NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2021 (fiscal Q2 and first half of fiscal 2022). The filing was signed November 9, 2021. NGL operates Water Solutions, Crude Oil Logistics and Liquids Logistics businesses.
Financial performance and position
Amounts below are in millions of dollars except per-unit data. Quarterly comparisons are with the three months ended September 30, 2020; six-month comparisons are with the same 2020 period.
| Metric | Three months ended September 30, 2021 | Six months ended September 30, 2021 |
|---|---|---|
| Revenue | $1,754.1, up from $1,168.2 | $3,242.8, up from $2,012.6 |
| Operating income (loss) | $64.8, versus $36.3 | $(4.5), versus $25.5 |
| Net income (loss) attributable to NGL | $(1.5), versus $5.7 | $(136.5), versus $(29.6) |
| Net loss per common unit | $(0.21), versus $(0.14) | $(1.44), versus $(0.58) |
| Adjusted EBITDA, a non-GAAP measure | $146.3, versus $137.8 | $237.4, versus $228.5 |
- Cash flow: Six-month operating cash flow was $(7.8), versus $143.7 provided in the prior year. Management attributed the decline mainly to working-capital movements, including higher receivables and inventory. Investing cash outflow was $75.1; financing cash inflow was $83.7.
- Liquidity: September 30 cash was $5.5. Current assets exceeded current liabilities by approximately $287.4. The $500 million ABL facility had $146 million drawn and approximately $152.2 million of letters of credit outstanding; the filing does not state a definitive amount of remaining availability.
- Debt: Long-term debt carrying value, including current maturities, was approximately $3.422 billion; face value was approximately $3.471 billion. Six-month interest expense was $135.6, up from $90.9. NGL reported compliance with debt covenants at September 30 and no ABL Cash Dominion Event.
- Margins and segments: Water Solutions operating income improved to $32.8 for the quarter and $40.4 for the half year, supported by higher processed-water volumes and service revenues. Crude Oil Logistics quarterly operating income fell to $28.2 from $48.2; Grand Mesa pipeline volumes and third-party revenues were lower. Liquids Logistics quarterly operating income was $11.5, but its six-month operating loss was $41.9, including substantial disposal and impairment losses.
Material changes and unusual items
- Revenue growth reflected higher commodity prices and, in Water Solutions, increased activity and volumes. Higher sales values did not consistently translate into stronger margins; product volumes were lower in parts of Crude Oil and Liquids Logistics.
- The six-month results included a $60.1 loss on the June sale of NGL’s approximately 71.5% interest in Sawtooth, sold for $70.0 million before estimated expenses. Liquids Logistics also recorded an $11.7 million loss related to a terminal sale. Total six-month losses on asset disposal or impairment were $81.2 million.
- Commodity derivatives contributed materially to period-to-period earnings volatility. Six-month derivative losses were $40.7 million; the company does not account for these instruments as accounting hedges.
- Common-unit distributions have been suspended since the quarter ended December 31, 2020, and preferred-unit distributions since the quarter ended March 31, 2021, to support deleveraging and compliance with the 2026 secured-notes leverage condition. Unpaid preferred distributions accumulate; reported balances due at September 30 were $21.7 million for Class B, $3.3 million for Class C and $49.6 million for Class D.
- NGL repurchased $17.1 million of 2023 Notes and $6.0 million of 2026 Notes during the quarter. It had issued $2.05 billion of 7.5% senior secured notes due 2026 in February 2021.
Outlook, risks and contingencies
- Management expected fiscal-year 2022 capital expenditures of approximately $115 million and anticipated cash from operations and ABL borrowing capacity would meet liquidity needs. It described acquisition and expansion needs as minimal. No earnings guidance was provided.
- Management said distribution reinstatement would be evaluated based on leverage, liquidity, cash-flow sustainability, debt maturities, capital spending and business performance. The secured-notes indenture restricts distributions unless the specified total leverage ratio is no greater than 4.75 to 1.00.
- Management cited ongoing uncertainty from COVID-19, refined-products demand, commodity prices, drilling and production activity, weather, regulation, counterparty performance and access to capital. Seasonal inventory building in Liquids Logistics can increase working-capital borrowing needs.
- A pending LCT legal matter had a $2.5 million accrual; a new trial limited to quantum meruit damages had not been scheduled. Environmental liabilities were $1.5 million. Potential payments under a facility subsidy agreement ranged from $0 to $4.1 million. NGL also disclosed $119.2 million of future minimum throughput payments under pipeline capacity agreements.
Investor verification priorities
- Track leverage, ABL borrowing availability and upcoming maturities, particularly the $519.5 million of 2023 Notes due in fiscal 2024.
- Assess whether recurring segment cash generation supports debt service and any eventual resumption of common and preferred distributions; distinguish GAAP results from Adjusted EBITDA.
- Review working-capital needs and inventory exposure as commodity prices and seasonal Liquids Logistics demand change.
- Examine the causes and recoverability implications of the Sawtooth and terminal-sale losses, as well as the continuing impact of impairments.
- Monitor the LCT litigation, environmental exposure, pipeline commitments and the effect of derivative fair-value changes on reported earnings and cash flows.