NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2022 (fiscal third quarter and year to date). Unaudited results; amounts below are USD unless noted.
Business context
NGL operates Water Solutions, Crude Oil Logistics and Liquids Logistics. Its activities include produced-water handling and recycling, crude-oil transportation and marketing, and supply and distribution of natural gas liquids and refined products.
Key financial results
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $2,139.2 million | $2,171.9 million | $6,646.1 million | $5,414.7 million |
| Operating income | $102.7 million | $49.1 million | $258.7 million | $44.6 million |
| Net income (loss) | $59.0 million | $(19.0) million | $85.7 million | $(154.7) million |
| Net income (loss) attributable to NGL | $58.5 million | $(18.9) million | $84.9 million | $(155.4) million |
| Net income (loss) allocated to common unitholders | $26.0 million; $0.20 per basic unit | $(45.2) million; $(0.35) per unit | $(5.6) million; $(0.04) per unit | $(232.4) million; $(1.79) per unit |
| Adjusted EBITDA (non-GAAP) | $193.3 million | $147.7 million | $459.4 million | $385.1 million |
| Cash provided by operating activities | Nine-month comparison | $206.9 million | $26.9 million |
Quarterly operating margin was approximately 4.8%, versus 2.3% a year earlier. Revenue fell about 1.5% for the quarter but rose about 22.7% year to date. The filing attributes much of the year-to-date operating improvement to stronger segment results and substantially lower asset-disposal and impairment losses than in the prior year.
Segments and material changes
- Water Solutions: Quarterly revenue increased to $180.2 million from $130.7 million, and operating income rose to $59.7 million from $19.9 million. Produced-water and recycled-water volumes increased, particularly in the Delaware Basin.
- Crude Oil Logistics: Quarterly operating income increased to $35.1 million from $21.3 million despite lower crude-oil sales revenue and lower volumes. Derivative results and improved physical product margins contributed to the comparison.
- Liquids Logistics: Quarterly operating income declined to $20.5 million from $23.2 million. Refined-products and propane margins improved, while butane and other-products margins weakened. Year-to-date segment operating income was $48.8 million, versus a prior-year loss of $18.8 million, which included substantial asset-sale and impairment losses.
- Year-to-date net income attributable to NGL did not translate into positive income for common unitholders: preferred-unit distributions exceeded the amount available to common unitholders, producing a $5.6 million common-unit loss.
Cash, debt and liquidity
- Cash was $4.5 million at December 31, 2022. Current assets were $1.518 billion and current liabilities $1.485 billion, a working-capital surplus of approximately $33.5 million.
- Debt carrying value was approximately $3.225 billion, including $303.8 million of current maturities. The balance sheet also reported $551.1 million of Class D preferred units.
- The ABL Facility had $156.0 million drawn and approximately $168.4 million of letters of credit outstanding. Commitments were $600 million, with the partnership agreeing to reduce them to $500 million by March 31, 2023. NGL said it was working with lenders to extend the additional $100 million commitment; the outcome was not stated.
- Nine-month operating cash flow was $206.9 million, compared with $26.9 million a year earlier. Cash used in investing activities was $72.1 million; cash used in financing activities was $134.1 million. The filing attributes the operating cash-flow improvement to working-capital movements and increased operating earnings.
- Interest expense was $75.9 million for the quarter and $211.5 million year to date, up from $68.4 million and $204.0 million, respectively. Higher floating rates, revolving-credit usage and an accrued royalty-interest settlement claim contributed to the increase.
- NGL repurchased $97.5 million face value of 7.5% notes due November 2023 during the quarter. After a further $98.5 million repurchase following quarter-end, the notes outstanding were $203.4 million as of February 8, 2023.
Outlook, risks and unusual items
- Management expected to repay the remaining 2023 Notes no later than June 30, 2023, using operating cash flow and, if needed, ABL borrowings; potential non-core asset sales could support further debt reduction. This is forward-looking and not assured.
- Fiscal-year 2023 capital expenditures were expected to be approximately $115–$125 million. Management said it believed operating cash flows and ABL borrowing capacity would meet liquidity needs, including repayment of the 2023 Notes.
- All common and preferred distributions remained suspended. Reinstatement would depend on leverage, liquidity, sustainable cash flows, debt maturities, capital spending and business performance. Unpaid preferred distributions continue to accumulate; the filing reported approximately $218.4 million due across Class B, C and D units at quarter-end.
- Quarterly other income included a $29.5 million payment settling a dispute related to prior-period commercial activities. This is an unusual item relevant to assessing recurring earnings; the filing’s Adjusted EBITDA reconciliation also includes the associated other income.
- Water-disposal injection has been associated with induced seismic activity in Texas and New Mexico. NGL reported volume reductions or temporary shutdowns at some facilities, but said its integrated system had prevented a material impact on disposal capacity to date.
- Legal matters include an LCT investment-banking-fee case, with a damages-only trial on the quantum-meruit claim beginning February 6, 2023; NGL had accrued $2.5 million. NGL also accrued approximately $8.4 million for a proposed Oklahoma royalty-interest class settlement, subject to court approval.
- Other risks identified include commodity-price volatility, seasonal working-capital needs, counterparty credit risk, rising interest rates, environmental regulation and the possibility of additional costs or liabilities. The filing reported covenant compliance at December 31, 2022 and no Cash Dominion Event under the ABL Facility.
Most important facts for investors to verify
- Whether NGL completed repayment of the remaining 2023 Notes by its stated June 30, 2023 target and how it funded that repayment.
- Whether the additional $100 million of ABL commitments was extended, and the resulting borrowing availability after letters of credit and borrowing-base limits.
- Current leverage, covenant headroom and the conditions required to resume common and preferred distributions.
- How much of reported earnings and Adjusted EBITDA is recurring, particularly the effect of the $29.5 million dispute settlement and derivative and inventory adjustments.
- Developments and final costs in the LCT case and the Oklahoma class settlement, including court approval of the latter.
- Whether seismic-related operating restrictions, commodity-market changes or the Midwest propane storage decommissioning materially affect volumes, margins or cash flow.