NGL Energy Partners LP - Quarter Report: 2021 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended September 30, 2021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from __________ to __________
Commission File Number: 001-35172
NGL Energy Partners LP
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 27-3427920 | ||||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 6120 South Yale Avenue, Suite 805 | |||||||||||
| Tulsa, | Oklahoma | 74136 | |||||||||
| (Address of Principal Executive Offices) | (Zip Code) | ||||||||||
(918) 481-1119
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | x | |||||||||||
| Non-accelerated filer | o | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered | ||||||||||||
| Common units representing Limited Partner Interests | NGL | New York Stock Exchange | ||||||||||||
| Fixed-to-floating rate cumulative redeemable perpetual preferred units | NGL-PB | New York Stock Exchange | ||||||||||||
| Fixed-to-floating rate cumulative redeemable perpetual preferred units | NGL-PC | New York Stock Exchange | ||||||||||||
At November 4, 2021, there were 129,593,939 common units issued and outstanding.
TABLE OF CONTENTS
i
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by and information currently available to us. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Certain words in this Quarterly Report such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “project,” “will,” and similar expressions and statements regarding our plans and objectives for future operations, identify forward-looking statements. Although we and our general partner believe such forward-looking statements are reasonable, neither we nor our general partner can assure they will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected. Among the key risk factors that may affect our consolidated financial position and results of operations are:
•changes in general economic conditions, including market and macroeconomic disruptions resulting from the ongoing COVID-19 pandemic and related governmental responses;
•the prices of crude oil, natural gas liquids, gasoline, diesel, biodiesel and energy prices generally;
•the general level of demand, and the availability of supply, for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;
•the level of crude oil and natural gas drilling and production in areas where we have operations and facilities;
•the ability to obtain adequate supplies of products if an interruption in supply or transportation occurs and the availability of capacity to transport products to market areas;
•the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;
•the effect of natural disasters, earthquakes, hurricanes, tornados, lightning strikes, or other significant weather events;
•the availability of local, intrastate, and interstate transportation infrastructure with respect to our transportation services;
•the availability, price, and marketing of competing fuels;
•the effect of energy conservation efforts on product demand;
•energy efficiencies and technological trends;
•issuance of executive orders, changes in applicable laws, regulations and policies, including tax, environmental, transportation, and employment regulations, or new interpretations by regulatory agencies concerning such laws and regulations and the effect of such laws, regulations and policies (now existing or in the future) on our business operations;
•the effect of executive orders and legislative and regulatory actions on hydraulic fracturing, water disposal and transportation, and the treatment of flowback and produced water;
•hazards or operating risks related to transporting and distributing petroleum products that may not be fully covered by insurance;
•the maturity of the crude oil, natural gas liquids, and refined products industries and competition from other markets;
•loss of key personnel;
•the ability to renew contracts with key customers;
•the ability to maintain or increase the margins we realize for our services;
•the ability to renew leases for our leased equipment and storage facilities;
•the nonpayment, nonperformance or bankruptcy by our counterparties;
•the availability and cost of capital and our ability to access certain capital sources;
•a deterioration of the credit and capital markets;
1
•the ability to successfully identify and complete accretive acquisitions and organic growth projects, and integrate acquired assets and businesses;
•the costs and effects of legal and administrative proceedings; and
•political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and sale of crude oil, refined products, natural gas, natural gas liquids, gasoline, diesel or biodiesel.
You should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report. Except as may be required by state and federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise. When considering forward-looking statements, please review the risks discussed under Part I, Item 1A–“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in Thousands, except unit amounts)
| September 30, 2021 | March 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 5,531 | $ | 4,829 | |||||||
Accounts receivable-trade, net of allowance for expected credit losses of $2,257 and $2,192, respectively | 863,228 | 725,943 | |||||||||
| Accounts receivable-affiliates | 8,979 | 9,435 | |||||||||
| Inventories | 319,895 | 158,467 | |||||||||
| Prepaid expenses and other current assets | 140,434 | 109,164 | |||||||||
| Total current assets | 1,338,067 | 1,007,838 | |||||||||
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $844,605 and $776,279, respectively | 2,524,287 | 2,706,853 | |||||||||
| GOODWILL | 744,439 | 744,439 | |||||||||
INTANGIBLE ASSETS, net of accumulated amortization of $532,901 and $517,518, respectively | 1,170,468 | 1,262,613 | |||||||||
| INVESTMENTS IN UNCONSOLIDATED ENTITIES | 21,029 | 22,719 | |||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | 133,868 | 152,146 | |||||||||
| OTHER NONCURRENT ASSETS | 49,634 | 50,733 | |||||||||
| Total assets | $ | 5,981,792 | $ | 5,947,341 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable-trade | $ | 819,094 | $ | 679,868 | |||||||
| Accounts payable-affiliates | 97 | 119 | |||||||||
| Accrued expenses and other payables | 165,110 | 170,400 | |||||||||
| Advance payments received from customers | 18,651 | 11,163 | |||||||||
| Current maturities of long-term debt | 2,278 | 2,183 | |||||||||
| Operating lease obligations | 45,456 | 47,070 | |||||||||
| Total current liabilities | 1,050,686 | 910,803 | |||||||||
LONG-TERM DEBT, net of debt issuance costs of $49,214 and $55,555, respectively, and current maturities | 3,419,352 | 3,319,030 | |||||||||
| OPERATING LEASE OBLIGATIONS | 87,388 | 103,637 | |||||||||
| OTHER NONCURRENT LIABILITIES | 110,909 | 114,615 | |||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 7) | |||||||||||
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, 129,724 and 129,724 notional units, respectively | (52,375) | (52,189) | |||||||||
Limited partners, representing a 99.9% interest, 129,593,939 and 129,593,939 common units issued and outstanding, respectively | 448,501 | 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 | (310) | (266) | |||||||||
| Noncontrolling interests | 18,185 | 69,471 | |||||||||
| Total equity | 762,360 | 948,159 | |||||||||
| Total liabilities and equity | $ | 5,981,792 | $ | 5,947,341 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in Thousands, except unit and per unit amounts)
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||
| Water Solutions | $ | 136,210 | $ | 88,678 | $ | 266,436 | $ | 176,743 | ||||||||||||||||||
| Crude Oil Logistics | 554,830 | 466,841 | 1,108,454 | 742,880 | ||||||||||||||||||||||
| Liquids Logistics | 1,063,097 | 612,324 | 1,867,902 | 1,092,322 | ||||||||||||||||||||||
| Other | — | 315 | — | 628 | ||||||||||||||||||||||
| Total Revenues | 1,754,137 | 1,168,158 | 3,242,792 | 2,012,573 | ||||||||||||||||||||||
| COST OF SALES: | ||||||||||||||||||||||||||
| Water Solutions | 6,423 | 579 | 16,761 | 5,279 | ||||||||||||||||||||||
| Crude Oil Logistics | 498,089 | 386,771 | 1,035,346 | 604,328 | ||||||||||||||||||||||
| Liquids Logistics | 1,021,081 | 577,086 | 1,798,279 | 1,031,422 | ||||||||||||||||||||||
| Other | — | 454 | — | 908 | ||||||||||||||||||||||
| Total Cost of Sales | 1,525,593 | 964,890 | 2,850,386 | 1,641,937 | ||||||||||||||||||||||
| OPERATING COSTS AND EXPENSES: | ||||||||||||||||||||||||||
| Operating | 69,019 | 56,054 | 134,803 | 121,041 | ||||||||||||||||||||||
| General and administrative | 11,450 | 17,475 | 27,224 | 34,633 | ||||||||||||||||||||||
| Depreciation and amortization | 69,563 | 87,469 | 153,665 | 171,455 | ||||||||||||||||||||||
| Loss on disposal or impairment of assets, net | 13,694 | 5,954 | 81,230 | 17,976 | ||||||||||||||||||||||
| Operating Income (Loss) | 64,818 | 36,316 | (4,516) | 25,531 | ||||||||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 434 | 501 | 646 | 790 | ||||||||||||||||||||||
| Interest expense | (68,495) | (46,935) | (135,625) | (90,896) | ||||||||||||||||||||||
| Gain on early extinguishment of liabilities, net | 1,071 | 13,747 | 1,122 | 33,102 | ||||||||||||||||||||||
| Other income, net | 730 | 1,585 | 1,979 | 2,620 | ||||||||||||||||||||||
| (Loss) Income From Continuing Operations Before Income Taxes | (1,442) | 5,214 | (136,394) | (28,853) | ||||||||||||||||||||||
| INCOME TAX BENEFIT | 235 | 774 | 685 | 1,075 | ||||||||||||||||||||||
| (Loss) Income From Continuing Operations | (1,207) | 5,988 | (135,709) | (27,778) | ||||||||||||||||||||||
| Loss From Discontinued Operations, net of Tax | — | (153) | — | (1,639) | ||||||||||||||||||||||
| Net (Loss) Income | (1,207) | 5,835 | (135,709) | (29,417) | ||||||||||||||||||||||
| LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (330) | (168) | (768) | (219) | ||||||||||||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP | $ | (1,537) | $ | 5,667 | $ | (136,477) | $ | (29,636) | ||||||||||||||||||
| NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3) | $ | (27,236) | $ | (17,933) | $ | (187,128) | $ | (73,748) | ||||||||||||||||||
| NET LOSS FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3) | $ | — | $ | (152) | $ | — | $ | (1,637) | ||||||||||||||||||
| NET LOSS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3) | $ | (27,236) | $ | (18,085) | $ | (187,128) | $ | (75,385) | ||||||||||||||||||
| BASIC LOSS PER COMMON UNIT | ||||||||||||||||||||||||||
| Loss From Continuing Operations | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.57) | ||||||||||||||||||
| Loss From Discontinued Operations, net of Tax | $ | — | $ | — | $ | — | $ | (0.01) | ||||||||||||||||||
| Net Loss | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.58) | ||||||||||||||||||
| DILUTED LOSS PER COMMON UNIT | ||||||||||||||||||||||||||
| Loss From Continuing Operations | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.57) | ||||||||||||||||||
| Loss From Discontinued Operations, net of Tax | $ | — | $ | — | $ | — | $ | (0.01) | ||||||||||||||||||
| Net Loss | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.58) | ||||||||||||||||||
| BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
| DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(in Thousands)
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Net (loss) income | $ | (1,207) | $ | 5,835 | $ | (135,709) | $ | (29,417) | ||||||||||||||||||
| Other comprehensive (loss) income | (52) | 34 | (44) | 78 | ||||||||||||||||||||||
| Comprehensive (loss) income | $ | (1,259) | $ | 5,869 | $ | (135,753) | $ | (29,339) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three Months and Six Months Ended September 30, 2021
(in Thousands, except unit amounts)
| Limited Partners | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Accumulated Other | ||||||||||||||||||||||||||||||||||||||||||||||||
| General Partner | Units | Amount | Units | Amount | Comprehensive Income (Loss) | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT MARCH 31, 2021 | $ | (52,189) | 14,385,642 | $ | 348,359 | 129,593,939 | $ | 582,784 | $ | (266) | $ | 69,471 | $ | 948,159 | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest owners | — | — | — | — | — | — | (444) | (444) | ||||||||||||||||||||||||||||||||||||||||||
| Sawtooth joint venture disposition (Note 15) | — | — | — | — | — | — | (51,097) | (51,097) | ||||||||||||||||||||||||||||||||||||||||||
| Equity issued pursuant to incentive compensation plan (Note 8) | — | — | — | — | 960 | — | — | 960 | ||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | (159) | — | — | — | (134,781) | — | 438 | (134,502) | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 8 | — | 8 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT JUNE 30, 2021 | (52,348) | 14,385,642 | 348,359 | 129,593,939 | 448,963 | (258) | 18,368 | 763,084 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest owners | — | — | — | — | — | — | (513) | (513) | ||||||||||||||||||||||||||||||||||||||||||
| Equity issued pursuant to incentive compensation plan (Note 8) | — | — | — | — | 1,048 | — | — | 1,048 | ||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | (27) | — | — | — | (1,510) | — | 330 | (1,207) | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (52) | — | (52) | ||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT SEPTEMBER 30, 2021 | $ | (52,375) | 14,385,642 | $ | 348,359 | 129,593,939 | $ | 448,501 | $ | (310) | $ | 18,185 | $ | 762,360 | ||||||||||||||||||||||||||||||||||||
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three Months and Six Months Ended September 30, 2020
(in Thousands, except unit amounts)
| Limited Partners | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred | Common | Accumulated Other | ||||||||||||||||||||||||||||||||||||||||||||||||
| General Partner | Units | Amount | Units | Amount | Comprehensive Income (Loss) | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT MARCH 31, 2020 | $ | (51,390) | 14,385,642 | $ | 348,359 | 128,771,715 | $ | 1,366,152 | $ | (385) | $ | 72,954 | $ | 1,735,690 | ||||||||||||||||||||||||||||||||||||
| Distributions to general and common unit partners and preferred unitholders | (26) | — | — | — | (47,652) | — | — | (47,678) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest owners | — | — | — | — | — | — | (2,257) | (2,257) | ||||||||||||||||||||||||||||||||||||||||||
| Equity issued pursuant to incentive compensation plan | — | — | — | — | 1,349 | — | — | 1,349 | ||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | (57) | — | — | — | (35,246) | — | 51 | (35,252) | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 44 | — | 44 | ||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-13 | (1) | — | — | — | (1,112) | — | — | (1,113) | ||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT JUNE 30, 2020 | (51,474) | 14,385,642 | 348,359 | 128,771,715 | 1,283,491 | (341) | 70,748 | 1,650,783 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to general and common unit partners and preferred unitholders | (26) | — | — | — | (47,808) | — | — | (47,834) | ||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest owners | — | — | — | — | — | — | (598) | (598) | ||||||||||||||||||||||||||||||||||||||||||
| Equity issued pursuant to incentive compensation plan | — | — | — | — | 1,308 | — | — | 1,308 | ||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | (18) | — | — | — | 5,685 | — | 168 | 5,835 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 34 | — | 34 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCES AT SEPTEMBER 30, 2020 | $ | (51,518) | 14,385,642 | $ | 348,359 | 128,771,715 | $ | 1,242,676 | $ | (307) | $ | 70,318 | $ | 1,609,528 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
| Six Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||
| Net loss | $ | (135,709) | $ | (29,417) | ||||||||||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||
| Loss from discontinued operations, net of tax | — | 1,639 | ||||||||||||
| Depreciation and amortization, including amortization of debt issuance costs | 162,424 | 178,506 | ||||||||||||
| Gain on early extinguishment of liabilities, net | (1,122) | (33,102) | ||||||||||||
| Non-cash equity-based compensation expense | (1,793) | 4,558 | ||||||||||||
| Loss on disposal or impairment of assets, net | 81,230 | 17,976 | ||||||||||||
| Change in provision for expected credit losses | 96 | (259) | ||||||||||||
| Net adjustments to fair value of commodity derivatives | 40,680 | 30,562 | ||||||||||||
| Equity in earnings of unconsolidated entities | (646) | (790) | ||||||||||||
| Distributions of earnings from unconsolidated entities | 2,009 | 2,994 | ||||||||||||
| Lower of cost or net realizable value adjustments | 3,614 | 418 | ||||||||||||
| Other | 721 | 941 | ||||||||||||
| Changes in operating assets and liabilities, exclusive of acquisitions: | ||||||||||||||
| Accounts receivable-trade and affiliates | (137,210) | 124,801 | ||||||||||||
| Inventories | (175,910) | (113,691) | ||||||||||||
| Other current and noncurrent assets | 24,631 | 41,762 | ||||||||||||
| Accounts payable-trade and affiliates | 139,688 | (51,312) | ||||||||||||
| Other current and noncurrent liabilities | (10,548) | (30,335) | ||||||||||||
| Net cash (used in) provided by operating activities-continuing operations | (7,845) | 145,251 | ||||||||||||
| Net cash used in operating activities-discontinued operations | — | (1,591) | ||||||||||||
| Net cash (used in) provided by operating activities | (7,845) | 143,660 | ||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||
| Capital expenditures | (77,808) | (132,304) | ||||||||||||
| Net settlements of commodity derivatives | (65,688) | (22,106) | ||||||||||||
| Proceeds from sales of assets | 4,551 | 1,099 | ||||||||||||
| Proceeds from divestitures of businesses and investments, net | 63,489 | — | ||||||||||||
| Investments in unconsolidated entities | (235) | (607) | ||||||||||||
| Distributions of capital from unconsolidated entities | 562 | 370 | ||||||||||||
| Net cash used in investing activities | (75,129) | (153,548) | ||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||
| Proceeds from borrowings under revolving credit facilities | 826,000 | 704,000 | ||||||||||||
| Payments on revolving credit facilities | (684,000) | (471,500) | ||||||||||||
| Issuance of term credit agreement | — | 250,000 | ||||||||||||
| Repayment of term credit agreement | — | (250,000) | ||||||||||||
| Repayment and repurchase of senior unsecured notes | (40,249) | (54,499) | ||||||||||||
| Payments on other long-term debt | (6,169) | (326) | ||||||||||||
| Debt issuance costs | (10,326) | (9,947) | ||||||||||||
| Distributions to general and common unit partners and preferred unitholders | — | (81,698) | ||||||||||||
| Distributions to noncontrolling interest owners | (957) | (2,855) | ||||||||||||
| Payments to settle contingent consideration liabilities | (623) | (79,079) | ||||||||||||
| Net cash provided by financing activities | 83,676 | 4,096 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 702 | (5,792) | ||||||||||||
| Cash and cash equivalents, beginning of period | 4,829 | 22,704 | ||||||||||||
| Cash and cash equivalents, end of period | $ | 5,531 | $ | 16,912 | ||||||||||
| Supplemental cash flow information: | ||||||||||||||
| Cash interest paid | $ | 126,076 | $ | 87,793 | ||||||||||
| Income taxes paid (net of income tax refunds) | $ | 1,410 | $ | 2,198 | ||||||||||
| Supplemental non-cash investing and financing activities: | ||||||||||||||
| Distributions declared but not paid to preferred unitholders | $ | — | $ | 21,976 | ||||||||||
| Accrued capital expenditures | $ | 13,264 | $ | 10,969 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1—Organization and Operations
NGL Energy Partners LP (“we,” “us,” “our,” or the “Partnership”) is a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At September 30, 2021, our operations included three segments:
•Our Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from oil and natural gas production. We also sell produced water for reuse and brackish non-potable water to our producer customers to be used in their crude oil exploration and production activities. As part of processing water, we aggregate and sell recovered crude oil, also known as skim oil. We also dispose of solids such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services such as truck and frac tank washouts. Our activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments, with leading oil and gas companies including large, investment grade producer customers.
•Our Crude Oil Logistics segment purchases crude oil from producers and marketers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling, and transportation services through its owned assets. Our activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on our pipelines.
•Our Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through our 26 company-owned terminals, third-party storage and terminal facilities, common carrier pipelines and a fleet of leased railcars. We also provide marine exports of butane through our facility located in Chesapeake, Virginia.
Note 2—Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include our accounts and those of our controlled subsidiaries. Intercompany transactions and account balances have been eliminated in consolidation. Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. We also own an undivided interest in a crude oil pipeline, and include our proportionate share of assets, liabilities, and expenses related to this pipeline in our unaudited condensed consolidated financial statements.
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited condensed consolidated financial statements exclude certain information and notes required by GAAP for complete annual consolidated financial statements. However, we believe that the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements include all adjustments that we consider necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed in this Quarterly Report. The unaudited condensed consolidated balance sheet at March 31, 2021 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2021 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on June 3, 2021.
These interim unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report. Due to the seasonal nature of certain of our operations and other factors, the results of operations for interim periods are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2022.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amount of assets and liabilities reported at the date of the consolidated financial statements and the amount of revenues and expenses reported during the periods presented.
9
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Critical estimates we make in the preparation of our unaudited condensed consolidated financial statements include, among others, determining the fair value of assets and liabilities acquired in acquisitions, the fair value of derivative instruments, the collectibility of accounts receivable, the recoverability of inventories, useful lives and recoverability of property, plant and equipment and amortizable intangible assets, the impairment of long-lived assets and goodwill, the fair value of asset retirement obligations, the value of equity-based compensation, accruals for environmental matters and estimating certain revenues. Although we believe these estimates are reasonable, actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies are consistent with those disclosed in Note 2 of our audited consolidated financial statements included in our Annual Report.
Income Taxes
We qualify as a partnership for income tax purposes. As such, we generally do not pay United States federal income tax. Rather, each owner reports his or her share of our income or loss on his or her individual tax return. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined, as we do not have access to information regarding each partner’s basis in the Partnership.
We have a deferred tax liability of $44.1 million and $45.8 million at September 30, 2021 and March 31, 2021, respectively, as a result of acquiring corporations in connection with certain of our acquisitions, which is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheets. The deferred tax liability is the tax effected cumulative temporary difference between the GAAP basis and tax basis of the acquired assets within the corporation. For GAAP purposes, certain of the acquired assets will be depreciated and amortized over time which will lower the GAAP basis. The deferred tax benefit recorded during the six months ended September 30, 2021 was $1.6 million with an effective tax rate of 23.1%. The deferred tax benefit recorded during the six months ended September 30, 2020 was $1.8 million with an effective tax rate of 23.8%.
We evaluate uncertain tax positions for recognition and measurement in the unaudited condensed consolidated financial statements. To recognize a tax position, we determine whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the unaudited condensed consolidated financial statements. We had no material uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at September 30, 2021 or March 31, 2021.
Inventories
Our inventories are valued at the lower of cost or net realizable value, with cost determined using either the weighted-average cost or the first in, first out (FIFO) methods, including the cost of transportation and storage, and with net realizable value defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. In performing this analysis, we consider fixed-price forward commitments.
Inventories consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Propane | $ | 111,648 | $ | 45,521 | ||||||||||
| Butane | 88,163 | 19,189 | ||||||||||||
| Crude oil | 87,923 | 64,916 | ||||||||||||
| Biodiesel | 12,658 | 16,169 | ||||||||||||
| Diesel | 5,742 | 2,252 | ||||||||||||
| Ethanol | 2,802 | 3,056 | ||||||||||||
| Other | 10,959 | 7,364 | ||||||||||||
| Total | $ | 319,895 | $ | 158,467 | ||||||||||
10
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Investments in Unconsolidated Entities
Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. Investments in partnerships and limited liability companies, unless our investment is considered to be minor, and investments in unincorporated joint ventures are also accounted for using the equity method of accounting.
Our investments in unconsolidated entities consist of the following at the dates indicated:
| Entity | Segment | Ownership Interest | September 30, 2021 | March 31, 2021 | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Water services and land company | Water Solutions | 50% | $ | 14,889 | $ | 15,832 | ||||||||||||||||||||
| Water services and land company | Water Solutions | 50% | 2,047 | 2,284 | ||||||||||||||||||||||
| Water services and land company | Water Solutions | 10% | 2,897 | 3,254 | ||||||||||||||||||||||
| Aircraft company (1) | Corporate and Other | 50% | 640 | 748 | ||||||||||||||||||||||
| Water services company | Water Solutions | 50% | 414 | 424 | ||||||||||||||||||||||
| Natural gas liquids terminal company | Liquids Logistics | 50% | 142 | 177 | ||||||||||||||||||||||
| Total | $ | 21,029 | $ | 22,719 | ||||||||||||||||||||||
(1) This is an investment with a related party.
Other Noncurrent Assets
Other noncurrent assets consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Loan receivable (1) | $ | 3,053 | $ | 2,962 | ||||||||||
| Linefill (2) | 28,065 | 28,110 | ||||||||||||
| Minimum shipping fees - pipeline commitments (3) | 11,035 | 13,171 | ||||||||||||
| Other | 7,481 | 6,490 | ||||||||||||
| Total | $ | 49,634 | $ | 50,733 | ||||||||||
(1) Represents the noncurrent portion of a loan receivable, net of an allowance for an expected credit loss, with a former related party.
(2) Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At September 30, 2021 and March 31, 2021, linefill consisted of 423,978 barrels of crude oil. Linefill held in pipelines we own is included within property, plant and equipment (see Note 4).
(3) Represents the noncurrent portion of minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for a contract with a crude oil pipeline operator. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 7). As of September 30, 2021, the deficiency credit was $15.3 million, of which $4.3 million is recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet.
Accrued Expenses and Other Payables
Accrued expenses and other payables consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Accrued interest | $ | 57,311 | $ | 56,299 | ||||||||||
| Derivative liabilities | 28,940 | 21,562 | ||||||||||||
| Accrued compensation and benefits | 24,659 | 41,456 | ||||||||||||
| Excise and other tax liabilities | 13,274 | 10,970 | ||||||||||||
| Product exchange liabilities | 13,237 | 1,188 | ||||||||||||
| Other | 27,689 | 38,925 | ||||||||||||
| Total | $ | 165,110 | $ | 170,400 | ||||||||||
11
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Reclassifications
We have reclassified certain prior period financial statement information to be consistent with the classification methods used in the current fiscal year. These reclassifications did not impact previously reported amounts of assets, liabilities, equity, net income or cash flows.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU (i) simplifies an issuer’s accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features, (ii) amends diluted earnings per share calculations for convertible instruments by requiring the use of the if-converted method and (iii) simplifies the settlement assessment entities are required to perform on contracts that can potentially settle in an entity’s own equity by removing certain requirements. This guidance is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the effect that this guidance will have on our financial position, results of operations and cash flows.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective prospectively upon issuance through December 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of this ASU. We are currently evaluating the effect that this guidance will have on our financial position, results of operations and cash flows.
Note 3—Loss Per Common Unit
The following table presents our calculation of basic and diluted weighted average common units outstanding for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Weighted average common units outstanding during the period: | ||||||||||||||||||||||||||
| Common units - Basic | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
| Common units - Diluted | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
For the three months and six months ended September 30, 2021 and 2020, all potential common units or convertible securities were considered antidilutive.
12
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Our loss per common unit is as follows for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands, except unit and per unit amounts) | ||||||||||||||||||||||||||
| (Loss) income from continuing operations | $ | (1,207) | $ | 5,988 | $ | (135,709) | $ | (27,778) | ||||||||||||||||||
| Less: Continuing operations income attributable to noncontrolling interests | (330) | (168) | (768) | (219) | ||||||||||||||||||||||
| Net (loss) income from continuing operations attributable to NGL Energy Partners LP | (1,537) | 5,820 | (136,477) | (27,997) | ||||||||||||||||||||||
| Less: Distributions to preferred unitholders (1) | (25,726) | (23,770) | (50,837) | (45,824) | ||||||||||||||||||||||
| Less: Continuing operations net loss allocated to general partner (2) | 27 | 17 | 186 | 73 | ||||||||||||||||||||||
| Net loss from continuing operations allocated to common unitholders | $ | (27,236) | $ | (17,933) | $ | (187,128) | $ | (73,748) | ||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | — | $ | (153) | $ | — | $ | (1,639) | ||||||||||||||||||
| Less: Discontinued operations loss allocated to general partner (2) | — | 1 | — | 2 | ||||||||||||||||||||||
| Net loss from discontinued operations allocated to common unitholders | $ | — | $ | (152) | $ | — | $ | (1,637) | ||||||||||||||||||
| Net loss allocated to common unitholders | $ | (27,236) | $ | (18,085) | $ | (187,128) | $ | (75,385) | ||||||||||||||||||
| Basic loss per common unit | ||||||||||||||||||||||||||
| Loss from continuing operations | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.57) | ||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | — | $ | — | $ | — | $ | (0.01) | ||||||||||||||||||
| Net loss | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.58) | ||||||||||||||||||
| Diluted loss per common unit | ||||||||||||||||||||||||||
| Loss from continuing operations | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.57) | ||||||||||||||||||
| Loss from discontinued operations, net of tax | $ | — | $ | — | $ | — | $ | (0.01) | ||||||||||||||||||
| Net loss | $ | (0.21) | $ | (0.14) | $ | (1.44) | $ | (0.58) | ||||||||||||||||||
| Basic weighted average common units outstanding | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
| Diluted weighted average common units outstanding | 129,593,939 | 128,771,715 | 129,593,939 | 128,771,715 | ||||||||||||||||||||||
(1) Includes cumulative distributions for the three months and six months ended September 30, 2021, which were earned but not declared or paid (see Note 8 for a further discussion of the suspension of common unit and preferred unit distributions).
(2) Net loss allocated to the general partner includes distributions to which it is entitled as the holder of incentive distribution rights.
13
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 4—Property, Plant and Equipment
Our property, plant and equipment consists of the following at the dates indicated:
| Description | Estimated Useful Lives | September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||
| (in years) | (in thousands) | |||||||||||||||||||||||||
| Natural gas liquids terminal and storage assets | 2 | - | 30 | $ | 165,267 | $ | 319,554 | |||||||||||||||||||
| Pipeline and related facilities | 30 | - | 40 | 264,605 | 264,405 | |||||||||||||||||||||
| Vehicles and railcars | 3 | - | 25 | 125,960 | 126,088 | |||||||||||||||||||||
| Water treatment facilities and equipment | 3 | - | 30 | 2,044,610 | 1,930,437 | |||||||||||||||||||||
| Crude oil tanks and related equipment | 2 | - | 30 | 236,305 | 238,924 | |||||||||||||||||||||
| Barges and towboats | 5 | - | 30 | 137,603 | 137,386 | |||||||||||||||||||||
| Information technology equipment | 3 | - | 7 | 47,275 | 50,220 | |||||||||||||||||||||
| Buildings and leasehold improvements | 3 | - | 40 | 156,570 | 165,679 | |||||||||||||||||||||
| Land | 100,874 | 100,352 | ||||||||||||||||||||||||
| Tank bottoms and linefill (1) | 29,099 | 20,237 | ||||||||||||||||||||||||
| Other | 3 | - | 20 | 15,317 | 15,054 | |||||||||||||||||||||
| Construction in progress | 45,407 | 114,796 | ||||||||||||||||||||||||
| 3,368,892 | 3,483,132 | |||||||||||||||||||||||||
| Accumulated depreciation | (844,605) | (776,279) | ||||||||||||||||||||||||
| Net property, plant and equipment | $ | 2,524,287 | $ | 2,706,853 | ||||||||||||||||||||||
(1) Tank bottoms, which are product volumes required for the operation of storage tanks, are recorded at historical cost. We recover tank bottoms when the storage tanks are removed from service. Linefill, which represents our portion of the product volume required for the operation of the proportionate share of a pipeline we own, is recorded at historical cost.
The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Depreciation expense | $ | 47,845 | $ | 53,290 | $ | 108,451 | $ | 100,013 | ||||||||||||||||||
| Capitalized interest expense | $ | 324 | $ | 445 | $ | 656 | $ | 2,113 | ||||||||||||||||||
We record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within loss on disposal or impairment of assets, net in our unaudited condensed consolidated statements of operations. The following table summarizes (gains) losses on the disposal or impairment of property, plant and equipment by segment for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Water Solutions | $ | 1,296 | $ | 6,414 | $ | 8,785 | $ | 6,740 | ||||||||||||||||||
| Crude Oil Logistics | (14) | — | (56) | 1,844 | ||||||||||||||||||||||
| Liquids Logistics | 11,776 | 43 | 11,753 | 47 | ||||||||||||||||||||||
| Corporate and Other | — | (2) | — | (2) | ||||||||||||||||||||||
| Total | $ | 13,058 | $ | 6,455 | $ | 20,482 | $ | 8,629 | ||||||||||||||||||
14
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 5—Intangible Assets
Our intangible assets consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Description | Amortizable Lives | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||||||||||
| (in years) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortizable: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer relationships | 3 | - | 25 | $ | 1,249,463 | $ | (456,015) | $ | 793,448 | $ | 1,318,638 | $ | (450,639) | $ | 867,999 | |||||||||||||||||||||||||||||||||||
| Customer commitments | 25 | 192,000 | (17,280) | 174,720 | 192,000 | (13,440) | 178,560 | |||||||||||||||||||||||||||||||||||||||||||
| Pipeline capacity rights | 30 | 7,799 | (2,037) | 5,762 | 7,799 | (1,907) | 5,892 | |||||||||||||||||||||||||||||||||||||||||||
| Rights-of-way and easements | 1 | - | 45 | 91,361 | (10,863) | 80,498 | 90,703 | (9,270) | 81,433 | |||||||||||||||||||||||||||||||||||||||||
| Water rights | 13 | - | 30 | 100,369 | (17,496) | 82,873 | 100,369 | (14,454) | 85,915 | |||||||||||||||||||||||||||||||||||||||||
| Executory contracts and other agreements | 1 | - | 35 | 34,975 | (20,920) | 14,055 | 48,709 | (21,300) | 27,409 | |||||||||||||||||||||||||||||||||||||||||
| Non-compete agreements | 4 | - | 5 | 7,000 | (5,639) | 1,361 | 12,100 | (6,102) | 5,998 | |||||||||||||||||||||||||||||||||||||||||
Debt issuance costs (1) | 5 | 20,147 | (2,651) | 17,496 | 9,558 | (406) | 9,152 | |||||||||||||||||||||||||||||||||||||||||||
| Total amortizable | 1,703,114 | (532,901) | 1,170,213 | 1,779,876 | (517,518) | 1,262,358 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-amortizable: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade names | 255 | — | 255 | 255 | — | 255 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,703,369 | $ | (532,901) | $ | 1,170,468 | $ | 1,780,131 | $ | (517,518) | $ | 1,262,613 | ||||||||||||||||||||||||||||||||||||||
(1) Includes debt issuance costs related to the ABL Facility (as defined herein) and the Sawtooth credit agreement (as defined herein). Debt issuance costs related to the fixed-rate notes are reported as a reduction of the carrying amount of long-term debt.
On June 18, 2021, the Sawtooth credit agreement was paid off and terminated prior to us selling our ownership interest in Sawtooth (see Note 15). We wrote off $0.1 million of debt issuance costs related to the Sawtooth credit agreement. The loss is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.
The weighted-average remaining amortization period for intangible assets is approximately 20.6 years.
Amortization expense is as follows for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| Recorded In | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Depreciation and amortization | $ | 21,718 | $ | 34,179 | $ | 45,214 | $ | 71,442 | ||||||||||||||||||
| Cost of sales | 71 | 76 | 144 | 153 | ||||||||||||||||||||||
| Interest expense | 1,693 | 1,560 | 2,375 | 3,092 | ||||||||||||||||||||||
| Operating expenses | 61 | 61 | 123 | 123 | ||||||||||||||||||||||
| Total | $ | 23,543 | $ | 35,876 | $ | 47,856 | $ | 74,810 | ||||||||||||||||||
Expected amortization of our intangible assets is as follows (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 41,625 | |||
| 2023 | 80,725 | ||||
| 2024 | 74,385 | ||||
| 2025 | 66,942 | ||||
| 2026 | 64,229 | ||||
| 2027 | 60,186 | ||||
| Thereafter | 782,121 | ||||
| Total | $ | 1,170,213 | |||
15
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 6—Long-Term Debt
Our long-term debt consists of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Face Amount | Unamortized Debt Issuance Costs (1) | Book Value | Face Amount | Unamortized Debt Issuance Costs (1) | Book Value | |||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||
| Senior secured notes: | ||||||||||||||||||||||||||||||||||||||
7.500% Notes due 2026 (“2026 Senior Secured Notes”) | $ | 2,050,000 | $ | (39,708) | $ | 2,010,292 | $ | 2,050,000 | $ | (44,246) | $ | 2,005,754 | ||||||||||||||||||||||||||
| Asset-based revolving credit facility (“ABL Facility”) | 146,000 | — | 146,000 | 4,000 | — | 4,000 | ||||||||||||||||||||||||||||||||
| Senior unsecured notes: | ||||||||||||||||||||||||||||||||||||||
7.500% Notes due 2023 (“2023 Notes”) | 519,496 | (2,690) | 516,806 | 555,251 | (3,564) | 551,687 | ||||||||||||||||||||||||||||||||
6.125% Notes due 2025 (“2025 Notes”) | 380,020 | (2,876) | 377,144 | 380,020 | (3,297) | 376,723 | ||||||||||||||||||||||||||||||||
7.500% Notes due 2026 (“2026 Notes”) | 332,402 | (3,875) | 328,527 | 338,402 | (4,378) | 334,024 | ||||||||||||||||||||||||||||||||
| Other long-term debt | 42,926 | (65) | 42,861 | 49,095 | (70) | 49,025 | ||||||||||||||||||||||||||||||||
| 3,470,844 | (49,214) | 3,421,630 | 3,376,768 | (55,555) | 3,321,213 | |||||||||||||||||||||||||||||||||
| Less: Current maturities | 2,278 | — | 2,278 | 2,183 | — | 2,183 | ||||||||||||||||||||||||||||||||
| Long-term debt | $ | 3,468,566 | $ | (49,214) | $ | 3,419,352 | $ | 3,374,585 | $ | (55,555) | $ | 3,319,030 | ||||||||||||||||||||||||||
(1) Debt issuance costs related to the ABL Facility and the Sawtooth credit agreement (included in other long-term debt) are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt.
2026 Senior Secured Notes
The 2026 Senior Secured Notes bear interest at 7.5%, which is payable on February 1 and August 1 of each year, which began on August 1, 2021. The 2026 Senior Secured Notes mature on February 1, 2026. The 2026 Senior Secured Notes were issued pursuant to an indenture dated February 4, 2021 (the “Indenture”).
The 2026 Senior Secured Notes are secured by first priority liens on substantially all of our assets other than our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and second priority liens in our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets.
The Indenture contains covenants that, among other things, limit our ability to: pay distributions or make other restricted payments or repurchase stock; incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock; make certain investments; create or incur liens; sell assets; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, make loans or advances or transfer assets to the guarantors (including the Partnership); enter into certain transactions with our affiliates; designate restricted subsidiaries as unrestricted subsidiaries; and merge, consolidate or transfer or sell all or substantially all of our assets. The Indenture specifically restricts our ability to pay distributions until our total leverage ratio (as defined in the Indenture) for the most recently ended four full fiscal quarters at the time of the distribution is not greater than 4.75 to 1.00. These covenants are subject to a number of important exceptions and qualifications.
Compliance
At September 30, 2021, we were in compliance with the covenants under the 2026 Senior Secured Notes indenture.
ABL Facility
The $500.0 million ABL Facility is subject to a borrowing base, which includes a sub-limit for letters of credit. The initial borrowing base was $500.0 million and the sub-limit for letters of credit is $200.0 million. The ABL Facility is secured by a lien on substantially all of our assets, including among other things, a first priority lien on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and a second priority lien on our all of our other assets. At September 30, 2021, we had letters of credit outstanding of approximately $152.2 million. The ABL Facility is scheduled to mature at the earliest of (a) February 4, 2026 or (b) 91 days prior to the earliest
16
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions.
All borrowings under the ABL Facility bear interest, at our option, at either (i) an alternate base rate plus a margin of 2.00% per year or (ii) an adjusted LIBOR rate plus a margin of 3.00% per year. At September 30, 2021, the borrowings under the ABL Facility had a weighted average interest rate of 4.89%, calculated as the alternate base rate of 3.25% plus a margin of 2.00% on the alternate base rate borrowings and weighted average LIBOR rate of 0.50% plus a margin of 3.00% for the LIBOR borrowings. On September 30, 2021, the interest rate in effect on letters of credit was 3.00%.
The ABL Facility contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, distributions and other restricted payments, investments (including acquisitions) and transactions with affiliates. The ABL Facility contains, as the only financial covenant, a minimum Fixed Charge Coverage Ratio financial covenant that is tested based on the financial statements for the most recently ended fiscal quarter upon the occurrence and during the continuation of a Cash Dominion Event (as defined in the ABL Facility). At September 30, 2021, no Cash Dominion Event had occurred.
Compliance
At September 30, 2021, we were in compliance with the covenants under the ABL Facility.
Senior Unsecured Notes
The senior unsecured notes include the 2023 Notes, 2025 Notes and 2026 Notes (collectively, the “Senior Unsecured Notes”).
Repurchases
The following table summarizes repurchases of Senior Unsecured Notes for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||
| 2021 | 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| 2023 Notes | ||||||||||||||
| Notes repurchased | $ | 17,088 | $ | 35,755 | ||||||||||
| Cash paid (excluding payments of accrued interest) | $ | 16,536 | $ | 34,929 | ||||||||||
| Gain on early extinguishment of debt (1) | $ | 461 | $ | 627 | ||||||||||
| 2026 Notes | ||||||||||||||
| Notes repurchased | $ | 6,000 | $ | 6,000 | ||||||||||
| Cash paid (excluding payments of accrued interest) | $ | 5,320 | $ | 5,320 | ||||||||||
| Gain on early extinguishment of debt (2) | $ | 610 | $ | 610 | ||||||||||
(1) Gain on early extinguishment of debt for the three months and six months ended September 30, 2021 is inclusive of the write-off of debt issuance costs of $0.1 million and $0.2 million, respectively. The gain is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statements of operations.
(2) Gain on early extinguishment of debt for the three months and six months ended September 30, 2021 is inclusive of the write-off of debt issuance costs of $0.1 million and $0.1 million, respectively. The gain is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statements of operations.
Compliance
At September 30, 2021, we were in compliance with the covenants under all of the Senior Unsecured Notes indentures.
Other Long-term Debt
The Sawtooth Caverns, LLC (“Sawtooth”) credit agreement was paid off and terminated prior to us selling our ownership interest in Sawtooth on June 18, 2021 (see Note 15).
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
On October 29, 2020, we entered into an equipment loan for $45.0 million which bears interest at a rate of 8.6% and is secured by certain of our barges and towboats. We have an aggregate principal balance of $42.9 million at September 30, 2021. The loan matures on November 1, 2027.
Debt Maturity Schedule
The scheduled maturities of our long-term debt are as follows at September 30, 2021:
| Fiscal Year Ending March 31, | 2026 Senior Secured Notes | ABL Facility | Senior Unsecured Notes | Other Long-Term Debt | Total | |||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||
| 2022 (six months) | $ | — | $ | — | $ | — | $ | 1,013 | $ | 1,013 | ||||||||||||||||||||||
| 2023 | — | — | — | 2,585 | 2,585 | |||||||||||||||||||||||||||
| 2024 | — | — | 519,496 | 2,816 | 522,312 | |||||||||||||||||||||||||||
| 2025 | — | — | 380,020 | 3,068 | 383,088 | |||||||||||||||||||||||||||
| 2026 | 2,050,000 | 146,000 | — | 3,343 | 2,199,343 | |||||||||||||||||||||||||||
| 2027 | — | — | 332,402 | 3,642 | 336,044 | |||||||||||||||||||||||||||
| Thereafter | — | — | — | 26,459 | 26,459 | |||||||||||||||||||||||||||
| Total | $ | 2,050,000 | $ | 146,000 | $ | 1,231,918 | $ | 42,926 | $ | 3,470,844 | ||||||||||||||||||||||
Amortization of Debt Issuance Costs
Amortization expense for debt issuance costs related to long-term debt was $3.1 million and $1.7 million during the three months ended September 30, 2021 and 2020, respectively, and $6.1 million and $3.7 million during the six months ended September 30, 2021 and 2020, respectively.
Expected amortization of debt issuance costs is as follows (in thousands):
| Fiscal Year Ending March 31, | ||||||||
| 2022 (six months) | $ | 6,076 | ||||||
| 2023 | 12,152 | |||||||
| 2024 | 11,618 | |||||||
| 2025 | 10,795 | |||||||
| 2026 | 8,521 | |||||||
| 2027 | 46 | |||||||
| Thereafter | 6 | |||||||
| Total | $ | 49,214 | ||||||
Note 7—Commitments and Contingencies
Legal Contingencies
In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against NGL Energy Holdings LLC (the “GP”) and the Partnership seeking payment for investment banking services relating to the purchase of TransMontaigne Inc. and related assets in July 2014. After pre-trial rulings, LCT was limited to pursuing claims of (i) quantum meruit (the value of the services rendered by LCT) and (ii) fraudulent misrepresentation against the defendants. Following a jury trial conducted in Delaware state court from July 23, 2018 through August 1, 2018, the jury returned a verdict consisting of an award of $4.0 million for quantum meruit and $29.0 million for fraudulent misrepresentation, subject to statutory interest. On December 5, 2019, in response to the defendants’ post-trial motion, the Court issued an Order overturning the jury’s damages award and ordering the case to be set for a damages-only trial. Both parties filed applications with the trial court asking the trial court to certify the December 5th Order for interlocutory, immediate review by the Appellate Court. On January 7, 2020, the Supreme Court of Delaware (“Supreme Court”) entered an Order accepting an interlocutory appeal of various issues relating to both the quantum meruit and fraudulent misrepresentation verdicts. The Supreme Court heard oral arguments of the parties on November 4, 2020, took the matters presented under advisement and on January 28, 2021, issued a ruling that (a) LCT is not entitled to “benefit-of-the-bargain” damages on its fraud claim; (b) LCT is not entitled to receive fraudulent misrepresentation damages separate from its quantum meruit damages; (c) the trial court abused its discretion when it ordered a new trial on damages relating to LCT’s claim of fraudulent misrepresentation; and (d) the trial court properly ordered a new trial on LCT’s claim of quantum meruit
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
damages. The date for a new trial, to be limited to the quantum meruit claim, has not yet been set by the trial court. Any allocation of the ultimate verdict award, if any, between the GP and the Partnership will be made by the board of directors of our general partner once all information is available to it and after the new trial, any post-trial and/or any appellate process has concluded and the verdict is final as a matter of law. As of September 30, 2021, we have accrued $2.5 million related to this matter.
We are party to various other claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions, and complaints, after consideration of amounts accrued, insurance coverage, and other arrangements, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our liabilities may change materially as circumstances develop.
Environmental Matters
At September 30, 2021, we have an environmental liability, measured on an undiscounted basis, of $1.5 million, which is recorded within accrued expenses and other payables in our unaudited condensed consolidated balance sheet. Our operations are subject to extensive federal, state, and local environmental laws and regulations. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our business, and there can be no assurance that we will not incur significant costs. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, could result in substantial costs. Accordingly, we have adopted policies, practices, and procedures in the areas of pollution control, product safety, occupational health, and the handling, storage, use, and disposal of hazardous materials designed to prevent material environmental or other damage, and to limit the financial liability that could result from such events. However, some risk of environmental or other damage is inherent in our business.
Asset Retirement Obligations
We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement, or removal activities when the assets are retired. Our liability for asset retirement obligations is discounted to present value. To calculate the liability, we make estimates and assumptions about the retirement cost and the timing of retirement. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events. The following table summarizes changes in our asset retirement obligation, which is reported within other noncurrent liabilities in our unaudited condensed consolidated balance sheets (in thousands):
| Balance at March 31, 2021 | $ | 28,079 | |||
| Liabilities incurred | 1,848 | ||||
| Liabilities associated with disposition of Sawtooth (see Note 15) | (1,612) | ||||
| Accretion expense | 875 | ||||
| Balance at September 30, 2021 | $ | 29,190 | |||
In addition to the obligations described above, we may be obligated to remove facilities or perform other remediation upon retirement of certain other assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminable. We will record an asset retirement obligation for these assets in the periods in which settlement dates are reasonably determinable.
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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Other Commitments
We have noncancelable agreements for product storage, railcar spurs and real estate. The following table summarizes future minimum payments under these agreements at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 2,859 | |||
| 2023 | 5,859 | ||||
| 2024 | 5,720 | ||||
| 2025 | 1,181 | ||||
| 2026 | 1,162 | ||||
| 2027 | 1,154 | ||||
| Thereafter | 5,386 | ||||
| Total | $ | 23,321 | |||
As part of the acquisition of Hillstone Environmental Partners, LLC, we assumed an obligation to pay a quarterly subsidy payment in the event that specified volumetric thresholds are not exceeded at a third-party facility. This agreement expires on December 31, 2022. For the three months and six months ended September 30, 2021, we recorded $0.6 million and $1.2 million, respectively, and for the three months and six months ended September 30, 2020, we recorded $0.7 million and $1.4 million, respectively, within operating expense in our unaudited condensed consolidated statements of operations. At September 30, 2021, the range of potential payments we could be obligated to make pursuant to the subsidy agreement could be from $0.0 million to $4.1 million.
Pipeline Capacity Agreements
We have noncancelable agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on the pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement, with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We currently have an asset recorded in prepaid expenses and other current assets and in other noncurrent assets in our unaudited condensed consolidated balance sheet for minimum shipping fees paid in both the current and previous periods that are expected to be recovered in future periods by exceeding the minimum monthly volumes (see Note 2).
The following table summarizes future minimum throughput payments under these agreements at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 17,609 | |||
| 2023 | 35,314 | ||||
| 2024 | 35,410 | ||||
| 2025 | 30,897 | ||||
| Total | $ | 119,230 | |||
Sales and Purchase Contracts
We have entered into product sales and purchase contracts for which we expect the parties to physically settle and deliver the inventory in future periods.
20
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
At September 30, 2021, we had the following commodity purchase commitments (in thousands):
| Crude Oil (1) | Natural Gas Liquids | |||||||||||||||||||||||||
| Value | Volume (in barrels) | Value | Volume (in gallons) | |||||||||||||||||||||||
| Fixed-Price Commodity Purchase Commitments: | ||||||||||||||||||||||||||
| 2022 (six months) | $ | 114,126 | 1,607 | $ | 16,624 | 21,046 | ||||||||||||||||||||
| 2023 | — | — | 3,546 | 4,788 | ||||||||||||||||||||||
| 2024 | — | — | 1,946 | 2,772 | ||||||||||||||||||||||
| Total | $ | 114,126 | 1,607 | $ | 22,116 | 28,606 | ||||||||||||||||||||
| Index-Price Commodity Purchase Commitments: | ||||||||||||||||||||||||||
| 2022 (six months) | $ | 1,631,013 | 23,165 | $ | 1,031,514 | 740,186 | ||||||||||||||||||||
| 2023 | 2,071,352 | 32,176 | 31,186 | 30,080 | ||||||||||||||||||||||
| 2024 | 1,720,969 | 28,920 | 15,855 | 25,200 | ||||||||||||||||||||||
| 2025 | 1,193,320 | 21,170 | — | — | ||||||||||||||||||||||
| 2026 | 537,657 | 10,409 | — | — | ||||||||||||||||||||||
| Total | $ | 7,154,311 | 115,840 | $ | 1,078,555 | 795,466 | ||||||||||||||||||||
(1) Our crude oil index-price purchase commitments exceed our crude oil index-price sales commitments (presented below) due primarily to our long-term purchase commitments for crude oil that we purchase and ship on the Grand Mesa Pipeline. As these purchase commitments are deliver-or-pay contracts, whereby our counterparty is required to pay us for any volumes not delivered, we have not entered into corresponding long-term sales contracts for volumes we may not receive.
At September 30, 2021, we had the following commodity sale commitments (in thousands):
| Crude Oil | Natural Gas Liquids | |||||||||||||||||||||||||
| Value | Volume (in barrels) | Value | Volume (in gallons) | |||||||||||||||||||||||
| Fixed-Price Commodity Sale Commitments: | ||||||||||||||||||||||||||
| 2022 (six months) | $ | 114,352 | 1,607 | $ | 186,391 | 164,404 | ||||||||||||||||||||
| 2023 | — | — | 15,692 | 18,366 | ||||||||||||||||||||||
| 2024 | — | — | 3,064 | 4,169 | ||||||||||||||||||||||
| 2025 | — | — | 38 | 40 | ||||||||||||||||||||||
| Total | $ | 114,352 | 1,607 | $ | 205,185 | 186,979 | ||||||||||||||||||||
| Index-Price Commodity Sale Commitments: | ||||||||||||||||||||||||||
| 2022 (six months) | $ | 1,309,659 | 17,599 | $ | 1,105,028 | 687,892 | ||||||||||||||||||||
| 2023 | 728,712 | 10,640 | 33,823 | 23,791 | ||||||||||||||||||||||
| 2024 | 643,593 | 10,248 | — | — | ||||||||||||||||||||||
| 2025 | 601,404 | 10,220 | — | — | ||||||||||||||||||||||
| 2026 | 22,281 | 390 | — | — | ||||||||||||||||||||||
| Total | $ | 3,305,649 | 49,097 | $ | 1,138,851 | 711,683 | ||||||||||||||||||||
We account for the contracts shown in the tables above using the normal purchase and normal sale election. Under this accounting policy election, we do not record the physical contracts at fair value at each balance sheet date; instead, we record the purchase or sale at the contracted value once the delivery occurs. Contracts in the tables above may have offsetting derivative contracts (described in Note 9) or inventory positions (described in Note 2).
Certain other forward purchase and sale contracts do not qualify for the normal purchase and normal sale election. These contracts are recorded at fair value in our unaudited condensed consolidated balance sheet and are not included in the tables above. These contracts are included in the derivative disclosures in Note 9 and represent $51.6 million of our prepaid expenses and other current assets and $29.0 million of our accrued expenses and other payables at September 30, 2021.
21
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 8—Equity
Partnership Equity
The Partnership’s equity consists of a 0.1% general partner interest and a 99.9% limited partner interest, which consists of common units. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 0.1% general partner interest. Our general partner is not required to guarantee or pay any of our debts and obligations. As of September 30, 2021, we owned 8.69% of our general partner.
Common Unit Repurchase Program
On August 30, 2019, the board of directors of our general partner authorized a common unit repurchase program, under which we may repurchase up to $150.0 million of our outstanding common units through September 30, 2021, from time to time in the open market or in other privately negotiated transactions. We did not repurchase any units under this plan during the three months ended September 30, 2021 and this plan has expired.
Suspension of Common Unit and Preferred Unit Distributions
The board of directors of our general partner temporarily suspended all distributions (common unit distributions beginning with the quarter ended December 31, 2020 and preferred unit distributions beginning with the quarter ended March 31, 2021) in order to deleverage our balance sheet and meet the financial performance ratios set within the Indenture of the 2026 Senior Secured Notes, as discussed further in Note 6.
Class B Preferred Units
As of September 30, 2021, there were 12,585,642 of our 9.00% Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) outstanding.
The current distribution rate for the Class B Preferred Units is 9.00% per year of the $25.00 liquidation preference per unit (equal to $2.25 per unit per year). For the quarter ended September 30, 2021, we did not declare or pay distributions to the holders of the Class B Preferred Units, thus the quarterly distribution for September 30, 2021 is $0.5625 and the cumulative distribution since suspension for each Class B Preferred Unit is $1.6875. In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2021 is $21.7 million.
Class C Preferred Units
As of September 30, 2021, there were 1,800,000 of our 9.625% Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) outstanding.
The current distribution rate for the Class C Preferred Units is 9.625% per year of the $25.00 liquidation preference per unit (equal to $2.41 per unit per year). For the quarter ended September 30, 2021, we did not declare or pay distributions to the holders of the Class C Preferred Units, thus the quarterly distribution for September 30, 2021 is $0.6016 and the cumulative distribution since suspension for each Class C Preferred Unit is $1.8047. In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2021 is $3.3 million.
Class D Preferred Units
As of September 30, 2021, there were 600,000 preferred units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of 25,500,000 common units outstanding.
The current distribution rate for the Class D Preferred Units is 9.00% per year per unit (equal to $90.00 per every $1,000 in unit value per year), plus an additional 1.5% rate increase due to us exceeding the adjusted total leverage ratio and due to a Class D distribution payment default, as defined within the amended and restated limited partnership agreement. For the quarter ended September 30, 2021, we did not declare or pay distributions to the holders of the Class D Preferred Units, thus the average quarterly distribution at September 30, 2021 is $27.32 and the average cumulative distribution since suspension for each Class D Preferred unit is $80.64. In addition, the amount of cumulative but unpaid distributions shall continue to
22
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2021 is $49.6 million.
Equity-Based Incentive Compensation
Our general partner adopted a long-term incentive plan (“LTIP”), which allowed for the issuance of equity-based compensation. Our general partner granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of the recipients through the vesting date (the “Service Awards”). The awards may also vest upon a change of control, at the discretion of the board of directors of our general partner. No distributions accrue to or are paid on the Service Awards during the vesting period. The LTIP expired on May 10, 2021.
The following table summarizes the Service Award activity during the six months ended September 30, 2021:
| Unvested Service Award units at March 31, 2021 | 446,975 | |||||||
| Units granted | 3,294,750 | |||||||
| Units forfeited | (261,125) | |||||||
| Unvested Service Award units at September 30, 2021 | 3,480,600 | |||||||
The following table summarizes the scheduled vesting of our unvested Service Award units at September 30, 2021:
| Fiscal Year Ending March 31, | ||||||||
| 2022 (six months) | 1,176,975 | |||||||
| 2023 | 1,535,625 | |||||||
| 2024 | 768,000 | |||||||
| Total | 3,480,600 | |||||||
Service Awards are valued at the average of the high/low sales price as of the grant date less the present value of the expected distribution stream over the vesting period using a risk-free interest rate. The weighted-average grant price for the six months ended September 30, 2021 was $2.15 per Service Award. We record the expense for each Service Award on a straight-line basis over the requisite period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date value of the award that is vested at that date.
During the three months ended September 30, 2021 and 2020, we recorded compensation expense related to Service Award units of $1.0 million and $1.3 million, respectively. During the six months ended September 30, 2021 and 2020, we recorded compensation expense related to Service Award units of $2.0 million and $2.7 million, respectively.
The following table summarizes the estimated future expense we expect to record on the unvested Service Award units at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | ||||||||
| 2022 (six months) | $ | 1,382 | ||||||
| 2023 | 3,286 | |||||||
| 2024 | 1,375 | |||||||
| Total | $ | 6,043 | ||||||
As the LTIP expired on May 10, 2021, we have no common units available for grant and any current unvested Service Awards that are forfeited, canceled or expire will not be available for future grants.
Note 9—Fair Value of Financial Instruments
Our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature.
23
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Commodity Derivatives
The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our unaudited condensed consolidated balance sheets at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Level 1 measurements | $ | 61,301 | $ | (35,321) | $ | 12,312 | $ | (17,857) | ||||||||||||||||||
| Level 2 measurements | 51,637 | (35,764) | 37,520 | (24,474) | ||||||||||||||||||||||
| 112,938 | (71,085) | 49,832 | (42,331) | |||||||||||||||||||||||
| Netting of counterparty contracts (1) | (35,337) | 35,337 | (12,648) | 12,648 | ||||||||||||||||||||||
| Net cash collateral (held) provided | (7,949) | 6,808 | 2,660 | 5,543 | ||||||||||||||||||||||
| Commodity derivatives | $ | 69,652 | $ | (28,940) | $ | 39,844 | $ | (24,140) | ||||||||||||||||||
(1) Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a netting arrangement with the counterparty. Our physical contracts that do not qualify as normal purchase normal sale transactions are not subject to such netting arrangements.
The following table summarizes the accounts that include our commodity derivative assets and liabilities in our unaudited condensed consolidated balance sheets at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Prepaid expenses and other current assets | $ | 68,792 | $ | 39,844 | ||||||||||
| Other noncurrent assets | 860 | — | ||||||||||||
| Accrued expenses and other payables | (28,940) | (21,562) | ||||||||||||
| Other noncurrent liabilities | — | (2,578) | ||||||||||||
| Net commodity derivative asset | $ | 40,712 | $ | 15,704 | ||||||||||
24
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes our open commodity derivative contract positions at the dates indicated. We do not account for these derivatives as hedges.
| Contracts | Settlement Period | Net Long (Short) Notional Units (in barrels) | Fair Value of Net Assets (Liabilities) | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| At September 30, 2021: | ||||||||||||||||||||
| Crude oil fixed-price (1) | October 2021–December 2023 | (1,152) | $ | 12,682 | ||||||||||||||||
| Propane fixed-price (1) | October 2021–December 2023 | 1,284 | 35,880 | |||||||||||||||||
| Refined products fixed-price (1) | October 2021–July 2022 | (369) | (6,081) | |||||||||||||||||
| Butane fixed-price (1) | October 2021–December 2022 | (697) | (17,445) | |||||||||||||||||
| Other | October 2021–December 2022 | 16,817 | ||||||||||||||||||
| 41,853 | ||||||||||||||||||||
| Net cash collateral held | (1,141) | |||||||||||||||||||
| Net commodity derivative asset | $ | 40,712 | ||||||||||||||||||
| At March 31, 2021: | ||||||||||||||||||||
| Crude oil fixed-price (1) | April 2021–December 2023 | (1,850) | $ | (5,414) | ||||||||||||||||
| Propane fixed-price (1) | April 2021–December 2023 | (195) | 2,188 | |||||||||||||||||
| Refined products fixed-price (1) | April 2021–January 2022 | (503) | 1,928 | |||||||||||||||||
| Butane fixed-price (1) | April 2021–March 2022 | (753) | (3,764) | |||||||||||||||||
| Other | April 2021–June 2022 | 12,563 | ||||||||||||||||||
| 7,501 | ||||||||||||||||||||
| Net cash collateral provided | 8,203 | |||||||||||||||||||
| Net commodity derivative asset | $ | 15,704 | ||||||||||||||||||
(1) We may have fixed price physical purchases, including inventory, offset by floating price physical sales or floating price physical purchases offset by fixed price physical sales. These contracts are derivatives we have entered into as an economic hedge against the risk of mismatches between fixed and floating price physical obligations.
During the three months ended September 30, 2021 and 2020, we recorded a net gain of $16.0 million and a net loss of $3.2 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations. During the six months ended September 30, 2021 and 2020, we recorded net losses of $40.7 million and $30.6 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations. The amounts for the three months and six months ended September 30, 2020 do not include net gains and losses related to Mid-Con (as defined herein) and Gas Blending (as defined herein), as these amounts have been classified as discontinued operations within our unaudited condensed consolidated statements of operations (see Note 16).
Credit Risk
We have credit policies that we believe minimize our overall credit risk, including an evaluation of potential counterparties’ financial condition (including credit ratings), collateral requirements under certain circumstances, and the use of industry standard master netting agreements, which allow for offsetting counterparty receivable and payable balances for certain transactions. At September 30, 2021, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a counterparty does not perform on a contract, we may not realize amounts that have been recorded in our unaudited condensed consolidated balance sheets and recognized in our net income.
Interest Rate Risk
The ABL Facility is variable-rate debt with interest rates that are generally indexed to the Wall Street Journal prime rate or LIBOR interest rate (or successor rate). At September 30, 2021, we had $146.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of 4.89%.
25
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Fair Value of Fixed-Rate Notes
The following table provides fair value estimates of our fixed-rate notes at September 30, 2021 (in thousands):
| Senior Secured Notes: | |||||
| 2026 Senior Secured Notes | $ | 2,088,438 | |||
| Senior Unsecured Notes: | |||||
| 2023 Notes | $ | 503,478 | |||
| 2025 Notes | $ | 336,001 | |||
| 2026 Notes | $ | 295,838 | |||
For the 2026 Senior Secured Notes and Senior Unsecured Notes, the fair value estimates were developed based on publicly traded quotes and would be classified as Level 2 in the fair value hierarchy.
Note 10—Segments
The following table summarizes revenues related to our segments for the periods indicated. Transactions between segments are recorded based on prices negotiated between the segments. The “Corporate and Other” category in the table below includes certain corporate expenses that are not allocated to the reportable segments.
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Water Solutions: | ||||||||||||||||||||||||||
| Topic 606 revenues | ||||||||||||||||||||||||||
| Disposal service fees | $ | 101,892 | $ | 76,004 | $ | 200,189 | $ | 157,382 | ||||||||||||||||||
| Sale of recovered crude oil | 17,182 | 8,386 | 30,983 | 9,754 | ||||||||||||||||||||||
| Sale of water | 11,570 | 1,153 | 24,852 | 3,881 | ||||||||||||||||||||||
| Other service revenues | 5,566 | 3,135 | 10,412 | 5,726 | ||||||||||||||||||||||
| Total Water Solutions revenues | 136,210 | 88,678 | 266,436 | 176,743 | ||||||||||||||||||||||
| Crude Oil Logistics: | ||||||||||||||||||||||||||
| Topic 606 revenues | ||||||||||||||||||||||||||
| Crude oil sales | 536,067 | 418,174 | 1,071,496 | 648,902 | ||||||||||||||||||||||
| Crude oil transportation and other | 18,813 | 47,567 | 37,262 | 90,208 | ||||||||||||||||||||||
| Non-Topic 606 revenues | 2,120 | 3,105 | 4,365 | 6,274 | ||||||||||||||||||||||
| Elimination of intersegment sales | (2,170) | (2,005) | (4,669) | (2,504) | ||||||||||||||||||||||
| Total Crude Oil Logistics revenues | 554,830 | 466,841 | 1,108,454 | 742,880 | ||||||||||||||||||||||
| Liquids Logistics: | ||||||||||||||||||||||||||
| Topic 606 revenues | ||||||||||||||||||||||||||
| Refined products sales | 444,268 | 288,781 | 837,377 | 499,328 | ||||||||||||||||||||||
| Propane sales | 219,297 | 136,538 | 379,700 | 258,066 | ||||||||||||||||||||||
| Butane sales | 167,337 | 89,920 | 285,877 | 145,117 | ||||||||||||||||||||||
| Other product sales | 139,566 | 90,418 | 253,896 | 138,753 | ||||||||||||||||||||||
| Service revenues | 3,065 | 6,683 | 8,488 | 13,025 | ||||||||||||||||||||||
| Non-Topic 606 revenues | 89,581 | 797 | 103,888 | 39,514 | ||||||||||||||||||||||
| Elimination of intersegment sales | (17) | (813) | (1,324) | (1,481) | ||||||||||||||||||||||
| Total Liquids Logistics revenues | 1,063,097 | 612,324 | 1,867,902 | 1,092,322 | ||||||||||||||||||||||
| Corporate and Other: | ||||||||||||||||||||||||||
| Non-Topic 606 revenues | — | 315 | — | 628 | ||||||||||||||||||||||
| Total Corporate and Other revenues | — | 315 | — | 628 | ||||||||||||||||||||||
| Total | $ | 1,754,137 | $ | 1,168,158 | $ | 3,242,792 | $ | 2,012,573 | ||||||||||||||||||
26
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following tables summarize depreciation and amortization expense (including amortization expense recorded within interest expense, cost of sales and operating expenses in Note 5 and Note 6) and operating income (loss) by segment for the periods indicated.
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Depreciation and Amortization: | ||||||||||||||||||||||||||
| Water Solutions | $ | 50,731 | $ | 62,282 | $ | 113,774 | $ | 120,477 | ||||||||||||||||||
| Crude Oil Logistics | 12,454 | 17,232 | 24,863 | 34,027 | ||||||||||||||||||||||
| Liquids Logistics | 4,758 | 7,102 | 11,803 | 15,335 | ||||||||||||||||||||||
| Corporate and Other | 6,500 | 4,210 | 11,984 | 8,667 | ||||||||||||||||||||||
| Total | $ | 74,443 | $ | 90,826 | $ | 162,424 | $ | 178,506 | ||||||||||||||||||
| Operating Income (Loss): | ||||||||||||||||||||||||||
| Water Solutions | $ | 32,772 | $ | (13,277) | $ | 40,355 | $ | (29,324) | ||||||||||||||||||
| Crude Oil Logistics | 28,231 | 48,239 | 16,650 | 71,559 | ||||||||||||||||||||||
| Liquids Logistics | 11,461 | 14,338 | (41,948) | 18,900 | ||||||||||||||||||||||
| Corporate and Other | (7,646) | (12,984) | (19,573) | (35,604) | ||||||||||||||||||||||
| Total | $ | 64,818 | $ | 36,316 | $ | (4,516) | $ | 25,531 | ||||||||||||||||||
The following table summarizes additions to property, plant and equipment and intangible assets by segment for the periods indicated. This information has been prepared on the accrual basis, and includes property, plant and equipment and intangible assets acquired in acquisitions.
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Water Solutions | $ | 33,591 | $ | 12,260 | $ | 60,553 | $ | 32,962 | ||||||||||||||||||
| Crude Oil Logistics | 1,008 | 3,098 | 1,471 | 8,770 | ||||||||||||||||||||||
| Liquids Logistics | 2,516 | 3,188 | 6,060 | 4,720 | ||||||||||||||||||||||
| Corporate and Other | 252 | 5,872 | 1,163 | 7,904 | ||||||||||||||||||||||
| Total | $ | 37,367 | $ | 24,418 | $ | 69,247 | $ | 54,356 | ||||||||||||||||||
The following tables summarize long-lived assets (consisting of property, plant and equipment, intangible assets, operating lease right-of-use assets and goodwill) and total assets by segment at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Long-lived assets, net: | ||||||||||||||
| Water Solutions | $ | 3,043,245 | $ | 3,104,450 | ||||||||||
| Crude Oil Logistics | 1,073,603 | 1,090,578 | ||||||||||||
| Liquids Logistics (1) | 403,552 | 626,221 | ||||||||||||
| Corporate and Other | 52,662 | 44,802 | ||||||||||||
| Total | $ | 4,573,062 | $ | 4,866,051 | ||||||||||
(1) Includes $19.9 million and $20.9 million of non-US long-lived assets at September 30, 2021 and March 31, 2021, respectively.
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Total assets: | ||||||||||||||
| Water Solutions | $ | 3,185,155 | $ | 3,204,850 | ||||||||||
| Crude Oil Logistics | 1,726,429 | 1,665,005 | ||||||||||||
| Liquids Logistics (1) | 1,002,668 | 1,003,370 | ||||||||||||
| Corporate and Other | 67,540 | 74,116 | ||||||||||||
| Total | $ | 5,981,792 | $ | 5,947,341 | ||||||||||
27
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(1) Includes $63.0 million and $37.9 million of non-US total assets at September 30, 2021 and March 31, 2021, respectively.
Note 11—Transactions with Affiliates
The following table summarizes our related party transactions for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Sales to entities affiliated with management | $ | — | $ | 1,243 | $ | — | $ | 2,123 | ||||||||||||||||||
| Purchases from entities affiliated with management | $ | 18 | $ | 224 | $ | 88 | $ | 291 | ||||||||||||||||||
| Purchases from equity method investees | $ | 350 | $ | 292 | $ | 541 | $ | 745 | ||||||||||||||||||
| Sales to WPX (1) | $ | 12,485 | $ | 22,241 | ||||||||||||||||||||||
| Purchases from WPX (1) | $ | 82,287 | $ | 116,060 | ||||||||||||||||||||||
(1) As previously reported, a member of the board of directors of our general partner was an executive officer of WPX Energy, Inc. (“WPX”) and has subsequently retired. Therefore, we are no longer classifying transactions with WPX as a related party. The prior year amounts relate to purchases and sales of crude oil with WPX as well as the treatment and disposal of produced water and solids received from WPX.
Accounts receivable from affiliates consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| NGL Energy Holdings LLC | $ | 8,775 | $ | 8,245 | ||||||||||
| Equity method investees | 203 | 462 | ||||||||||||
| Entities affiliated with management | 1 | 728 | ||||||||||||
| Total | $ | 8,979 | $ | 9,435 | ||||||||||
Accounts payable to affiliates consist of the following at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Equity method investees | $ | 96 | $ | 107 | ||||||||||
| Entities affiliated with management | 1 | 12 | ||||||||||||
| Total | $ | 97 | $ | 119 | ||||||||||
Other Related Party Transactions
Guarantee of Outstanding Loan for KAIR2014 LLC (“KAIR2014”)
In connection with the purchase of our 50% interest in KAIR2014, we executed a joint and several guarantee for the benefit of the lender for KAIR2014’s outstanding loan. The other owner of KAIR2014 is a party to a similar guarantee. This guarantee obligates us for the payment and performance of KAIR2014 with respect to the repayment of the loan. As of September 30, 2021, the outstanding balance of the loan is approximately $2.6 million and the loan matures in September 2023. As the guarantee is joint and several, we could be liable for the entire outstanding balance of the loan. The loan is collateralized by the airplane owned by KAIR2014 and in the event of a default, the lender could seek payment in full from us. As of September 30, 2021, no accrual has been recorded related to this guarantee.
Note 12—Revenue from Contracts with Customers
We recognize revenue for services and products under revenue contracts as our obligations to either perform services or deliver or sell products under the contracts are satisfied. Our revenue contracts in scope under ASC 606 primarily have a single performance obligation and we do not receive material amounts of non-cash consideration. Our costs to obtain or fulfill our revenue contracts were not material as of September 30, 2021.
The majority of our revenue agreements are within scope under ASC 606 and the remainder of our revenue comes from contracts that are accounted for as derivatives under ASC 815 or that contain nonmonetary exchanges or leases and are in scope under Topics 845 and 842, respectively. See Note 10 for a detail of disaggregated revenue. Revenue from contracts
28
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
accounted for as derivatives under ASC 815 within our Liquids Logistics segment includes $10.0 million of net losses related to changes in the mark-to-market value of these arrangements recorded during the six months ended September 30, 2021.
Remaining Performance Obligations
Most of our service contracts are such that we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. Therefore, we are utilizing the practical expedient in ASC 606-10-55-18 under which we recognize revenue in the amount to which we have the right to invoice. Applying this practical expedient, we are not required to disclose the transaction price allocated to remaining performance obligations under these agreements. The following table summarizes the amount and timing of revenue recognition for such contracts at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 63,962 | |||
| 2023 | 103,596 | ||||
| 2024 | 85,147 | ||||
| 2025 | 62,441 | ||||
| 2026 | 17,215 | ||||
| 2027 | 3,702 | ||||
| Thereafter | 1,964 | ||||
| Total | $ | 338,027 | |||
Contract Assets and Liabilities
The following tables summarize the balances of our contract assets and liabilities at the dates indicated:
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Accounts receivable from contracts with customers | $ | 463,010 | $ | 436,682 | ||||||||||
| Contract liabilities balance at March 31, 2021 | $ | 10,896 | ||||||
| Payment received and deferred | 30,591 | |||||||
| Payment recognized in revenue | (14,864) | |||||||
| Disposition of Sawtooth (see Note 15) | (8,234) | |||||||
| Contract liabilities balance at September 30, 2021 | $ | 18,389 | ||||||
Note 13—Leases
Lessee Accounting
Our leasing activity primarily consists of product storage, office space, real estate, railcars, and equipment.
The following table summarizes the components of our lease expense for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Operating lease expense | $ | 15,020 | $ | 17,953 | $ | 30,294 | $ | 36,230 | ||||||||||||||||||
| Variable lease expense | 5,023 | 4,334 | 10,253 | 9,213 | ||||||||||||||||||||||
| Short-term lease expense | 89 | 405 | 159 | 801 | ||||||||||||||||||||||
| Total | $ | 20,132 | $ | 22,692 | $ | 40,706 | $ | 46,244 | ||||||||||||||||||
29
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes maturities of our operating lease obligations at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 26,546 | |||
| 2023 | 44,809 | ||||
| 2024 | 28,814 | ||||
| 2025 | 16,701 | ||||
| 2026 | 8,419 | ||||
| 2027 | 4,596 | ||||
| Thereafter | 38,687 | ||||
| Total lease payments | 168,572 | ||||
| Less imputed interest | (35,728) | ||||
| Total operating lease obligations | $ | 132,844 | |||
The following table summarizes supplemental cash flow and non-cash information related to our operating leases for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cash paid for amounts included in the measurement of operating lease obligations | $ | 30,267 | $ | 36,135 | ||||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease obligations | $ | 10,386 | $ | 19,257 | ||||||||||
Lessor Accounting and Subleases
Our lessor arrangements include storage and railcar contracts. We also, from time to time, sublease certain of our storage capacity and railcars to third parties. Fixed rental revenue is recognized on a straight-line basis over the lease term. During the three months ended September 30, 2021 and 2020, fixed rental revenue was $3.2 million, which includes $0.3 million of sublease revenue, and $4.2 million, which includes $0.7 million of sublease revenue, respectively. During the six months ended September 30, 2021 and 2020, fixed rental revenue was $6.5 million, which includes $0.7 million of sublease revenue, and $8.5 million, which includes $1.3 million of sublease revenue, respectively.
The following table summarizes future minimum lease payments receivable under various noncancelable operating lease agreements at September 30, 2021 (in thousands):
| Fiscal Year Ending March 31, | |||||
| 2022 (six months) | $ | 5,791 | |||
| 2023 | 9,632 | ||||
| 2024 | 4,820 | ||||
| 2025 | 691 | ||||
| 2026 | 415 | ||||
| 2027 | 415 | ||||
| Thereafter | 422 | ||||
| Total | $ | 22,186 | |||
Note 14—Allowance for Current Expected Credit Loss (CECL)
ASU 2016-13 requires that an allowance for expected credit losses be recognized for certain financial assets that reflects the current expected credit loss over the financial asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts.
We are exposed to credit losses primarily through sale of products and services and notes receivable from third-parties. A counterparty’s ability to pay is assessed through a credit process that considers the payment terms, the counterparty’s established credit rating or our assessment of the counterparty’s credit worthiness and other risks. We can require prepayment or collateral to mitigate credit risks.
30
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
We group our financial assets into pools of counterparties with similar risk characteristics for the purpose of determining the allowance for expected credit losses. Each reporting period, we assess whether a significant change in the risk of expected credit loss has occurred. Among the quantitative and qualitative factors considered in calculating our allowance for expected credit losses are historical financial data, including write-offs and allowances, current conditions, industry risk and current credit ratings. Financial assets will be written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recorded as an increase to the allowance. We manage receivable pools using past due balances as a key credit quality indicator.
The following table summarizes changes in our allowance for expected credit losses:
| Accounts Receivable - Trade | Notes Receivable and Other | |||||||||||||
| (in thousands) | ||||||||||||||
| Balance at March 31, 2021 | $ | 2,192 | $ | 458 | ||||||||||
| Change in provision for expected credit losses | 96 | — | ||||||||||||
| Write-offs charged against the provision | (27) | — | ||||||||||||
| Disposition of Sawtooth (see Note 15) | (4) | — | ||||||||||||
| Balance at September 30, 2021 | $ | 2,257 | $ | 458 | ||||||||||
Note 15—Other Matters
Sale of Sawtooth
On June 18, 2021, we sold our approximately 71.5% interest in Sawtooth to a group of buyers for total consideration of $70.0 million less estimated expenses of approximately $2.1 million. We recorded a loss of $60.1 million within loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations for the six months ended September 30, 2021.
As this sale transaction did not represent a strategic shift that will have a major effect on our operations or financial results, operations related to this portion of our Liquids Logistics segment have not been classified as discontinued operations.
Note 16—Discontinued Operations
As previously disclosed, on September 30, 2019, we completed the sale of TransMontaigne Product Services, LLC (“TPSL”) to Trajectory Acquisition Company, LLC. On January 3, 2020, we completed the sale of our refined products business in the mid-continent region of the United States (“Mid-Con”) to a third-party. On March 30, 2020, we completed the sale of our gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”) to another third-party. As the sale of each of these businesses represented strategic shifts, the results of operations and cash flows related to these businesses are classified as discontinued operations for the period presented.
31
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes the results of operations from discontinued operations for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||
| 2020 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Revenues | $ | — | $ | 16,198 | ||||||||||
| Cost of sales | 118 | 16,429 | ||||||||||||
| Operating expenses | 72 | 280 | ||||||||||||
| Loss on disposal or impairment of assets, net (1) | 116 | 1,181 | ||||||||||||
| Operating loss from discontinued operations | (306) | (1,692) | ||||||||||||
| Interest expense | 100 | — | ||||||||||||
| Loss from discontinued operations before taxes | (206) | (1,692) | ||||||||||||
| Income tax benefit | 53 | 53 | ||||||||||||
| Loss from discontinued operations, net of tax | $ | (153) | $ | (1,639) | ||||||||||
(1) Amount for the three months ended September 30, 2020 includes a loss of $0.1 million on the sale of TPSL and amount for the six months ended September 30, 2020 includes a loss of $1.0 million on the sale of Gas Blending and a loss of $0.2 million on the sale of TPSL.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of NGL Energy Partners LP’s (“we,” “us,” “our,” or the “Partnership”) financial condition and results of operations as of and for the three months and six months ended September 30, 2021. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”), as well as Part II, Item 7–“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (“Annual Report”) filed with the Securities and Exchange Commission on June 3, 2021.
Overview
We are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At September 30, 2021, our operations included three segments: Water Solutions, Crude Oil Logistics and Liquids Logistics. See Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of these businesses.
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Consolidated Results of Operations
The following table summarizes our unaudited condensed consolidated statements of operations for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Revenues | $ | 1,754,137 | $ | 1,168,158 | $ | 3,242,792 | $ | 2,012,573 | ||||||||||||||||||
| Cost of sales | 1,525,593 | 964,890 | 2,850,386 | 1,641,937 | ||||||||||||||||||||||
| Operating expenses | 69,019 | 56,054 | 134,803 | 121,041 | ||||||||||||||||||||||
| General and administrative expense | 11,450 | 17,475 | 27,224 | 34,633 | ||||||||||||||||||||||
| Depreciation and amortization | 69,563 | 87,469 | 153,665 | 171,455 | ||||||||||||||||||||||
| Loss on disposal or impairment of assets, net | 13,694 | 5,954 | 81,230 | 17,976 | ||||||||||||||||||||||
| Operating income (loss) | 64,818 | 36,316 | (4,516) | 25,531 | ||||||||||||||||||||||
| Equity in earnings of unconsolidated entities | 434 | 501 | 646 | 790 | ||||||||||||||||||||||
| Interest expense | (68,495) | (46,935) | (135,625) | (90,896) | ||||||||||||||||||||||
| Gain on early extinguishment of liabilities, net | 1,071 | 13,747 | 1,122 | 33,102 | ||||||||||||||||||||||
| Other income, net | 730 | 1,585 | 1,979 | 2,620 | ||||||||||||||||||||||
| (Loss) income from continuing operations before income taxes | (1,442) | 5,214 | (136,394) | (28,853) | ||||||||||||||||||||||
| Income tax benefit | 235 | 774 | 685 | 1,075 | ||||||||||||||||||||||
| (Loss) income from continuing operations | (1,207) | 5,988 | (135,709) | (27,778) | ||||||||||||||||||||||
| Loss from discontinued operations, net of tax | — | (153) | — | (1,639) | ||||||||||||||||||||||
| Net (loss) income | (1,207) | 5,835 | (135,709) | (29,417) | ||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (330) | (168) | (768) | (219) | ||||||||||||||||||||||
| Net (loss) income attributable to NGL Energy Partners LP | $ | (1,537) | $ | 5,667 | $ | (136,477) | $ | (29,636) | ||||||||||||||||||
Items Impacting the Comparability of Our Financial Results
Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to acquisitions, disposals and other transactions. Our results of operations for the three months and six months ended September 30, 2021 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2022.
Recent Developments
The global spread of COVID-19 caused a global pandemic and worldwide containment and mitigation measures contributed to a massive economic slowdown and decreased demand for crude oil and refined products. This period of unprecedented restrictions on travel and economic activity significantly reduced demand for refined products and all three of our segments were negatively impacted by the lower commodity price environment and reduced demand.
While many global and regional economies have reopened, the potential future limitations and impact of the ongoing COVID-19 pandemic, including emerging variants of the virus and renewed mitigation measures, on our business are still unknown at this time. Given the uncertain timing of a return of refined product demand to historical levels, the extent these events will have an impact on our results of operations is unclear. Crude oil prices have increased but future drilling and production plans are continually being assessed.
Acquisitions and Dispositions
We completed several acquisitions and dispositions during the six months ended September 30, 2021 and fiscal year ended March 31, 2021. These transactions impact the comparability of our results of operations between our current and prior fiscal years.
On June 18, 2021, we sold our approximately 71.5% interest in Sawtooth Caverns, LLC (“Sawtooth”) to a group of buyers (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
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In March 2021, we acquired the Ambassador pipeline, an approximately 225-mile natural gas liquids pipeline, which runs from the Kalkaska gas plant in Kalkaska County, Michigan to a termination point near Marysville in St. Clair County, Michigan. In December 2020, we sold certain permits, land and a saltwater disposal facility to a third-party.
Repurchases of Senior Unsecured Notes
During the three months ended September 30, 2021, we repurchased $17.1 million of the 7.5% senior unsecured notes due 2023 (“2023 Notes”) and $6.0 million of the 7.5% senior unsecured notes due 2026 (“2026 Notes”).
Segment Operating Results for the Three Months Ended September 30, 2021 and 2020
Water Solutions
The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
| Three Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per barrel and per day amounts) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Water disposal service fees | $ | 98,457 | $ | 73,737 | $ | 24,720 | ||||||||||||||
| Sale of recovered crude oil | 17,182 | 8,386 | 8,796 | |||||||||||||||||
| Other revenues | 20,571 | 6,555 | 14,016 | |||||||||||||||||
| Total revenues | 136,210 | 88,678 | 47,532 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Cost of sales-excluding impact of derivatives | 6,983 | 257 | 6,726 | |||||||||||||||||
| Derivative (gain) loss | (560) | 322 | (882) | |||||||||||||||||
| Operating expenses | 42,465 | 31,387 | 11,078 | |||||||||||||||||
| General and administrative expenses | 1,918 | 1,546 | 372 | |||||||||||||||||
| Depreciation and amortization expense | 50,670 | 62,220 | (11,550) | |||||||||||||||||
| Loss on disposal or impairment of assets, net | 1,962 | 6,223 | (4,261) | |||||||||||||||||
| Total expenses | 103,438 | 101,955 | 1,483 | |||||||||||||||||
| Segment operating income (loss) | $ | 32,772 | $ | (13,277) | $ | 46,049 | ||||||||||||||
| Produced water processed (barrels per day) | ||||||||||||||||||||
| Delaware Basin | 1,485,087 | 1,060,353 | 424,734 | |||||||||||||||||
| Eagle Ford Basin | 95,728 | 81,260 | 14,468 | |||||||||||||||||
| DJ Basin | 149,426 | 114,219 | 35,207 | |||||||||||||||||
| Other Basins | 30,142 | 26,264 | 3,878 | |||||||||||||||||
| Total | 1,760,383 | 1,282,096 | 478,287 | |||||||||||||||||
| Solids processed (barrels per day) | 927 | 863 | 64 | |||||||||||||||||
| Skim oil sold (barrels per day) | 2,821 | 2,611 | 210 | |||||||||||||||||
| Service fees for produced water processed ($/barrel) (1) | $ | 0.60 | $ | 0.63 | $ | (0.03) | ||||||||||||||
| Recovered crude oil for produced water processed ($/barrel) (1) | $ | 0.11 | $ | 0.07 | $ | 0.04 | ||||||||||||||
| Operating expenses for produced water processed ($/barrel) (1) | $ | 0.26 | $ | 0.27 | $ | (0.01) | ||||||||||||||
(1) Total produced water barrels processed during the three months ended September 30, 2021 and 2020 were 161,955,202 and 117,952,824, respectively.
Water Disposal Service Fee Revenues. The increase was due to an increase in crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin, partially offset by higher volumes in areas with lower fees.
Recovered Crude Oil Revenues. The increase was due primarily to higher crude oil prices and an increase in the number of wells completed in our area of operations during the period which increased flowback activity resulting in higher skim oil volumes per barrel of produced water processed. This increase was partially offset by the sale of crude oil during the three months ended September 30, 2020 that we had stored as of June 30, 2020 due to the lower crude oil prices.
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Other Revenues. Other revenues primarily include brackish non-potable water revenues, recycle water revenues, water pipeline revenues, resale water revenues, land surface use revenues and solids disposal revenues. The increase was due primarily to sales of brackish non-potable water, recycled water and raw produced water increasing during the current period, driven by an increase in drilling and completion activity primarily in the Delaware Basin as well as our increased capacity to meet demand for these services.
Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to costs related to the transfer of brackish non-potable water and recycled water to the purchaser.
Derivative (Gain) Loss. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the crude oil we expect to recover when processing the produced water and selling the skim oil. During the three months ended September 30, 2021 we had $1.5 million of net unrealized losses on derivatives and $2.1 million of net realized gains on derivatives. During the three months ended September 30, 2020 we had $4.1 million of net realized gains on derivatives and $4.4 million of net unrealized losses on derivatives.
Operating and General and Administrative Expenses. The increase was due primarily to an increase in produced water volumes processed. The Partnership continues to see a decrease in its operating expenses per barrel of produced water processed due to continued focus on cost reduction and an increase in overall disposal volumes.
Depreciation and Amortization Expense. The decrease was due primarily to an impairment charge recorded during the three months ended March 31, 2021 to write down the value of a customer relationship intangible asset which resulted in lower amortization expense during the three months ended September 30, 2021 as well as certain other long-term assets being fully amortized or impaired during the fiscal year ended March 31, 2021 and six months ended September 30, 2021. These decreases were partially offset by newly developed facilities and infrastructure.
Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2021, we recorded a net loss of $2.0 million primarily related to abandonment of certain capital projects and the sale of certain other miscellaneous assets. During the three months ended September 30, 2020, we recorded a net loss of $6.4 million primarily related to the write-down of equipment destroyed by lightning strikes and the abandonment of certain capital projects.
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Crude Oil Logistics
The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
| Three Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per barrel amounts) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Crude oil sales | $ | 536,067 | $ | 418,174 | $ | 117,893 | ||||||||||||||
| Crude oil transportation and other | 20,933 | 50,672 | (29,739) | |||||||||||||||||
| Total revenues (1) | 557,000 | 468,846 | 88,154 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Cost of sales-excluding impact of derivatives | 499,159 | 387,530 | 111,629 | |||||||||||||||||
| Derivative loss | 1,100 | 1,246 | (146) | |||||||||||||||||
| Operating expenses | 14,196 | 12,941 | 1,255 | |||||||||||||||||
| General and administrative expenses | 1,874 | 1,968 | (94) | |||||||||||||||||
| Depreciation and amortization expense | 12,454 | 17,232 | (4,778) | |||||||||||||||||
| Gain on disposal or impairment of assets, net | (14) | (310) | 296 | |||||||||||||||||
| Total expenses | 528,769 | 420,607 | 108,162 | |||||||||||||||||
| Segment operating income | $ | 28,231 | $ | 48,239 | $ | (20,008) | ||||||||||||||
| Crude oil sold (barrels) | 7,518 | 10,178 | (2,660) | |||||||||||||||||
| Crude oil transported on owned pipelines (barrels) | 7,337 | 9,992 | (2,655) | |||||||||||||||||
| Crude oil storage capacity - owned and leased (barrels) (2) | 5,232 | 5,239 | (7) | |||||||||||||||||
| Crude oil storage capacity leased to third parties (barrels) (2) | 1,501 | 2,062 | (561) | |||||||||||||||||
| Crude oil inventory (barrels) (2) | 1,249 | 1,507 | (258) | |||||||||||||||||
| Crude oil sold ($/barrel) | $ | 71.304 | $ | 41.086 | $ | 30.218 | ||||||||||||||
| Cost per crude oil sold ($/barrel) (3) | $ | 66.395 | $ | 38.075 | $ | 28.320 | ||||||||||||||
| Crude oil product margin ($/barrel) (3) | $ | 4.909 | $ | 3.011 | $ | 1.898 | ||||||||||||||
(1) Revenues include $2.2 million and $2.0 million of intersegment sales during the three months ended September 30, 2021 and 2020, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2021 and September 30, 2020, respectively.
(3) Cost and product margin per barrel excludes the impact of derivatives.
Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. This was offset by the reduction in sale volumes, primarily due to lower production in the DJ Basin. We had an increase in buy/sell transactions during the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020. These are transactions in which we transact to purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are netted for these transactions.
Crude Oil Transportation and Other Revenues. The decrease was primarily due to our Grand Mesa Pipeline, as revenues from third-parties decreased by $28.9 million during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. During the three months ended September 30, 2021, financial volumes on the Grand Mesa Pipeline averaged approximately 80,000 barrels per day, compared to approximately 123,000 barrels per day for the three months ended September 30, 2020 (volume amounts are from both internal and external parties) primarily due to the court approved rejection of the Extraction Oil & Gas, Inc. (“Extraction”) transportation agreement (as part of their bankruptcy) as well as decreased production in the DJ Basin.
Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the three months ended September 30, 2021, compared to the three months ended September 30, 2020.
Derivative Loss. Our cost of sales during the three months ended September 30, 2021 included $8.3 million of net realized losses on derivatives, driven by the increase in crude oil prices offset by $7.2 million of net unrealized gains on derivatives. Our cost of sales during the three months ended September 30, 2020 included $4.6 million of net realized losses on derivatives and $3.3 million of net unrealized gains on derivatives.
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Crude Oil Product Margin. The increase was primarily due to higher crude oil prices as certain contracted rates with producers increased due to higher crude oil prices.
Operating and General and Administrative Expenses. The increase was primarily related to rising utility rates and increased insurance costs.
Depreciation and Amortization Expense. The decrease was due primarily to the reduction of amortization expense due to the impairment of certain intangible assets at the end of the prior year. This was offset by an increase in depreciation expense due to reducing the estimated useful lives of our railcars.
Gain on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2021, we recorded a net gain of less than $0.1 million due to the disposal of certain assets. During the three months ended September 30, 2020, we recorded a net gain of $0.3 million related to the disposal of certain assets.
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Liquids Logistics
The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated:
| Three Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per gallon amounts) | ||||||||||||||||||||
| Refined products sales: | ||||||||||||||||||||
| Revenues-excluding impact of derivatives (1) | $ | 444,294 | $ | 288,840 | $ | 155,454 | ||||||||||||||
| Cost of sales-excluding impact of derivatives | 441,628 | 284,346 | 157,282 | |||||||||||||||||
| Derivative loss (gain) | 425 | (40) | 465 | |||||||||||||||||
| Product margin | 2,241 | 4,534 | (2,293) | |||||||||||||||||
| Propane sales: | ||||||||||||||||||||
| Revenues (1) | 220,053 | 137,164 | 82,889 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 210,775 | 124,156 | 86,619 | |||||||||||||||||
| Derivative gain | (14,714) | (1,665) | (13,049) | |||||||||||||||||
| Product margin | 23,992 | 14,673 | 9,319 | |||||||||||||||||
| Butane sales: | ||||||||||||||||||||
| Revenues (1) | 167,717 | 90,218 | 77,499 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 153,747 | 83,012 | 70,735 | |||||||||||||||||
| Derivative loss | 13,829 | 5,464 | 8,365 | |||||||||||||||||
| Product margin | 141 | 1,742 | (1,601) | |||||||||||||||||
| Other product sales: | ||||||||||||||||||||
| Revenues-excluding impact of derivatives (1) | 207,522 | 85,778 | 121,744 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 212,373 | 82,230 | 130,143 | |||||||||||||||||
| Derivative gain | (16,058) | (2,168) | (13,890) | |||||||||||||||||
| Product margin | 11,207 | 5,716 | 5,491 | |||||||||||||||||
| Service revenues: | ||||||||||||||||||||
| Revenues (1) | 5,033 | 9,543 | (4,510) | |||||||||||||||||
| Cost of sales | 598 | 970 | (372) | |||||||||||||||||
| Product margin | 4,435 | 8,573 | (4,138) | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Operating expenses | 12,358 | 11,726 | 632 | |||||||||||||||||
| General and administrative expenses | 1,765 | 2,105 | (340) | |||||||||||||||||
| Depreciation and amortization expense | 4,686 | 7,026 | (2,340) | |||||||||||||||||
| Loss on disposal or impairment of assets, net | 11,746 | 43 | 11,703 | |||||||||||||||||
| Total expenses | 30,555 | 20,900 | 9,655 | |||||||||||||||||
| Segment operating income | $ | 11,461 | $ | 14,338 | $ | (2,877) | ||||||||||||||
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| Three Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per gallon amounts) | ||||||||||||||||||||
| Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2)(3) | 169,087 | 427,004 | (257,917) | |||||||||||||||||
| Refined products sold (gallons) | 196,932 | 220,243 | (23,311) | |||||||||||||||||
| Refined products sold ($/gallon) | $ | 2.256 | $ | 1.311 | $ | 0.945 | ||||||||||||||
| Cost per refined products sold ($/gallon) (4) | $ | 2.243 | $ | 1.291 | $ | 0.952 | ||||||||||||||
| Refined products product margin ($/gallon) (4) | $ | 0.013 | $ | 0.020 | $ | (0.007) | ||||||||||||||
| Refined products inventory (gallons) (2) | 2,576 | 1,209 | 1,367 | |||||||||||||||||
| Propane sold (gallons) | 180,322 | 252,693 | (72,371) | |||||||||||||||||
| Propane sold ($/gallon) | $ | 1.220 | $ | 0.543 | $ | 0.677 | ||||||||||||||
| Cost per propane sold ($/gallon) (4) | $ | 1.169 | $ | 0.491 | $ | 0.678 | ||||||||||||||
| Propane product margin ($/gallon) (4) | $ | 0.051 | $ | 0.052 | $ | (0.001) | ||||||||||||||
| Propane inventory (gallons) (2) | 98,429 | 116,462 | (18,033) | |||||||||||||||||
| Propane storage capacity leased to third parties (gallons) (2)(3) | — | 53,947 | (53,947) | |||||||||||||||||
| Butane sold (gallons) | 124,881 | 143,392 | (18,511) | |||||||||||||||||
| Butane sold ($/gallon) | $ | 1.343 | $ | 0.629 | $ | 0.714 | ||||||||||||||
| Cost per butane sold ($/gallon) (4) | $ | 1.231 | $ | 0.579 | $ | 0.652 | ||||||||||||||
| Butane product margin ($/gallon) (4) | $ | 0.112 | $ | 0.050 | $ | 0.062 | ||||||||||||||
| Butane inventory (gallons) (2) | 75,500 | 92,672 | (17,172) | |||||||||||||||||
| Butane storage capacity leased to third parties (gallons) (2)(3) | — | 56,700 | (56,700) | |||||||||||||||||
| Other products sold (gallons) | 97,310 | 114,734 | (17,424) | |||||||||||||||||
| Other products sold ($/gallon) | $ | 2.133 | $ | 0.748 | $ | 1.385 | ||||||||||||||
| Cost per other products sold ($/gallon) (4) | $ | 2.182 | $ | 0.717 | $ | 1.465 | ||||||||||||||
| Other products product (loss) margin ($/gallon) (4) | $ | (0.049) | $ | 0.031 | $ | (0.080) | ||||||||||||||
| Other products inventory (gallons) (2) | 17,465 | 18,671 | (1,206) | |||||||||||||||||
(1) Revenues include less than $0.1 million and $0.8 million of intersegment sales during the three months ended September 30, 2021 and 2020, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2021 and September 30, 2020, respectively.
(3) Decrease from March 31, 2021 relates to the sale of Sawtooth on June 18, 2021 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
(4) Cost and product margin per gallon excludes the impact of derivatives.
Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. Revenues and cost of sales, excluding the impact of derivatives, increased due to higher commodity prices, offset partially by a decrease in volumes due to the continued weakness in demand in certain geographical areas due to COVID-19 and tighter supply.
Refined Products Derivative Loss (Gain). Our refined products margin during the three months ended September 30, 2021 included a realized loss of $0.4 million and the three months ended September 30, 2020 included a realized gain of less than $0.1 million.
Refined Products product margins during the three months ended September 30, 2021 decreased due to lower product demand due to the lingering effects of COVID-19 lockdowns, as well as increased competition from refineries.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due to higher commodity prices. The increase in propane prices was the result of lower inventories and a strong export market due to the increase in international prices. This was partially offset by reduced volumes due to the loss of two producer services agreements, as well as backwardation in the propane market and deferred customer purchases in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
Propane Derivative Gain. Our wholesale propane cost of sales included $21.8 million of net unrealized gains on derivatives and $7.1 million of net realized losses on derivatives during the three months ended September 30, 2021. During the three months ended September 30, 2020, our cost of wholesale propane sales included $2.0 million of net unrealized gains on
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derivatives and $0.4 million of net realized losses on derivatives.
Propane product margins, excluding the impact of derivatives, were consistent with the three months ended September 30, 2020.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were primarily due to an increase in commodity prices, which was the result of the strength in crude oil prices. This was partially offset by a volume decrease due to a tight supply market as a result of decreased refinery runs and an increase in demand for exports.
Butane Derivative Loss. Our cost of butane sales during the three months ended September 30, 2021 included $9.0 million of net unrealized losses on derivatives and $4.8 million of net realized losses on derivatives. Our cost of butane sales included $5.5 million of net unrealized losses on derivatives and $0.1 million of net realized gains on derivatives during the three months ended September 30, 2020.
Butane product margins, excluding the impact of derivatives, increased due to a tight supply market, driven by an increase in demand for exports, which is driving favorable sales differentials.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to higher commodity prices. This was partially offset by reduced natural gasoline volumes during the three months ended September 30, 2021 due to less natural gas production available to the rail and barge markets.
Other Products Derivative Gain. Our derivatives of other products included $0.1 million of net unrealized gains and $16.0 million of net realized gains on derivatives during the three months ended September 30, 2021. Our derivatives of other products during the three months ended September 30, 2020 included $0.2 million of net unrealized gains on derivatives and $2.0 million of net realized gains on derivatives.
Other product sales product margins during the three months ended September 30, 2021 decreased due to lower biodiesel and biodiesel renewable identification numbers market prices and increased competition during the quarter.
Service Revenues. This revenue includes storage, terminaling and transportation services income. The decrease for the current quarter was due primarily to the disposition of Sawtooth in June 2021 as well as the loss of two producer service agreements.
Operating and General and Administrative Expenses. The increase was primarily due to higher compensation, travel and entertainment and bad debt expense, offset by the disposition of Sawtooth in June 2021.
Depreciation and Amortization Expense. The decrease was primarily due to the disposition of Sawtooth.
Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2021, we recorded a net loss of $11.7 million related to the sale of one of our terminals. During the three months ended September 30, 2020, we recorded a net loss of less than $0.1 million related to the sale/retirement of certain assets.
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Corporate and Other
The operating loss within “Corporate and Other” includes the following components for the periods indicated:
| Three Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Other revenues: | ||||||||||||||||||||
| Revenues | $ | — | $ | 315 | $ | (315) | ||||||||||||||
| Cost of sales | — | 454 | (454) | |||||||||||||||||
| Loss | — | (139) | 139 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| General and administrative expenses | 5,893 | 11,856 | (5,963) | |||||||||||||||||
| Depreciation and amortization expense | 1,753 | 991 | 762 | |||||||||||||||||
| Gain on disposal or impairment of assets, net | — | (2) | 2 | |||||||||||||||||
| Total expenses | 7,646 | 12,845 | (5,199) | |||||||||||||||||
| Operating loss | $ | (7,646) | $ | (12,984) | $ | 5,338 | ||||||||||||||
General and Administrative Expenses. The decrease during the three months ended September 30, 2021 was due primarily to lower compensation and legal expenses. Compensation expense decreased due to lower equity-based compensation and due to the reversal of an incentive compensation accrual. Legal expense decreased due to certain claims being settled, in particular our claims related to the bankruptcy of Extraction.
Equity in Earnings of Unconsolidated Entities
The decrease in equity in earnings of $0.1 million during the three months ended September 30, 2021 was due primarily to lower earnings from certain membership interests related to specific land and water services operations.
Interest Expense
Interest expense includes interest charged on the asset-based revolving credit facility (“ABL Facility”), senior secured notes and senior unsecured notes, as well as amortization of debt issuance costs, letter of credit fees, interest on equipment financing notes, and accretion of interest on non-interest bearing debt obligations. The increase of $21.6 million during the three months ended September 30, 2021 was primarily due to the issuance of the 2026 Senior Secured Notes (as defined herein) which resulted in us paying a higher interest rate. See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Gain on Early Extinguishment of Liabilities, Net
During the three months ended September 30, 2021 and 2020, the net gain (inclusive of debt issuance costs written off) primarily relates to the early extinguishment of a portion of the outstanding senior unsecured notes. See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Other Income, Net
The decrease in other income, net of $0.9 million during the three months ended September 30, 2021 was due primarily to proceeds received from a litigation settlement during the three months ended September 30, 2020.
Income Tax Benefit
Income tax benefit was $0.2 million during the three months ended September 30, 2021, compared to an income tax benefit of $0.8 million during the three months ended September 30, 2020. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
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Noncontrolling Interests
Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. The increase in noncontrolling interest income of $0.2 million during the three months ended September 30, 2021 was due primarily to higher income from certain recycling operations and water solutions operations.
Segment Operating Results for the Six Months Ended September 30, 2021 and 2020
Water Solutions
The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per barrel and per day amounts) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Water disposal service fees | $ | 193,185 | $ | 152,054 | $ | 41,131 | ||||||||||||||
| Sale of recovered crude oil | 30,983 | 9,754 | 21,229 | |||||||||||||||||
| Other revenues | 42,268 | 14,935 | 27,333 | |||||||||||||||||
| Total revenues | 266,436 | 176,743 | 89,693 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Cost of sales-excluding impact of derivatives | 15,948 | 372 | 15,576 | |||||||||||||||||
| Derivative loss | 813 | 4,907 | (4,094) | |||||||||||||||||
| Operating expenses | 82,490 | 70,686 | 11,804 | |||||||||||||||||
| General and administrative expenses | 3,726 | 3,197 | 529 | |||||||||||||||||
| Depreciation and amortization expense | 113,651 | 120,353 | (6,702) | |||||||||||||||||
| Loss on disposal or impairment of assets, net | 9,453 | 6,552 | 2,901 | |||||||||||||||||
| Total expenses | 226,081 | 206,067 | 20,014 | |||||||||||||||||
| Segment operating income (loss) | $ | 40,355 | $ | (29,324) | $ | 69,679 | ||||||||||||||
| Produced water processed (barrels per day) | ||||||||||||||||||||
| Delaware Basin | 1,456,810 | 1,083,229 | 373,581 | |||||||||||||||||
| Eagle Ford Basin | 93,796 | 88,279 | 5,517 | |||||||||||||||||
| DJ Basin | 134,197 | 123,242 | 10,955 | |||||||||||||||||
| Other Basins | 29,118 | 29,277 | (159) | |||||||||||||||||
| Total | 1,713,921 | 1,324,027 | 389,894 | |||||||||||||||||
| Solids processed (barrels per day) | 1,120 | 1,378 | (258) | |||||||||||||||||
| Skim oil sold (barrels per day) | 2,662 | 1,654 | 1,008 | |||||||||||||||||
| Service fees for produced water processed ($/barrel) (1) | $ | 0.60 | $ | 0.63 | $ | (0.03) | ||||||||||||||
| Recovered crude oil for produced water processed ($/barrel) (1) | $ | 0.10 | $ | 0.04 | $ | 0.06 | ||||||||||||||
| Operating expenses for produced water processed ($/barrel) (1) | $ | 0.26 | $ | 0.29 | $ | (0.03) | ||||||||||||||
(1) Total produced water barrels processed during the six months ended September 30, 2021 and 2020 were 313,647,489 and 242,296,912, respectively.
Water Disposal Service Fee Revenues. The increase was due to an increase in crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin, partially offset by higher volumes in areas with lower fees.
Recovered Crude Oil Revenues. The increase was due primarily to higher crude oil prices and an increase in the number of wells completed in our area of operations during the period which increased flowback activity resulting in higher skim oil volumes per barrel of produced water processed.
Other Revenues. The increase was due primarily to sales of brackish non-potable water, recycled water and raw produced water increasing during the current period, driven by an increase in drilling and completion activity primarily in the Delaware Basin as well as our increased capacity to meet demand for these services.
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Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to costs related to the transfer of brackish non-potable water and recycled water to the purchaser.
Derivative Loss. During the six months ended September 30, 2021 we had $5.1 million of net unrealized losses on derivatives and $4.3 million of net realized gains on derivatives. During the six months ended September 30, 2020 we had $12.8 million of net realized gains on derivatives and $17.7 million of net unrealized losses on derivatives.
Operating and General and Administrative Expenses. The increase was due primarily to an increase in produced water volumes processed. The Partnership continues to see a decrease in its operating expenses per barrel of produced water processed due to continued focus on cost reduction and an increase in overall disposal volumes.
Depreciation and Amortization Expense. The decrease was due primarily to an impairment charge recorded during the three months ended March 31, 2021 to write down the value of a customer relationship intangible asset which resulted in lower amortization expense during the six months ended September 30, 2021 as well as certain other long-term assets being fully amortized or impaired during the fiscal year ended March 31, 2021 and six months ended September 30, 2021. These decreases were partially offset by newly developed facilities and infrastructure.
Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2021, we recorded a net loss of $9.5 million primarily related to facilities damaged by lightning strikes, abandonment of certain capital projects and the sale of certain other miscellaneous assets. During the six months ended September 30, 2020, we recorded a net loss of $6.8 million primarily related to the write-down of equipment destroyed by lightning strikes and the abandonment of certain capital projects.
Crude Oil Logistics
The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per barrel amounts) | ||||||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Crude oil sales | $ | 1,071,496 | $ | 648,902 | $ | 422,594 | ||||||||||||||
| Crude oil transportation and other | 41,627 | 96,482 | (54,855) | |||||||||||||||||
| Total revenues (1) | 1,113,123 | 745,384 | 367,739 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Cost of sales-excluding impact of derivatives | 1,000,621 | 581,122 | 419,499 | |||||||||||||||||
| Derivative loss | 39,394 | 25,710 | 13,684 | |||||||||||||||||
| Operating expenses | 27,783 | 27,767 | 16 | |||||||||||||||||
| General and administrative expenses | 3,868 | 4,059 | (191) | |||||||||||||||||
| Depreciation and amortization expense | 24,863 | 34,027 | (9,164) | |||||||||||||||||
| (Gain) loss on disposal or impairment of assets, net | (56) | 1,140 | (1,196) | |||||||||||||||||
| Total expenses | 1,096,473 | 673,825 | 422,648 | |||||||||||||||||
| Segment operating income | $ | 16,650 | $ | 71,559 | $ | (54,909) | ||||||||||||||
| Crude oil sold (barrels) | 15,512 | 19,470 | (3,958) | |||||||||||||||||
| Crude oil transported on owned pipelines (barrels) | 14,371 | 20,468 | (6,097) | |||||||||||||||||
| Crude oil storage capacity - owned and leased (barrels) (2) | 5,232 | 5,239 | (7) | |||||||||||||||||
| Crude oil storage capacity leased to third parties (barrels) (2) | 1,501 | 2,062 | (561) | |||||||||||||||||
| Crude oil inventory (barrels) (2) | 1,249 | 1,507 | (258) | |||||||||||||||||
| Crude oil sold ($/barrel) | $ | 69.075 | $ | 33.328 | $ | 35.747 | ||||||||||||||
| Cost per crude oil sold ($/barrel) (3) | $ | 64.506 | $ | 29.847 | $ | 34.659 | ||||||||||||||
| Crude oil product margin ($/barrel) (3) | $ | 4.569 | $ | 3.481 | $ | 1.088 | ||||||||||||||
(1) Revenues include $4.7 million and $2.5 million of intersegment sales during the six months ended September 30, 2021 and 2020, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2021 and September 30, 2020, respectively.
(3) Cost and product margin per barrel excludes the impact of derivatives.
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Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices during the six months ended September 30, 2021, compared to the six months ended September 30, 2020. This was offset by a reduction in sales volumes, primarily due to lower production in the DJ Basin. We had an increase in buy/sell transactions during the six months ended September 30, 2021, compared to the six months ended September 30, 2020. These are transactions in which we transact to purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are netted for these transactions.
Crude Oil Transportation and Other Revenues. The decrease was primarily due to our Grand Mesa Pipeline, as revenues from third-parties decreased by $55.2 million during the six months ended September 30, 2021, compared to the six months ended September 30, 2020. During the six months ended September 30, 2021, financial volumes on the Grand Mesa Pipeline averaged approximately 79,000 barrels per day, compared to 121,000 barrels per day for the six months ended September 30, 2020 (volume amounts are from both internal and external parties) primarily due to the court approved rejection of the Extraction transportation agreement (as part of their bankruptcy) as well as decreased production in the DJ Basin.
Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the six months ended September 30, 2021, compared to the six months ended September 30, 2020.
Derivative Loss. Our cost of sales during the six months ended September 30, 2021 included $61.0 million of net realized losses on derivatives, driven by the increase in crude oil prices offset by $21.6 million of net unrealized gains on derivatives. Our cost of sales during the six months ended September 30, 2020 included $14.4 million of net realized losses on derivatives and $11.3 million of net unrealized losses on derivatives.
Crude Oil Product Margin. The increase was primarily due to higher crude oil prices as certain contracted rates with producers increased due to higher crude oil prices.
Operating and General and Administrative Expenses. Expenses for the six months ended September 30, 2021 were consistent with the prior year.
Depreciation and Amortization Expense. The decrease was due primarily to the reduction of amortization expense due to the impairment of certain intangible assets at the end of the prior year. This was offset by an increase in depreciation expense due to reducing the estimated useful lives of our railcars.
(Gain) Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2021, we recorded a net gain of $0.1 million. During the six months ended September 30, 2020, we recorded a net loss of $1.1 million related to the disposal of certain assets.
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Liquids Logistics
The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per gallon amounts) | ||||||||||||||||||||
| Refined products sales: | ||||||||||||||||||||
| Revenues-excluding impact of derivatives (1) | $ | 837,441 | $ | 499,482 | $ | 337,959 | ||||||||||||||
| Cost of sales-excluding impact of derivatives | 831,199 | 491,958 | 339,241 | |||||||||||||||||
| Derivative loss | 1,120 | 405 | 715 | |||||||||||||||||
| Product margin | 5,122 | 7,119 | (1,997) | |||||||||||||||||
| Propane sales: | ||||||||||||||||||||
| Revenues (1) | 380,943 | 259,487 | 121,456 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 367,302 | 238,778 | 128,524 | |||||||||||||||||
| Derivative gain | (24,829) | (5,999) | (18,830) | |||||||||||||||||
| Product margin | 38,470 | 26,708 | 11,762 | |||||||||||||||||
| Butane sales: | ||||||||||||||||||||
| Revenues (1) | 286,236 | 145,647 | 140,589 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 268,157 | 134,667 | 133,490 | |||||||||||||||||
| Derivative loss | 21,513 | 6,477 | 15,036 | |||||||||||||||||
| Product (loss) margin | (3,434) | 4,503 | (7,937) | |||||||||||||||||
| Other product sales: | ||||||||||||||||||||
| Revenues-excluding impact of derivatives (1) | 342,337 | 169,944 | 172,393 | |||||||||||||||||
| Cost of sales-excluding impact of derivatives | 321,549 | 163,955 | 157,594 | |||||||||||||||||
| Derivative loss (gain) | 2,668 | (938) | 3,606 | |||||||||||||||||
| Product margin | 18,120 | 6,927 | 11,193 | |||||||||||||||||
| Service revenues: | ||||||||||||||||||||
| Revenues (1) | 12,303 | 18,599 | (6,296) | |||||||||||||||||
| Cost of sales | 958 | 2,956 | (1,998) | |||||||||||||||||
| Product margin | 11,345 | 15,643 | (4,298) | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Operating expenses | 24,530 | 22,588 | 1,942 | |||||||||||||||||
| General and administrative expenses | 3,555 | 4,183 | (628) | |||||||||||||||||
| Depreciation and amortization expense | 11,653 | 15,182 | (3,529) | |||||||||||||||||
| Loss on disposal or impairment of assets, net | 71,833 | 47 | 71,786 | |||||||||||||||||
| Total expenses | 111,571 | 42,000 | 69,571 | |||||||||||||||||
| Segment operating (loss) income | $ | (41,948) | $ | 18,900 | $ | (60,848) | ||||||||||||||
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| Six Months Ended September 30 , | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands, except per gallon amounts) | ||||||||||||||||||||
| Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2)(3) | 169,087 | 427,004 | (257,917) | |||||||||||||||||
| Refined products sold (gallons) | 382,238 | 432,217 | (49,979) | |||||||||||||||||
| Refined products sold ($/gallon) | $ | 2.191 | $ | 1.156 | $ | 1.035 | ||||||||||||||
| Cost per refined products sold ($/gallon) (4) | $ | 2.175 | $ | 1.138 | $ | 1.037 | ||||||||||||||
| Refined products product margin ($/gallon) (4) | $ | 0.016 | $ | 0.018 | $ | (0.002) | ||||||||||||||
| Refined products inventory (gallons) (2) | 2,576 | 1,209 | 1,367 | |||||||||||||||||
| Propane sold (gallons) | 350,601 | 504,982 | (154,381) | |||||||||||||||||
| Propane sold ($/gallon) | $ | 1.087 | $ | 0.514 | $ | 0.573 | ||||||||||||||
| Cost per propane sold ($/gallon) (4) | $ | 1.048 | $ | 0.473 | $ | 0.575 | ||||||||||||||
| Propane product margin ($/gallon) (4) | $ | 0.039 | $ | 0.041 | $ | (0.002) | ||||||||||||||
| Propane inventory (gallons) (2) | 98,429 | 116,462 | (18,033) | |||||||||||||||||
| Propane storage capacity leased to third parties (gallons) (2)(3) | — | 53,947 | (53,947) | |||||||||||||||||
| Butane sold (gallons) | 247,455 | 262,958 | (15,503) | |||||||||||||||||
| Butane sold ($/gallon) | $ | 1.157 | $ | 0.554 | $ | 0.603 | ||||||||||||||
| Cost per butane sold ($/gallon) (4) | $ | 1.084 | $ | 0.512 | $ | 0.572 | ||||||||||||||
| Butane product margin ($/gallon) (4) | $ | 0.073 | $ | 0.042 | $ | 0.031 | ||||||||||||||
| Butane inventory (gallons) (2) | 75,500 | 92,672 | (17,172) | |||||||||||||||||
| Butane storage capacity leased to third parties (gallons) (2)(3) | — | 56,700 | (56,700) | |||||||||||||||||
| Other products sold (gallons) | 190,163 | 228,956 | (38,793) | |||||||||||||||||
| Other products sold ($/gallon) | $ | 1.800 | $ | 0.742 | $ | 1.058 | ||||||||||||||
| Cost per other products sold ($/gallon) (4) | $ | 1.691 | $ | 0.716 | $ | 0.975 | ||||||||||||||
| Other products product margin ($/gallon) (4) | $ | 0.109 | $ | 0.026 | $ | 0.083 | ||||||||||||||
| Other products inventory (gallons) (2) | 17,465 | 18,671 | (1,206) | |||||||||||||||||
(1) Revenues include $1.3 million and $1.5 million of intersegment sales during the six months ended September 30, 2021 and 2020, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2021 and September 30, 2020, respectively.
(3) Decrease from March 31, 2021 relates to the sale of Sawtooth on June 18, 2021 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
(4) Cost and product margin per gallon excludes the impact of derivatives.
Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increase in refined products price. This was offset by a reduction in volumes sold due to the continued weakness in demand in certain geographical areas due to COVID-19 and tighter supply.
Refined Products Derivative Loss. Our refined products margin during the six months ended September 30, 2021 included a realized loss of $1.1 million and the six months ended September 30, 2020 included a realized loss of $0.4 million.
Refined Products product margins per gallon of refined products sold for the six months ended September 30, 2021 were consistent with the prior year six months ended September 30, 2020.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due to higher commodity prices. The increase in propane prices was the result of lower inventories and a strong export market due to the increase in international prices. This was partially offset by reduced volumes due to the loss of two producer services agreements, as well as backwardation in the propane market and deferred customer purchases in the six months ended September 30, 2021 compared to the six months ended September 30, 2020.
Propane Derivative Gain. Our wholesale propane cost of sales included $33.7 million of net unrealized gains on derivatives and $8.8 million of net realized losses on derivatives during the six months ended September 30, 2021. During the
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six months ended September 30, 2020, our cost of wholesale propane sales included $5.9 million of net unrealized gains on derivatives and $0.1 million of net realized gains on derivatives.
Propane product margins, excluding the impact of derivatives, were consistent with the six months ended September 30, 2020.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due primarily to higher commodity prices. This was partially offset by a volume decrease due to a tight supply market as a result of decreased refinery runs and an increase in demand for exports.
Butane Derivative Loss. Our cost of butane sales during the six months ended September 30, 2021 included $15.5 million of net unrealized losses on derivatives and $6.0 million of net realized losses on derivatives. Our cost of butane sales included $8.5 million of net unrealized losses on derivatives and $2.0 million of net realized gains on derivatives during the six months ended September 30, 2020.
Butane product margins per gallon of butane sold were higher during the six months ended September 30, 2021 than during the six months ended September 30, 2020 due primarily due to a tight supply market, driven by an increase in demand for exports, which is driving favorable sales differentials.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to higher commodity prices. This was partially offset by reduced natural gasoline volumes during the six months ended September 30, 2021 due to less natural gas production available to the rail and barge markets.
Other Products Derivatives Loss (Gain). Our derivatives of other products included $0.1 million of net unrealized gains on derivatives and $2.7 million of net realized losses on derivatives during the six months ended September 30, 2021. Our derivatives of other products during the six months ended September 30, 2020 included $0.5 million of net unrealized gains on derivatives and $0.4 million of net realized gains on derivatives.
Other product sales product margins during the six months ended September 30, 2021 increased due to an increase in biodiesel and biodiesel renewable identification number market prices, thus contributing to increased margins on these products during the six months ended September 30, 2021.
Service Revenues. This revenue includes storage, terminaling and transportation services income. The decrease during the six months ended September 30, 2021 decreased due to the disposition of Sawtooth in June 2021 as well as the loss of two producer services agreements.
Operating and General and Administrative Expenses. The increase during the six months ended September 30, 2021 was due to higher compensation, travel and entertainment and bad debt expense, offset by the disposition of Sawtooth in June 2021.
Depreciation and Amortization Expense. The decrease was primarily due to the disposition of Sawtooth.
Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2021, we recorded a net loss of $60.1 million related to the sale of Sawtooth (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for further discussion) and a net loss of $11.7 million related to the sale of another terminal during the three months ended September 30, 2021. During the six months ended September 30, 2020, we recorded a net loss of less than $0.1 million related to the retirement of certain assets.
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Corporate and Other
The operating loss within “Corporate and Other” includes the following components for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Other revenues: | ||||||||||||||||||||
| Revenues | $ | — | $ | 628 | $ | (628) | ||||||||||||||
| Cost of sales | — | 908 | (908) | |||||||||||||||||
| Loss | — | (280) | 280 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| General and administrative expenses | 16,075 | 23,194 | (7,119) | |||||||||||||||||
| Depreciation and amortization expense | 3,498 | 1,893 | 1,605 | |||||||||||||||||
| Loss on disposal or impairment of assets, net | — | 10,237 | (10,237) | |||||||||||||||||
| Total expenses | 19,573 | 35,324 | (15,751) | |||||||||||||||||
| Operating loss | $ | (19,573) | $ | (35,604) | $ | 16,031 | ||||||||||||||
General and Administrative Expenses. The decrease during the six months ended September 30, 2021 was due primarily to lower compensation and legal expenses. Compensation expense decreased due to lower equity-based compensation and due to the reversal of an incentive compensation accrual. Legal expense decreased due to certain claims being settled, in particular our claims related to the bankruptcy of Extraction.
Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2020, we recorded a net loss of $10.2 million which was due to the write-off of a loan receivable made to a third party for the construction of a natural gas liquids loading/unloading facility.
Equity in Earnings of Unconsolidated Entities
The decrease in equity in earnings of $0.1 million during the six months ended September 30, 2021 was due primarily to lower earnings from certain membership interests related to specific land and water services operations.
Interest Expense
Interest expense includes interest charged on the ABL Facility, senior secured notes and senior unsecured notes, as well as amortization of debt issuance costs, letter of credit fees, interest on equipment financing notes, and accretion of interest on non-interest bearing debt obligations. The increase of $44.7 million during the six months ended September 30, 2021 was primarily due to the issuance of the 2026 Senior Secured Notes which resulted in us paying a higher interest rate. See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Gain on Early Extinguishment of Liabilities, Net
During the six months ended September 30, 2021 and 2020, the net gain (inclusive of debt issuance costs written off) primarily relates to the early extinguishment of a portion of the outstanding senior unsecured notes, partially offset by a loss on the early extinguishment of the Sawtooth credit agreement. See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Other Income, Net
The decrease in other income, net of $0.6 million during the six months ended September 30, 2021 was due primarily to proceeds received from a litigation settlement during the six months ended September 30, 2020.
Income Tax Benefit
Income tax benefit was $0.7 million during the six months ended September 30, 2021, compared to an income tax benefit of $1.1 million during the six months ended September 30, 2020. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
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Noncontrolling Interests
The increase in noncontrolling interest income of $0.5 million during the six months ended September 30, 2021 was due primarily to higher income from certain recycling operations and water solutions operations.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided the non-GAAP financial measures of EBITDA and Adjusted EBITDA. These non-GAAP financial measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other entities, even when similar terms are used to identify such measures.
We define EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. We define 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. We also include 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 our Liquids Logistics 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. We believe that EBITDA provides additional information to investors for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information to investors for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.
Other than for certain businesses within our Liquids Logistics segment, for purposes of our Adjusted EBITDA calculation, we make a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, we record changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, we reverse the previously recorded unrealized gain or loss and record a realized gain or loss. We do not draw such a distinction between realized and unrealized gains and losses on derivatives of certain businesses within our 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. We include 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 our Crude Oil Logistics segment, we 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 our contracts. To eliminate the volatility of the CMA Differential Roll, we 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. We are 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 we are hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction.
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The following table reconciles net (loss) income to EBITDA and Adjusted EBITDA for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Net (loss) income | $ | (1,207) | $ | 5,835 | $ | (135,709) | $ | (29,417) | ||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | (330) | (168) | (768) | (219) | ||||||||||||||||||||||
| Net (loss) income attributable to NGL Energy Partners LP | (1,537) | 5,667 | (136,477) | (29,636) | ||||||||||||||||||||||
| Interest expense | 68,512 | 46,840 | 135,642 | 90,906 | ||||||||||||||||||||||
| Income tax benefit | (235) | (827) | (685) | (1,128) | ||||||||||||||||||||||
| Depreciation and amortization | 69,543 | 86,822 | 152,900 | 170,024 | ||||||||||||||||||||||
| EBITDA | 136,283 | 138,502 | 151,380 | 230,166 | ||||||||||||||||||||||
| Net unrealized (gains) losses on derivatives | (18,490) | 4,457 | (34,754) | 31,128 | ||||||||||||||||||||||
| CMA Differential Roll net losses (gains) (1) | 12,805 | — | 37,115 | — | ||||||||||||||||||||||
| Inventory valuation adjustment (2) | (451) | (1,641) | 767 | 2,179 | ||||||||||||||||||||||
| Lower of cost or net realizable value adjustments | 3,521 | (1,531) | (285) | (33,534) | ||||||||||||||||||||||
| Loss on disposal or impairment of assets, net | 13,695 | 6,063 | 81,233 | 19,147 | ||||||||||||||||||||||
| Gain on early extinguishment of liabilities, net | (1,072) | (13,747) | (1,159) | (33,102) | ||||||||||||||||||||||
| Equity-based compensation expense (3) | (2,753) | 2,256 | (1,793) | 4,558 | ||||||||||||||||||||||
| Acquisition expense (4) | 36 | 169 | 103 | 326 | ||||||||||||||||||||||
| Other (5) | 2,687 | 3,253 | 4,755 | 7,601 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 146,261 | $ | 137,781 | $ | 237,362 | $ | 228,469 | ||||||||||||||||||
| Adjusted EBITDA - Discontinued Operations (6) | $ | — | $ | (190) | $ | — | $ | (484) | ||||||||||||||||||
| Adjusted EBITDA - Continuing Operations | $ | 146,261 | $ | 137,971 | $ | 237,362 | $ | 228,953 | ||||||||||||||||||
(1) Adjustment to align, within Adjusted EBITDA, the net gains and losses of the Partnership’s CMA Differential Roll derivative instruments positions with the physical margin being hedged. See “Non-GAAP Financial Measures” section above for a further discussion.
(2) Amount reflects the difference between the market value of the inventory 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. See “Non-GAAP Financial Measures” section above for a further discussion.
(3) Equity-based compensation expense in the table above may differ from equity-based compensation expense reported in Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report. Amounts reported in the table above include expense accruals for bonuses expected to be paid in common units, whereas the amounts reported in Note 8 to our unaudited condensed consolidated financial statements only include expenses associated with equity-based awards that have been formally granted.
(4) Amounts represent expenses we incurred related to legal and advisory costs associated with acquisitions.
(5) Amounts for the three months and six months ended September 30, 2021 and 2020 represent non-cash operating expenses related to our Grand Mesa Pipeline, unrealized losses on marketable securities and accretion expense for asset retirement obligations.
(6) Amounts include the operations of TPSL, Gas Blending and Mid-Con.
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The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts reported in our unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Reconciliation to unaudited condensed consolidated statements of operations: | ||||||||||||||||||||||||||
| Depreciation and amortization per EBITDA table | $ | 69,543 | $ | 86,822 | $ | 152,900 | $ | 170,024 | ||||||||||||||||||
| Intangible asset amortization recorded to cost of sales | (71) | (76) | (144) | (153) | ||||||||||||||||||||||
| Depreciation and amortization of unconsolidated entities | (192) | (250) | (358) | (343) | ||||||||||||||||||||||
| Depreciation and amortization attributable to noncontrolling interests | 283 | 973 | 1,267 | 1,927 | ||||||||||||||||||||||
| Depreciation and amortization per unaudited condensed consolidated statements of operations | $ | 69,563 | $ | 87,469 | $ | 153,665 | $ | 171,455 | ||||||||||||||||||
| Six Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Reconciliation to unaudited condensed consolidated statements of cash flows: | ||||||||||||||
| Depreciation and amortization per EBITDA table | $ | 152,900 | $ | 170,024 | ||||||||||
| Amortization of debt issuance costs recorded to interest expense | 8,492 | 6,775 | ||||||||||||
| Amortization of royalty expense recorded to operating expense | 123 | 123 | ||||||||||||
| Depreciation and amortization of unconsolidated entities | (358) | (343) | ||||||||||||
| Depreciation and amortization attributable to noncontrolling interests | 1,267 | 1,927 | ||||||||||||
| Depreciation and amortization per unaudited condensed consolidated statements of cash flows | $ | 162,424 | $ | 178,506 | ||||||||||
The following table reconciles interest expense per the EBITDA table above to interest expense reported in our unaudited condensed consolidated statements of operations for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Interest expense per EBITDA table | $ | 68,512 | $ | 46,840 | $ | 135,642 | $ | 90,906 | ||||||||||||||||||
| Interest expense attributable to noncontrolling interests | — | 13 | 17 | 26 | ||||||||||||||||||||||
| Interest expense attributable to unconsolidated entities | (17) | (18) | (34) | (36) | ||||||||||||||||||||||
| Interest expense attributable to discontinued operations | — | 100 | — | — | ||||||||||||||||||||||
| Interest expense per unaudited condensed consolidated statements of operations | $ | 68,495 | $ | 46,935 | $ | 135,625 | $ | 90,896 | ||||||||||||||||||
The following table summarizes additional amounts attributable to discontinued operations in the EBITDA table above for the periods indicated:
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||
| 2020 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||
| Income tax benefit | $ | (53) | $ | (53) | ||||||||||
| Inventory valuation adjustment | $ | (2) | $ | (22) | ||||||||||
| Lower of cost or net realizable value adjustments | $ | 1 | $ | 21 | ||||||||||
| Loss on disposal or impairment of assets, net | $ | 116 | $ | 1,181 | ||||||||||
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The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated.
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Water Solutions | Crude Oil Logistics | Liquids Logistics | Corporate and Other | Consolidated | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Operating income (loss) | $ | 32,772 | $ | 28,231 | $ | 11,461 | $ | (7,646) | $ | 64,818 | |||||||||||||||||||
| Depreciation and amortization | 50,670 | 12,454 | 4,686 | 1,753 | 69,563 | ||||||||||||||||||||||||
| Amortization recorded to cost of sales | — | — | 71 | — | 71 | ||||||||||||||||||||||||
| Net unrealized losses (gains) on derivatives | 1,521 | (7,153) | (12,858) | — | (18,490) | ||||||||||||||||||||||||
| CMA Differential Roll net losses (gains) | — | 12,805 | — | — | 12,805 | ||||||||||||||||||||||||
| Inventory valuation adjustment | — | — | (451) | — | (451) | ||||||||||||||||||||||||
| Lower of cost or net realizable value adjustments | — | — | 3,521 | — | 3,521 | ||||||||||||||||||||||||
| Loss (gain) on disposal or impairment of assets, net | 1,962 | (14) | 11,746 | — | 13,694 | ||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | (2,753) | (2,753) | ||||||||||||||||||||||||
| Acquisition expense | — | — | — | 36 | 36 | ||||||||||||||||||||||||
| Other income, net | 10 | 154 | 295 | 271 | 730 | ||||||||||||||||||||||||
| Adjusted EBITDA attributable to unconsolidated entities | 716 | — | (9) | (65) | 642 | ||||||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interest | (614) | — | 3 | — | (611) | ||||||||||||||||||||||||
| Other | 387 | 2,299 | — | — | 2,686 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 87,424 | $ | 48,776 | $ | 18,465 | $ | (8,404) | $ | 146,261 | |||||||||||||||||||
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Water Solutions | Crude Oil Logistics | Liquids Logistics | Corporate and Other | Continuing Operations | Discontinued Operations (TPSL, Mid-Con, Gas Blending) | Consolidated | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (13,277) | $ | 48,239 | $ | 14,338 | $ | (12,984) | $ | 36,316 | $ | — | $ | 36,316 | |||||||||||||||||||||||||||
| Depreciation and amortization | 62,220 | 17,232 | 7,026 | 991 | 87,469 | — | 87,469 | ||||||||||||||||||||||||||||||||||
| Amortization recorded to cost of sales | — | — | 76 | — | 76 | — | 76 | ||||||||||||||||||||||||||||||||||
| Net unrealized losses (gains) on derivatives | 4,413 | (3,317) | 3,361 | — | 4,457 | — | 4,457 | ||||||||||||||||||||||||||||||||||
| Inventory valuation adjustment | — | — | (1,639) | — | (1,639) | — | (1,639) | ||||||||||||||||||||||||||||||||||
| Lower of cost or net realizable value adjustments | — | (19) | (1,513) | — | (1,532) | — | (1,532) | ||||||||||||||||||||||||||||||||||
| Loss (gain) on disposal or impairment of assets, net | 6,223 | (310) | 43 | (2) | 5,954 | — | 5,954 | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | 2,256 | 2,256 | — | 2,256 | ||||||||||||||||||||||||||||||||||
| Acquisition expense | 1 | — | — | 168 | 169 | — | 169 | ||||||||||||||||||||||||||||||||||
| Other income, net | 2 | 1,175 | 286 | 122 | 1,585 | — | 1,585 | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA attributable to unconsolidated entities | 845 | — | (13) | (65) | 767 | — | 767 | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interest | (441) | — | (736) | — | (1,177) | — | (1,177) | ||||||||||||||||||||||||||||||||||
| Other | 1,061 | 2,181 | 28 | — | 3,270 | — | 3,270 | ||||||||||||||||||||||||||||||||||
| Discontinued operations | — | — | — | — | — | (190) | (190) | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 61,047 | $ | 65,181 | $ | 21,257 | $ | (9,514) | $ | 137,971 | $ | (190) | $ | 137,781 | |||||||||||||||||||||||||||
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| Six Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
| Water Solutions | Crude Oil Logistics | Liquids Logistics | Corporate and Other | Consolidated | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Operating income (loss) | $ | 40,355 | $ | 16,650 | $ | (41,948) | $ | (19,573) | $ | (4,516) | |||||||||||||||||||
| Depreciation and amortization | 113,651 | 24,863 | 11,653 | 3,498 | 153,665 | ||||||||||||||||||||||||
| Amortization recorded to cost of sales | — | — | 144 | — | 144 | ||||||||||||||||||||||||
| Net unrealized losses (gains) on derivatives | 5,087 | (21,607) | (18,234) | — | (34,754) | ||||||||||||||||||||||||
| CMA Differential Roll net losses (gains) | — | 37,115 | — | — | 37,115 | ||||||||||||||||||||||||
| Inventory valuation adjustment | — | — | 767 | — | 767 | ||||||||||||||||||||||||
| Lower of cost or net realizable value adjustments | — | (11) | (274) | — | (285) | ||||||||||||||||||||||||
| Loss (gain) on disposal or impairment of assets, net | 9,453 | (56) | 71,833 | — | 81,230 | ||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | (1,793) | (1,793) | ||||||||||||||||||||||||
| Acquisition expense | — | — | — | 103 | 103 | ||||||||||||||||||||||||
| Other income, net | 622 | 350 | 658 | 349 | 1,979 | ||||||||||||||||||||||||
| Adjusted EBITDA attributable to unconsolidated entities | 1,175 | — | (19) | (120) | 1,036 | ||||||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interest | (1,568) | — | (526) | — | (2,094) | ||||||||||||||||||||||||
| Other | 160 | 4,620 | (15) | — | 4,765 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 168,935 | $ | 61,924 | $ | 24,039 | $ | (17,536) | $ | 237,362 | |||||||||||||||||||
| Six Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Water Solutions | Crude Oil Logistics | Liquids Logistics | Corporate and Other | Continuing Operations | Discontinued Operations (TPSL, Mid-Con, Gas Blending) | Consolidated | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | $ | (29,324) | $ | 71,559 | $ | 18,900 | $ | (35,604) | $ | 25,531 | $ | — | $ | 25,531 | |||||||||||||||||||||||||||
| Depreciation and amortization | 120,353 | 34,027 | 15,182 | 1,893 | 171,455 | — | 171,455 | ||||||||||||||||||||||||||||||||||
| Amortization recorded to cost of sales | — | — | 153 | — | 153 | — | 153 | ||||||||||||||||||||||||||||||||||
| Net unrealized losses on derivatives | 17,725 | 11,321 | 2,082 | — | 31,128 | — | 31,128 | ||||||||||||||||||||||||||||||||||
| Inventory valuation adjustment | — | — | 2,201 | — | 2,201 | — | 2,201 | ||||||||||||||||||||||||||||||||||
| Lower of cost or net realizable value adjustments | — | (29,079) | (4,476) | — | (33,555) | — | (33,555) | ||||||||||||||||||||||||||||||||||
| Loss on disposal or impairment of assets, net | 6,552 | 1,140 | 47 | 10,237 | 17,976 | — | 17,976 | ||||||||||||||||||||||||||||||||||
| Equity-based compensation expense | — | — | — | 4,558 | 4,558 | — | 4,558 | ||||||||||||||||||||||||||||||||||
| Acquisition expense | 13 | — | — | 313 | 326 | — | 326 | ||||||||||||||||||||||||||||||||||
| Other income, net | 258 | 1,513 | 663 | 186 | 2,620 | — | 2,620 | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA attributable to unconsolidated entities | 1,310 | — | (14) | (127) | 1,169 | — | 1,169 | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interest | (928) | — | (1,272) | — | (2,200) | — | (2,200) | ||||||||||||||||||||||||||||||||||
Intersegment transactions (1) | — | — | (27) | — | (27) | — | (27) | ||||||||||||||||||||||||||||||||||
| Other | 2,014 | 5,554 | 50 | — | 7,618 | — | 7,618 | ||||||||||||||||||||||||||||||||||
| Discontinued operations | — | — | — | — | — | (484) | (484) | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 117,973 | $ | 96,035 | $ | 33,489 | $ | (18,544) | $ | 228,953 | $ | (484) | $ | 228,469 | |||||||||||||||||||||||||||
(1) Amount reflects the transactions with TPSL, Mid-Con and Gas Blending that are eliminated in consolidation.
Liquidity, Sources of Capital and Capital Resource Activities
General
Our principal sources of liquidity and capital resource requirements are the cash flows from our operations, borrowings under our ABL Facility, debt issuances and the issuance of common and preferred units. We expect our primary cash outflows to be related to capital expenditures, interest and repayment of debt maturities.
53
We believe that our anticipated cash flows from operations and the borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs. Our borrowing needs vary during the year due in part to the seasonal nature of certain businesses within our Liquids Logistics segment. Our greatest working capital borrowing needs generally occur during the period of June through December, when we are building our natural gas liquids inventories in anticipation of the butane blending and heating seasons. Our working capital borrowing needs generally decline during the period of January through March, when the cash inflows from our Liquids Logistics segment are the greatest.
Cash Management
We manage cash by utilizing a centralized cash management program that concentrates the cash assets of our operating subsidiaries in joint accounts for the purposes of providing financial flexibility and lowering the cost of borrowing, transaction costs and bank fees. Our centralized cash management program provides that funds in excess of the daily needs of our operating subsidiaries are concentrated, consolidated or otherwise made available for use by other entities within our consolidated group. All of our wholly-owned operating subsidiaries participate in this program. Under the cash management program, depending on whether a participating subsidiary has short-term cash surpluses or cash requirements, we provide cash to the subsidiary or the subsidiary provides cash to us.
Short-Term Liquidity
Our principal sources of short-term liquidity consist of cash generated from operating activities and borrowings under our $500.0 million ABL Facility, which we believe will provide liquidity to operate our business and manage our working capital requirements. We currently anticipate to have minimal needs for acquisitions or expansion projects and expect to fund these items through cash flows from operations, acquisition specific financing transactions or borrowings under the ABL Facility.
As of September 30, 2021, our current assets exceeded our current liabilities by approximately $287.4 million.
For additional information related to our ABL Facility, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Long-Term Financing
In addition to our principal sources of short-term liquidity discussed above, we expect to fund our longer-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or the sale of assets.
Senior Secured Notes
On February 4, 2021, we issued $2.05 billion of 7.5% 2026 Senior Secured Notes (“2026 Senior Secured Notes”) in a private placement. The 2026 Senior Secured Notes bear interest, which is payable on February 1 and August 1 of each year, which began on August 1, 2021. The 2026 Senior Secured Notes mature on February 1, 2026.
Senior Unsecured Notes
The senior unsecured notes include the 2023 Notes, 6.125% senior unsecured notes due 2025 and 2026 Notes (collectively, the “Senior Unsecured Notes”).
Repurchases
During the three months ended September 30, 2021, we repurchased $17.1 million of the 2023 Notes and $6.0 million of the 2026 Notes.
Other Long-term Debt
The Sawtooth credit agreement was paid off and terminated prior to us selling our ownership interest in Sawtooth on June 18, 2021 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
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On October 29, 2020, we entered into an equipment loan for $45.0 million which bears interest at a rate of 8.6% and is secured by certain of our barges and towboats. Under this agreement, we are required to make monthly payments of $0.5 million (principal and interest) and a balloon payment of $24.2 million when this loan matures on November 1, 2027.
For additional information related to our long-term debt, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Capital Expenditures, Acquisitions and Other Investments
The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and linefill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated.
| Capital Expenditures | Other | |||||||||||||||||||||||||
| Expansion | Maintenance | Acquisitions (1) | Investments (2) | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| 2021 | $ | 20,388 | $ | 16,979 | $ | — | $ | 119 | ||||||||||||||||||
| 2020 | $ | 17,588 | $ | 6,830 | $ | — | $ | 607 | ||||||||||||||||||
| Six Months Ended September 30, | ||||||||||||||||||||||||||
| 2021 | $ | 44,523 | $ | 24,724 | $ | — | $ | 235 | ||||||||||||||||||
| 2020 | $ | 38,358 | $ | 15,998 | $ | — | $ | 607 | ||||||||||||||||||
(1) There were no acquisitions during the three months or six months ended September 30, 2021 or 2020.
(2) Amounts for the three months and six months ended September 30, 2021 and 2020 relate to contributions made to unconsolidated entities.
Capital expenditures for the fiscal year ending March 31, 2022 are expected to be approximately $115 million.
Distributions Declared
The board of directors of our general partner decided to temporarily suspend all distributions in order to deleverage our balance sheet until we meet the 4.75 to 1.00 total leverage ratio set forth within the indenture of the 2026 Senior Secured Notes. This resulted in the suspension of the quarterly common unit distributions, beginning with the quarter ended December 31, 2020, and all preferred unit distributions, beginning with the quarter ended March 31, 2021. The board of directors of our general partner expects to evaluate the reinstatement of the common unit and all preferred unit distributions in due course, taking into account a number of important factors, including our leverage, liquidity, the sustainability of cash flows, upcoming debt maturities, capital expenditures and the overall performance of our businesses.
Cash Flows
The following table summarizes the sources (uses) of our cash flows from continuing operations for the periods indicated:
| Six Months Ended September 30, | ||||||||||||||
| Cash Flows Provided by (Used in): | 2021 | 2020 | ||||||||||||
| (in thousands) | ||||||||||||||
| Operating activities, before changes in operating assets and liabilities | $ | 151,504 | $ | 174,026 | ||||||||||
| Changes in operating assets and liabilities | (159,349) | (28,775) | ||||||||||||
| Operating activities-continuing operations | $ | (7,845) | $ | 145,251 | ||||||||||
| Investing activities-continuing operations | $ | (75,129) | $ | (153,548) | ||||||||||
| Financing activities-continuing operations | $ | 83,676 | $ | 4,096 | ||||||||||
Operating Activities-Continuing Operations. The seasonality of our Liquids Logistics business has a significant effect on our cash flows from operating activities. Increases in natural gas liquids prices typically reduce our operating cash flows due to higher cash requirements to fund increases in inventories, and decreases in natural gas liquids prices typically increase our operating cash flows due to lower cash requirements to fund increases in inventories. In our Liquids Logistics business, we typically experience operating losses or lower operating income during our first and second quarters, or the six months ending
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September 30, as a result of lower volumes of natural gas liquids sales and when we are building our inventory levels for the upcoming butane blending and heating seasons, which generally begin in late fall, under normal demand conditions, and run through February or March. We borrow under the revolving credit facility to supplement our operating cash flows during the periods in which we are building inventory. Our operations, and as a result our cash flows, are also impacted by positive and negative movements in commodity prices, which cause fluctuations in the value of inventory, accounts receivable and payables, due to increases and decreases in revenues and cost of sales. The decrease in net cash provided by operating activities during the six months ended September 30, 2021 was due primarily to fluctuations in the value of accounts receivable and accounts payable during the six months ended September 30, 2021.
Investing Activities-Continuing Operations. Net cash used in investing activities was $75.1 million during the six months ended September 30, 2021, compared to net cash used in investing activities of $153.5 million during the six months ended September 30, 2020. The decrease in net cash used in investing activities was due primarily to:
•net proceeds (gross cash proceeds less the amount of cash sold, excluding accrued expenses) of $63.5 million from the sale of our interest in Sawtooth in June 2021 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report); and
•a decrease in capital expenditures from $132.3 million (includes payment of amounts accrued as of March 31, 2020) during the six months ended September 30, 2020 to $77.8 million (includes payment of amounts accrued as of March 31, 2021) during the six months ended September 30, 2021 due primarily to fewer expansion projects in our Water Solutions segment.
These decreases in net cash used in investing activities were partially offset by a $43.6 million increase in payments to settle derivatives.
Financing Activities-Continuing Operations. Net cash provided by financing activities was $83.7 million during the six months ended September 30, 2021, compared to net cash provided by financing activities of $4.1 million during the six months ended September 30, 2020. The increase in net cash provided by financing activities was due primarily to:
•a decrease of $83.6 million in distributions paid to our general partners and common unitholders, preferred unitholders and noncontrolling interest owners during the six months ended September 30, 2021 due primarily to the reduction and subsequent suspension of the quarterly common unit and preferred unit distributions; and
•$77.6 million in contingent consideration payments during the six months ended September 30, 2020 due to installment payments related to the Mesquite Disposals Unlimited, LLC acquisition.
These increases in net cash provided by financing activities were partially offset by a decrease of $90.5 million in borrowings on the revolving credit facilities (net of repayments) during the six months ended September 30, 2021.
Guarantor Summarized Financial Information
NGL Energy Partners LP (parent) and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes (see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report). Certain of our wholly owned subsidiaries (“Guarantor Subsidiaries”) have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes.
The guarantees are senior unsecured obligations of each Guarantor Subsidiary and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor Subsidiary, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor Subsidiary. The guarantee of our Senior Unsecured Notes by each Guarantor Subsidiary is subject to certain automatic customary releases, including in connection with the sale, disposition or transfer of all of the capital stock, or of all or substantially all of the assets, of such Guarantor Subsidiary to one or more persons that are not us or a restricted subsidiary, the exercise of legal defeasance or covenant defeasance options, the satisfaction and discharge of the indentures governing our Senior Unsecured Notes, the designation of such Guarantor Subsidiary as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the indentures governing our Senior Unsecured Notes, the release of such Guarantor Subsidiary from its guarantee under our revolving credit facility, the liquidation or dissolution of such Guarantor Subsidiary or upon the consolidation, merger or transfer of all assets of the Guarantor Subsidiary to us or another Guarantor Subsidiary in which the Guarantor Subsidiary dissolves or ceases to exist (collectively, the “Releases”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. We are not restricted from making investments in the Guarantor Subsidiaries and there are no significant restrictions on the ability of the Guarantor Subsidiaries to make
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distributions to NGL Energy Partners LP (parent). None of the assets of the Guarantor Subsidiaries (other than the investments in non-guarantor subsidiaries) are restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.
The rights of holders of our Senior Unsecured Notes against the Guarantor Subsidiaries may be limited under the U.S. Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law.
The following is the summarized financial information for NGL Energy Partners LP (parent) and the Guarantor Subsidiaries on a combined basis after elimination of intercompany transactions, which includes related receivable and payable balances, and the investment in and equity earnings from the non-guarantor subsidiaries. This summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under Securities and Exchange Commission Regulation S-X.
Balance sheet information:
| NGL Energy Partners LP (Parent) and Guarantor Subsidiaries | ||||||||||||||
| September 30, 2021 | March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| ASSETS: | ||||||||||||||
| Current assets | $ | 1,337,589 | $ | 1,002,708 | ||||||||||
| Noncurrent assets (1)(2) | $ | 4,616,481 | $ | 4,743,874 | ||||||||||
| LIABILITIES AND EQUITY (3): | ||||||||||||||
| Current liabilities | $ | 1,050,111 | $ | 906,512 | ||||||||||
| Noncurrent liabilities | $ | 3,614,635 | $ | 3,524,664 | ||||||||||
| Class D Preferred Units | $ | 551,097 | $ | 551,097 | ||||||||||
(1) Excludes $0.7 million of net intercompany payables and $50.9 million of net intercompany receivables due from/to NGL Energy Partners LP (parent) and the Guarantor Subsidiaries to/from the non-guarantor subsidiaries at September 30, 2021 and March 31, 2021, respectively.
(2) Includes $1.9 billion and $1.9 billion of goodwill and intangible assets at September 30, 2021 and March 31, 2021, respectively.
(3) There are no noncontrolling interests held at the co-issuers or Guarantor Subsidiaries for either period presented.
Statements of operations information:
| NGL Energy Partners LP (Parent) and Guarantor Subsidiaries | ||||||||||||||
| Six Months Ended September 30, 2021 | Twelve Months Ended March 31, 2021 | |||||||||||||
| (in thousands) | ||||||||||||||
| Revenues | $ | 3,240,567 | $ | 5,214,499 | ||||||||||
| Operating loss | $ | (3,491) | $ | (390,210) | ||||||||||
| Loss from continuing operations | $ | (135,141) | $ | (636,626) | ||||||||||
| Net loss (1) | $ | (135,141) | $ | (638,395) | ||||||||||
| Loss from continuing operations allocated to common unitholders | $ | (186,560) | $ | (729,891) | ||||||||||
(1) There are no noncontrolling interests held at the co-issuers or Guarantor Subsidiaries for either period presented.
Contractual Obligations
For a discussion of contractual obligations, see Note 6, Note 7 and Note 13 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements other than the letters of credit discussed in Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report and the short-term leases discussed in Note 13 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
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Environmental Legislation
See our Annual Report for a discussion of proposed environmental legislation and regulations that, if enacted, could result in increased compliance and operating costs. However, at this time we cannot predict the structure or outcome of any future legislation or regulations or the eventual cost we could incur in compliance.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements that are applicable to us, see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires the selection and application of appropriate accounting principles to the relevant facts and circumstances of our operations and the use of estimates made by management. We have identified certain accounting policies that are most important to the portrayal of our consolidated financial position and results of operations. The application of these accounting policies, which requires subjective or complex judgments regarding estimates and projected outcomes of future events, and changes in these accounting policies, could have a material effect on our consolidated financial statements. There have been no material changes in the critical accounting policies previously disclosed in our Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
A portion of our long-term debt is variable-rate debt. Changes in interest rates impact the interest payments of our variable-rate debt but generally do not impact the fair value of the liability. Conversely, changes in interest rates impact the fair value of our fixed-rate debt but do not impact its cash flows.
The ABL Facility is variable-rate debt with interest rates that are generally indexed to the Wall Street Journal prime rate or LIBOR interest rate (or successor rate). At September 30, 2021, we had $146.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of 4.89%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $0.2 million, based on borrowings outstanding at September 30, 2021.
Commodity Price Risk
Our operations are subject to certain business risks, including commodity price risk. Commodity price risk is the risk that the market value of crude oil, natural gas liquids, or refined and renewables products will change, either favorably or unfavorably, in response to changing market conditions. Procedures and limits for managing commodity price risks are specified in our market risk policy. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel.
The crude oil, natural gas liquids, and refined and renewables products industries are “margin-based” and “cost-plus” businesses in which gross profits depend on the differential of sales prices over supply costs. We have no control over market conditions. As a result, our profitability may be impacted by sudden and significant changes in the price of crude oil, natural gas liquids, and refined and renewables products.
We engage in various types of forward contracts and financial derivative transactions to reduce the effect of price volatility on our product costs, to protect the value of our inventory positions, and to help ensure the availability of product during periods of short supply. We attempt to balance our contractual portfolio by purchasing volumes when we have a matching purchase commitment from our wholesale and retail customers. We may experience net unbalanced positions from time to time. In addition to our ongoing policy to maintain a balanced position, for accounting purposes we are required, on an ongoing basis, to track and report the market value of our derivative portfolio.
Although we use financial derivative instruments to reduce the market price risk associated with forecasted transactions, we do not account for financial derivative transactions as hedges. All changes in the fair value of our physical contracts that do not qualify as normal purchases and normal sales and settlements (whether cash transactions or non-cash mark-to-market adjustments) are reported either within revenue (for sales contracts) or cost of sales (for purchase contracts) in
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our unaudited condensed consolidated statements of operations, regardless of whether the contract is physically or financially settled.
The following table summarizes the hypothetical impact on the September 30, 2021 fair value of our commodity derivatives of an increase of 10% in the value of the underlying commodity (in thousands):
| Increase (Decrease) To Fair Value | |||||
| Crude oil (Water Solutions segment) | $ | (337) | |||
| Crude oil (Crude Oil Logistics segment) | $ | (7,449) | |||
| Propane (Liquids Logistics segment) | $ | 6,893 | |||
| Butane (Liquids Logistics segment) | $ | (5,238) | |||
| Refined Products (Liquids Logistics segment) | $ | (3,601) | |||
| Other Products (Liquids Logistics segment) | $ | 31,114 | |||
| Canadian dollars (Liquids Logistics segment) | $ | 80 | |||
Changes in commodity prices may also impact the volumes that we are able to transport, dispose, store and market, which also impact our cash flows.
Credit Risk
Our operations are also subject to credit risk, which is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Procedures and limits for managing credit risk are specified in our credit policy. Credit risk is monitored daily and we believe we minimize exposure through the following:
•requiring certain customers to prepay or place deposits for our products and services;
•requiring certain customers to post letters of credit or other forms of surety;
•monitoring individual customer receivables relative to previously-approved credit limits;
•requiring certain customers to take delivery of their contracted volume ratably rather than allow them to take delivery at their discretion;
•entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions;
•reviewing the receivable aging regularly to identify issues or trends that may develop; and
•requiring marketing personnel to manage their customers’ receivable position and suspend sales to customers that have not timely paid outstanding invoices.
At September 30, 2021, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.
Fair Value
We use observable market values for determining the fair value of our derivative instruments. In cases where actively quoted prices are not available, other external sources are used which incorporate information about commodity prices in actively quoted markets, quoted prices in less active markets and other market fundamental analysis.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer of our general partner, as appropriate, to allow timely decisions regarding required disclosure.
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We completed an evaluation under the supervision and with participation of our management, including the principal executive officer and principal financial officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures at September 30, 2021. Based on this evaluation, the principal executive officer and principal financial officer of our general partner have concluded that as of September 30, 2021, such disclosure controls and procedures were effective to provide the reasonable assurance described above.
There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are involved from time to time in various legal proceedings and claims arising in the ordinary course of business. For information related to legal proceedings, see the discussion under the caption “Legal Contingencies” in Note 7 to our unaudited condensed consolidated financial statements included in this Quarterly Report, which is incorporated by reference into this Item 1.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Part I, Item 1A–“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Pursuant to certain covenants within the indenture of our 2026 Senior Secured Notes, the board of directors of our general partner temporarily suspended all common unit and preferred unit distributions. For additional information related to the suspension of distributions, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Exhibit | |||||||
| 10.1* | ||||||||
| 22.1* | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS** | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH** | Inline XBRL Schema Document | |||||||
| 101.CAL** | Inline XBRL Calculation Linkbase Document | |||||||
| 101.DEF** | Inline XBRL Definition Linkbase Document | |||||||
| 101.LAB** | Inline XBRL Label Linkbase Document | |||||||
| 101.PRE** | Inline XBRL Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Exhibits filed with this report.
** The following documents are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at September 30, 2021 and March 31, 2021, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2021 and 2020, (iii) Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months and six months ended September 30, 2021 and 2020, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months and six months ended September 30, 2021 and 2020, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NGL ENERGY PARTNERS LP | |||||||||||
| By: | NGL Energy Holdings LLC, its general partner | ||||||||||
| Date: November 9, 2021 | By: | /s/ H. Michael Krimbill | |||||||||
| H. Michael Krimbill | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: November 9, 2021 | By: | /s/ Linda J. Bridges | |||||||||
| Linda J. Bridges | |||||||||||
| Chief Financial Officer | |||||||||||
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