NGL Energy Partners LP quarterly report, Q3 FY2024

NGL Energy Partners LP — Form 10-Q Summary

Reporting period: Fiscal third quarter and nine months ended December 31, 2023. The filing was signed February 8, 2024. NGL operates Water Solutions, Crude Oil Logistics and Liquids Logistics businesses.

Financial performance and position

Metric	Three months ended Dec. 31, 2023	Nine months ended Dec. 31, 2023
Revenue	$1.870 billion, down 12.6% year over year	$5.327 billion, down 19.8%
Operating income	$101.8 million, down 0.9%	$259.8 million, up 0.4%
Net income attributable to NGL	$45.7 million, versus $58.5 million	$93.0 million, versus $84.9 million
Adjusted EBITDA (non-GAAP)	$151.7 million, versus $193.3 million	$462.5 million, versus $459.4 million
Operating cash flow	Not presented separately for the quarter	$223.9 million, versus $206.9 million

• Common-unit earnings were $0.08 per unit for the quarter; the nine-month period reported a loss of $0.08 per unit after preferred distributions.
• Quarterly net income fell despite nearly flat operating income. The prior-year quarter included $28.1 million of other income, primarily from a settlement; current-quarter other income was $0.5 million. Nine-month 2023 income also benefited from $6.9 million of gains on early debt extinguishment.
• Water Solutions operating income rose to $74.3 million from $59.7 million for the quarter and to $202.7 million from $160.5 million for nine months. Crude Oil Logistics operating income declined to $17.0 million from $35.1 million for the quarter and to $48.8 million from $87.0 million year to date. Liquids Logistics increased to $22.4 million from $20.5 million for the quarter and to $53.9 million from $48.8 million year to date.
• At December 31, cash was $0.7 million; current assets were $1.341 billion and current liabilities $1.088 billion, leaving working capital of approximately $252.6 million. Total assets were $5.362 billion.
• Long-term debt, net of issuance costs, was $2.684 billion, compared with $2.858 billion at March 31, 2023. The balance-sheet debt figure predates the subsequent refinancing. Cash interest paid in the first nine months was $135.3 million, down from $163.2 million.
• Capital expenditures were $119.9 million in the first nine months. Fiscal 2024 capital spending was expected to be approximately $130–$150 million.

Material changes and significant developments

• Revenue contraction largely reflected lower commodity prices and lower sales in Crude Oil and Liquids Logistics. Water Solutions revenue increased year to date, supported by higher disposal fees, volumes and payments for committed volumes not delivered.
• Working-capital movements were significant: inventory increased by $65.5 million and trade payables declined by $95.7 million in the nine-month cash flow statement. Operating cash flow nevertheless rose year over year. Investing cash use was $49.3 million, while financing cash use was $179.3 million, including debt repayments.
• On February 2, 2024, NGL closed a $2.9 billion refinancing: $2.2 billion of new secured notes—$900 million at 8.125% due 2029 and $1.3 billion at 8.375% due 2032—and a $700 million Term Loan B due 2031. Proceeds were intended to redeem or discharge existing notes, repay ABL borrowings, and cover fees and expenses. The ABL facility was amended and its maturity extended to February 2029, subject to stated maturity provisions.
• NGL redeemed its $2.05 billion 2026 senior secured notes on February 6, 2024, paying a $38.4 million call premium plus accrued interest. The 2025 and 2026 unsecured notes were scheduled for redemption on February 20 and April 14, 2024, respectively.

Outlook, risks and unusual items

• Management said operating cash flow and ABL borrowing capacity were expected to meet liquidity needs, while noting seasonal working-capital needs and exposure to commodity-price-driven funding requirements. No specific earnings or Adjusted EBITDA guidance was provided.
• Water Solutions announced the LEX II expansion, expected to increase Lea County Express system capacity from 140,000 to 340,000 barrels per day in 2024, with completion expected in the second half of fiscal 2025. Management said a new minimum-volume-commitment contract with an investment-grade producer underwrites the expansion; the system could be expanded further to 500,000 barrels per day.
• Distributions on common and preferred units had been suspended. Preferred distributions in arrears were estimated at $356.6 million at December 31. On February 6, 2024, the board declared payment of 50% of arrearages through year-end for each preferred class, including approximately $115 million for Class D; payments were scheduled for February 27. The filing does not announce a restart of regular common-unit distributions.
• A Delaware lawsuit concerning investment-banking services produced a $36 million jury verdict, plus statutory interest and costs; the filing estimates interest through December 31 brought the amount to approximately $23.2 million. NGL had accrued approximately $4.0 million and was appealing; the Delaware Supreme Court heard argument February 7, 2024, with a ruling pending.
• Produced-water disposal is subject to induced-seismicity oversight; NGL reported volume reductions and temporary facility shut-ins at some locations, but said its integrated system had not been materially affected. Other principal risks include commodity and interest-rate volatility, counterparty credit, environmental regulation, weather, and litigation.
• Asset sales and impairments affected comparability, including saltwater-disposal asset sales and three terminal sales. The company recorded a $21.1 million loss on the Pinedale transaction and a $5.4 million loss on an Eagle Ford sale, partly offset by gains on terminal sales. Commodity derivative results also produced substantial period-to-period volatility.

Investor verification priorities

• Confirm the completed redemptions, post-refinancing debt balance, ABL borrowings and available capacity, and the resulting interest burden and covenant requirements.
• Assess the pending LCT appeal and whether the recorded $4.0 million accrual adequately reflects potential exposure.
• Track payment of preferred-unit arrearages and whether regular preferred or common distributions resume; reconcile arrears and the February declared payments by class.
• Evaluate whether Water Solutions volume growth, contract commitments and the LEX II expansion translate into sustained cash generation, including the effect of seismicity-related restrictions.
• Separate underlying segment performance from commodity-price, derivative, inventory-valuation and asset-sale effects; note that interim results may be affected by seasonality.