NGL (NGL) Q2 2026: Water Disposal Volumes Up 14% as Delaware Basin Commitments Lock In Multi-Year Growth
NGL’s Water Solutions segment delivered double-digit volume and EBITDA gains, underpinned by new long-term customer commitments and expanded pore space in the Delaware Basin. Capital allocation is firmly focused on water infrastructure, with common unit and preferred redemptions accelerating deleveraging. Management’s initial 2027 EBITDA guide signals confidence in sustainable growth as NGL leans into its pure play water strategy.
Summary
- Delaware Basin Volume Commitments Surge: Multi-year water contracts now underpin 1.5 million barrels per day, securing visibility through 2027.
- Capital Focus Shifts to Water Growth: $100 million incremental CapEx is being deployed for new water projects as legacy divestitures wind down.
- 2027 EBITDA Guide Raised: Management sets initial target of at least $700 million, reflecting structural water business expansion.
Performance Analysis
NGL’s Q2 2026 results highlight a decisive operational pivot toward water infrastructure, with the Water Solutions segment generating $151.9 million in adjusted EBITDA, up 18% year over year. Physical water disposal volumes climbed to 2.8 million barrels per day, while total paid volumes including deficiency barrels rose 14% to 3.15 million barrels per day. The segment’s outperformance was driven by higher contracted customer volumes, the ramp of the Lex 2 pipeline, and increased skim oil recovery.
Crude oil logistics remains a secondary contributor, with Grand Mesa pipeline volumes rebounding 30% sequentially, though this business is no longer central to NGL’s growth narrative. Operating expenses in Water Solutions held steady at $0.22 per barrel, reinforcing cost leadership in the basin. Capital allocation reflected a clear priority: $100 million of incremental growth CapEx for water projects, alongside $10.4 million in annual preferred distribution savings from Class D redemptions and 4.4 million common units repurchased in the quarter.
- Water Solutions Margin Expansion: EBITDA gains outpaced volume growth, reflecting operating leverage and contract mix benefits.
- Balance Sheet Progress: Leverage ratio is tracking toward 4x, with further deleveraging expected as EBITDA ramps and preferreds are retired.
- Legacy Asset Exit Complete: Non-core logistics and ranch divestitures have streamlined the business and funded water growth investments.
With October water disposal volumes exceeding 3 million barrels per day, NGL’s operational momentum is set to continue into the back half of the year, providing a strong foundation for the new 2027 EBITDA target.
Executive Commentary
"We have underwritten new growth capital projects for approximately 750,000 barrels per day of newly contracted volume commitments. These projects are scheduled to be placed into service by the end of this calendar year. As a result of these contracts, we now have 1.5 million barrels per day of total volume commitments going into physical 2027. These commitments have an average remaining term of almost nine years."
Doug White, EVP, Water Solution Segment
"We anticipate becoming more and more a pure play water company as our adjusted EBITDA from water operations continues to grow. We are not waiting until calendar 26, 27 or later to grow. Our growth is here today. Approximately 10% in fiscal 26 and another 10% estimated next year."
Mike Krancer, President & CEO
Strategic Positioning
1. Delaware Basin Scale and Moat
NGL’s water business now boasts the largest permitted injection capacity in the Delaware Basin, with over 5 million barrels per day across 131 injection wells and 57 processing facilities. The pipeline network exceeds 800 miles, including 700 miles of high-capacity pipe, enabling unmatched takeaway and reliability. Legacy permit inventory and pore space in Andrews County—now at 4 million barrels per day—provide a multi-year growth runway insulated from seismicity and regulatory bottlenecks.
2. Contracted Revenue Base and Visibility
Newly signed volume commitments totaling 750,000 barrels per day will be in service by year-end, bringing total contracted water volumes to 1.5 million barrels per day with an average term near nine years. This shift to long-term, fee-based contracts reduces earnings volatility and provides clear visibility for capital deployment and leverage reduction.
3. Capital Allocation and Deleveraging
Capital is being concentrated on water infrastructure, with $100 million incremental CapEx for growth projects and aggressive preferred and common unit repurchases. Interest expense savings from term loan repricing and preferred redemptions are being recycled into high-return water investments, accelerating balance sheet repair and supporting future flexibility.
4. Regulatory and Environmental Differentiators
NGL is pioneering large-scale produced water treatment in Texas, having received the first draft permit for a plant capable of processing 800,000 barrels per day. This initiative not only sustains pore space inventory but also positions NGL as a leader in water recycling and environmental stewardship, which could become a competitive advantage as ESG scrutiny intensifies across the energy value chain.
Key Considerations
NGL’s quarter demonstrates a business model transition from diversified logistics to a pure play water midstream operator, with structural advantages in scale, cost, and contract coverage.
Key Considerations:
- Volume Commitment Stickiness: Multi-year contracts with major producers provide durable cash flow and underpin capital allocation decisions.
- Growth CapEx Discipline: Incremental spend is tightly linked to contracted volumes, limiting speculative risk and supporting return on invested capital.
- Balance Sheet Optionality: Deleveraging and preferred redemptions expand future capital allocation flexibility, supporting both growth and potential return of capital.
- Regulatory Headroom: Legacy permit inventory and pore space in seismicity-free zones insulate NGL from the regulatory and operational risks facing smaller peers.
- Legacy Asset Exit Execution: Successful divestitures have removed earnings volatility and sharpened the company’s strategic focus on water.
Risks
Macro-driven reductions in drilling or completion activity in the Delaware Basin could pressure water volumes and EBITDA, despite contracted commitments. Regulatory changes or seismicity-related restrictions, while partially mitigated by NGL’s pore space strategy, remain a sector-wide risk. Execution risk exists around scaling new water treatment infrastructure and fully realizing the EBITDA ramp from recent contracts.
Forward Outlook
For Q3 2026, NGL expects continued strength in water disposal volumes, with October already averaging above 3 million barrels per day. Crude oil logistics will remain a smaller contributor, with butane blending seasonality peaking in the current period.
- Q3 water volumes expected to remain at or above current levels
- Butane blending EBITDA to be clearer in next quarter’s results
For full-year 2026, management raised adjusted EBITDA guidance to $650–$660 million, with an initial 2027 target of at least $700 million:
- 2026 adjusted EBITDA: $650–$660 million
- 2027 adjusted EBITDA: at least $700 million
Management cited contracted volume ramp, cost discipline, and ongoing deleveraging as key drivers for guidance, while flagging that further upside is possible as new projects come online and customer activity remains robust.
- Additional growth CapEx will be paced to match contracted demand
- Preferred redemptions and unit buybacks to continue, supporting per-unit accretion
Takeaways
NGL’s operational and financial pivot to water midstream is now fully realized, with scale, contract coverage, and capital discipline driving multi-year EBITDA visibility.
- Water Solutions is now the core value driver, with unmatched Delaware Basin scale and a locked-in growth runway from long-term contracts.
- Capital allocation is tightly aligned with business model transformation, prioritizing water infrastructure over legacy logistics and supporting balance sheet repair.
- Investors should watch for execution on new water treatment projects, continued volume ramp, and incremental contract wins as key catalysts for upside.
Conclusion
NGL has completed its transition to a focused water midstream operator, with contract-driven growth, operational leverage, and a clear path to further deleveraging. The company’s 2027 EBITDA target and capital allocation discipline provide a credible roadmap for value creation as the Delaware Basin water cycle matures.
Industry Read-Through
NGL’s results reinforce the structural tailwinds for large-scale water midstream operators in the Permian and Delaware basins, as producers increasingly outsource water handling to integrated networks with ample pore space and pipeline takeaway. The shift to long-term contracts and regulatory headroom is likely to widen the gap between scale players and smaller peers, especially as seismicity and permit scarcity become more acute. Water recycling and treatment infrastructure may emerge as a new competitive frontier, with ESG and regulatory scrutiny accelerating adoption. Investors should expect further consolidation and a premium for operators with deep contract coverage and capital discipline.