GlobeNewswire Inc | Aug 5, 2020 04:01PM EDT

August 05, 2020

MIDLAND, Texas, Aug. 05, 2020 (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 second quarter ended June30, 2020.

SECOND QUARTER 2020 HIGHLIGHTS

-- Q2 2020 consolidated net income (including non-controlling interest) of $12.5 million, consolidated adjusted net income (as defined and reconciled below) of $27.9 million -- Consolidated Adjusted EBITDA (as defined and reconciled below) of $53.9 million -- Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit ($1.16 annualized); implies a 14% annualized yield based on the August 4, 2020 unit closing price of $8.06 -- Q2 2020 cash operated capital expenditures of $39.5 million -- Q2 2020 average produced water gathering and disposal volumes of 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020 -- Q2 2020 average sourced water volumes of 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020; 30% of total sourced water volumes in Q2 2020 sourced from recycled produced water -- Q2 2020 average crude oil gathering volumes of 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020 -- Q2 2020 average gas gathering volumes of 108 BBtu/d, up 27% over Q2 2019 and down 9% from Q1 2020

The second quarter of 2020 presented historic volatility in global energy demand and commodity prices. Rattler, despite all of its operations being located in the premier low-cost shale basin and operated by a low-cost operator in Diamondback, was not spared from this volatility. Diamondback made the prudent decision to suspend completion activity and curtail production in the quarter, directly impacting Rattlers second quarter volumes, stated Travis Stice, Chief Executive Officer of Rattlers general partner.

Mr. Stice continued, Looking ahead, while this quarter reflected the effects of a severe disruption in the pace of expected development activity on Rattlers assets, we are focused on reducing capital expenditures and operating costs across our asset base to increase free cash flow in a lower growth environment. Additionally, with three of our major equity method investments in full service, and minimal operated growth capex expected to be required in the future, Rattler is positioned to provide significant free cash flow to support its distribution. Rattler, with its equity method investment build cycle nearing completion, operated assets generating free cash flow and conservative financial leverage, is well-situated to weather this commodity cycle."

OPERATIONS AND FINANCIAL UPDATE

During the second quarter of 2020, the Company recorded total operating income of $28.5 million, down 53% compared to the first quarter of 2020 and a decrease of 49% from the second quarter of 2019. During the second quarter of 2020, the Company recorded consolidated net income (including non-controlling interest) of $12.5 million, inclusive of a $15.8 million impairment charge associated with goodwill related to its interest in the OMOG JV, a decrease of 77% from the first quarter of 2020 and a decrease of 73% from the second quarter of 2019. Second quarter 2020 adjusted net income (as defined and reconciled below) was $27.9 million, down 49% from the first quarter of 2020 and down 40% from the second quarter of 2019. Second quarter 2020 Adjusted EBITDA (as defined and reconciled below) was $53.9 million, down 33% from the first quarter of 2020 and down 19% from the second quarter of 2019.

Average produced water gathering and disposal volumes for Q2 2020 were 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020. Average sourced water volumes were 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020 due to Diamondback suspending almost all completion activity between mid April and late June. Average crude oil gathering volumes were 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020. Average gas gathering volumes were 108 BBtu/d, down 9% from Q1 2020 and up 27% over Q2 2019.

Second quarter operated capital expenditures totaled $39.5 million, and aggregate contributions to equity method joint ventures were $33.5 million. Rattler also received proceeds of $8.1 million in distributions from equity method investments. As of June30, 2020, the Company had $11.2 million of cash and $77.0 million available under its $600.0 million revolving credit facility.

SENIOR NOTES OFFERING

On July 14, 2020, the Company completed an offering (the Notes Offering) of $500.0 million in aggregate principal amount of its 5.625% Senior Notes due 2025. The Company received net proceeds of approximately $489.5 million from the Notes Offering. The Company loaned the gross proceeds to Rattler Midstream LLC, which used such proceeds to pay down borrowings under its revolving credit facility. As of June 30, 2020, pro forma for this offering, Rattler had $11.2 million of cash and $566.5 million available under its $600.0 million revolving credit facility, resulting in total liquidity of $577.7 million.

CASH DISTRIBUTION

On July 31, 2020, the Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit, payable on August 24, 2020 to unitholders of record at the close of business on August 17, 2020.

GUIDANCE UPDATE

Below is Rattler's revised guidance for the full year 2020, with net income, capital expenditure and equity method contribution guidance updated to reflect the latest base case operating plan.

Rattler Midstream LP Guidance 2020 Rattler Operated Volumes ^(a) Produced Water Gathering and Disposal Volumes (MBbl 800 - 900/d)Sourced Water Volumes (MBbl/d) 150 - 250Crude Oil Gathering Volumes (MBbl/d) 85 - 95Gas Gathering Volumes (BBtu/d) 95 - 115 Financial Metrics ($ millions except per unit metrics)Net Income $120 - $150Adjusted EBITDA $260 - $300Equity Method Investment EBITDA^(b) $30 - $50Operated Midstream Capex $125 - $1502020 Equity Method Investment Contributions^(b) $85 - $105Depreciation, Amortization & Accretion $45 - $60Annualized Distribution per Unit $1.16

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

CONFERENCE CALL

Rattler will host a conference call and webcast for investors and analysts to discuss its results for the second quarter and full year of 2020 on Thursday, August 6, 2020 at 9:00 a.m. CT. Participants should call (877) 288-2756 (United States/Canada) or (470)495-9481 (International) and use the confirmation code 1608579. A telephonic replay will be available from 11:20 a.m. CT on Thursday, August 6, 2020 through Thursday, August 13, 2020 at 11:20 a.m. CT. To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 1608579. A live broadcast of the earnings conference call will also be available via the internet at www.rattlermidstream.com under the Investors section of the site. A replay will also be available on the website following the call.

About Rattler Midstream LP

Rattler Midstream LP is a growth-oriented Delaware limited partnership formed in July 2018 by Diamondback Energy, Inc. to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Rattler provides crude oil, natural gas and water-related midstream services to Diamondback under long-term, fixed-fee contracts. For more information, please visit www.rattlermidstream.com.

About Diamondback Energy, Inc.

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

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 managements 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 Rattlers filings with the Securities and Exchange Commission (SEC), Forms 10-Q and 8-K and Annual Report on Form 10-K for the year ended December 31, 2019 which can be obtained free of charge on the SECs web site at http://www.sec.gov. Rattler undertakes no obligation to update or revise any forward-looking statement.

Rattler Midstream LPConsolidated Balance Sheets(unaudited, in thousands) June 30, December 31, 2020 2019Assets Current assets: Cash $ 11,170 $ 10,633 Accounts receivable?related party 4,456 50,270 Accounts receivable?third party, net 7,694 9,071 Sourced water inventory 10,400 14,325 Other current assets 688 1,428 Total current assets 34,408 85,727 Property, plant and equipment: Land 88,309 88,509 Property, plant and equipment 1,037,264 930,768 Accumulated depreciation, amortization and (81,572 ) (61,132 )accretionProperty, plant and equipment, net 1,044,001 958,145 Right of use assets 86 418 Equity method investments 514,110 479,558 Real estate assets, net 96,473 98,679 Intangible lease assets, net 6,579 8,070 Deferred tax asset 78,134 ? Other assets 5,232 5,796 Total assets $ 1,779,023 $ 1,636,393 Rattler Midstream LPConsolidated Balance Sheets - Continued(unaudited, in thousands, except unit amounts) June 30, December 31, 2020 2019Liabilities and Unitholders? Equity Current liabilities: Accounts payable $ 149 $ 147 Accrued liabilities 55,386 76,625 Taxes payable 406 189 Short-term lease liability 86 418 Total current liabilities 56,027 77,379 Long-term debt 523,000 424,000 Asset retirement obligations 13,272 11,347 Deferred income taxes ? 7,827 Total liabilities 592,299 520,553 Commitment and contingencies Unitholders? equity: General partner?Diamondback 939 979 Common units?public (43,996,243 units issued andoutstanding as of June 30, 2020 and 43,700,000 400,928 737,777 units issued and outstanding as of December 31,2019)Class B units?Diamondback (107,815,152 unitsissued and outstanding as of June 30, 2020 and as 939 979 of December 31, 2019)Accumulated other comprehensive loss (320 ) (198 )Total Rattler Midstream LP unitholders? equity 402,486 739,537 Non-controlling interest 785,239 376,928 Non-controlling interest in accumulated other (1,001 ) (625 )comprehensive lossTotal equity 1,186,724 1,115,840 Total liabilities and unitholders? equity $ 1,779,023 $ 1,636,393

Rattler Midstream LPConsolidated Statements of Operations(unaudited, in thousands, except per unit data) Three Months Ended June Six Months Ended June 30, 30, 2020 2019 2020 2019 Revenues: Revenues?related $ 78,031 $ 103,066 $ 194,614 $ 191,642 partyRevenues?third party 7,175 5,078 16,275 8,565 Rental 1,417 1,256 2,819 1,971 income?related partyRental income?third 1,885 2,038 3,786 4,105 partyOther real estate 53 81 169 154 income?related partyOther real estate 174 255 467 513 income?third partyTotal revenues 88,735 111,774 218,130 206,950 Costs and expenses: Direct operating 37,378 26,406 70,252 46,592 expensesCost of goods sold(exclusive of 4,744 15,849 20,705 28,902 depreciation andamortization)Real estate 590 695 1,318 1,221 operating expensesDepreciation,amortization and 12,100 10,158 24,606 20,062 accretionGeneral andadministrative 4,175 3,068 8,689 4,437 expensesLoss (gain) ondisposal of 1,243 (4 ) 2,781 (4 ) property, plant andequipmentTotal costs and 60,230 56,172 128,351 101,210 expensesIncome from 28,505 55,602 89,779 105,740 operationsOther expense: Interest expense, (1,926 ) (85 ) (4,547 ) (85 ) netLoss from equity (13,034 ) (114 ) (13,279 ) (64 ) method investmentsTotal other expense, (14,960 ) (199 ) (17,826 ) (149 ) netNet income before 13,545 55,403 71,953 105,591 income taxesProvision for income 1,083 8,724 4,903 19,556 taxesNet income $ 12,462 $ 46,679 $ 67,050 $ 86,035 Net income beforeinitial public $ ? $ 26,639 $ ? $ 65,995 offeringNet incomesubsequent to $ ? $ 20,040 $ ? $ 20,040 initial publicofferingNet incomeattributable to 9,640 15,237 51,197 15,237 non-controllinginterestNet incomeattributable to $ 2,822 $ 4,803 $ 15,853 $ 4,803 Rattler Midstream LPNet incomeattributable to limited partners percommon unit:Basic $ 0.05 $ 0.11 $ 0.33 $ 0.11 Diluted $ 0.05 $ 0.11 $ 0.33 $ 0.11 Weighted averagenumber of limited partner common unitsoutstanding:Basic 43,812 43,197 43,756 43,197 Diluted 43,812 44,340 43,756 44,340 Rattler Midstream LP Consolidated Statements of Cash Flows (unaudited, in thousands) Six Months Ended June 30, Cash flows fromoperating 2020 2019 activities:Net income $ 67,050 $ 86,035 Adjustments to reconcile netincome to net cash provided by operating activities:Provision fordeferred income 4,903 19,556 taxesDepreciation,amortization and 24,606 20,062 accretionLoss (gain) ondisposal of 2,781 (4 ) property, plant and equipmentUnit-based 4,339 831 compensation expenseLoss from equity 13,279 64 method investmentsChanges in operatingassets and liabilities:Accountsreceivable?related 28,166 (15,439 ) partyAccountsreceivable?third 130 173 partyAccounts payable, )accrued liabilities (18,787 44,842 and taxes payableOther 5,397 (16,723 ) Net cash provided by 131,864 139,397 operating activitiesCash flows frominvesting activities:Additions to )property, plant and (91,587 ) (102,935 equipmentContributions to )equity method (66,032 ) (37,420 investmentsDistributions fromequity method 17,870 ? investmentsProceeds from the 42 18 sale of fixed assetsNet cash used in (139,707 ) (140,337 ) investing activitiesCash flows fromfinancing activities:Proceeds fromborrowings from 99,000 10,000 credit facilityPayments on credit ? (9,000 ) facilityDistribution (1,296 ) ? equivalent rightsNet proceeds frominitial public ? 719,627 offering?publicNet proceeds frominitial public ? 1,000 offering?GeneralPartnerNet proceeds frominitial public ? 999 offering?DiamondbackUnits repurchased (1,365 ) ? for tax withholdingDistribution to (40 ) ? General PartnerDistribution to (25,346 ) ? publicDistribution to (62,573 ) (726,513 ) Diamondback Net cash provided by )(used in) financing 8,380 (3,887 activitiesNet increase 537 (4,827 ) (decrease) in cashCash at beginning of 10,633 8,564 periodCash at end of $ 11,170 $ 3,737 periodSupplementaldisclosure of non-cash financingactivity:Contributions from $ ? $ 456,055 DiamondbackSupplementaldisclosure of non-cash investingactivity:Increase in long term assetsand inventory due to $ ? $ 456,055 contributions from DiamondbackAccounts payablerelated to capital $ 57,357 $ 68,617 expenditures Rattler Midstream LP Pipeline Infrastructure Assets (unaudited, in miles) As of June 30, 2020 (miles)^(a) Delaware Midland Permian Basin Basin TotalCrude oil 108 44 152 Natural gas 151 ? 151 Produced water 266 237 503 Sourced water 27 74 101 Total 552 355 907

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

Rattler Midstream LPCapacity/Capability(unaudited) As of June 30, 2020(capacity/capability)^(a) Delaware Midland Permian Utilization Basin Basin TotalCrude oil gathering (Bbl/ 180,000 56,000 236,000 39 %d)Natural gas compression 135,000 ? 135,000 59 %(Mcf/d)Natural gas gathering (Mcf 150,000 ? 150,000 53 %/d)Produced water gathering 1,481,500 1,842,300 3,323,800 23 %and disposal (Bbl/d)Sourced water (Bbl/d) 120,000 455,000 575,000 14 %

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

Rattler Midstream LPThroughput and Volumes(unaudited) Three Months Ended June Six Months Ended June 30, 30,(throughput)^(a) 2020 2019 2020 2019Crude oil gathering 91,256 78,066 94,275 76,326 volumes (Bbl/d)Natural gas gathering 107,502 84,426 112,631 72,546 volumes (MMBtu/d)Produced water gatheringand disposal volumes (Bbl/ 771,337 770,091 856,483 740,807 d)Sourced water gathering 78,059 447,823 262,386 400,476 volumes (Bbl/d)

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

NON-GAAP FINANCIAL MEASURES

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

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

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

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

Rattler Midstream LPAdjusted EBITDA(unaudited, in thousands) Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019Reconciliation of Net Income to Adjusted EBITDA:Net income $ 12,462 $ 46,679 $ 67,050 $ 86,035 Interest expense, net of 1,926 85 4,547 85 amount capitalizedDepreciation, amortization 12,100 10,158 24,606 20,062 and accretionDepreciation and interestexpense related to equity 7,244 149 11,010 149 method investmentsImpairment related to equity 15,839 ? 15,839 ? method investmentsNon-cash unit-based 2,120 831 4,339 831 compensation expenseOther non-cash transactions 1,105 ? 2,565 ? Provision for income taxes 1,083 8,724 4,903 19,556 Adjusted EBITDA 53,879 66,626 134,859 126,718 Less: Adjusted EBITDA prior ? 40,651 ? 100,743 to the IPOAdjusted EBITDA subsequent 53,879 25,975 134,859 25,975 to the IPOLess: Adjusted EBITDAattributable to 38,288 18,483 95,912 18,483 non-controlling interestAdjusted EBITDA attributable $ 15,591 $ 7,492 $ 38,947 $ 7,492 to Rattler Midstream LP

Adjusted net income is a non-GAAP financial measure equal to net income adjusted for impairment related to equity method investments and related income tax adjustments. The Partnership's computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.

Rattler Midstream LPAdjusted Net Income(unaudited, in thousands, except per unit data) Three Months Ended June 30, 2020 Pre-Tax AmountsNet income $ 12,462 Impairment related to equity method investments 15,839 Adjusted income excluding above items 28,301 Income tax adjustment for above items (367 ) Adjusted net income^(1) 27,934 Less: Adjusted net income attributable to non-controlling 20,889 interestAdjusted net income attributable to Rattler Midstream LP $ 7,045 Adjusted net income attributable to limited partners per $ 0.15 common unit

(1) Adjusted net income was equal to net income for the three months ended March 31, 2020 and three months ended June 30, 2019.

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