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NGL Energy Partners LP Announces Third Quarter Fiscal 2022 Financial Results

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TULSA, Okla., February 09, 2022--(BUSINESS WIRE)--NGL Energy Partners LP (NYSE:NGL) ("NGL," "our," "we," or the "Partnership") today reported its third quarter Fiscal 2022 results. Highlights for the quarter include:

  • Loss from continuing operations for the third quarter of Fiscal 2022 of $19.0 million, compared to a loss from continuing operations of $380.4 million for the third quarter of Fiscal 2021, primarily a result of a $383.6 million write down of goodwill and certain intangibles related to the impact of the bankruptcy rejection of transportation contracts with Extraction Oil & Gas, Inc. ("Extraction"). Excluding losses on the disposal or impairment of assets, loss from continuing operations for the third quarter of Fiscal 2022 was $6.7 million, compared to a loss from continuing operations of $6.6 million for the third quarter of Fiscal 2021

  • Adjusted EBITDA1 from continuing operations for the third quarter of Fiscal 2022 of $147.7 million, compared to $125.0 million for the third quarter of Fiscal 2021

  • Produced water volumes processed increased approximately 30% versus the same period in the prior year, with volumes growing 4.5% versus the preceding quarter

  • Announced collaboration with XRI Holdings, LLC ("XRI") to advance full cycle produced water management across operations in the Delaware Basin and to support increasing demand for sustainable use of produced water in completion activities

  • Updated guidance for Fiscal 2022 Adjusted EBITDA to $550 million - $560 million and expected full year capital expenditures to $125 million -$130 million, net of anticipated reimbursements from insurance claims2

"We continue to see growth in our Water Solutions segment due to increased customer activities as well as additional agreements negotiated with producer customers. Additionally, the collaboration we previously announced with XRI will allow us to service produced water reuse and recycle demand in the Delaware Basin while focusing on environmentally-friendly solutions for our customers" stated Mike Krimbill, NGL’s CEO. "While warmer than normal weather and commodity price movements affected our wholesale propane and crude oil logistics businesses, our butane and refined products businesses performed quite well. Looking towards our fourth fiscal quarter, we continue to see produced water volumes increasing, winter weather has finally arrived and crude oil prices have increased, which will benefit us going forward" Krimbill concluded.

_____________________
1 See the "Non-GAAP Financial Measures" section of this release for the definition of Adjusted EBITDA (as used herein) and a discussion of this non-GAAP financial measure.
2 See the "Forward-Looking Statements" section of this release for more information.

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

December 31, 2021

December 31, 2020

Operating
Income (Loss)

Adjusted
EBITDA

Operating
Income (Loss)

Adjusted
EBITDA

(in thousands)

Water Solutions

$

19,851

$

82,744

$

15,821

$

65,554

Crude Oil Logistics

21,291

29,764

(382,192

)

26,332

Liquids Logistics

23,158

47,979

32,438

41,824

Corporate and Other

(15,190

)

(12,747

)

(12,374

)

(8,670

)

Total

$

49,110

$

147,740

$

(346,307

)

$

125,040

Water Solutions

Operating income for the Water Solutions segment increased $4.0 million for the quarter ended December 31, 2021, compared to the quarter ended December 31, 2020. The Partnership processed approximately 1.84 million barrels of water per day during the quarter ended December 31, 2021, a 30.3% increase when compared to approximately 1.41 million barrels of water per day processed during the quarter ended December 31, 2020, due to higher production volumes primarily in the Delaware Basin driven by the recovery in crude oil prices from the prior year.

Revenues from recovered crude oil, including the impact from realized skim oil hedges, totaled $19.5 million for the quarter ended December 31, 2021, an increase of $8.2 million from the prior year period. This increase was due to increased skim oil barrels sold due to higher produced water volumes processed and higher realized crude oil prices.

Operating expenses in the Water Solutions segment decreased to $0.26 per barrel compared to $0.27 per barrel in the comparative quarter last year primarily due to continued efforts to reduce operating costs per barrel along with higher produced water volumes processed.

Crude Oil Logistics

Operating income for the third quarter of Fiscal 2022 increased compared to the third quarter of Fiscal 2021 primarily due to an impairment charge of $383.6 million in the prior year related to the write down of goodwill of the Extraction transportation agreement (as part of its bankruptcy). Excluding impairments, operating income increased $22.5 million due primarily to increased margins, excluding the impact of derivatives. Our margins continue to benefit from high crude oil prices, which increase the contracted rates with certain producers.

During the three months ended December 31, 2021, financial volumes on the Grand Mesa Pipeline averaged approximately 83,000 barrels per day, compared to approximately 69,000 barrels per day for the three months ended December 31, 2020. This increase was due primarily to the new supply agreement signed with Extraction (now known as Civitas Resources, Inc.) after they exited bankruptcy.

Liquids Logistics

Operating income for the Liquids Logistics segment decreased $9.3 million for the quarter ended December 31, 2021, compared to the quarter ended December 31, 2020. This decrease is mainly related to lower product margins on propane due to reduced demand and falling prices during the last two months of the current quarter, lower service revenues and higher compensation expenses. The decrease was offset by higher product margins for butane and refined products as a result of tighter supply markets for butane, extended refinery downtime in certain refined products markets and favorable supply contracts.

Propane volumes decreased by approximately 87.3 million gallons, or 22.9%, compared to the quarter ended December 31, 2020, as demand decreased due to the unseasonably warm weather. Butane volumes decreased by approximately 32.5 million gallons, or 15.3%, compared to the quarter ended December 31, 2020, due to the tight supply market and an increase in demand for exports.

Corporate and Other

Corporate and Other expenses increased from the comparable prior year period primarily due to increased incentive compensation and outside consulting fees, which were offset by lower legal expenses.

Capitalization and Liquidity

Total liquidity (cash plus available capacity on our asset-based revolving credit facility) was approximately $182.5 million as of December 31, 2021. Borrowings on the Partnership’s revolving credit facility totaled approximately $156.0 million. The balance increase from March 31, 2021 was primarily due to increases in working capital balances driven by increased inventory volumes and higher commodity prices.

The Partnership is in compliance with all of its debt covenants and has no significant debt maturities before November 2023. The Partnership expects to generate operational free cash flow in Fiscal Year 2022, which will be utilized to repay outstanding indebtedness and improve leverage.

Third Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:00 pm Central Time on Wednesday, February 9, 2022. Analysts, investors, and other interested parties may join the webcast via the event link: https://www.webcaster4.com/Webcast/Page/2808/44432 or by dialing (888) 506-0062 and providing access code: 294091. An archived audio replay of the call will be available for 14 days, which can be accessed by dialing (877) 481-4010 and providing replay passcode 44432.

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 Logistics segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net loss, loss 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 certain businesses within NGL’s Liquids Logistics 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 records a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of certain businesses within NGL’s Liquids Logistics 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. In NGL’s Crude Oil Logistics segment, they purchase certain crude oil barrels using the West Texas Intermediate ("WTI") calendar month average ("CMA") price and sell the crude oil barrels using the WTI CMA price plus the Argus CMA Differential Roll Component ("CMA Differential Roll") per NGL’s contracts. To eliminate the volatility of the CMA Differential Roll, NGL entered into derivative instrument positions in January 2021 to secure a margin of approximately $0.20 per barrel on 1.5 million barrels per month from May 2021 through December 2023. Due to the nature of these positions, the cash flow and earnings recognized on a GAAP basis will differ from period to period depending on the current crude oil price and future estimated crude oil price which are valued utilizing third-party market quoted prices. NGL is recognizing in Adjusted EBITDA the gains and losses from the derivative instrument positions entered into in January 2021 to properly align with the physical margin NGL is hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction.

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. For the CMA Differential Roll transaction, as discussed above, we have included an adjustment to Distributable Cash Flow to reflect, in the period for which they relate, the actual cash flows for the positions that settled that are not being recognized in Adjusted EBITDA. 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)

December 31, 2021

March 31, 2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

5,456

$

4,829

Accounts receivable-trade, net of allowance for expected credit losses of $2,227 and $2,192, respectively

1,042,641

725,943

Accounts receivable-affiliates

8,824

9,435

Inventories

333,923

158,467

Prepaid expenses and other current assets

131,696

109,164

Total current assets

1,522,540

1,007,838

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $887,840 and $776,279, respectively

2,483,876

2,706,853

GOODWILL

744,439

744,439

INTANGIBLE ASSETS, net of accumulated amortization of $546,221 and $517,518, respectively

1,152,198

1,262,613

INVESTMENTS IN UNCONSOLIDATED ENTITIES

21,263

22,719

OPERATING LEASE RIGHT-OF-USE ASSETS

122,976

152,146

OTHER NONCURRENT ASSETS

47,479

50,733

Total assets

$

6,094,771

$

5,947,341

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Accounts payable-trade

$

973,471

$

679,868

Accounts payable-affiliates

260

119

Accrued expenses and other payables

165,031

170,400

Advance payments received from customers

16,240

11,163

Current maturities of long-term debt

2,328

2,183

Operating lease obligations

43,822

47,070

Total current liabilities

1,201,152

910,803

LONG-TERM DEBT, net of debt issuance costs of $46,156 and $55,555, respectively, and current maturities

3,411,757

3,319,030

OPERATING LEASE OBLIGATIONS

78,628

103,637

OTHER NONCURRENT LIABILITIES

108,422

114,615

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

551,097

551,097

EQUITY:

General partner, representing a 0.1% interest, 130,114 and 129,724 notional units, respectively

(52,422

)

(52,189

)

Limited partners, representing a 99.9% interest, 129,984,138 and 129,593,939 common units issued and outstanding, respectively

430,358

582,784

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

(314

)

(266

)

Noncontrolling interests

17,734

69,471

Total equity

743,715

948,159

Total liabilities and equity

$

6,094,771

$

5,947,341

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in Thousands, except unit and per unit amounts)

Three Months Ended December 31,

Nine Months Ended December 31,

2021

2020

2021

2020

REVENUES:

Water Solutions

$

130,653

$

98,925

$

397,089

$

275,668

Crude Oil Logistics

607,203

485,289

1,715,657

1,228,169

Liquids Logistics

1,434,020

877,491

3,301,922

1,969,813

Other

314

942

Total Revenues

2,171,876

1,462,019

5,414,668

3,474,592

COST OF SALES:

Water Solutions

5,030

3,280

21,791

8,559

Crude Oil Logistics

556,531

448,933

1,591,877

1,053,261

Liquids Logistics

1,388,760

826,211

3,187,039

1,857,633

Other

455

1,363

Total Cost of Sales

1,950,321

1,278,879

4,800,707

2,920,816

OPERATING COSTS AND EXPENSES:

Operating

72,807

61,427

207,610

182,468

General and administrative

18,925

16,044

46,149

50,677

Depreciation and amortization

68,480

78,200

222,145

249,655

Loss on disposal or impairment of assets, net

12,233

373,776

93,463

391,752

Operating Income (Loss)

49,110

(346,307

)

44,594

(320,776

)

OTHER INCOME (EXPENSE):

Equity in earnings of unconsolidated entities

119

344

765

1,134

Interest expense

(68,379

)

(47,252

)

(204,004

)

(138,148

)

Gain on early extinguishment of liabilities, net

9

11,190

1,131

44,292

Other income, net

24

440

2,003

3,060

Loss From Continuing Operations Before Income Taxes

(19,117

)

(381,585

)

...

(155,511

)

(410,438

)

INCOME TAX BENEFIT

135

1,162

820

...

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