NGL Energy Partners LP — Form 10-Q Summary
Business context and reporting period. This filing covers the fiscal third quarter and nine months ended December 31, 2021, compared with the periods ended December 31, 2020. NGL operates Water Solutions, Crude Oil Logistics, and Liquids Logistics businesses. Dollar amounts below are in millions unless otherwise noted.
Key financial results
| Metric | Three months ended Dec. 31, 2021 | Three months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2020 |
|---|---|---|---|---|
| Revenue | $2,171.9 | $1,462.0 | $5,414.7 | $3,474.6 |
| Operating income (loss) | $49.1 | $(346.3) | $44.6 | $(320.8) |
| Net loss | $(19.0) | $(380.5) | $(154.7) | $(409.9) |
| Adjusted EBITDA, non-GAAP | $147.7 | $125.0 | $385.1 | $353.4 |
| Interest expense | $68.4 | $47.3 | $204.0 | $138.1 |
| Net cash from operating activities | Not provided for the quarter | Not provided for the quarter | $26.9 | $185.6 |
Revenue growth largely reflected higher commodity prices and activity. For the quarter, segment operating income was $19.9 million for Water Solutions, $21.3 million for Crude Oil Logistics, and $23.2 million for Liquids Logistics. Liquids Logistics reported an operating loss of $18.8 million for the nine-month period, including substantial disposal losses.
Financial position, liquidity and capital
- At December 31, 2021, total assets were $6,094.8 million and equity was $743.7 million. Cash was $5.5 million; current assets exceeded current liabilities by approximately $321.4 million.
- Long-term debt had a carrying value of $3,411.8 million, plus $2.3 million of current maturities. Debt includes $2.05 billion of 7.5% senior secured notes due 2026. The Partnership reported covenant compliance.
- The $500 million asset-based revolving credit facility had $156 million drawn and approximately $167 million of letters of credit outstanding. Borrowing capacity is subject to the borrowing base; remaining availability is not clearly stated.
- Nine-month capital expenditures were $107.5 million. Fiscal 2022 capital expenditures were estimated at $125–$130 million, net of anticipated insurance reimbursements.
- Operating cash flow fell to $26.9 million from $185.6 million, principally reflecting working-capital movements, including increases in receivables and inventory. Cash used in investing was $96.5 million; financing provided $70.2 million.
Material changes and unusual items
- Quarterly operating results improved substantially from the prior year, when NGL recorded major Crude Oil Logistics impairments. Nine-month Adjusted EBITDA rose to $385.1 million from $353.4 million, while GAAP net loss narrowed to $154.7 million from $409.9 million.
- Interest expense increased by $65.9 million year over year for the nine-month period, primarily following issuance of the 7.5% 2026 senior secured notes.
- NGL sold its approximately 71.5% interest in Sawtooth in June 2021 for $70 million before approximately $2 million of expenses, recording a $60.1 million loss. It also reported a $11.8 million loss on another terminal sale and other impairments/disposals.
- Distributions on common and preferred units remain suspended. The board linked reinstatement to deleveraging and the 2026 secured-note indenture’s 4.75-to-1.00 leverage threshold, as well as liquidity, cash-flow sustainability, maturities, capital spending, and business performance. Unpaid cumulative preferred distributions totaled approximately $101 million at December 31, 2021.
- Water Solutions processed more produced water amid higher producer activity. Liquids Logistics faced unusually warm weather, lower propane volumes, rapidly declining propane prices, and the loss of two producer services agreements. Crude Oil Logistics benefited from higher crude prices and margins but had lower nine-month Grand Mesa pipeline volumes than the prior year.
Outlook, risks and contingencies
- Management stated that anticipated operating cash flows and ABL borrowing capacity should meet liquidity needs; working-capital needs are seasonal and generally peak while building inventories from June through December. The filing gives no earnings or revenue guidance.
- COVID-19 effects on demand remain uncertain. Management also identified commodity-price volatility, counterparty credit risk, weather, regulation, and access to capital as risks.
- Induced seismic activity in parts of the Permian Basin prompted voluntary injection-volume reductions and temporary facility shutdowns. NGL reported no negative impact to date, citing system capacity and connectivity.
- A Delaware lawsuit concerning investment-banking services was scheduled for a quantum-meruit damages retrial in November 2022; NGL had accrued $2.5 million. Environmental liabilities were $1.4 million. Future minimum crude-oil pipeline throughput payments totaled $110.3 million.
- Commodity derivatives are not accounted for as hedges, so fair-value changes can affect reported results. NGL reported nine-month net derivative losses of $42.9 million.
Important facts for investors to verify
- Current ABL borrowing-base availability and liquidity under seasonal inventory and working-capital demands.
- Progress toward the leverage threshold required for distributions, and the treatment and eventual payment of approximately $101 million of preferred-unit arrears.
- Debt repayment/refinancing plans, particularly for scheduled maturities in fiscal 2024–2026, and the effect of higher interest expense.
- Whether Adjusted EBITDA growth converts into sustainable operating cash flow, given the weak nine-month cash generation and working-capital outflows.
- Developments in Permian seismicity restrictions, the LCT litigation, commodity and derivative exposures, and the performance impact of the Sawtooth disposition.