offer exposure to the region's growing midstream infrastructure.Liquidity
As of June 30, 2023, Rattler Midstream had approximately $385.8 million in liquidity, consisting of $17.8 million in cash and $368.0 million available under its revolving credit facility. The partnership's capital structure is anchored by its $500 million in senior unsecured notes due 2025 and its revolving credit facility, which had $232.0 million in outstanding borrowings as of the same date.Rattler Midstream's strong liquidity position and prudent capital management provide the flexibility to fund its growth initiatives, make strategic investments, and return capital to unitholders through distributions and unit repurchases. The partnership's distribution policy is set by its general partner, Rattler Midstream GP LLC, a wholly-owned subsidiary of Diamondback.
Risks and Challenges
While Rattler Midstream's business model and financial performance have been impressive, the partnership is not without its risks and challenges. As an energy infrastructure provider, Rattler Midstream is exposed to the volatility of the oil and gas industry, which can impact the production volumes and development plans of its primary customer, Diamondback.Additionally, the partnership's geographic concentration in the Permian Basin makes it vulnerable to regional supply and demand factors, as well as weather-related disruptions that could affect its operations. Regulatory changes, such as those related to climate change or water management, could also impact Rattler Midstream's business.
The partnership's reliance on Diamondback as its primary customer also presents a risk, as any changes to Diamondback's business strategy or operational plans could have a material impact on Rattler Midstream's revenue and cash flow.