NGL Energy Partners LP — FY2015 Form 10-K Summary
Period clarification: Although the request metadata says “2014 Q4,” this filing is the annual report for the fiscal year ended March 31, 2015. Comparisons are primarily with the year ended March 31, 2014. Amounts below are U.S. dollars unless stated otherwise.
Business context and reporting period
NGL is a diversified midstream and energy marketing limited partnership operating crude oil logistics, water solutions, wholesale natural gas liquids, retail propane, and refined products and renewables businesses. The company continued its acquisition-led expansion, including the July 2014 TransMontaigne acquisition, water disposal facility purchases, and the February 2015 Sawtooth NGL storage acquisition. Its strategy emphasizes acquisitions and organic investment, growth in quarterly distributions, and fee-, cost-plus-, or margin-based cash flows.
Financial and operating metrics
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $16.802 billion | $9.699 billion |
| Operating income | $87.1 million | $106.6 million |
| Net income | $29.9 million | $48.8 million |
| Net income attributable to parent equity | $16.7 million | $47.7 million |
| Net income (loss) allocated to limited partners | $(29.0) million | $33.5 million |
| Basic and diluted earnings (loss) per common unit | $(0.29) | $0.51 |
| Adjusted EBITDA (non-GAAP) | $420.1 million | $255.4 million |
| Cash from operating activities | $262.4 million | $85.2 million |
| Cash used in investing activities | $(1.366) billion | $(1.455) billion |
| Cash from financing activities | $1.135 billion | $1.369 billion |
| Cash and cash equivalents at year-end | $41.3 million | $10.4 million |
| Total assets | $6.548 billion | $4.148 billion |
| Long-term debt, including current maturities | $2.750 billion | $1.637 billion |
| Total equity | $2.673 billion | $1.532 billion |
Operating margin was approximately 0.5% and net margin approximately 0.2% in FY2015, reflecting the low-margin, high-volume nature of product marketing. These are calculated from reported revenue and income figures. Year-end current assets were $1.645 billion against current liabilities of $1.113 billion. The revolving credit facility had $2.296 billion of total capacity; $1.391 billion was drawn and $108.6 million of letters of credit were outstanding. Working-capital availability was subject to borrowing-base limits.
FY2015 distributions paid were $2.37 per common unit. The quarterly distribution increased from $0.5513 in May 2014 to $0.6175 in February 2015; a $0.625 distribution was declared in April 2015 for payment in May.
Material changes versus FY2014
- Revenue rose about 73%, largely reflecting acquisitions and higher sales volumes, including the addition of TransMontaigne for nine months. Reported revenue growth should not be read as equivalent growth in underlying profitability.
- Operating income fell about 18% and net income fell about 39%. Interest expense rose to $110.1 million from $58.9 million as debt increased to fund acquisitions and investment.
- Operating cash flow increased to $262.4 million, helped by working-capital changes, including a $243.3 million cash-flow benefit from inventories. Investing outflows remained substantial at $1.366 billion.
- Segment operating income improved in water solutions ($45.0 million versus $10.3 million) and refined products and renewables ($54.6 million versus $6.5 million); retail propane rose modestly to $64.1 million. Crude oil logistics swung to a $35.8 million operating loss from $0.7 million income, while liquids fell to $45.1 million from $71.9 million.
- Crude oil prices declined sharply: WTI at Cushing ended the year at $47.60 per barrel versus $101.58 a year earlier. Management cited price declines, timing between purchases and sales, and backwardated markets for weaker crude logistics margins. Markets were in contango at March 31, 2015.
- Debt increased by approximately $1.11 billion. The partnership issued $400 million of 5.125% notes due 2019 and drew more on revolving facilities; it also consolidated TLP debt following the TransMontaigne acquisition.
Outlook, commentary, risks, contingencies, and unusual items
- Projects and outlook: Grand Mesa, a crude oil pipeline from Weld County, Colorado, to Cushing, Oklahoma, was under construction and expected to begin service in the second half of calendar 2016. Estimated construction cost was $655 million, supported by ship-or-pay commitments. Sawtooth storage expansion was expected to be completed by the end of calendar 2015. The filing gives no consolidated earnings or distribution guidance.
- Commodity and operating risks: Management warned that sustained low crude prices could reduce drilling, production, crude logistics volumes, wastewater volumes, and recovered-hydrocarbon revenue. Commodity, basis, inventory, and counterparty risks remain despite hedging; weather affects propane demand and cash flow. Renewable fuel mandates and biodiesel tax credits are subject to policy changes.
- Leverage and distributions: Credit agreement leverage was approximately 3.2x against a 4.25x maximum; interest coverage was approximately 5.9x against a 2.75x minimum. The partnership reported covenant compliance at year-end. Distributions depend on available cash, reserves, working capital, debt restrictions, and access to financing; the partnership warns it may not be able to maintain distributions.
- Material unusual items: The company recorded a $31.6 million gain in other income after producers were released from commitments for a planned crude oil rail transloading facility; related payments extend over five and seven years. It also recorded $5.5 million of contractual-dispute settlement proceeds and accrued $1.2 million for another dispute. Water solutions reported $34.0 million of realized derivative gains and $2.8 million of unrealized gains; certain gains related to future expected crude recovery were realized in advance. Inventory was reduced by $16.8 million under lower-of-cost-or-market adjustments. The liquids segment recorded a $29.9 million loss on sale of a terminal; the water segment recorded a $4.0 million loss on sale of its transportation business and a $3.1 million facility abandonment loss.
- Acquisition and accounting matters: Purchase accounting for several FY2015 acquisitions remained preliminary and subject to change. Goodwill and intangible assets totaled approximately $2.69 billion at year-end. The annual impairment review found no goodwill impairment, but valuation depends on estimates and future operating assumptions.
- Contingencies and governance: Management stated ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes are uncertain. Environmental, disposal-well, hydraulic-fracturing, transportation, and permitting requirements could increase costs or constrain operations. Related-party transactions and general partner incentive distribution rights are relevant to unitholder interests.
- Controls and audit: Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. However, management and the auditor excluded acquired TransMontaigne refined-products marketing operations and certain related operations from the FY2015 internal-control assessment; those operations represented 9% of assets and 23% of revenue.
Important facts for investors to verify
- Reconcile reported revenue growth and adjusted EBITDA with segment margins, acquisition contributions, derivative results, and the $31.6 million unusual gain.
- Review debt maturities, borrowing-base availability, covenant headroom, interest-rate exposure, and the funding plan for construction commitments and distributions.
- Assess distribution coverage from recurring operating cash flow after working-capital movements, capital spending, debt service, and incentive distributions—not earnings or one-time cash sources alone.
- Track crude oil prices, producer activity, water-disposal volumes, recovered-hydrocarbon yields, and customer concentration, particularly in crude logistics and water solutions.
- Verify Grand Mesa construction progress, ship-or-pay commitments, projected costs and timing, plus expected utilization and returns on recently acquired assets.
- Monitor completion of TransMontaigne integration and internal-control work, final acquisition accounting, goodwill assumptions, and environmental or disposal-well regulatory developments.