NGL Energy Partners LP — Form 10-K Summary
Reporting period: The filing covers the fiscal year ended March 31, 2023, with comparisons to fiscal 2022 and 2021. Although the request metadata says “2022 Q4,” this is an annual report for fiscal 2023, not a quarterly filing.
Business context
NGL is a diversified midstream energy partnership operating three segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics. Its activities include produced-water transportation, treatment and disposal; crude-oil purchasing and transportation; and supply, storage and logistics for natural gas liquids, refined products and biodiesel. The partnership describes a strategic focus on predictable, fee-based cash flows, reducing debt and improving financial flexibility.
Financial and operating results
| Metric | FY ended March 31, 2023 | FY ended March 31, 2022 |
|---|---|---|
| Revenue | $8.695 billion | $7.948 billion |
| Operating income | $289.2 million | $83.0 million |
| Net income (loss) | $52.5 million | $(184.1) million |
| Net income (loss) attributable to NGL | $51.4 million | $(184.8) million |
| Adjusted EBITDA | $632.7 million | $542.5 million |
| Cash from operating activities | $445.2 million | $205.8 million |
| Cash from investing activities | $64.2 million | $(212.4) million |
| Cash from financing activities | $(507.8) million | $5.6 million |
Operating margin was approximately 3.3% of revenue and net margin approximately 0.6% in FY2023. These are calculated from reported GAAP figures. Despite consolidated net income, the partnership reported a net loss allocated to common unitholders of $73.2 million, or $0.56 per common unit, principally reflecting cumulative preferred-unit distributions. Preferred distributions have accrued but remain unpaid.
- Water Solutions: Segment operating income rose to $198.9 million from $94.9 million. Produced-water processed averaged 2.33 million barrels per day, up from 1.80 million; disposal fees and recovered crude-oil revenue increased.
- Crude Oil Logistics: Segment operating income increased to $81.5 million from $45.0 million. Pipeline volumes on Grand Mesa averaged about 76,000 barrels per day versus 78,000, while reported product margin per barrel declined to $4.01 from $5.16.
- Liquids Logistics: Segment operating income improved to $66.6 million from an $8.4 million loss. FY2022 included $71.9 million of net losses on asset disposals or impairments, including the Sawtooth sale loss; FY2023 included $10.3 million of such losses.
Operating cash flow increased, driven by improved earnings and working-capital movements. Capital expenditures were $147.8 million on a cash basis. Investing cash flow turned positive largely alongside asset-sale proceeds and lower derivative settlement payments. Adjusted EBITDA is a non-GAAP measure and should be considered alongside, not as a replacement for, GAAP results and cash flows.
Debt, liquidity and distributions
- At March 31, 2023, face-value long-term debt was approximately $2.888 billion, down from $3.396 billion a year earlier. Debt included $2.05 billion of 7.5% secured notes due 2026, $138 million drawn under the ABL facility, $380.0 million of 6.125% notes due 2025, and $319.9 million of 7.5% unsecured notes due 2026.
- The partnership repurchased or redeemed all $475.7 million of its 2023 notes during FY2023 and repurchased $12.5 million of 2026 unsecured notes. After year-end, it repurchased a further $99.3 million of 2025 notes.
- The ABL facility had $600 million of commitments, subject to its borrowing base and other terms; $138 million was drawn and approximately $152 million of letters of credit were outstanding. The filing reports $5.4 million of cash and cash equivalents and current assets exceeding current liabilities by approximately $182.3 million.
- The reported total leverage ratio was 4.56x at year-end, below the 4.75x threshold specified in the secured-notes indenture. The partnership reported compliance with debt covenants. Its ABL borrowings carried a weighted average rate of 8.70% at year-end.
- Common-unit distributions have been suspended since the quarter ended December 31, 2020; preferred-unit distributions have been suspended since the quarter ended March 31, 2021. The board said it would evaluate reinstatement based on leverage, liquidity, cash-flow sustainability, debt maturities, capital spending and business performance. Preferred distributions are cumulative, and arrears must be addressed before common distributions can be paid.
Outlook, commentary and notable items
- Management expects FY2024 capital expenditures of approximately $125 million. The filing provides no specific revenue, earnings or Adjusted EBITDA guidance.
- Management expects continued commodity-market volatility and warned that inflation, higher interest rates, supply constraints and tight labor markets could raise operating and project costs. Contractual price escalators may partly offset inflation; higher rates increase ABL costs.
- Produced-water disposal can be affected by induced-seismicity concerns. The partnership reduced injection volumes or temporarily shut in certain facilities, but reported no material disposal impact to date because of system capacity and connectivity.
- Unusual FY2023 items include $29.5 million of other income from settlement of a commercial dispute; $86.9 million of net losses on asset disposal or impairment; and a $36.0 million jury verdict in the LCT litigation, which the partnership disputes and plans to challenge. It had accrued $2.5 million for that matter at year-end. Separately, it accrued approximately $8.4 million for a proposed class-action settlement, subject to court approval.
- Asset sales included marine assets for $111.7 million cash consideration, less estimated expenses, and Midland Basin disposal assets for $13.6 million total consideration, partly represented by a loan receivable. The marine-asset sale generated a reported $8.0 million loss; the disposal-asset sale generated an $18.8 million loss.
- Goodwill was $712.4 million at year-end. No goodwill impairment was recorded in FY2023, but the estimated fair value cushion was approximately 18% for Crude Oil Logistics and only 5% for Wholesale/Terminal, making assumptions about forecasts and valuation important.
Important facts for investors to verify
- Review the debt documents and subsequent filings for the impact of the $99.3 million post-year-end repurchase of 2025 notes, remaining maturities, borrowing-base availability and covenant or distribution restrictions.
- Confirm current preferred-unit distribution arrears, applicable floating-rate terms, and the conditions and timeline for any distribution reinstatement.
- Assess the sustainability of operating cash flow and Adjusted EBITDA, including working-capital effects, derivative impacts and the $29.5 million dispute-settlement income.
- Track litigation developments, particularly the LCT verdict and the court approval and payment status of the proposed $8.4 million class-action settlement.
- Monitor disposal-well restrictions and seismicity developments, as well as goodwill and asset impairment assumptions for the reporting units with limited valuation headroom.
- Reconcile reported segment trends with divestitures and impairments, and verify FY2024 capital spending against the stated $125 million expectation.