NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Three months ended June 30, 2020, the partnership’s fiscal first quarter of fiscal 2021. The request metadata’s “2020 Q1” label does not match the filing period. Amounts below are U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context and financial performance
NGL operates Crude Oil Logistics, Water Solutions, and Liquids and Refined Products. Results were affected by the COVID-19 demand shock, low and volatile commodity prices, and prior-year acquisitions and business sales. The company cautions that interim results may not indicate full-year performance.
| Metric | Quarter ended June 30, 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $844.4 | $1,871.9 |
| Operating income (loss) | $(10.8) | $47.5 |
| Net income (loss) attributable to NGL | $(35.3) | $8.3 |
| Net loss per common unit | $(0.44) | $(0.96) |
| Adjusted EBITDA, continuing operations (non-GAAP) | $91.0 | $103.7 |
| Cash from operating activities, continuing operations | $81.9 | $92.6 |
Revenue fell about 55%, reflecting lower commodity prices and volumes and the impact of businesses sold in fiscal 2020; therefore, the year-over-year comparison is not fully like-for-like. Cost of sales was $677.0 million, implying gross profit of approximately $167.4 million, or 19.8% of revenue, versus approximately $182.0 million, or 9.7%, a year earlier. These calculated gross margins are affected by derivative and inventory accounting.
- Crude Oil Logistics: Segment operating income declined to $23.3 million from $33.8 million. Lower crude prices and sales volumes, plus derivative losses, outweighed higher transportation and other revenue. Average Grand Mesa Pipeline financial volumes were about 119,000 barrels per day.
- Water Solutions: Revenue rose to $88.1 million from $71.8 million, principally from acquired and developed facilities and higher disposal fees. The segment recorded a $16.0 million operating loss versus $13.7 million of income, with higher depreciation and amortization and derivative losses contributing. Produced-water volumes processed increased to about 1.37 million barrels per day.
- Liquids and Refined Products: Segment operating income fell to $4.6 million from $15.4 million, amid lower refined-product prices and demand and weaker butane and other-product margins. Propane margins improved.
Cash flow, debt and liquidity
- Operating cash flow was $80.4 million including discontinued operations; continuing-operations operating cash flow was $81.9 million. Investing activities used $124.2 million, including $97.8 million of cash capital expenditures and $26.7 million of net derivative settlements. Cash increased $3.7 million to $26.4 million.
- At June 30, total debt at face value was approximately $3.31 billion; reported long-term debt, net of issuance costs and current maturities, was $3.28 billion. Revolver borrowings were $1.658 billion, and the $250 million term loan carried a 9.50% rate. Quarterly interest expense was $44.0 million, up from $39.9 million.
- Current assets exceeded current liabilities by approximately $60.6 million. Current assets were $677.4 million and current liabilities $616.7 million. The working-capital facility had $258 million borrowed and $85.2 million of letters of credit; availability can be limited by its borrowing base.
- The partnership reported compliance with debt covenants. Revolver covenant ratios were 3.06x senior secured leverage, 3.47x interest coverage, and 5.36x total leverage, against limits of 3.50x, minimum 2.50x, and maximum 5.50x, respectively. Total leverage was relatively close to its limit.
- On June 3, NGL refinanced its $250 million bridge loan with a new $250 million term credit agreement due June 2023, bearing interest at 9.50% at quarter-end. It also repurchased portions of its 2023, 2025, and 2026 notes for a total face value of about $47.2 million, recording a $19.4 million gain on early extinguishment of liabilities.
Outlook, risks and unusual items
- Management reduced the common-unit distribution from $0.39 to $0.20 per quarter, estimating about $100 million of annualized liquidity benefit. The July declaration maintained the $0.20 rate. Preferred-unit distributions continued, including cumulative preferred obligations.
- Management expected combined fiscal 2021 growth and maintenance capital expenditures of about $100 million, with spending expected to decline over the remainder of the year. It believed operating cash flow and revolver capacity would meet liquidity needs, while noting uncertain COVID-19, commodity-price and demand impacts. No earnings or Adjusted EBITDA guidance was provided in the supplied filing text.
- A significant crude-pipeline shipper filed for Chapter 11 and sought court approval to reject transportation contracts extending through October 2026; NGL disputes rejection. The same counterparty also has a water-disposal contract. A court hearing on the transportation contract was scheduled for September 3, 2020. Rejection could materially affect results.
- Other notable charges included a $9.4 million write-off related to a bankrupt facility loan and $10.2 million of corporate and other asset-disposal or impairment losses. NGL accrued $2.5 million for the LCT litigation; appellate proceedings were pending. Environmental liabilities were $1.9 million.
- NGL cited COVID-19, depressed energy demand and prices, producer activity, counterparty credit and performance, interest rates, commodity volatility, and environmental and regulatory matters as risks. It adopted the expected-credit-loss accounting standard on April 1, 2020, reducing opening equity by $1.1 million.
Important facts for investors to verify
- Developments and financial exposure from the significant shipper’s bankruptcy, including outcomes for both pipeline transportation and water-disposal contracts.
- Liquidity, revolver borrowing-base availability, and covenant headroom—particularly the 5.36x total leverage ratio against a 5.50x maximum.
- Whether management’s $100 million fiscal 2021 capital-spending expectation and distribution reduction are sufficient under ongoing market conditions.
- Water Solutions’ operating performance and whether higher volumes can translate into segment profitability despite elevated depreciation and amortization.
- Recoverability of the remaining unsecured facility-loan claim, resolution of the LCT litigation, and the impact of other contingent obligations.
- Comparability of reported results given prior-year acquisitions and the sales of TPSL, Mid-Con, and Gas Blending; also distinguish GAAP results from management’s non-GAAP Adjusted EBITDA.