Business context and reporting period
NGL Energy Partners LP is a diversified midstream partnership operating Water Solutions, Crude Oil Logistics and Liquids Logistics businesses. This Form 10-K covers the fiscal year ended March 31, 2021, compared primarily with the year ended March 31, 2020; it does not provide a clear standalone “2020 Q4” results summary.
Key financial metrics
- Revenue: $5.23 billion, down from $7.58 billion. The decline reflected lower activity and prices, COVID-19-related demand reductions and business divestitures.
- Profitability: Operating loss was $390.8 million versus $3.3 million; net loss was $639.2 million versus $398.8 million. Loss per common unit was $5.68 versus $4.59. Results included $475.4 million of asset disposal and impairment losses, including a $237.8 million Crude Oil Logistics goodwill impairment and $145.8 million impairment of an Extraction-related contract asset.
- Adjusted EBITDA: $447.7 million, down from $547.2 million; continuing-operations Adjusted EBITDA was $448.3 million versus $589.5 million. These are non-GAAP measures.
- Cash flow and capital spending: Cash from operating activities was $304.0 million, including $305.8 million from continuing operations. Capital expenditures were $186.8 million. Cash and cash equivalents were $4.8 million at year-end.
- Liquidity: Current assets exceeded current liabilities by approximately $97 million. The new $500 million asset-based revolving facility had $4 million drawn and approximately $156 million of letters of credit outstanding at March 31, 2021.
- Debt: Face amount of long-term debt was approximately $3.38 billion. This included $2.05 billion of 7.5% senior secured notes due 2026 and senior unsecured notes totaling approximately $1.27 billion. Interest expense rose to $198.8 million from $181.2 million.
- Segment results: Water Solutions processed 498.1 million barrels of produced water and recorded a $92.7 million operating loss. Crude Oil Logistics recorded a $304.3 million operating loss, including Extraction-related impairments; Grand Mesa pipeline financial throughput averaged about 94,000 barrels per day versus 131,000. Liquids Logistics operating income was $70.4 million versus $142.4 million.
Material changes versus the prior comparable period
- The February 2021 refinancing replaced the prior revolving and term facilities with $2.05 billion of 7.5% secured notes and a $500 million ABL facility. Management said this extended debt maturities and improved liquidity, but refinancing costs and higher fixed-rate borrowing costs contributed to greater interest expense.
- Common-unit distributions were suspended beginning with the quarter ended December 31, 2020; preferred-unit distributions were suspended beginning with the quarter ended March 31, 2021. The notes restrict distributions until the defined total leverage ratio is no greater than 4.75 to 1.00, and preferred-unit arrears must be addressed before common distributions resume.
- Adjusted EBITDA declined despite improved reported Water Solutions operating loss, which included a smaller impairment charge than in the prior year. Crude Oil Logistics shifted from operating income to a substantial loss, while Liquids Logistics income roughly halved.
- Revenue and results are affected by portfolio changes: prior sales included the retail propane business and substantial refined-products operations; 2021 also included the March acquisition of the Ambassador NGL pipeline.
Outlook, commentary and risks
- Management expects fiscal 2022 capital expenditures of $100 million to $125 million, approximately half maintenance and half growth. No specific earnings or Adjusted EBITDA guidance is provided.
- Management stated that anticipated operating cash flows and ABL borrowing capacity should meet liquidity needs, while prioritizing debt reduction. Distribution reinstatement is subject to leverage, liquidity, cash-flow sustainability, maturities, capital spending and business performance.
- Management noted that crude prices had recovered by year-end but producer drilling plans and the timing of refined-product demand recovery remained uncertain. COVID-19, commodity prices, weather, customer credit and production activity remain important risks.
- Water disposal faces regulatory and seismicity-related restrictions; climate and emissions rules could raise costs or reduce customer activity. The Partnership also faces environmental, operational, transportation, counterparty, cyber-security and interest-rate risks.
- Extraction’s bankruptcy led to rejection of a Grand Mesa transportation contract. A settlement provided a new long-term supply agreement, a revised rate structure and a $35 million payment, but was accompanied by major contract and goodwill impairments. The filing identifies goodwill impairment valuation as a critical audit matter.
- Other notable items include a $40 million consent fee paid to Class D preferred holders as part of the refinancing and a $55.6 million make-whole payment to terminate the prior term credit agreement.
Important facts for investors to verify
- Progress toward the 4.75-to-1.00 leverage threshold, covenant compliance and actual borrowing availability after letters of credit and borrowing-base limits.
- Whether operating cash generation can reduce debt while funding maintenance and growth capital needs, given low year-end cash and significant interest obligations.
- The timing and amount of any common and preferred distribution reinstatement, including cumulative preferred distribution arrears and related restrictions.
- Actual Grand Mesa volumes, economics under the revised Extraction agreement, and exposure to customer concentration and producer activity.
- Assumptions supporting Water Solutions and Crude Oil Logistics asset and goodwill valuations, and the potential for further impairments.
- Exposure to commodity-price movements, derivative and basis risk, minimum pipeline commitments, and the substantial index-priced purchase and sale obligations disclosed in the filing.