November 26, 2020

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NGL Energy Partners LP Announces First Quarter Fiscal 2021 Financial Results

Extension of DJ Basin Produced Water Agreement through 2027 TULSA, Okla.--(BUSINESS WIRE)--NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported its first quarter fiscal 2021 results. Highlights for the quarter include: Loss from continuing operations for the first quarter of Fiscal 2021 of $33.8 million, compared to income from continuing operations of $9.0 million for the first quarter of Fiscal 2020 Adjusted EBITDA from continuing operations for the first quarter of Fiscal 2021 of $91.0 million, compared to $103.7 million for the first quarter of Fiscal 2020 Results impacted by the COVID-19 pandemic and significant commodity price volatility, which resulted in lower demand for crude oil, liquids and refined products as well as lower crude oil prices, production volumes and drilling activity Fiscal Year 2021 Adjusted EBITDA expected to range between $560 million and $600 million Subsequent to June 30, 2020, the Partnership announced the following: New, long-term extension of a current produced water transportation and disposal agreement with an existing customer, which is a leading, independent producer customer in the DJ Basin. The agreement continues our acreage dedication totaling approximately 180,000 acres in Weld County through December 2027 Multiple agreements and extensions, including incremental acreage dedications, with key producers in the Delaware Basin New and extended contracts are expected to be serviced with the Partnership’s existing infrastructure “Our first quarter results do not fully reflect the actions the Partnership has taken to maximize earnings through this unique environment,” stated Mike Krimbill, NGL’s CEO. “We benefited significantly from our crude oil storage assets during the period; however, these benefits are not immediately evident as we have recognized hedge losses on inventory this quarter on product that will be sold with profits recognized in the second quarter. We also held most of the skim oil barrels recovered in inventory during the quarter due to the low crude prices and have been selling those barrels in the second quarter at much higher price levels. We believe May and June to be the low point in our water volumes as we have seen producers bring production back online and increase activity with crude prices now exceeding $40.00 per barrel. We accomplished the following during the quarter in our Water Solutions segment: - Reduced operating expenses by approximately $2.0 million per month beginning in June; - Increased our market share in the Delaware Basin and DJ Basin through long-term contract extensions and incremental acreage dedications; and - Lowered both growth and maintenance capital expenditures by leveraging the scale of our newly installed, fully integrated system to capture, process and dispose of produced water.” “We continue to focus on the future to create value for our unitholders,” Krimbill concluded. Quarterly Results of Operations The following table summarizes operating income (loss) and Adjusted EBITDA from continuing operations by reportable segment for the periods indicated: Quarter Ended June 30, 2020 June 30, 2019 Operating Income (Loss) Adjusted EBITDA Operating Income (Loss) Adjusted EBITDA (in thousands) Crude Oil Logistics $ 23,320 $ 30,854 $ 33,802 $ 52,074 Liquids and Refined Products 4,562 12,232 15,371 18,136 Water Solutions (16,047 ) 56,926 13,689 41,089 Corporate and Other (22,620 ) (9,030 ) (15,342 ) (7,581 ) Total $ (10,785 ) $ 90,982 $ 47,520 $ 103,718 The tables included in this release reconcile operating income (loss) to Adjusted EBITDA from continuing operations, a non-GAAP financial measure, on a consolidated basis and for each of the Partnership’s reportable segments. Crude Oil Logistics Results for the first quarter of Fiscal 2021 declined compared to the first quarter of Fiscal 2020 primarily due to commodity prices and lower crude oil demand as a result of the COVID-19 pandemic. In addition, we incurred losses of $9.8 million on the settlement of derivatives during the current quarter compared to gains of $1.4 million on the settlement of derivatives in the prior year quarter. These losses were on derivative positions that were rolled from June to future months to protect inventory from significant changes in market value. The inventory, which is valued at cost as of June 30, 2020, is sold forward at market prices and the Partnership expects to realize an offsetting gain on this inventory when it is sold in subsequent periods. During the three months ended June 30, 2020, financial volumes on the Grand Mesa Pipeline averaged approximately 119,000 barrels per day; however, net realized margins on certain volumes purchased and shipped on the pipeline were negatively impacted by the extreme crude oil price volatility during the period. The Partnership estimates a negative impact from these barrels of approximately $11 million during the quarter compared to historical results. In June 2020, a significant shipper on the Grand Mesa Pipeline filed a petition for bankruptcy under Chapter 11 of the bankruptcy code. This third-party has transportation contracts pursuant to which it has committed to ship crude oil on the Partnership’s pipeline through October 2026. As part of the bankruptcy filing, the third-party has requested that the court authorize it to reject these transportation contracts. The Partnership has filed an objection and a hearing on this matter is set to take place on September 3, 2020. To date, both parties have continued to operate under existing agreements. Liquids and Refined Products Total product margin per gallon was $0.027 for the quarter ended June 30, 2020, compared to $0.039 for the quarter ended June 30, 2019. This decrease was primarily the result of lower refined products, butane and other product margins, driven primarily by lower demand for these products as a result of the COVID-19 pandemic and lower commodity prices. Refined products volumes decreased by approximately 109.7 million gallons, or 34.1%, during the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Propane volumes increased by approximately 7.0 million gallons, or 2.9%, and butane volumes decreased by approximately 22.9 million gallons, or 16.1%, when compared to the quarter ended June 30, 2019. Other product volumes decreased by approximately 40.4 million gallons, or 26.1%, during the quarter ended June 30, 2020 compared to the same period in the prior year. The decrease in refined products, butane and other product volumes was also primarily due to lower demand as a result of the COVID-19 pandemic. Water Solutions The Partnership processed approximately 1.4 million barrels of water per day during the quarter ended June 30, 2020, a 61.0% increase when compared to approximately 849,000 barrels of produced water processed per day during the quarter ended June 30, 2019. This increase was primarily driven by our acquisition of Mesquite Disposals Unlimited, LLC (“Mesquite”) and Hillstone Environmental Partners, LLC in the Delaware Basin and was partially offset by lower disposal volumes in all other basins during the period resulting from lower crude oil prices, drilling activity and production volumes. Revenues from recovered crude oil, including the impact from realized skim oil hedges, totaled $10.1 million for the quarter ended June 30, 2020, a decrease of $7.1 million from the prior year period. The Partnership made the strategic decision to store the majority of its recovered crude oil at its various facilities through the quarter, resulting in significantly lower physical skim oil sales. The Partnership expects to sell the stored skim oil during the three months ended September 30, 2020, along with the barrels recovered during that period. Operating expenses in the Water Solutions segment decreased on a per barrel basis to $0.32 compared to $0.42 per barrel in the comparative quarter last year. The Partnership has taken significant steps to reduce operating costs and continues to evaluate cost saving initiatives in the current environment. Additionally, the Partnership recently announced new agreements, including acreage dedications, with key producers in the Delaware Basin and expects to service these customers’ produced water needs with its existing infrastructure. The Partnership also announced today that it has executed a new, long-term extension of a current produced water transportation and disposal agreement in the DJ Basin through December 2027. Corporate and Other Corporate and Other expenses increased from the comparable prior year period primarily due to the loss recorded for the uncollectible portion of our loan receivable with a third party and increased legal costs. Capitalization and Liquidity Total debt outstanding was $3.29 billion at June 30, 2020 compared to $3.15 billion at March 31, 2020, an increase of $136 million due primarily to the funding of certain capital expenditures incurred prior to and accrued on March 31, 2020 and $66.3 million of the remaining $100.0 million deferred purchase price of Mesquite. Capital expenditures incurred totaled $29.9 million during the first quarter and are expected to continue to decrease throughout Fiscal 2021, with full year expectations of $100 million for both growth and maintenance capital expenditures combined. Total liquidity (cash plus available capacity on our revolving credit facility) was approximately $198.2 million as of June 30, 2020 and the Partnership is in compliance with all of its debt covenants. First Quarter Conference Call Information A conference call to discuss NGL’s results of operations is scheduled for 4:00 pm Central Time on Monday, August 10, 2020. Analysts, investors, and other interested parties may access the conference call by dialing (800) 291-4083 and providing access code 1189407. An archived audio replay of the conference call will be available for 7 days beginning at 1:00 pm Central Time on August 11, 2020, which can be accessed by dialing (855) 859-2056 and providing access code 1189407. Non-GAAP Financial Measures NGL defines EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. NGL defines Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. NGL also includes in Adjusted EBITDA certain inventory valuation adjustments related to TransMontaigne Product Services, LLC (“TPSL”), our refined products business in the mid-continent region of the United States (“Mid-Con”) and our gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”), which are included in discontinued operations, and certain refined products businesses within NGL’s Liquids and Refined Products segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net (loss) income, (loss) income from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. NGL believes that EBITDA provides additional information to investors for evaluating NGL’s ability to make quarterly distributions to NGL’s unitholders and is presented solely as a supplemental measure. NGL believes that Adjusted EBITDA provides additional information to investors for evaluating NGL’s financial performance without regard to NGL’s financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities. Other than for the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s Liquids and Refined Products segment, for purposes of the Adjusted EBITDA calculation, NGL makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, NGL records changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, NGL reverses the previously recorded unrealized gain or loss and record a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s Liquids and Refined Products segment. The primary hedging strategy of these businesses is to hedge against the risk of declines in the value of inventory over the course of the contract cycle, and many of the hedges cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. NGL includes this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA. Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. Distributable Cash Flow is a performance metric used by senior management to compare cash flows generated by the Partnership (excluding growth capital expenditures and prior to the establishment of any retained cash reserves by the Board of Directors) to the cash distributions expected to be paid to unitholders. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. This financial measure also is important to investors as an indicator of whether the Partnership is generating cash flow at a level that can sustain, or support an increase in, quarterly distribution rates. Actual distribution amounts are set by the Board of Directors. Forward-Looking Statements This press release includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While NGL believes such forward-looking statements are reasonable, NGL cannot assure they will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in NGL’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” NGL undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. NGL provides Adjusted EBITDA guidance that does not include certain charges and costs, which in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods, such as income taxes, interest and other non-operating items, depreciation and amortization, net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities and items that are unusual in nature or infrequently occurring. The exclusion of these charges and costs in future periods will have a significant impact on the Partnership’s Adjusted EBITDA, and the Partnership is not able to provide a reconciliation of its Adjusted EBITDA guidance to net income (loss) without unreasonable efforts due to the uncertainty and variability of the nature and amount of these future charges and costs and the Partnership believes that such reconciliation, if possible, would imply a degree of precision that would be potentially confusing or misleading to investors. About NGL Energy Partners LP NGL Energy Partners LP, a Delaware limited partnership, is a diversified midstream energy company that transports, stores, markets and provides other logistics services for crude oil, natural gas liquids and other products and transports, treats and disposes of produced water generated as part of the oil and natural gas production process. For further information, visit the Partnership’s website at www.nglenergypartners.com. NGL ENERGY PARTNERS LP AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (in Thousands, except unit amounts) June 30, 2020 March 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 26,400 $ 22,704 Accounts receivable-trade, net of allowance for expected credit losses of $3,674 and $4,540, respectively 424,814 566,834 Accounts receivable-affiliates 14,814 12,934 Inventories 135,918 69,634 Prepaid expenses and other current assets 75,433 101,981 Total current assets 677,379 774,087 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $570,806 and $529,068, respectively 2,833,002 2,851,555 GOODWILL 993,114 993,587 INTANGIBLE ASSETS, net of accumulated amortization of $670,382 and $631,449, respectively 1,574,216 1,612,480 INVESTMENTS IN UNCONSOLIDATED ENTITIES 22,626 23,182 OPERATING LEASE RIGHT-OF-USE ASSETS 177,010 180,708 OTHER NONCURRENT ASSETS 48,739 63,137 Total assets $ 6,326,086 $ 6,498,736 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable-trade $ 367,463 $ 515,049 Accounts payable-affiliates 22,864 17,717 Accrued expenses and other payables 142,836 232,062 Advance payments received from customers 25,326 19,536 Current maturities of long-term debt 4,521 4,683 Operating lease obligations 53,720 56,776 Total current liabilities 616,730 845,823 LONG-TERM DEBT, net of debt issuance costs of $24,022 and $19,795, respectively, and current maturities 3,281,402 3,144,848 OPERATING LEASE OBLIGATIONS 120,986 121,013 OTHER NONCURRENT LIABILITIES 112,034 114,079 CLASS D 9.00% PREFERRED UNITS, 600,000 and 600,000 preferred units issued and outstanding, respectively 544,151 537,283 EQUITY: General partner, representing a 0.1% interest, 128,901 and 128,901 notional units, respectively (51,474 ) (51,390 ) Limited partners, representing a 99.9% interest, 128,771,715 and 128,771,715 common units issued and outstanding, respectively 1,283,491 1,366,152 Class B preferred limited partners, 12,585,642 and 12,585,642 preferred units issued and outstanding, respectively 305,468 305,468 Class C preferred limited partners, 1,800,000 and 1,800,000 preferred units issued and outstanding, respectively 42,891 42,891 Accumulated other comprehensive loss (341 ) (385 ) Noncontrolling interests 70,748 72,954 Total equity 1,650,783 1,735,690 Total liabilities and equity $ 6,326,086 $ 6,498,736 NGL ENERGY PARTNERS LP AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Operations (in Thousands, except unit and per unit amounts) Three Months Ended June 30, 2020 2019 REVENUES: Crude Oil Logistics $ 276,039 $ 716,160 Water Solutions 88,065 71,783 Liquids and Refined Products 479,998 1,083,693 Other 313 255 Total Revenues 844,415 1,871,891 COST OF SALES: Crude Oil Logistics 217,557 649,240 Water Solutions 4,700 (2,807 ) Liquids and Refined Products 454,336 1,043,032 Other 454 465 Total Cost of Sales 677,047 1,689,930 OPERATING COSTS AND EXPENSES: Operating 64,987 61,312 General and administrative 17,158 20,342 Depreciation and amortization 83,986 53,754 Loss (gain) on disposal or impairment of assets, net 12,022 (967 ) Operating (Loss) Income (10,785 ) 47,520 OTHER INCOME (EXPENSE): Equity in earnings of unconsolidated entities 289 8 Interest expense (43,961 ) (39,877 ) Gain on early extinguishment of liabilities, net 19,355 — Other income, net 1,035 1,010 (Loss) Income From Continuing Operations Before Income Taxes (34,067 ) 8,661 INCOME TAX BENEFIT 301 321 (Loss) Income From Continuing Operations (33,766 ) 8,982 Loss From Discontinued Operations, net of Tax (1,486 ) (943 ) Net (Loss) Income (35,252 ) 8,039 LESS: NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS (51 ) 268 NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP $ (35,303 ) $ 8,307 NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS $ (55,815 ) $ (120,126 ) NET LOSS FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS $ (1,485 ) $ (942 ) NET LOSS ALLOCATED TO COMMON UNITHOLDERS $ (57,300 ) $ (121,068 ) BASIC LOSS PER COMMON UNIT Loss From Continuing Operations $ (0.43 ) $ (0.95 ) Loss From Discontinued Operations, net of Tax $ (0.01 ) $ (0.01 ) Net Loss $ (0.44 ) $ (0.96 ) DILUTED LOSS PER COMMON UNIT Loss From Continuing Operations $ (0.43 ) $ (0.95 ) Loss From Discontinued Operations, net of Tax $ (0.01 ) $ (0.01 ) Net Loss $ (0.44 ) $ (0.96 ) BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING 128,771,715 125,886,738 DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING 128,771,715 125,886,738 EBITDA, ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW RECONCILIATION (Unaudited) The following table reconciles NGL’s net (loss) income to NGL’s EBITDA, Adjusted EBITDA and Distributable Cash Flow: Three Months Ended June 30, 2020 2019 (in thousands) Net (loss) income $ (35,252 ) $ 8,039 Less: Net (income) loss attributable to noncontrolling interests (51 ) 268 Net (loss) income attributable to NGL Energy Partners LP (35,303 ) 8,307 Interest expense 44,066 39,910 Income tax benefit (301 ) (311 ) Depreciation and amortization 83,202 54,844 EBITDA 91,664 102,750 Net unrealized losses (gains) on derivatives 26,671 (3,474 ) Inventory valuation adjustment (1) 3,820 (19,746 ) Lower of cost or net realizable value adjustments (32,003 ) (918 ) Loss (gain) on disposal or impairment of assets, net 13,084 (967 ) Gain on early extinguishment of liabilities, net (19,355 ) — Equity-based compensation expense (2) 2,302 3,701 Acquisition expense (3) 157 2,091 Other (4) 4,348 3,323 Adjusted EBITDA $ 90,688 $ 86,760 Adjusted EBITDA - Discontinued Operations (5) $ (294 ) $ (16,958 ) Adjusted EBITDA - Continuing Operations $ 90,982 $ 103,718 Less: Cash interest expense (6) 40,399 37,775 Less: Income tax benefit (301 ) (321 ) Less: Maintenance capital expenditures 9,168 16,929 Less: Preferred unit distributions 15,030 13,076 Distributable Cash Flow - Continuing Operations $ 26,686 $ 36,259 Contacts NGL Energy Partners LP Trey Karlovich, 918-481-1119 Chief Financial Officer and Executive Vice President [email protected] Linda Bridges, 918-481-1119 Senior Vice President - Finance and Treasurer [email protected] Read full story here

Extension of DJ Basin Produced Water Agreement through 2027

TULSA, Okla.–(BUSINESS WIRE)–NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported its first quarter fiscal 2021 results. Highlights for the quarter include:

  • Loss from continuing operations for the first quarter of Fiscal 2021 of $33.8 million, compared to income from continuing operations of $9.0 million for the first quarter of Fiscal 2020
  • Adjusted EBITDA from continuing operations for the first quarter of Fiscal 2021 of $91.0 million, compared to $103.7 million for the first quarter of Fiscal 2020
  • Results impacted by the COVID-19 pandemic and significant commodity price volatility, which resulted in lower demand for crude oil, liquids and refined products as well as lower crude oil prices, production volumes and drilling activity
  • Fiscal Year 2021 Adjusted EBITDA expected to range between $560 million and $600 million

Subsequent to June 30, 2020, the Partnership announced the following:

  • New, long-term extension of a current produced water transportation and disposal agreement with an existing customer, which is a leading, independent producer customer in the DJ Basin. The agreement continues our acreage dedication totaling approximately 180,000 acres in Weld County through December 2027
  • Multiple agreements and extensions, including incremental acreage dedications, with key producers in the Delaware Basin
  • New and extended contracts are expected to be serviced with the Partnership’s existing infrastructure

“Our first quarter results do not fully reflect the actions the Partnership has taken to maximize earnings through this unique environment,” stated Mike Krimbill, NGL’s CEO. “We benefited significantly from our crude oil storage assets during the period; however, these benefits are not immediately evident as we have recognized hedge losses on inventory this quarter on product that will be sold with profits recognized in the second quarter. We also held most of the skim oil barrels recovered in inventory during the quarter due to the low crude prices and have been selling those barrels in the second quarter at much higher price levels. We believe May and June to be the low point in our water volumes as we have seen producers bring production back online and increase activity with crude prices now exceeding $40.00 per barrel. We accomplished the following during the quarter in our Water Solutions segment:

– Reduced operating expenses by approximately $2.0 million per month beginning in June;

– Increased our market share in the Delaware Basin and DJ Basin through long-term contract extensions and incremental acreage dedications; and

– Lowered both growth and maintenance capital expenditures by leveraging the scale of our newly installed, fully integrated system to capture, process and dispose of produced water.”

“We continue to focus on the future to create value for our unitholders,” Krimbill concluded.

Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted EBITDA from continuing operations by reportable segment for the periods indicated:

Quarter Ended

June 30, 2020

June 30, 2019

Operating

Income (Loss)

Adjusted

EBITDA

Operating

Income (Loss)

Adjusted

EBITDA

(in thousands)

Crude Oil Logistics

$

23,320

$

30,854

$

33,802

$

52,074

Liquids and Refined Products

4,562

12,232

15,371

18,136

Water Solutions

(16,047

)

56,926

13,689

41,089

Corporate and Other

(22,620

)

(9,030

)

(15,342

)

(7,581

)

Total

$

(10,785

)

$

90,982

$

47,520

$

103,718

The tables included in this release reconcile operating income (loss) to Adjusted EBITDA from continuing operations, a non-GAAP financial measure, on a consolidated basis and for each of the Partnership’s reportable segments.

Crude Oil Logistics

Results for the first quarter of Fiscal 2021 declined compared to the first quarter of Fiscal 2020 primarily due to commodity prices and lower crude oil demand as a result of the COVID-19 pandemic. In addition, we incurred losses of $9.8 million on the settlement of derivatives during the current quarter compared to gains of $1.4 million on the settlement of derivatives in the prior year quarter. These losses were on derivative positions that were rolled from June to future months to protect inventory from significant changes in market value. The inventory, which is valued at cost as of June 30, 2020, is sold forward at market prices and the Partnership expects to realize an offsetting gain on this inventory when it is sold in subsequent periods.

During the three months ended June 30, 2020, financial volumes on the Grand Mesa Pipeline averaged approximately 119,000 barrels per day; however, net realized margins on certain volumes purchased and shipped on the pipeline were negatively impacted by the extreme crude oil price volatility during the period. The Partnership estimates a negative impact from these barrels of approximately $11 million during the quarter compared to historical results.

In June 2020, a significant shipper on the Grand Mesa Pipeline filed a petition for bankruptcy under Chapter 11 of the bankruptcy code. This third-party has transportation contracts pursuant to which it has committed to ship crude oil on the Partnership’s pipeline through October 2026. As part of the bankruptcy filing, the third-party has requested that the court authorize it to reject these transportation contracts. The Partnership has filed an objection and a hearing on this matter is set to take place on September 3, 2020. To date, both parties have continued to operate under existing agreements.

Liquids and Refined Products

Total product margin per gallon was $0.027 for the quarter ended June 30, 2020, compared to $0.039 for the quarter ended June 30, 2019. This decrease was primarily the result of lower refined products, butane and other product margins, driven primarily by lower demand for these products as a result of the COVID-19 pandemic and lower commodity prices.

Refined products volumes decreased by approximately 109.7 million gallons, or 34.1%, during the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. Propane volumes increased by approximately 7.0 million gallons, or 2.9%, and butane volumes decreased by approximately 22.9 million gallons, or 16.1%, when compared to the quarter ended June 30, 2019. Other product volumes decreased by approximately 40.4 million gallons, or 26.1%, during the quarter ended June 30, 2020 compared to the same period in the prior year. The decrease in refined products, butane and other product volumes was also primarily due to lower demand as a result of the COVID-19 pandemic.

Water Solutions

The Partnership processed approximately 1.4 million barrels of water per day during the quarter ended June 30, 2020, a 61.0% increase when compared to approximately 849,000 barrels of produced water processed per day during the quarter ended June 30, 2019. This increase was primarily driven by our acquisition of Mesquite Disposals Unlimited, LLC (“Mesquite”) and Hillstone Environmental Partners, LLC in the Delaware Basin and was partially offset by lower disposal volumes in all other basins during the period resulting from lower crude oil prices, drilling activity and production volumes.

Revenues from recovered crude oil, including the impact from realized skim oil hedges, totaled $10.1 million for the quarter ended June 30, 2020, a decrease of $7.1 million from the prior year period. The Partnership made the strategic decision to store the majority of its recovered crude oil at its various facilities through the quarter, resulting in significantly lower physical skim oil sales. The Partnership expects to sell the stored skim oil during the three months ended September 30, 2020, along with the barrels recovered during that period.

Operating expenses in the Water Solutions segment decreased on a per barrel basis to $0.32 compared to $0.42 per barrel in the comparative quarter last year. The Partnership has taken significant steps to reduce operating costs and continues to evaluate cost saving initiatives in the current environment.

Additionally, the Partnership recently announced new agreements, including acreage dedications, with key producers in the Delaware Basin and expects to service these customers’ produced water needs with its existing infrastructure. The Partnership also announced today that it has executed a new, long-term extension of a current produced water transportation and disposal agreement in the DJ Basin through December 2027.

Corporate and Other

Corporate and Other expenses increased from the comparable prior year period primarily due to the loss recorded for the uncollectible portion of our loan receivable with a third party and increased legal costs.

Capitalization and Liquidity

Total debt outstanding was $3.29 billion at June 30, 2020 compared to $3.15 billion at March 31, 2020, an increase of $136 million due primarily to the funding of certain capital expenditures incurred prior to and accrued on March 31, 2020 and $66.3 million of the remaining $100.0 million deferred purchase price of Mesquite. Capital expenditures incurred totaled $29.9 million during the first quarter and are expected to continue to decrease throughout Fiscal 2021, with full year expectations of $100 million for both growth and maintenance capital expenditures combined. Total liquidity (cash plus available capacity on our revolving credit facility) was approximately $198.2 million as of June 30, 2020 and the Partnership is in compliance with all of its debt covenants.

First Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:00 pm Central Time on Monday, August 10, 2020. Analysts, investors, and other interested parties may access the conference call by dialing (800) 291-4083 and providing access code 1189407. An archived audio replay of the conference call will be available for 7 days beginning at 1:00 pm Central Time on August 11, 2020, which can be accessed by dialing (855) 859-2056 and providing access code 1189407.

Non-GAAP Financial Measures

NGL defines EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. NGL defines Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. NGL also includes in Adjusted EBITDA certain inventory valuation adjustments related to TransMontaigne Product Services, LLC (“TPSL”), our refined products business in the mid-continent region of the United States (“Mid-Con”) and our gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”), which are included in discontinued operations, and certain refined products businesses within NGL’s Liquids and Refined Products segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net (loss) income, (loss) income from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. NGL believes that EBITDA provides additional information to investors for evaluating NGL’s ability to make quarterly distributions to NGL’s unitholders and is presented solely as a supplemental measure. NGL believes that Adjusted EBITDA provides additional information to investors for evaluating NGL’s financial performance without regard to NGL’s financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.

Other than for the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s Liquids and Refined Products segment, for purposes of the Adjusted EBITDA calculation, NGL makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, NGL records changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, NGL reverses the previously recorded unrealized gain or loss and record a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s Liquids and Refined Products segment. The primary hedging strategy of these businesses is to hedge against the risk of declines in the value of inventory over the course of the contract cycle, and many of the hedges cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. NGL includes this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. Distributable Cash Flow is a performance metric used by senior management to compare cash flows generated by the Partnership (excluding growth capital expenditures and prior to the establishment of any retained cash reserves by the Board of Directors) to the cash distributions expected to be paid to unitholders. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. This financial measure also is important to investors as an indicator of whether the Partnership is generating cash flow at a level that can sustain, or support an increase in, quarterly distribution rates. Actual distribution amounts are set by the Board of Directors.

Forward-Looking Statements

This press release includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While NGL believes such forward-looking statements are reasonable, NGL cannot assure they will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in NGL’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” NGL undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

NGL provides Adjusted EBITDA guidance that does not include certain charges and costs, which in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods, such as income taxes, interest and other non-operating items, depreciation and amortization, net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities and items that are unusual in nature or infrequently occurring. The exclusion of these charges and costs in future periods will have a significant impact on the Partnership’s Adjusted EBITDA, and the Partnership is not able to provide a reconciliation of its Adjusted EBITDA guidance to net income (loss) without unreasonable efforts due to the uncertainty and variability of the nature and amount of these future charges and costs and the Partnership believes that such reconciliation, if possible, would imply a degree of precision that would be potentially confusing or misleading to investors.

About NGL Energy Partners LP

NGL Energy Partners LP, a Delaware limited partnership, is a diversified midstream energy company that transports, stores, markets and provides other logistics services for crude oil, natural gas liquids and other products and transports, treats and disposes of produced water generated as part of the oil and natural gas production process. For further information, visit the Partnership’s website at www.nglenergypartners.com.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in Thousands, except unit amounts)

June 30, 2020

March 31, 2020

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

26,400

$

22,704

Accounts receivable-trade, net of allowance for expected credit losses of $3,674 and $4,540, respectively

424,814

566,834

Accounts receivable-affiliates

14,814

12,934

Inventories

135,918

69,634

Prepaid expenses and other current assets

75,433

101,981

Total current assets

677,379

774,087

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $570,806 and $529,068, respectively

2,833,002

2,851,555

GOODWILL

993,114

993,587

INTANGIBLE ASSETS, net of accumulated amortization of $670,382 and $631,449, respectively

1,574,216

1,612,480

INVESTMENTS IN UNCONSOLIDATED ENTITIES

22,626

23,182

OPERATING LEASE RIGHT-OF-USE ASSETS

177,010

180,708

OTHER NONCURRENT ASSETS

48,739

63,137

Total assets

$

6,326,086

$

6,498,736

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Accounts payable-trade

$

367,463

$

515,049

Accounts payable-affiliates

22,864

17,717

Accrued expenses and other payables

142,836

232,062

Advance payments received from customers

25,326

19,536

Current maturities of long-term debt

4,521

4,683

Operating lease obligations

53,720

56,776

Total current liabilities

616,730

845,823

LONG-TERM DEBT, net of debt issuance costs of $24,022 and $19,795, respectively, and current maturities

3,281,402

3,144,848

OPERATING LEASE OBLIGATIONS

120,986

121,013

OTHER NONCURRENT LIABILITIES

112,034

114,079

CLASS D 9.00% PREFERRED UNITS, 600,000 and 600,000 preferred units issued and outstanding, respectively

544,151

537,283

EQUITY:

General partner, representing a 0.1% interest, 128,901 and 128,901 notional units, respectively

(51,474

)

(51,390

)

Limited partners, representing a 99.9% interest, 128,771,715 and 128,771,715 common units issued and outstanding, respectively

1,283,491

1,366,152

Class B preferred limited partners, 12,585,642 and 12,585,642 preferred units issued and outstanding, respectively

305,468

305,468

Class C preferred limited partners, 1,800,000 and 1,800,000 preferred units issued and outstanding, respectively

42,891

42,891

Accumulated other comprehensive loss

(341

)

(385

)

Noncontrolling interests

70,748

72,954

Total equity

1,650,783

1,735,690

Total liabilities and equity

$

6,326,086

$

6,498,736

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in Thousands, except unit and per unit amounts)

Three Months Ended June 30,

2020

2019

REVENUES:

Crude Oil Logistics

$

276,039

$

716,160

Water Solutions

88,065

71,783

Liquids and Refined Products

479,998

1,083,693

Other

313

255

Total Revenues

844,415

1,871,891

COST OF SALES:

Crude Oil Logistics

217,557

649,240

Water Solutions

4,700

(2,807

)

Liquids and Refined Products

454,336

1,043,032

Other

454

465

Total Cost of Sales

677,047

1,689,930

OPERATING COSTS AND EXPENSES:

Operating

64,987

61,312

General and administrative

17,158

20,342

Depreciation and amortization

83,986

53,754

Loss (gain) on disposal or impairment of assets, net

12,022

(967

)

Operating (Loss) Income

(10,785

)

47,520

OTHER INCOME (EXPENSE):

Equity in earnings of unconsolidated entities

289

8

Interest expense

(43,961

)

(39,877

)

Gain on early extinguishment of liabilities, net

19,355

Other income, net

1,035

1,010

(Loss) Income From Continuing Operations Before Income Taxes

(34,067

)

8,661

INCOME TAX BENEFIT

301

321

(Loss) Income From Continuing Operations

(33,766

)

8,982

Loss From Discontinued Operations, net of Tax

(1,486

)

(943

)

Net (Loss) Income

(35,252

)

8,039

LESS: NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(51

)

268

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP

$

(35,303

)

$

8,307

NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS

$

(55,815

)

$

(120,126

)

NET LOSS FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS

$

(1,485

)

$

(942

)

NET LOSS ALLOCATED TO COMMON UNITHOLDERS

$

(57,300

)

$

(121,068

)

BASIC LOSS PER COMMON UNIT

Loss From Continuing Operations

$

(0.43

)

$

(0.95

)

Loss From Discontinued Operations, net of Tax

$

(0.01

)

$

(0.01

)

Net Loss

$

(0.44

)

$

(0.96

)

DILUTED LOSS PER COMMON UNIT

Loss From Continuing Operations

$

(0.43

)

$

(0.95

)

Loss From Discontinued Operations, net of Tax

$

(0.01

)

$

(0.01

)

Net Loss

$

(0.44

)

$

(0.96

)

BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING

128,771,715

125,886,738

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING

128,771,715

125,886,738

EBITDA, ADJUSTED EBITDA AND DISTRIBUTABLE CASH FLOW RECONCILIATION

(Unaudited)

The following table reconciles NGL’s net (loss) income to NGL’s EBITDA, Adjusted EBITDA and Distributable Cash Flow:

Three Months Ended June 30,

2020

2019

(in thousands)

Net (loss) income

$

(35,252

)

$

8,039

Less: Net (income) loss attributable to noncontrolling interests

(51

)

268

Net (loss) income attributable to NGL Energy Partners LP

(35,303

)

8,307

Interest expense

44,066

39,910

Income tax benefit

(301

)

(311

)

Depreciation and amortization

83,202

54,844

EBITDA

91,664

102,750

Net unrealized losses (gains) on derivatives

26,671

(3,474

)

Inventory valuation adjustment (1)

3,820

(19,746

)

Lower of cost or net realizable value adjustments

(32,003

)

(918

)

Loss (gain) on disposal or impairment of assets, net

13,084

(967

)

Gain on early extinguishment of liabilities, net

(19,355

)

Equity-based compensation expense (2)

2,302

3,701

Acquisition expense (3)

157

2,091

Other (4)

4,348

3,323

Adjusted EBITDA

$

90,688

$

86,760

Adjusted EBITDA – Discontinued Operations (5)

$

(294

)

$

(16,958

)

Adjusted EBITDA – Continuing Operations

$

90,982

$

103,718

Less: Cash interest expense (6)

40,399

37,775

Less: Income tax benefit

(301

)

(321

)

Less: Maintenance capital expenditures

9,168

16,929

Less: Preferred unit distributions

15,030

13,076

Distributable Cash Flow – Continuing Operations

$

26,686

$

36,259

Contacts

NGL Energy Partners LP

Trey Karlovich, 918-481-1119

Chief Financial Officer and Executive Vice President

[email protected]
or

Linda Bridges, 918-481-1119

Senior Vice President – Finance and Treasurer

[email protected]

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