NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2023; filed November 9, 2023. NGL operates Water Solutions, Crude Oil Logistics, and Liquids Logistics. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended September 30, 2023 | Prior-year quarter | Six months ended September 30, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $1,841.1 | $2,009.4 | $3,457.2 | $4,506.8 |
| Operating income | $86.0 | $68.8 | $158.1 | $156.0 |
| Net income attributable to NGL | $28.0 | $3.5 | $47.3 | $26.4 |
| Adjusted EBITDA (non-GAAP) | $176.2 | $142.2 | $310.9 | $266.1 |
| Net loss allocated to common unitholders | $(6.7) | $(26.9) | $(21.2) | $(31.6) |
Revenue fell 8% in the quarter and 23% for the six-month period, principally reflecting lower commodity prices and lower activity or volumes in logistics businesses. Operating income and Adjusted EBITDA improved despite lower revenue. Net income attributable to NGL does not translate into common-unit earnings: preferred distributions exceeded net income, leaving a loss allocated to common unitholders. Basic and diluted loss per common unit was $0.05 for the quarter and $0.16 for six months.
Segment results: Quarterly Water Solutions operating income rose to $59.1 from $47.1, supported by higher disposal volumes, fees, and producer deficiency payments. Crude Oil Logistics operating income declined to $14.8 from $32.9, including a year-over-year swing in derivative results. Liquids Logistics operating income increased to $23.6 from $1.7, helped by a $6.9 gain on terminal sales and better propane and butane margins. For six months, operating income was $128.4 in Water Solutions, $31.8 in Crude Oil Logistics, and $31.4 in Liquids Logistics.
Cash flow, debt, and liquidity
- Six-month operating cash flow was $131.1, versus cash used of $31.7 in the prior-year period. Working-capital movements were significant: receivables and inventories used cash, partly offset by higher payables.
- Investing activities used $56.8, including $80.4 of cash capital expenditures, partly offset by asset-sale proceeds. Financing activities used $77.1, including $92.0 paid to repurchase 2025 notes. Cash declined by $2.8 to $2.7.
- Long-term debt book value was $2,782.3 at September 30, compared with $2,857.8 at March 31; debt face amount was $2,806.6. Debt includes $2,050.0 of 7.5% secured notes due 2026, $280.7 of 2025 unsecured notes, $319.9 of 2026 unsecured notes, and $156.0 drawn on the ABL Facility.
- Interest expense for six months was $118.1, down from $135.6, primarily reflecting prior-year repayments and the 2023 and 2025 note repurchases; higher ABL rates partly offset the reduction. The ABL borrowing rate averaged 8.27% at quarter-end.
- Current assets exceeded current liabilities by approximately $256.1. The ABL has $600.0 of commitments and $139.0 of letters of credit outstanding; actual borrowing availability is subject to its borrowing base. Management believes operating cash flow and ABL capacity will meet liquidity needs, including repayment of the 2025 notes.
- Fiscal 2024 capital expenditures are expected to be approximately $130–$150. Six-month cash capital expenditures were $80.4.
Material changes, outlook, and risks
- Water Solutions processed approximately 2.44 million barrels per day of produced water in the quarter, up from 2.27 million. Higher service fees, new contracts, and payments for committed volumes not delivered supported results. Management reported that induced-seismicity mitigation measures, including reduced injection or temporary facility shut-ins in some areas, had not materially affected disposal capacity to date.
- Crude oil and liquids revenue decreased with lower commodity prices; crude-oil volumes were also affected by lower DJ Basin production and the sale of marine assets in March 2023. Liquids Logistics results reflect lower propane and butane volumes, contract and terminal changes, and a terminal-sale gain.
- During the period, NGL sold certain Eagle Ford water-disposal assets, sold Pinedale assets and terminated a minimum-volume contract, and sold two Pacific Northwest NGL terminals for $16.0. The Pinedale transaction included $7.8 of revenue from contract termination and a $21.1 loss on asset sales; the Eagle Ford sale generated a $5.4 loss. The terminal sale generated a $6.9 gain.
- All common and preferred-unit distributions remain suspended. The board suspended them to deleverage and meet the secured-note indenture’s 4.75-to-1.00 total leverage condition; reinstatement will be evaluated based on leverage, liquidity, cash-flow sustainability, maturities, capital needs, and business performance. Preferred distributions in arrears totaled $321.2 at September 30 and continue to accumulate.
- A Delaware jury returned a $36.0 million quantum-meruit verdict in the LCT litigation, which NGL is appealing. The filing reports statutory interest and costs and separately states that approximately $4.0 was accrued; the exact total potential exposure is not clear from the filing text. A separate Oklahoma class-action settlement of approximately $8.4 received final court approval in June 2023.
- Other key risks include commodity-price and interest-rate volatility, working-capital demands from seasonal inventory, counterparty credit risk, environmental and regulatory requirements, and weather or geopolitical disruptions. NGL said it remained in compliance with debt covenants at quarter-end and reported effective disclosure controls.
Important facts for investors to verify
- Debt repayment and refinancing capacity, particularly the $280.7 of 2025 notes, ABL borrowing-base availability, and the 2026 maturities.
- Progress toward the leverage condition for distribution reinstatement, and the continuing $321.2 preferred-distribution arrears.
- Cash conversion and working-capital trends, given low quarter-end cash and the large receivables and inventory balances.
- Operating performance excluding asset-sale gains and losses, derivative mark-to-market effects, and other Adjusted EBITDA adjustments.
- Developments in the LCT appeal and any change to the accrued amount or potential exposure.
- Effects of seismicity-related operating limits, commodity-market changes, and planned capital expenditures on Water Solutions volumes and liquidity.