本季度10-Q表格（「季度報告」）包含各種基於ngl energy Partners LP（「我們」，「我們」，「我們」，或「夥伴關係」）信仰以及我們的普通合夥人（「GP」）以及我們當前可獲得的信息做出的假設的前瞻性陳述和信息。這些前瞻性陳述被確定爲任何與歷史事實或當前事實無關的陳述。本季度報告中的某些詞語，如「預測」，「相信」，「可能」，「估計」，「期望」，「預測」，「目標」，「打算」，「可能」，「計劃」，「項目，」「將，」以及關於我們未來運營計劃和目標的類似表達和陳述識別前瞻性陳述。儘管我們和GP認爲此類前瞻性陳述是合理的，但我們和GP都無法保證它們會被證明是正確的。前瞻性陳述受到各種風險，不確定性和假設的影響。如果其中一個或多個風險或不確定性出現，或者基礎假設被證明不正確，我們的實際結果可能與預期有重大差異。可能影響我們合併財務狀況和運營結果的關鍵風險因素包括：
•delays or restrictions in obtaining, utilizing or maintaining permits and/or rights-of-way by us or our customers;
•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 impact of competition on our operations, including our 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;
•inflation, interest rates, and general economic conditions (including recessions and other future disruptions and volatility in the global credit markets, as well as the impact of these events on customers and suppliers);
•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;
•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;
•changes in general economic conditions, including market and macroeconomic disruptions resulting from global pandemics and related governmental responses, and international military conflicts (such as the war in Ukraine, the conflict between Israel and Hamas and conflicts involving Iran and its proxy forces);
•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; and
•information technology risks including the risk from cyberattacks, cybersecurity breaches, and other disruptions to our information systems.
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, 2024.
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
Six Months Ended September 30,
2024
2023
OPERATING ACTIVITIES:
Net income
$
13,866
$
47,848
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization, including amortization of debt issuance costs
130,215
142,998
Gain on early extinguishment of liabilities, net
—
(6,871)
Equity-based compensation expense
—
884
(Gain) loss on disposal or impairment of assets, net
(9,157)
15,011
Change in provision for expected credit losses
1,705
116
Net adjustments to fair value of derivatives
9,908
1,004
Equity in earnings of unconsolidated entities
(1,822)
(942)
Distributions of earnings from unconsolidated entities
1,853
904
Lower of cost or net realizable value adjustments
3,332
7,071
Other
1,938
2,855
Changes in operating assets and liabilities, exclusive of acquisitions:
Accounts receivable-trade and affiliates
85,057
(126,050)
Inventories
(71,091)
(115,036)
Other current and noncurrent assets
33,098
24,950
Accounts payable-trade and affiliates
(114,290)
153,001
Other current and noncurrent liabilities
(95,953)
(16,643)
Net cash (used in) provided by operating activities
(11,341)
131,100
INVESTING ACTIVITIES:
Capital expenditures
(149,545)
(80,443)
Net settlements of derivatives
12,745
(16,461)
Proceeds from sales of assets
18,556
23,908
Proceeds from divestitures of businesses and investments, net
68,500
16,000
Investments in unconsolidated entities
(106)
(258)
Distributions of capital from unconsolidated entities
243
486
Net cash used in investing activities
(49,607)
(56,768)
FINANCING ACTIVITIES:
Proceeds from borrowings under ABL Facility
837,000
965,000
Payments on ABL Facility
(563,000)
(947,000)
Payments on Term Loan B
(3,500)
—
Proceeds from borrowings on other long-term debt
6,360
—
Payments on other long-term debt
(204)
—
Repayment and repurchase of senior unsecured notes
—
(91,982)
Debt issuance costs
(2,480)
(1,242)
Contributions from noncontrolling interest owners
1,793
—
Distributions to preferred unitholders
(245,604)
—
Distributions to noncontrolling interest owners
(1,473)
(949)
Common unit repurchases and cancellations
(2,126)
—
Payments to settle contingent consideration liabilities
(481)
(902)
Net settlements of derivatives
258
—
Principal payments of finance lease
(9)
(8)
Net cash provided by (used in) financing activities
26,534
(77,083)
Net decrease in cash and cash equivalents
(34,414)
(2,751)
Cash and cash equivalents, beginning of period
38,909
5,431
Cash and cash equivalents, end of period
$
4,495
$
2,680
Supplemental cash flow information:
Cash interest paid
$
166,758
$
118,516
Income taxes paid (net of income tax refunds)
$
5,527
$
2,056
Supplemental non-cash investing and financing activities:
Distributions declared but not paid to preferred unitholders
$
30,752
$
—
Accrued capital expenditures
$
28,891
$
10,583
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 master limited partnership. NGL Energy Holdings LLC serves as our general partner (“GP”). At September 30, 2024, our operations included three segments:
•Our Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from crude oil and natural gas production. We also sell produced water for reuse and recycle 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 storage tanks and owned and leased 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 23 owned terminals, third-party storage and terminal facilities, nine common carrier pipelines and a fleet of leased railcars. We also provide services for marine exports of butane through our facility located in Chesapeake, Virginia and we also own a propane pipeline in Michigan. We attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow us to lock in a margin on a percentage of our winter volumes. We also enter into financially settled derivative contracts as economic hedges of our physical inventory, physical sales and physical purchase contracts.
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 on Form 10-Q. The unaudited condensed consolidated balance sheet at March 31, 2024 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2024 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on June 6, 2024.
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, 2025.
9
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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.
Critical accounting estimates we make in the preparation of our unaudited condensed consolidated financial statements include, among others, determining the impairment of goodwill and long-lived assets, useful lives and recoverability of property, plant and equipment and amortizable intangible assets, the fair value of derivative instruments, estimating certain revenues, the fair value of asset retirement obligations, the fair value of assets and liabilities acquired in acquisitions, the recoverability of inventories, the collectability of accounts and notes receivable, the valuation of contingent consideration liabilities and accruals for environmental matters. 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 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 $31.4 million and $38.0 million at September 30, 2024 and March 31, 2024, 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 decrease in the deferred tax liability during the six months ended September 30, 2024 was due to the sale of our ranches in April 2024, one ranch of which was treated as a corporation for federal income tax purposes (see Note 15). 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, 2024 was $6.1 million with an effective tax rate of 21.1%. The deferred tax benefit recorded during the six months ended September 30, 2023 was $0.1 million with an effective tax rate of 22.1%.
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 uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at September 30, 2024 or March 31, 2024.
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.
10
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Inventories consist of the following at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Butane
$
82,181
$
20,400
Propane
62,785
34,225
Crude oil
31,122
44,056
Biodiesel
7,729
18,919
Diesel
3,140
5,361
Other
6,929
7,946
Total
$
193,886
$
130,907
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, 2024
March 31, 2024
(in thousands)
Water services and land company
Water Solutions
50%
$
15,216
$
15,228
Water services and land company
Water Solutions
10%
2,789
2,926
Water services and land company
Water Solutions
50%
2,053
2,026
Natural gas liquids terminal company
Liquids Logistics
50%
79
125
Total
$
20,137
$
20,305
Other Noncurrent Assets
Other noncurrent assets consist of the following at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Linefill (1)
$
37,715
$
37,861
Loan receivable (2)
2,380
4,776
Minimum shipping fees - pipeline commitments (3)
—
356
Other
12,801
9,745
Total
$
52,896
$
52,738
(1) Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At September 30, 2024 and March 31, 2024, linefill consisted of 501,093 and 502,686 barrels of crude oil, respectively. Linefill held in pipelines we own is included within property, plant and equipment (see Note 4).
(2) Represents the noncurrent portion of loan receivables, net of allowances for expected credit losses, primarily related to the sale of certain saltwater disposal assets. At September 30, 2024 and March 31, 2024, the loan receivable balance (which includes interest receivable) was $6.6 million and $7.5 million, respectively, of which $4.2 million and $2.7 million, respectively, are recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.
(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. At September 30, 2024 and March 31, 2024, the deficiency credit was $2.5 million and $4.6 million, respectively, of which $2.5 million and $4.3 million, respectively, are recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets.
11
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Accrued Expenses and Other Payables
Accrued expenses and other payables consist of the following at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Distributions payable
$
30,752
$
—
Accrued compensation and benefits
28,537
34,708
Accrued interest (1)
25,627
58,335
Derivative liabilities
22,346
36,679
Excise and other tax liabilities
18,258
18,003
Product exchange liabilities
6,853
3,366
Other (1)
41,310
62,666
Total
$
173,683
$
213,757
(1) Includes amounts accrued related to the LCT Capital, LLC (“LCT”) legal matter at March 31, 2024. On June 13, 2024, we paid LCT $63.3 million related to the legal judgment against us, of which $27.2 million represented interest and $0.1 million of costs awarded to LCT.
Amounts in the table above do not include accrued expenses and other payables related to the sale of certain freshwater water solutions facilities, as these amounts have been classified as liabilities held for sale within our March 31, 2024 consolidated balance sheet (see Note 15).
Variable Interest Entity
We decide at the inception of each arrangement whether an entity in which an investment is made or in which we have other variable interests is considered a variable interest entity (“VIE”). Generally, an entity is a VIE if: (1) the entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, (2) the entity’s investors lack any characteristics of a controlling financial interest or (3) the entity was established with non-substantive voting rights.
We consolidate VIEs when we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is generally the party that both: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. If we are not deemed to be the primary beneficiary of a VIE, we account for the investment or other variable interests in a VIE in accordance with applicable GAAP.
During the three months ended June 30, 2024, we created a new aviation entity whereby we own a 90% interest and a member of our management owns a 10% interest as discussed in Note 15. We also executed a guarantee for the benefit of the lender that obligates us for the payment and performance of the aviation entity with respect to the repayment of the loan. Since we guaranteed the payment of the outstanding loan, we have concluded that the aviation entity is a VIE because the equity is not sufficient to fund the aviation entity’s activities without additional subordinated financial support. We have the power to make decisions that most significantly affect the economic performance of the aviation entity and have benefits through our ownership interest. Therefore, we have concluded that we are the primary beneficiary and will consolidate the aviation entity in our unaudited condensed consolidated financial statements and will include the noncontrolling interest as redeemable noncontrolling interest as discussed below.
12
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes the balances related to the VIE that are consolidated in our September 30, 2024 unaudited condensed consolidated balance sheet (excluding intercompany eliminations at the time of consolidation) as well as our equity in the VIE (in thousands):
Cash and cash equivalents
$
1
Accounts receivable-trade, net of allowance for expected credit losses
6
Accounts receivable-affiliates
68
Prepaid expenses and other current assets
80
Property, plant and equipment, net
8,084
Accounts payable-trade
(24)
Accrued expenses and other payables
(79)
Current maturities of long-term debt
(865)
Long-term debt, net
(5,276)
Redeemable noncontrolling interest
(179)
Partnership's equity in VIE
$
1,816
Generally, the assets of the VIE can be used only to settle liabilities of the VIE and the liabilities of the VIE are liabilities for which creditors or beneficial interest holders do not have recourse to the general credit of the Partnership. In general, our maximum exposure to loss due to involvement with the VIE is limited to the amount of capital investment in the VIE, if any, or the potential obligation to perform on the guarantee of the outstanding loan.
Noncontrolling Interests
Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third-parties. Amounts are adjusted by the noncontrolling interest holder’s proportionate share of the subsidiaries’ earnings or losses each period and any distributions that are paid. Noncontrolling interests are reported as a component of equity, unless the noncontrolling interest is considered redeemable, in which case the noncontrolling interest is recorded between liabilities and equity (mezzanine or temporary equity) in our consolidated balance sheet. The redeemable noncontrolling interest is adjusted at each balance sheet date to its maximum redemption value if the amount is greater than the carrying value.The following table summarizes changes in our redeemable noncontrolling interest in our unaudited condensed consolidated balance sheets (in thousands):
Redeemable noncontrolling interest at March 31, 2024
$
—
Contributions from redeemable noncontrolling interest owner (Note 15)
174
Net income attributable to redeemable noncontrolling interest
5
Redeemable noncontrolling interest at September 30, 2024
$
179
Reclassifications
We have reclassified certain prior period financial statement information to be consistent with the classification methods used in the current fiscal year. For the three months and six months ended September 30, 2023, certain revenues are now included in Disposal Services Fees in Note 10. These reclassifications did not impact previously reported amounts of assets, liabilities, equity, net income or cash flows.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which includes amendments requiring, among other things, disclosure of disaggregated information about specific categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions on the income statement. Additionally, the amendments require disclosure of the total amount of selling expenses and an annual disclosure of the definition of selling expenses. The ASU is effective for fiscal years beginning after December 15, 2026 (which is the Partnership’s fiscal year beginning April 1, 2027), and for interim periods within fiscal years beginning after December 15, 2027 (which is the Partnership’s fiscal year beginning April 1, 2028), with early adoption
13
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
permitted. The ASU may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. We are currently evaluating the ASU to determine its impact on our financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The ASU is effective for the Partnership’s fiscal year beginning April 1, 2025, with early adoption permitted. The amendments are required to be applied prospectively with retrospective application permitted. We are currently evaluating the ASU to determine its impact on our financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which includes amendments intended to improve the accounting for and disclosure of crypto assets. The ASU requires crypto assets to be measured at fair value each reporting period and for changes from remeasurement to be recognized in net income. The ASU also requires enhanced disclosures for both annual and interim reporting periods to provide investors with relevant information to analyze and assess the exposure and risk of significant individual crypto asset holdings. The ASU is effective for the Partnership’s fiscal year beginning April 1, 2025, including interim periods during that fiscal year, with early adoption permitted and requires a cumulative-effect adjustment upon adoption. This ASU does not currently impact our financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which includes amendments intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU is effective for the Partnership’s fiscal year beginning April 1, 2024, and interim periods within our fiscal year beginning April 1, 2025, with early adoption permitted and requires retrospective application. This ASU will have no impact on our financial statements, but will result in additional disclosures.
In March 2020, the FASB issued ASU No. 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 the London Interbank Offered Rate (“LIBOR”) interest rate or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date from December 31, 2022 to December 31, 2024 and left all other provisions of ASU No. 2020-04 unchanged. On April 13, 2022, the ABL Facility (as defined herein) was amended to replace the LIBOR benchmark with SOFR (as defined herein) benchmark (as discussed further in Note 6). As of September 30, 2024, we no longer have any agreements outstanding that include a LIBOR reference rate.
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,
2024
2023
2024
2023
Weighted average common units outstanding during the period:
Common units - Basic
132,274,669
131,927,343
132,393,067
131,927,343
Common units - Diluted
132,274,669
131,927,343
132,393,067
131,927,343
For the three months and six months ended September 30, 2024 and 2023, respectively, all potential common units or convertible securities were considered antidilutive.
14
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,
2024
2023
2024
2023
(in thousands, except per unit amounts)
Net income
$
3,391
$
28,285
$
13,866
$
47,848
Less: Net income attributable to nonredeemable noncontrolling interests
(932)
(257)
(1,724)
(519)
Less: Net income attributable to redeemable noncontrolling interests
(5)
—
(5)
—
Net income attributable to NGL Energy Partners LP
2,454
28,028
12,137
47,329
Less: Distributions to preferred unitholders (1)
(30,752)
(34,744)
(59,566)
(68,541)
Less: Net loss allocated to GP (2)
28
7
47
21
Net loss allocated to common unitholders
$
(28,270)
$
(6,709)
$
(47,382)
$
(21,191)
Basic and diluted loss per common unit
$
(0.21)
$
(0.05)
$
(0.36)
$
(0.16)
(1) Includes distributions earned and declared for the three months and six months ended September 30, 2024. Also includes cumulative distributions for the three months and six months ended September 30, 2023 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 GP includes distributions to which it is entitled as the holder of incentive distribution rights.
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, 2024
March 31, 2024
(in years)
(in thousands)
Water treatment facilities and equipment
3
-
30
$
2,083,508
$
2,055,565
Pipeline and related facilities
30
-
40
266,188
266,129
Crude oil tanks and related equipment
2
-
30
226,654
226,048
Natural gas liquids terminal and storage assets
2
-
30
168,903
167,633
Buildings and leasehold improvements
3
-
40
122,737
122,878
Vehicles and railcars (1)
3
-
25
91,303
91,715
Land
70,290
70,270
Information technology equipment
3
-
7
34,154
33,907
Tank bottoms and linefill (2)
32,545
28,269
Other
3
-
20
10,774
2,552
Construction in progress
156,864
43,010
Gross property, plant and equipment
3,263,920
3,107,976
Accumulated depreciation
(1,098,141)
(1,011,274)
Net property, plant and equipment
$
2,165,779
$
2,096,702
(1) Includes a finance lease right-of-use asset of $0.1 million at September 30, 2024 and March 31, 2024. The accumulated amortization related to this finance lease is included within accumulated depreciation.
(2) 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.
Amounts in the table above do not include property, plant and equipment and accumulated depreciation related to the sale of certain freshwater water solutions facilities, certain saltwater disposal assets and certain real estate, as these amounts have been classified as assets held for sale within our March 31, 2024 consolidated balance sheet (see Note 15).
15
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
(in thousands)
Depreciation expense
$
48,021
$
48,667
$
95,940
$
98,311
Capitalized interest expense
$
963
$
347
$
1,506
$
649
We record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statement 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, 2024
Six Months Ended September 30, 2024
(in thousands)
Water Solutions (1)
$
1,942
$
2,021
Crude Oil Logistics
(442)
(420)
Total
$
1,500
$
1,601
(1) Amounts do not include the gain recognized on the sale of certain freshwater water solutions facilities and certain saltwater disposal assets discussed in Note 15.
Note 5—Intangible Assets
Our intangible assets consist of the following at the dates indicated:
September 30, 2024
March 31, 2024
Description
Weighted- Average Remaining Useful Life
Gross Carrying Amount
Accumulated Amortization
Net
Gross Carrying Amount
Accumulated Amortization
Net
(in years)
(in thousands)
Customer relationships
18.2
$
886,113
$
(268,111)
$
618,002
$
905,113
$
(265,621)
$
639,492
Customer commitments
19.8
192,000
(40,320)
151,680
192,000
(36,480)
155,520
Rights-of-way and easements
29.5
97,558
(19,790)
77,768
95,231
(18,187)
77,044
Water rights
25.1
36,068
(5,911)
30,157
36,068
(5,310)
30,758
Executory contracts and other agreements
23.8
19,788
(4,397)
15,391
17,854
(3,670)
14,184
Debt issuance costs (1)
4.4
19,148
(2,543)
16,605
18,473
(605)
17,868
Pipeline capacity rights
15.8
9,119
(2,853)
6,266
7,799
(2,687)
5,112
Total
$
1,259,794
$
(343,925)
$
915,869
$
1,272,538
$
(332,560)
$
939,978
(1) Includes debt issuance costs related to the ABL Facility. Debt issuance costs related to the fixed-rate notes and Term Loan B (as defined herein) are reported as a reduction of the carrying amount of long-term debt.
Amounts in the table above do not include intangible assets and accumulated amortization related to the sale of certain freshwater water solutions facilities and certain saltwater disposal assets, as these amounts have been classified as assets held for sale within our March 31, 2024 consolidated balance sheet (seeNote 15).
Amortization expense is as follows for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
Recorded In
2024
2023
2024
2023
(in thousands)
Depreciation and amortization
$
13,910
$
16,859
$
28,210
$
36,194
Cost of sales
102
65
167
130
Interest expense
990
1,481
1,936
2,895
Operating expenses
61
61
123
123
Total
$
15,063
$
18,466
$
30,436
$
39,342
16
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes expected amortization of our intangible assets at September 30, 2024 (in thousands):
Year Ending March 31,
2025 (six months)
$
29,924
2026
59,122
2027
58,337
2028
55,042
2029
52,256
2030
45,781
Thereafter
615,407
Total
$
915,869
Note 6—Long-Term Debt
Our long-term debt consists of the following at the dates indicated:
Senior secured term loan "B" credit facility ("Term Loan B")
696,500
$
(17,833)
678,667
700,000
$
(17,549)
682,451
Senior secured notes:
8.125% Notes due 2029 (“2029 Senior Secured Notes”)
900,000
(11,539)
888,461
900,000
(12,845)
887,155
8.375% Notes due 2032 (“2032 Senior Secured Notes”)
1,300,000
(17,610)
1,282,390
1,300,000
(18,784)
1,281,216
Other long-term debt
6,156
(15)
6,141
—
—
—
Total long-term debt
3,176,656
(46,997)
3,129,659
2,900,000
(49,178)
2,850,822
Less: Current maturities
7,865
—
7,865
7,000
—
7,000
Long-term debt
$
3,168,791
$
(46,997)
$
3,121,794
$
2,893,000
$
(49,178)
$
2,843,822
(1) Debt issuance costs related to the ABL Facility are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt. The unamortized debt issuance costs for Term Loan B include a $4.8 million discount.
ABL Facility
The ABL Facility is subject to a borrowing base, which includes a sub-limit for letters of credit. Total commitments under the ABL Facility are $600.0 million and the sub-limit for letters of credit is $200.0 million. At September 30, 2024, $274.0 million had been borrowed under the ABL Facility and we had letters of credit outstanding of $79.4 million. The ABL Facility is scheduled to mature at the earliest of (a) February 2, 2029 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, subject to certain exceptions.
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 all of our other assets.
All borrowings under the ABL Facility bear interest at a secured overnight financing rate (“SOFR”) or the alternative base rate to provide for a 0.25% decrease based on our consolidated net leverage ratio. The applicable margin for alternate base rate loans varies from 1.50% to 2.00% and the applicable margin for SOFR varies from 2.50% to 3.00%. In addition, a commitment fee will be charged and payable quarterly in arrears based on the average daily unused portion of the revolving commitments under the ABL Facility. Such commitment fee will be 0.50% per year, subject to a reduction to 0.375% in the event our fixed charge coverage ratio is greater than or equal to 1.75 to 1.00.
17
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
At September 30, 2024, the borrowings under the ABL Facility had a weighted average interest rate of 7.83% calculated as a SOFR rate of 4.91% plus a margin of 2.85% for SOFR borrowings and the prime rate of 8.00% plus a margin of 1.75% on the alternate base borrowings. On September 30, 2024, the interest rate in effect on letters of credit was 2.75%.
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 fixed charge coverage ratio 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, 2024, no Cash Dominion Event had occurred.
Compliance
At September 30, 2024, we were in compliance with the covenants under the ABL Facility.
Term Loan B
The Term Loan B was issued at 99.25% of par for gross proceeds of $694.8 million. The Term Loan B was issued pursuant to a credit agreement dated February 2, 2024 (“Term Loan Credit Agreement”). The Term Loan B matures on February 2, 2031 and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal amount beginning with the quarter ended June 30, 2024, with the balance payable on maturity.
The Term Loan B is 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 on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets.
The Term Loan B bears interest at a SOFR-based rate or an alternate base rate, in each case plus an applicable margin. The applicable margin for alternate base rate loans varies from 3.25% to 3.50% and the applicable margin for SOFR-based loans varies from 4.25% to 4.50%, in each case, depending on our consolidated first lien net leverage ratio (as defined in the Term Loan Credit Agreement).On August 5, 2024, we amended the Term Loan B agreement to reduce the SOFR margin from 4.50% to 3.75%.
At September 30, 2024, the borrowings under the Term Loan B had an interest rate of SOFR of 4.85% plus a margin of 3.75%.
The Term Loan Credit Agreement 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 Term Loan Credit Agreement requires that we maintain, on a quarterly basis, beginning with the quarter ended June 30, 2024, a debt service coverage rate (as defined in the Term Loan Credit Agreement) of no less than 1.1 to 1.0. At September 30, 2024, our debt service coverage rate was approximately 2.22 to 1.0.
The Term Loan Credit Agreement contains other customary terms, events of default and covenants.
Compliance
At September 30, 2024, we were in compliance with the covenants under Term Loan B.
Senior Secured Notes
The 2029 Senior Secured Notes bear interest at 8.125% and the 2032 Senior Secured Notes bear interest at 8.375%. Interest on the 2029 Senior Secured Notes and 2032 Senior Secured Notes is payable on February 15, May 15, August 15 and November 15 of each year, beginning on May 15, 2024. The 2029 Senior Secured Notes mature on February 15, 2029 and the 2032 Senior Secured Notes mature on February 15, 2032. The 2029 Senior Secured Notes and 2032 Senior Secured Notes were issued pursuant to an indenture dated February 2, 2024 (“Indenture”).
The 2029 Senior Secured Notes and 2032 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
18
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
energy tax credits and related assets and second priority liens on 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 consolidate, merge or transfer or sell all or substantially all of our assets. These covenants are subject to a number of important exceptions and qualifications.
The Indenture contains other customary terms, events of default and covenants.
We have the option to redeem all or part of the 2029 Senior Secured Notes, at any time on or after February 15, 2026, at the redemption prices specified in the Indenture. We have the option to redeem all or part of the 2032 Senior Secured Notes, at any time on or after February 15, 2027, at the redemption prices specified in the Indenture.
Compliance
At September 30, 2024, we were in compliance with the covenants under the Indenture.
Other Long-Term Debt
On June 24, 2024, we entered into an equipment loan for $6.4 million with American Bank and Trust Company which bears interest at a rate of 8.50% and is secured by an airplane (see Note 15). On September 24, 2024, we refinanced the loan and lowered the interest rate to 8.00%. We have an aggregate principal balance of $6.2 million at September 30, 2024. This loan matures on June 24, 2030.
Debt Maturity Schedule
The scheduled maturities of our long-term debt are as follows at September 30, 2024:
Year Ending March 31,
ABL Facility
Term Loan B
Senior Secured Notes
Other Long-Term Debt
Total
(in thousands)
2025 (six months)
$
—
$
3,500
$
—
$
425
$
3,925
2026
—
7,000
—
902
7,902
2027
—
7,000
—
983
7,983
2028
—
7,000
—
1,071
8,071
2029
274,000
7,000
900,000
1,167
1,182,167
2030
—
7,000
—
1,272
8,272
Thereafter
—
658,000
1,300,000
336
1,958,336
Total
$
274,000
$
696,500
$
2,200,000
$
6,156
$
3,176,656
Amortization of Debt Issuance Costs
Amortization expense for debt issuance costs related to long-term debt was $1.9 million and $2.7 million during the three months ended September 30, 2024 and 2023, respectively, and $3.8 million and $5.3 million during the six months ended September 30, 2024 and 2023, respectively.
19
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes expected amortization of debt issuance costs at September 30, 2024 (in thousands):
Year Ending March 31,
2025 (six months)
$
3,923
2026
7,845
2027
7,845
2028
7,845
2029
7,508
2030
5,206
Thereafter
6,825
Total
$
46,997
Note 7—Commitments and Contingencies
Legal Contingencies
We are party to various 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, 2024, we have an environmental liability, measured on an undiscounted basis, of $1.2 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 businesses, 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 businesses.
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 obligations, which is reported within other noncurrent liabilities in our unaudited condensed consolidated balance sheets (in thousands):
Asset retirement obligations at March 31, 2024
$
56,574
Liabilities incurred
602
Liabilities associated with disposed assets (1)
(274)
Liabilities settled
(65)
Accretion expense
2,028
Asset retirement obligations at September 30, 2024
$
58,865
(1) Relates to the sale of certain saltwater disposal wells within our Water Solutions segment.
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
20
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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.
Pipeline Capacity Agreement
We have a noncancellable agreement with a crude oil pipeline operator, which guarantees us minimum monthly shipping capacity on the pipeline. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under this agreement, 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, and this agreement allows 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.
The future minimum throughput payments under this agreement at September 30, 2024 were $15.3 million, all of which will be recognized by March 31, 2025.
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.
At September 30, 2024, we had the following commodity purchase commitments:
Crude Oil (1)
Natural Gas Liquids
Value
Volume (in barrels)
Value
Volume (in gallons)
(in thousands)
Fixed-Price Commodity Purchase Commitments:
Year ending March 31,
2025 (six months)
$
79,081
1,221
$
18,548
23,932
2026
—
—
4,644
6,762
2027
—
—
4,075
5,796
2028
—
—
343
504
Total
$
79,081
1,221
$
27,610
36,994
Index-Price Commodity Purchase Commitments:
Year ending March 31,
2025 (six months)
$
1,321,758
20,262
$
604,712
648,521
2026
684,396
11,225
40,676
56,053
2027
—
—
12,655
25,200
Total
$
2,006,154
31,487
$
658,043
729,774
(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.
21
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
At September 30, 2024, we had the following commodity sale commitments:
Crude Oil
Natural Gas Liquids
Value
Volume (in barrels)
Value
Volume (in gallons)
(in thousands)
Fixed-Price Commodity Sale Commitments:
Year ending March 31,
2025 (six months)
$
79,717
1,223
$
145,491
142,181
2026
—
—
7,454
8,958
2027
—
—
3,519
4,667
2028
—
—
298
400
Total
$
79,717
1,223
$
156,762
156,206
Index-Price Commodity Sale Commitments:
Year ending March 31,
2025 (six months)
$
1,188,437
17,439
$
625,514
556,633
2026
26,128
390
28,128
23,737
Total
$
1,214,565
17,829
$
653,642
580,370
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 $21.7 million of our prepaid expenses and other current assets and $18.4 million of our accrued expenses and other payables at September 30, 2024.
Other Commitments
We have noncancellable agreements for product storage, railcar spurs, capital projects and real estate. The following table summarizes future minimum payments under these agreements at September 30, 2024 (in thousands):
Year Ending March 31,
2025 (six months)
$
6,011
2026
7,797
2027
7,072
2028
3,037
2029
2,425
2030
1,403
Thereafter
2,467
Total
$
30,212
Note 8—Equity
Partnership Equity
The Partnership’s equity consists of a 0.1% GP interest and a 99.9% limited partner interest, which consists of common units. Our GP has the right, but not the obligation, to contribute a proportionate amount of capital to the Partnership to maintain its 0.1% GP interest. Our GP is not required to guarantee or pay any of our debts and obligations. At September 30, 2024, we owned 8.69% of our GP.
22
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
General Partner Equity
In connection with the repurchase of common units (see below for further discussion), we repurchased 500 notional units from our GP for less than $0.1 million during the quarter ended September 30, 2024.
Common Unit Repurchase Program
On June 5, 2024, the board of directors of our GP authorized a common unit repurchase program, under which we may repurchase up to $50.0 million of our outstanding common units from time to time in the open market or in other privately negotiated transactions. This program does not have a fixed expiration date. The common unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of our common units. We repurchased 500,000 units for an aggregate price of $2.1 million, including commissions, under this program during the quarter ended September 30, 2024.
Common Unit and Preferred Unit Distributions
On February 4, 2021, the board of directors of our GP temporarily suspended all distributions, including common unit distributions which began with the quarter ended December 31, 2020 and preferred unit distributions which began with the quarter ended March 31, 2021.
On April 4, 2024 and April 9, 2024, the board of directors of our GP declared cash distributions of the remaining outstanding distribution arrearages through March 31, 2024 to the preferred unitholders. The distributions were paid on April 18, 2024 and April 25, 2024, respectively. See below for further discussion.
As of April 25, 2024, all preferred unit distributions in arrears have been paid.
Class B Preferred Units
As of September 30, 2024, there were 12,585,642 of our Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) outstanding.
Distributions for Prior Years
On April 4, 2024, the board of directors of our GP declared a cash distribution of $3.0224 which was 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class B Preferred Units. The distribution amount of $38.0 million was paid on April 18, 2024 to the holders of record at the close of trading on April 12, 2024.
On April 9, 2024, the board of directors of our GP declared a cash distribution of $2.4750 which fully paid the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class B Preferred Units. The distribution amount of $31.1 million, which included a distribution of $9.9 million earned during the quarter ended March 31, 2024, was paid on April 25, 2024 to the holders of record at the close of trading on April 19, 2024.
Current Fiscal Year Distributions
The current distribution rate for the Class B Preferred Units is a floating rate of the three-month LIBOR interest rate plus a spread of 7.213%. Effective July 3, 2023, the reference to LIBOR in the formulation for the distribution rate in these securities was replaced with three-month CME Term SOFR, as calculated and published by CME Group Benchmark Administration, Ltd., plus a tenor spread adjustment of 0.26161%, in accordance with the Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”), and the rules implementing the LIBOR Act.
The following table summarizes the distributions declared on our Class B Preferred Units during the last two quarters:
Three-Month
Distribution
Amount Paid to Class B
Date Declared
Record Date
Payment Date
SOFR
Rate
Preferred Unitholders
(in thousands)
June 21, 2024
July 1, 2024
July 15, 2024
5.300
%
$
0.8153
$
10,261
September 19, 2024
October 1, 2024
October 15, 2024
5.332
%
$
0.8004
$
10,073
23
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The distribution amount paid on October 15, 2024 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at September 30, 2024.
Class C Preferred Units
As of September 30, 2024, there were 1,800,000 of our Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) outstanding.
Distributions for Prior Years
On April 4, 2024, the board of directors of our GP declared a cash distribution of $2.6790 which was 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class C Preferred Units. The distribution amount of $4.8 million was paid on April 18, 2024 to the holders of record at the close of trading on April 12, 2024.
On April 9, 2024, the board of directors of our GP declared a cash distribution of $2.1860 which fully paid the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class C Preferred Units. The distribution amount of $3.9 million, which included a distribution of $1.1 million earned during the quarter ended March 31, 2024, was paid on April 25, 2024 to the holders of record at the close of trading on April 19, 2024.
Current Fiscal Year Distributions
The current distribution rate for the Class C Preferred Units is a floating rate of the three-month LIBOR interest rate plus a spread of 7.384%. Effective July 3, 2023, the reference to LIBOR in the formulation for the distribution rate in these securities was replaced with three-month CME Term SOFR, as calculated and published by CME Group Benchmark Administration, Ltd.
The following table summarizes the distributions declared on our Class C Preferred Units during the last two quarters:
Three-Month
Distribution
Amount Paid to Class C
Date Declared
Record Date
Payment Date
SOFR
Rate
Preferred Unitholders
(in thousands)
June 21, 2024
July 1, 2024
July 15, 2024
5.300
%
$
0.7926
$
1,426
September 19, 2024
October 1, 2024
October 15, 2024
5.332
%
$
0.7947
$
1,431
The distribution amount paid on October 15, 2024 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at September 30, 2024.
Class D Preferred Units
As of September 30, 2024, 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 following table summarizes the outstanding warrants at September 30, 2024:
Issuance Date and Description
Number of Warrants
Exercise Price
July 2, 2019
Premium warrants
10,000,000
$
17.45
Par warrants
7,000,000
$
14.54
October 31, 2019
Premium warrants
5,000,000
$
16.28
Par warrants
3,500,000
$
13.56
All outstanding warrants are currently exercisable and any unexercised warrants will expire on the tenth anniversary of the date of issuance. The warrants will not participate in cash distributions.
24
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Distributions for Prior Years
On April 4, 2024, the board of directors of our GP declared a cash distribution of 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class D Preferred Units. The distribution amount of $77.1 million was paid on April 18, 2024 to the holders of record at the close of trading on April 12, 2024.
On April 9, 2024, the board of directors of our GP declared a cash distribution which fully paid the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class D Preferred Units. The distribution amount of $63.0 million, which included a distribution of $16.4 million earned during the quarter ended March 31, 2024, was paid on April 25, 2024 to the holders of record at the close of trading on April 19, 2024.
Current Fiscal Year Distributions
The holders of our Class D Preferred Units have elected, which they are allowed to do so from time to time, for the distributions to be calculated based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with our amended and restated limited partnership agreement (“Partnership Agreement”)) plus a spread of 7.00% (“Class D Variable Rate,” as defined in the Partnership Agreement). Effective July 3, 2023, the reference to LIBOR in the formulation for the distribution rate in these securities was replaced with the three-month CME Term SOFR, as calculated and published by CME Group Benchmark Administration, Ltd. Each variable rate election shall be effective for at least four quarters following such election. This variable rate election will be effective until September 30, 2025. The distribution rate for the Class D Preferred Units is 12.332% for the quarter ended September 30, 2024.
The following table summarizes the distributions declared on our Class D Preferred Units during the last two quarters:
Three-Month
Distribution
Amount Paid to Class D
Date Declared
Record Date
Payment Date
SOFR
Rate
Preferred Unitholders
(in thousands)
June 21, 2024 (1)
July 1, 2024
July 15, 2024
$
26.01
$
15,825
September 19, 2024
October 1, 2024
October 15, 2024
5.332
%
$
32.08
$
19,248
(1) The distribution rate was 10.00% (equal to $100.00 per every $1,000 in unit value per year).
The distribution amount paid on October 15, 2024 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at September 30, 2024.
Note 9—Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding derivative instruments) approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
25
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Derivatives
The following table summarizes, by level within the fair value hierarchy, the estimated fair values of our derivative assets and liabilities reported in our unaudited condensed consolidated balance sheets at the dates indicated:
September 30, 2024
March 31, 2024
Derivative Assets
Derivative Liabilities
Derivative Assets
Derivative Liabilities
(in thousands)
Level 1 measurements
$
921
$
(11,632)
$
4,798
$
(7,517)
Level 2 measurements
22,015
(28,390)
54,040
(37,345)
22,936
(40,022)
58,838
(44,862)
Netting of counterparty contracts (1)
(1,030)
1,030
(4,798)
4,798
Net cash collateral provided
1,169
10,712
630
2,719
Derivatives
$
23,075
$
(28,280)
$
54,670
$
(37,345)
(1) Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a master netting arrangement with the counterparty. Our physical contracts that do not qualify as normal purchase normal sale transactions are not subject to such master netting arrangements.
The following table summarizes the accounts that include our derivative assets and liabilities in our unaudited condensed consolidated balance sheets at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Prepaid expenses and other current assets
$
22,974
$
54,670
Other noncurrent assets
101
—
Accrued expenses and other payables
(22,346)
(36,679)
Other noncurrent liabilities
(5,934)
(666)
Net derivative (liability) asset
$
(5,205)
$
17,325
26
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes our open 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, 2024:
Crude oil fixed-price (1)
October 2024–March 2025
(165)
$
(500)
Propane fixed-price (1)
October 2024–March 2026
30,105
(4,509)
Refined products fixed-price (1)
October 2024–February 2025
(195)
75
Butane fixed-price (1)
October 2024–March 2025
(1,481)
(5,522)
Variable-to-fixed interest rate swaps (2)
October 2024–April 2028
(6,958)
Other
October 2024–March 2025
328
(17,086)
Net cash collateral provided
11,881
Net derivative liability
$
(5,205)
At March 31, 2024:
Crude oil fixed-price (1)
April 2024–March 2025
(174)
$
(3,000)
Propane fixed-price (1)
April 2024–April 2025
6,980
1,870
Refined products fixed-price (1)
April 2024–December 2024
(244)
518
Butane fixed-price (1)
April 2024–March 2025
(982)
(2,222)
Variable-to-fixed interest rate swap (2)
April 2024–April 2026
515
Other
April 2024–March 2025
16,295
13,976
Net cash collateral provided
3,349
Net derivative asset
$
17,325
(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.
(2) See further discussion of these instruments in “Interest Rate Risk” below.
During the three months ended September 30, 2024 and 2023, we recorded net gains of $9.0 million and net losses of $13.9 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, 2024 and 2023, we recorded net losses of $4.3 million and $1.0 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations.
During the three months and six months ended September 30, 2024, we recorded net losses of $6.0 million and $5.6 million, respectively, from our interest rate swaps to interest expense in our unaudited condensed consolidated statements of operations.
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, 2024, 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.
27
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Interest Rate Risk
Long-Term Debt
The ABL Facility is variable-rate debt with interest rates that are generally indexed to the prime rate or SOFR. At September 30, 2024, we had $274.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of 7.83%.
The Term Loan B is variable-rate debt with interest rates that are generally indexed to SOFR. At September 30, 2024, there was $696.5 million of outstanding borrowings under the Term Loan B with an interest rate of SOFR of 4.85% plus a margin of 3.75%.
In March and April 2024, we entered into interest rate swaps totaling $400.0 million to reduce the variability of cash outflows associated with our floating-rate, SOFR-based borrowings, including borrowings on the Term Loan B. Under these arrangements, we pay fixed interest rates of 4.32% and 4.79%, respectively, in exchange for SOFR-based variable interest through April 2026. In September 2024, we entered into the following transaction:
•For the $200.0 million interest rate swap entered into in April 2024, we extended the original maturity date of April 20, 2026 to a new maturity date of April 19, 2028; and
•Blended the existing swap rate for this extended swap with the then prevailing interest rate swap rate, which lowered the rate from 4.79% to 3.842%.
Preferred Unit Distributions
The current distribution rate for the Class B Preferred Units is a floating rate of the three-month CME Term SOFR plus a tenor spread adjustment plus a spread of 7.213% (see Note 8 for a further discussion).
The current distribution rate for the Class C Preferred Units is a floating rate of the three-month CME Term SOFR plus a spread of 7.384% (see Note 8 for a further discussion).
The current distribution rate for the Class D Preferred Units is a floating rate of the three-month CME Term SOFR plus a spread of 7.00% (see Note 8 for a further discussion).
Fair Value of Fixed-Rate Notes
The following table provides fair value estimates of our fixed-rate notes at September 30, 2024 (in thousands):
2029 Senior Secured Notes
$
922,500
2032 Senior Secured Notes
$
1,337,917
For the 2029 Senior Secured Notes and 2032 Senior Secured 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
Our operations are organized into three reportable segments: (i) Water Solutions, (ii) Crude Oil Logistics and (iii) Liquids Logistics, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Our Liquids Logistics reportable segment includes operating segments that have been aggregated based on the nature of the products and services provided. Operating income of these segments is reviewed by the chief operating decision maker to evaluate performance and make business decisions. Intersegment transactions are recorded based on prices negotiated between the segments and are eliminated upon consolidation.
See Note 1 for a discussion of the products and services of our reportable segments. The remainder of our business operations is presented as “Corporate and Other” and consists of certain corporate expenses that are not allocated to the reportable segments. The following table summarizes revenues related to our segments for the periods indicated:
28
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
(in thousands)
Revenues:
Water Solutions:
Topic 606 revenues
Disposal service fees (1)
$
155,715
$
161,087
$
303,688
$
310,482
Sale of recovered crude oil
24,708
31,101
55,484
54,118
Sale of water
700
1,768
2,985
6,209
Other service revenues (1)
729
3,022
1,090
7,318
Non-Topic 606 revenues
15
266
30
419
Total Water Solutions revenues
181,867
197,244
363,277
378,546
Crude Oil Logistics:
Topic 606 revenues
Crude oil sales
225,013
475,103
487,622
925,231
Crude oil transportation and other sales
17,048
12,242
32,864
24,288
Non-Topic 606 revenues
1,780
2,505
3,570
4,883
Elimination of intersegment sales
(84)
(137)
(196)
(299)
Total Crude Oil Logistics revenues
243,757
489,713
523,860
954,103
Liquids Logistics:
Topic 606 revenues
Refined products sales
490,869
620,323
1,001,951
1,198,362
Propane sales
89,716
102,266
187,074
213,952
Butane sales
123,494
105,920
221,524
176,078
Other products sales
109,719
102,954
206,916
182,795
Service revenues
4,959
5,519
7,286
6,838
Non-Topic 606 revenues
108,220
217,157
227,972
346,526
Total Liquids Logistics revenues (2)
926,977
1,154,139
1,852,723
2,124,551
Corporate and Other:
Service revenues
74
—
74
—
Total Corporate and Other revenues
74
—
74
—
Total revenues
$
1,352,675
$
1,841,096
$
2,739,934
$
3,457,200
(1) For the three months and six months ended September 30, 2023, $1.7 million and $3.1 million, respectively, of revenue, which was included in Other Service Revenues in our quarterly report on Form 10-Q for the quarter ended September 30, 2023, is now included in Disposal Service Fees.
(2) During the three months ended September 30, 2024 and 2023, our Liquids Logistics revenues included $27.4 million and $31.6 million of non-US revenues, respectively, and during the six months ended September 30, 2024 and 2023, our Liquids Logistics revenues included $51.5 million and $51.2 million of non-US revenues, respectively.
29
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,
2024
2023
2024
2023
(in thousands)
Depreciation and Amortization:
Water Solutions
$
52,584
$
52,114
$
105,358
$
106,599
Crude Oil Logistics
6,285
9,573
12,726
19,319
Liquids Logistics
2,523
2,448
4,999
5,727
Corporate and Other
3,631
5,653
7,132
11,353
Total
$
65,023
$
69,788
$
130,215
$
142,998
Operating Income (Loss):
Water Solutions
$
72,829
$
59,118
$
157,187
$
128,449
Crude Oil Logistics
14,840
14,778
28,929
31,785
Liquids Logistics
(1,133)
23,577
(12,683)
31,408
Corporate and Other
(8,807)
(11,443)
(20,753)
(33,592)
Total
$
77,729
$
86,030
$
152,680
$
158,050
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,
2024
2023
2024
2023
(in thousands)
Water Solutions
$
87,596
$
38,842
$
152,280
$
77,798
Crude Oil Logistics
1,743
1,930
2,839
2,904
Liquids Logistics
3,967
4,597
7,523
8,690
Corporate and Other
909
465
9,104
534
Total
$
94,215
$
45,834
$
171,746
$
89,926
The following tables summarize long-lived assets, net (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, 2024
March 31, 2024
(in thousands)
Long-lived assets, net:
Water Solutions
$
2,649,901
$
2,608,007
Crude Oil Logistics
821,550
827,248
Liquids Logistics (1)
301,855
298,595
Corporate and Other
40,380
34,267
Total
$
3,813,686
$
3,768,117
(1) Includes $7.5 million and $10.2 million of non-US long-lived assets at September 30, 2024 and March 31, 2024, respectively.
30
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
September 30, 2024
March 31, 2024
(in thousands)
Total assets:
Water Solutions
$
2,855,015
$
2,818,444
Crude Oil Logistics
1,282,369
1,368,461
Liquids Logistics (1)
706,900
686,885
Corporate and Other
45,895
79,707
Assets held for sale
—
66,597
Total
$
4,890,179
$
5,020,094
(1) Includes $29.7 million and $22.1 million of non-US total assets at September 30, 2024 and March 31, 2024, 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,
2024
2023
2024
2023
(in thousands)
Sales to entities affiliated with management
$
74
$
—
$
74
$
—
Purchases from equity method investees
$
122
$
419
$
141
$
905
Purchases from entities affiliated with management
$
—
$
—
$
—
$
100
Affiliate balances consist of the following at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Accounts receivable-affiliates
Equity method investees
$
1,501
$
1,501
Entities affiliated with management
68
—
Total
$
1,569
$
1,501
Accounts payable-affiliates
Equity method investees
$
71
$
36
Entities affiliated with management
1
1
Total
$
72
$
37
Other Related Party Transactions
During the three months ended June 30, 2024, we created a new aviation entity whereby we own a 90% interest and a member of our management owns a 10% interest as discussed in Note 15.
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, 2024.
The majority of our revenue agreements are in 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 in the scope of ASC 845 and ASC 842, respectively. See Note 10 for a detail of disaggregated revenue. Revenue from contracts accounted for as derivatives under ASC 815 within our Liquids Logistics segment includes $11.1 million and $43.9 million of net losses, respectively, during the three months and six months ended September 30, 2024 and $57.1 million and $58.8 million of net gains, respectively, during the three months and six months ended September 30, 2023, related to changes in the mark-to-market value of these contracts recorded.
31
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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 utilized 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 contracts.The following table summarizes the amount and timing of revenue recognition for such contracts at September 30, 2024 (in thousands):
Year Ending March 31,
2025 (six months)
$
71,674
2026
84,681
2027
63,716
2028
47,013
2029
45,657
2030
33,021
Thereafter
22,862
Total
$
368,624
Contract Assets and Liabilities
The following tables summarize the balances of our contract assets and liabilities at the dates indicated:
September 30, 2024
March 31, 2024
(in thousands)
Accounts receivable from contracts with customers
$
381,075
$
415,961
Contract liabilities at March 31, 2024
$
16,933
Payment received and deferred
32,251
Payment recognized in revenue
(25,455)
Contract liabilities at September 30, 2024
$
23,729
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 cost for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
(in thousands)
Operating lease cost (1)
$
10,911
$
11,971
$
22,140
$
24,083
Variable lease cost (1)
11,976
8,561
19,562
16,287
Short-term lease cost (1)
670
230
1,293
270
Finance lease cost
Amortization of right-of-use asset (2)
2
1
3
2
Interest on lease obligation (3)
2
3
5
6
Total lease cost
$
23,561
$
20,766
$
43,003
$
40,648
(1) Included in operating expenses in our unaudited condensed consolidated statements of operations.
(2) Included in depreciation and amortization expense in our unaudited condensed consolidated statements of operations.
(3) Included in interest expense in our unaudited condensed consolidated statements of operations.
32
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following table summarizes maturities of our lease obligations at September 30, 2024 (in thousands):
Operating
Finance
Year Ending March 31,
Leases
Lease (1)
2025 (six months)
$
18,838
$
15
2026
30,157
28
2027
23,923
28
2028
20,436
9
2029
11,546
—
2030
5,518
—
Thereafter
20,133
—
Total lease payments
130,551
80
Less imputed interest
(28,773)
(14)
Total lease obligations
$
101,778
$
66
(1) At September 30, 2024, the short-term finance lease obligation of less than $0.1 million is included in accrued expenses and other payables and the long-term finance lease obligation of $0.1 million is included in other noncurrent liabilities in our unaudited condensed consolidated balance sheet.
The following table summarizes supplemental cash flow information related to our leases for the periods indicated:
Six Months Ended September 30,
2024
2023
(in thousands)
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease obligations
Operating cash outflows from operating leases
$
22,489
$
24,266
Operating cash outflows from finance lease
$
5
$
6
Financing cash outflows from finance lease
$
9
$
8
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
18,321
$
26,188
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, 2024 and 2023, fixed rental revenue was $3.8 million, including $1.1 million of sublease revenue, and $4.3 million, including $1.1 million of sublease revenue, respectively. During the six months ended September 30, 2024 and 2023, fixed rental revenue was $7.7 million, including $1.5 million of sublease revenue, and $8.7 million, including $2.1 million of sublease revenue, respectively.
The following table summarizes future minimum lease payments to be received under various noncancelable operating lease agreements at September 30, 2024 (in thousands):
Year Ending March 31,
2025 (six months)
$
6,502
2026
11,850
2027
10,537
2028
7,465
2029
2,083
2030
1,064
Thereafter
1,806
Total
$
41,307
33
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 14—Allowance for Current Expected Credit Losses (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 the 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.
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 for expected credit losses. 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 for the period indicated:
Accounts Receivable - Trade
Notes Receivable and Other
(in thousands)
Allowance for expected credit losses at March 31, 2024
$
1,671
$
152
Change in provision for expected credit losses
1,566
154
Dispositions (see Note 15)
(147)
—
Write-offs charged against the provision
(158)
—
Allowance for expected credit losses at September 30, 2024
$
2,932
$
306
Note 15—Other Matters
Acquisition of Airplane
As discussed in Note 11, during the three months ended June 30, 2024, we created a new aviation entity whereby we own a 90% interest and a member of our management owns a 10% interest. The aviation entity is considered a VIE (see Note 2). During the three months ended June 30, 2024, the aviation entity purchased an airplane for total consideration of $8.1 million, of which $1.7 million was paid in cash and $6.4 million was a note payable (see Note 6). We also executed a guarantee for the benefit of the lender for the outstanding loan. As part of this transaction, the noncontrolling interest holder has an option to require that we purchase its interest in the aviation entity. Due to this put option, activity for the noncontrolling interest holder has been recorded as redeemable noncontrolling interest in our September 30, 2024 unaudited condensed consolidated balance sheet (see Note 2).
Dispositions
Sale of Certain Saltwater Disposal Assets
On August 1, 2024, we retained a 51% voting interest and sold a minority interest in certain saltwater disposal assets in the Eagle Ford Basin to a third-party for total consideration of $1.5 million, of which $0.025 million was in cash and $1.475 million was a loan receivable. The loan receivable matures on September 30, 2025 with quarterly principal payments starting on December 31, 2024. The disposition of this interest was accounted for as an equity transaction, no gain or loss was recorded and the carrying value of the noncontrolling interest was adjusted to reflect the change in ownership interest of the subsidiary.
Sale of Certain Freshwater Water Solutions Facilities
On April 5, 2024, we sold approximately 122,250 acres of real estate on two ranches located in Eddy and Lea Counties, New Mexico and certain intangible assets to a third-party for total consideration of $68.5 million in cash, including working capital. Our two ranches include fee, state and federal agricultural leased property, certain water rights, freshwater
34
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
wells, and related freshwater infrastructure. See below summary of assets and liabilities held for sale at March 31, 2024. We recorded a gain of $2.6 million on the sale within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations for the six months ended September 30, 2024.
Sale of Certain Saltwater Disposal Assets
On April 15, 2024, we sold certain saltwater disposal assets and intangible assets in the Delaware Basin to a third-party for total consideration of $4.2 million in cash. The buyer also assumed certain asset retirement obligations associated with the saltwater disposal assets. See below summary of assets and liabilities held for sale at March 31, 2024. As discussed below, we recorded a loss of $1.6 million to write down these assets to fair value less cost to sell within loss on disposal or impairment of assets, net in our consolidated statement of operations for the year ended March 31, 2024. We also recorded a gain of $0.1 million on the sale within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations for the six months ended September 30, 2024.
Sale of Certain Real Estate
On May 14, 2024, we sold approximately 1,400 acres of real estate located in Lea County, New Mexico to a third-party for total consideration of $8.0 million in cash. See below summary of assets and liabilities held for sale at March 31, 2024. We recorded a gain of $7.3 million on the sale within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations for the six months ended September 30, 2024.
Assets and Liabilities Held for Sale
As previously reported, at March 31, 2024, we met the criteria for classifying the assets and liabilities of certain freshwater water solutions facilities, certain saltwater disposal assets and certain real estate as held for sale. Upon classification as held for sale, we recorded a loss of $1.6 million to write down certain saltwater disposal assets to fair value less cost to sell within loss on disposal or impairment of assets, net in our consolidated statement of operations for the year ended March 31, 2024, and a valuation allowance included in assets held for sale in our March 31, 2024 consolidated balance sheet. The following table summarizes the major classes of assets and liabilities classified as held for sale at March 31, 2024 (in thousands):
Assets Held for Sale
Accounts receivable-trade, net
$
565
Prepaid expenses and other current assets
13
Property, plant and equipment, net
14,354
Goodwill
4,108
Intangible assets, net
49,179
Valuation allowance on assets held for sale
(1,622)
Total assets held for sale
$
66,597
Liabilities Held for Sale
Accounts payable-trade
$
63
Accrued expenses and other payables
31
Advance payments received from customers
164
Other noncurrent liabilities
356
Total liabilities held for sale
$
614
As these sale transactions did not represent a strategic shift that will have a major effect on our operations or financial results, operations related to these portions of our Water Solutions segment have not been classified as discontinued operations.
Note 16—Subsequent Events
On November 11, 2024, we entered into an agreement to purchase 23,375,000 of our outstanding warrants for approximately $6.9 million. This transaction is expected to close on November 22, 2024.
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, 2024. 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, 2024 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on June 6, 2024.
Overview
We are a Delaware master limited partnership. NGL Energy Holdings LLC serves as our general partner (“GP”). At September 30, 2024, 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.
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,
2024
2023
2024
2023
(in thousands)
Revenues
$
1,352,675
$
1,841,096
$
2,739,934
$
3,457,200
Cost of sales
1,121,195
1,578,448
2,294,403
2,957,777
Operating expenses
78,132
77,389
150,665
154,070
General and administrative expense
12,179
17,496
27,193
37,787
Depreciation and amortization
61,931
65,526
124,150
134,505
Loss (gain) on disposal or impairment of assets, net
1,509
16,207
(9,157)
15,011
Operating income
77,729
86,030
152,680
158,050
Equity in earnings of unconsolidated entities
1,522
851
1,822
942
Interest expense
(77,404)
(58,627)
(147,143)
(118,149)
Gain on early extinguishment of liabilities, net
—
63
—
6,871
Other income, net
1,822
310
1,989
616
Income before income taxes
3,669
28,627
9,348
48,330
Income tax (expense) benefit
(278)
(342)
4,518
(482)
Net income
3,391
28,285
13,866
47,848
Less: Net income attributable to nonredeemable noncontrolling interests
(932)
(257)
(1,724)
(519)
Less: Net income attributable to redeemable noncontrolling interests
(5)
—
(5)
—
Net income attributable to NGL Energy Partners LP
$
2,454
$
28,028
$
12,137
$
47,329
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 commodity price volatility, demand fluctuations, acquisitions, dispositions and other transactions. Our results of operations for the three months and six months ended September 30, 2024 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2025.
Disposition transactions impact the comparability of our results of operations between our current and prior fiscal years. See Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of dispositions that occurred during the current fiscal year.
Other Developments
Global Pandemic, International Conflicts and Market Update
Since March 2020, and throughout the last four years, global markets and commodity prices have been extremely volatile due to the impacts from the COVID-19 pandemic, with further impacts on volatility caused by the war in Ukraine that began in February 2022, the current conflict between Israel and Hamas that began in October 2023 and conflicts involving Iran and its proxy forces. While we have seen continued recovery in commodity prices since the beginning of the pandemic, there is still volatility that we expect to continue at least for the near-term and possibly longer, due to these conflicts. This volatility could result in economic recession or depression and negatively impact future prices for crude oil, natural gas, petroleum products and industrial products.
In addition, if we see a continuation or acceleration of inflationary conditions, rising interest rates, supply chain disruptions and tight labor markets, we may also see higher costs of operating our assets and executing on our capital projects in fiscal year 2025. In an effort to curb inflation, the U.S. Federal Reserve raised interest rates during fiscal year 2023, in May 2023 and most recently in July 2023. If the U.S. Federal Reserve implements additional increases, costs under our variable-rate debt and preferred units will increase (see “Item 3. Quantitative and Qualitative Disclosures About Market Risk–Interest Rate Risk” included in this Quarterly Report). On the other hand, our ability to pass along rate increases reflecting changes in producer and/or consumer price indices to our customers, under our contracts, should help to counterbalance the impact of inflation on our costs.
Seismic Activity
The subsurface injection of produced water for disposal has been associated with induced seismic events in Texas and New Mexico. While these events have been of relatively low magnitude, industry and relevant state regulators are, nevertheless, taking proactive measures to attempt to prevent similar induced seismic events. More specifically, we are engaged in various collaborative industry efforts with other disposal operators and relevant state regulatory agencies, working to collect and review data, enhance understanding of regional fault systems, and ultimately develop and implement appropriate longer-term mitigation strategies. As part of this effort, we have implemented reductions in injected volumes at certain facilities, and where appropriate have temporarily shut-in facilities. To date, due to the capacity of our integrated system in the affected areas, the diverse locations of our disposal facilities, and the connectivity of our system, our ability to dispose of produced water has not been materially impacted by these actions, and with our unique positioning outside of the affected areas, we have the ability to grow our asset base.
Regulatory Developments
On March 6, 2024, the SEC adopted a new set of rules that require a wide range of climate-related disclosures, including material climate-related risks, information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition, Scope 1 and Scope 2 greenhouse gas emissions on a phased-in basis by certain larger registrants when those emissions are material and the filing of an attestation report covering the same, and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC’s new climate rules, which have been consolidated and will be heard in the U.S. Court of Appeals for the Eighth Circuit. On April 4, 2024, the SEC issued an order staying the final rules until judicial review is complete.
Subsequent Events
See Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of transactions that occurred subsequent to September 30, 2024.
Segment Operating Results for the Three Months Ended September 30, 2024 and 2023
Water Solutions
The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
Three Months Ended September 30,
2024
2023
Change
(in thousands, except per barrel and per day amounts)
Revenues:
Water disposal service fees
$
148,241
$
154,751
$
(6,510)
Sale of recovered crude oil
24,708
31,101
(6,393)
Recycled water
679
947
(268)
Other revenues
8,239
10,445
(2,206)
Total revenues
181,867
197,244
(15,377)
Expenses:
Cost of sales-excluding impact of derivatives
1,752
2,952
(1,200)
Derivative (gain) loss
(2,319)
4,472
(6,791)
Operating expenses
53,611
53,867
(256)
General and administrative expenses
1,520
1,183
337
Depreciation and amortization expense
52,523
52,053
470
Loss on disposal or impairment of assets, net
1,951
23,599
(21,648)
Total expenses
109,038
138,126
(29,088)
Segment operating income
$
72,829
$
59,118
$
13,711
Produced water processed (barrels per day)
Delaware Basin
2,349,333
2,156,733
192,600
Eagle Ford Basin
188,250
138,509
49,741
DJ Basin
143,947
146,124
(2,177)
Total
2,681,530
2,441,366
240,164
Recycled water (barrels per day)
92,301
35,341
56,960
Total (barrels per day)
2,773,831
2,476,707
297,124
Skim oil sold (barrels per day) (1)
3,776
4,378
(602)
Service fees for produced water processed ($/barrel) (2)(3)
$
0.60
$
0.69
$
(0.09)
Recovered crude oil for produced water processed ($/barrel) (2)
$
0.10
$
0.14
$
(0.04)
Operating expenses for produced water processed ($/barrel) (2)
$
0.22
$
0.24
$
(0.02)
(1) As of June 30, 2023, approximately 53,000 barrels of skim oil were stored and were sold during the three months ended September 30, 2023.
(2) Total produced water barrels processed during the three months ended September 30, 2024 and 2023 were 246,700,755 and 224,605,594, respectively. These amounts do not include 7,693,542 barrels and 20,763,928 barrels for the three months ended September 30, 2024 and 2023, respectively, related to payments received from producers for committed volumes not delivered, as discussed further below.
(3) Excluding payments made by certain producers for committed volumes not delivered and the one-time item discussed below, service fees for produced water processed ($/barrel) would have been $0.59/barrel and $0.62/barrel during the three months ended September 30, 2024 and 2023, respectively.
Water Disposal Service Fee Revenues. During July 2023, we entered into a transaction in which a portion of the total consideration received was allocated to revenue due to the termination of a minimum volume water disposal contract. Also, revenue was higher in the prior year quarter due to the timing and recognition of payments made by certain producers for committed volumes not delivered. Excluding these items, revenue increased due primarily to an increase in produced water volumes processed from contracted customers and higher fees charged for interruptible spot volumes. These increases were partially offset by lower fees for produced water processed during the quarter due to rate changes for certain existing contracts, the expiration of certain higher fee per barrel contracts which were replaced with lower fee per barrel contracts with an extended term and higher volumes received under contracts with lower fees per barrel.
Recovered Crude Oil Revenues. The decrease was due primarily to a decrease in skim oil barrels sold as a result of lower skim oil recovered as certain producers recycled their water for use in their operations, lower realized crude oil prices
received from the sale of skim oil barrels and the sale during the prior year quarter of approximately 53,000 barrels of skim oil that were stored at June 30, 2023 due to tighter pipeline specifications.
Recycled Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The decrease was due primarily to lower pricing for recycled water, partially offset by an increase in recycled water volumes related to timing of water to be used in completions.
Other Revenues. Other revenues primarily include reimbursements from construction projects, booster operating fees and generator rentals, water pipeline revenues, solids disposal revenues, land surface use revenues and brackish non-potable water revenues. The decrease was due primarily to lower land surface use revenues, mining revenues and lease revenue from certain surface use and compensation agreements primarily due to the sale of our ranches in April 2024 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report). We also had lower reimbursements from construction projects. These decreases were partially offset by higher reimbursements from booster operating fees and generator rentals.
Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to lower third-party disposal fees, lower recycling costs and lower trucking expenses related to skim oil sales.
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 produced water and selling recovered skim oil. During the three months ended September 30, 2024, we had $0.4 million of net unrealized losses on derivatives and $2.7 million of net realized gains on derivatives. During the three months ended September 30, 2023, we had $4.5 million of net unrealized losses on derivatives and less than $0.1 million of net realized losses on derivatives.
Operating and General and Administrative Expenses. The increase was due primarily to higher business insurance expense for remediation costs incurred, higher utilities expense due to increased produced water volumes processed and lower severance taxes in the prior year quarter as a result of a severance tax refund received in September 2023 that related to prior periods. These increases were partially offset by lower chemical expense due to purchasing fewer chemicals and using chemicals more efficiently and lower repairs and maintenance expense due to the timing of repairs and tank cleaning.
Depreciation and Amortization Expense. The increase was due primarily to depreciation of newly developed facilities and infrastructure, partially offset by certain long-term assets being fully amortized, impaired or sold during the fiscal year ended March 31, 2024 and six months ended September 30, 2024.
Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2024, we recorded a net loss of $3.5 million primarily related to the write down of the value of certain saltwater disposal wells as well as abandonment of certain capital projects and the retirement of certain other assets. In addition, we recorded a gain of $1.5 million from insurance recoveries for certain saltwater disposal facilities and boosters damaged in a prior period. During the three months ended September 30, 2023, we recorded a net loss of $21.2 million primarily related to the sale of certain assets and a net loss of $2.4 million related to the abandonment of certain capital projects and the retirement of certain assets.
The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
Three Months Ended September 30,
2024
2023
Change
(in thousands, except per barrel amounts)
Revenues:
Crude oil sales
$
225,013
$
475,103
$
(250,090)
Crude oil transportation and other sales
18,828
14,747
4,081
Total revenues (1)
243,841
489,850
(246,009)
Expenses:
Cost of sales-excluding impact of derivatives
216,593
439,698
(223,105)
Derivative (gain) loss
(4,361)
15,366
(19,727)
Operating expenses
10,249
9,946
303
General and administrative expenses
677
956
(279)
Depreciation and amortization expense
6,285
9,573
(3,288)
Gain on disposal or impairment of assets, net
(442)
(467)
25
Total expenses
229,001
475,072
(246,071)
Segment operating income
$
14,840
$
14,778
$
62
Crude oil sold (barrels)
2,868
5,636
(2,768)
Crude oil transported on owned pipelines (barrels)
5,807
6,484
(677)
Crude oil storage capacity - owned and leased (barrels) (2)
5,232
5,232
—
Crude oil storage capacity leased to third-parties (barrels) (2)
1,650
2,250
(600)
Crude oil inventory (barrels) (2)
450
660
(210)
Crude oil sold ($/barrel)
$
78.456
$
84.298
$
(5.842)
Cost per crude oil sold ($/barrel) (3)
$
75.521
$
78.016
$
(2.495)
Crude oil product margin ($/barrel) (3)
$
2.935
$
6.282
$
(3.347)
(1) Revenues include $0.1 million and $0.1 million of intersegment sales during the three months ended September 30, 2024 and 2023, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2024 and September 30, 2023, respectively.
(3) Cost and product margin per barrel excludes the impact of derivatives.
Crude Oil Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to lower sales volumes due to lower production on acreage dedicated to us in the DJ Basin during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Lower crude oil prices also contributed to the decrease.
The decrease in the crude oil product margin was primarily due to lower contracted volumes purchased and sold year over year as discussed above. Crude oil product margin per barrel decreased during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to the sale of higher priced inventory into a market in which prices were declining, whereas during the three months ended September 30, 2023, we experienced the opposite in which we were selling lower priced inventory into a market in which prices were increasing. This decrease is partially offset by higher price and quality differentials realized in the current period compared to the prior period. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin.
Derivative (Gain) Loss. Our cost of sales during the three months ended September 30, 2024 included $0.3 million of net realized gains on derivatives and $4.0 million of net unrealized gains on derivatives. Our cost of sales during the three months ended September 30, 2023 included $10.8 million of net realized losses on derivatives and $4.6 million of net unrealized losses on derivatives. The amounts for the three months ended September 30, 2023 included net realized gains of $9.4 million and net unrealized losses of $4.8 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below under “Non-GAAP Financial Measures.” The CMA hedge expired as of December 31, 2023 and we did not enter into another hedge.
Crude Oil Transportation and Other Sales. The increase was primarily due to higher tariff revenue on the Grand Mesa Pipeline as a result of signing on a new shipper during the open season that ended January 5, 2024. Additionally, the three months ended September 30, 2024 also benefited from higher terminaling revenue from an acreage dedication in the Eagle Ford Basin as compared to the three months ended September 30, 2023. These increases were partially offset by lower storage fees at our Cushing terminal during the three months ended September 30, 2024, compared to the prior period.
During the three months ended September 30, 2024, physical volumes on the Grand Mesa Pipeline averaged approximately 63,000 barrels per day, compared to approximately 70,000 barrels per day during the three months ended September 30, 2023. Lower contracted volumes were shipped on the Grand Mesa Pipeline due to lower production on acreage dedicated to us in the DJ Basin.
Operating and General and Administrative Expenses. The increase was primarily due to higher ad valorem taxes due to higher assessed values on our Grand Mesa Pipeline assets in the State of Colorado, which we are currently protesting, and higher compensation expense incurred during the three months ended September 30, 2024. These increases were partially offset by lower utilities expense on the Grand Mesa Pipeline and at our Cushing terminal due to lower volumes flowing through the system during the three months ended September 30, 2024, compared to the three months ended September 30, 2023.
Depreciation and Amortization Expense. The decrease was primarily due to certain assets becoming fully depreciated during the year ended March 31, 2024.
Gain on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2024, we recorded a net gain of $0.4 million primarily due to a gain on the sale of certain assets. During the three months ended September 30, 2023, we recorded a net gain of $0.5 million primarily due to disposals and retirements of certain real estate assets.
Natural gas liquids and refined products storage capacity - owned and leased (gallons) (1)
124,141
157,589
(33,448)
Refined products sold (gallons)
206,915
209,919
(3,004)
Refined products sold ($/gallon)
$
2.372
$
2.955
$
(0.583)
Cost per refined products sold ($/gallon) (2)
$
2.360
$
2.928
$
(0.568)
Refined products product margin ($/gallon) (2)
$
0.012
$
0.027
$
(0.015)
Refined products inventory (gallons) (1)
1,404
707
697
Propane sold (gallons)
108,589
129,988
(21,399)
Propane sold ($/gallon)
$
0.832
$
0.791
$
0.041
Cost per propane sold ($/gallon) (2)
$
0.818
$
0.734
$
0.084
Propane product margin ($/gallon) (2)
$
0.014
$
0.057
$
(0.043)
Propane inventory (gallons) (1)
80,323
115,491
(35,168)
Butane sold (gallons)
109,783
108,085
1,698
Butane sold ($/gallon)
$
1.126
$
0.983
$
0.143
Cost per butane sold ($/gallon) (2)
$
1.050
$
0.878
$
0.172
Butane product margin ($/gallon) (2)
$
0.076
$
0.105
$
(0.029)
Butane inventory (gallons) (1)
81,441
92,651
(11,210)
Other products sold (gallons)
121,317
100,389
20,928
Other products sold ($/gallon)
$
1.872
$
2.598
$
(0.726)
Cost per other products sold ($/gallon) (2)
$
1.899
$
2.585
$
(0.686)
Other products product (loss) margin ($/gallon) (2)
$
(0.027)
$
0.013
$
(0.040)
Other products inventory (gallons) (1)
12,813
18,012
(5,199)
(1) Information is presented as of September 30, 2024 and September 30, 2023, respectively.
(2) Cost and product margin (loss) per gallon excludes the impact of derivatives.
Refined Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, during the three months ended September 30, 2024 were primarily due to lower prices during the current quarter and a decrease in volumes due to lower demand.
Refined Products product margins, excluding the impact of derivatives, decreased during the three months ended September 30, 2024. This decrease was primarily related to lower commodity prices, aggressive prices in the market from our competitors and lower volumes in some key markets due to supplier issues.
Refined Products Derivative (Gain) Loss. Our Refined Products product margin during the three months ended September 30, 2024 included realized gains of less than $0.1 million and the three months ended September 30, 2023 included realized losses of $0.1 million.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to lower volumes. Volumes decreased due to lower contracted volumes during the three months ended September 30, 2024, due to reduced retail customer demand. This decrease was partially offset by higher average propane prices during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Propane product margins, excluding the impact of derivatives, decreased during the three months ended September 30, 2024 due to lower volumes and selling higher priced inventory into a market in which prices were declining. During the three months ended September 30, 2023, we sold lower priced inventory into a market in which prices were increasing. Also, we incurred higher than anticipated costs to clean and repair railcars coming off lease during the three months ended September 30, 2024.
Propane Derivative (Gain) Loss. Our cost of propane sales during the three months ended September 30, 2024 included net unrealized losses of $1.1 million on derivatives and $2.6 million of net realized gains on derivatives. Our cost of propane sales during the three months ended September 30, 2023 included $0.9 million of net unrealized gains on derivatives
and $3.7 million of net realized losses on derivatives.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in sales and cost of sales, excluding the impact of derivatives, were primarily due to increased commodity prices during the three months ended September 30, 2024 compared to prices during the three months ended September 30, 2023. The increase was also due to a strong start to the gasoline blending season and stronger exports during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Butane product margins, excluding the impact of derivatives, decreased primarily due to the prior year period benefiting from a lower of cost or realizable value adjustment recorded during the three months ended June 30, 2023. Excluding this adjustment, margins increased due to increased commodity prices and volumes during the three months ended September 30, 2024.
Butane Derivative Loss. Our cost of butane sales during the three months ended September 30, 2024 included $5.2 million of net unrealized losses on derivatives and $0.3 million of net realized losses on derivatives. Our cost of butane sales during the three months ended September 30, 2023 included $4.5 million of net unrealized losses on derivatives and $3.1 million of net realized gains on derivatives.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due to a decrease in commodity prices, primarily biodiesel prices and prices for renewable identification numbers (“RINs”), during the three months ended September 30, 2024 compared with the three months ended September 30, 2023. This was offset by increased biodiesel volumes and increased sales of asphalt due to consistent supply of product compared to the prior year.
Other products sales product margins, excluding the impact of derivatives, decreased during the three months ended September 30, 2024 due to selling higher priced biodiesel inventory into a market in which prices were declining. We had entered into long-term biodiesel contracts in the prior year, when the prices were higher, for delivery in the current period.
Other Products Derivative Gain. Our derivatives of other products during the three months ended September 30, 2024 included $2.9 million of net unrealized losses on derivatives and $9.4 million of net realized gains on derivatives. Our derivatives of other products during the three months ended September 30, 2023 included $0.5 million of net unrealized gains on derivatives and $6.4 million of net realized gains on derivatives.
Service Sales and Cost of Sales. The sales includes storage, terminaling and transportation services income. Terminal sales and cost of sales decreased during the three months ended September 30, 2024 due to the timing of volumes received under a six-month throughput volume commitment, as higher volumes were received during the three months ended June 30, 2024, as compared to the prior year period.
Operating and General and Administrative Expenses. The increase during the three months ended September 30, 2024 compared to three months ended September 30, 2023 is due primarily to an increase to the provision for expected credit losses and an increase in sales commissions.
Depreciation and Amortization Expense. Depreciation and amortization expense remained consistent year over year.
Gain on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2023, we recorded a net gain of $6.9 million on the sale of two terminals in July 2023.
The operating loss within “Corporate and Other” includes the following components for the periods indicated:
Three Months Ended September 30,
2024
2023
Change
(in thousands)
Other Revenues
Service revenues
$
74
$
—
$
74
Cost of sales
Derivative gain
—
(3,381)
3,381
Expenses:
General and administrative expenses
8,179
13,307
(5,128)
Depreciation and amortization expense
702
1,517
(815)
Total expenses
8,881
14,824
(5,943)
Operating loss
$
(8,807)
$
(11,443)
$
2,636
Service Revenues. These revenues relate to payments made by the noncontrolling interest holder for usage of the airplane acquired in June 2024.
Cost of Sales - Derivative Gain. Our cost of sales during the three months ended September 30, 2023 included $0.8 million of net realized gains on derivatives and $2.6 million of net unrealized gains on derivatives. We entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices that drive our working capital demands. There were no open hedge positions that would impact cost of sales as of September 30, 2024.
General and Administrative Expenses. The expenses during the three months ended September 30, 2024 decreased due to lower legal expenses as several large cases ended, the reimbursement of legal expenses relating to a dispute associated with commercial activities in prior periods and lower compensation expense due to the elimination of share-based compensation expense due to all outstanding long-term incentive plan awards being fully vested in November 2023. Business insurance was also lower for the period, as we paid an insurance company to be released from any future supplementary calls on our indemnity policy related to our former crude marine business (which was sold on March 30, 2023) during the three months ended September 30, 2023, as well as accruing for higher claims in the prior year. These decreases were partially offset by higher incentive compensation expense.
Depreciation and Amortization Expense. The decrease during the three months ended September 30, 2024 was due to software that became fully depreciated during the year ended March 31, 2024.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated entities was $1.5 million during the three months ended September 30, 2024, compared to $0.9 million during the three months ended September 30, 2023. The increase of $0.7 million during the three months ended September 30, 2024 was due primarily to higher earnings from certain membership interests related to specific land and water services operations and a lower loss from our interest in an aircraft company which was dissolved on April 30, 2024.
The following table summarizes the components of our consolidated interest expense for the periods indicated:
Three Months Ended September 30,
2024
2023
Change
(in thousands)
Senior secured notes
$
45,500
$
38,437
$
7,063
Senior secured term loan “B” credit facility (“Term Loan B”)
16,668
—
16,668
ABL Facility
6,401
5,203
1,198
Senior unsecured notes
—
10,297
(10,297)
Other indebtedness
(70)
554
(624)
Total debt interest expense
68,499
54,491
14,008
Amortization of debt issuance costs
2,929
4,136
(1,207)
Unrealized loss on interest rate swaps
7,027
—
7,027
Realized gain on interest rate swaps
(1,051)
—
(1,051)
Total interest expense
$
77,404
$
58,627
$
18,777
The debt interest expense increased $14.0 million during the three months ended September 30, 2024 primarily due to higher interest rates on Term Loan B, the $900.0 million of 8.125% senior secured notes that mature on February 15, 2029 (“2029 Senior Secured Notes”) and the $1.3 billion of 8.375% senior secured notes that mature on February 15, 2032 (“2032 Senior Secured Notes”).
Gain on Early Extinguishment of Liabilities, Net
Gain on early extinguishment of liabilities, net of $0.1 million during the three months ended September 30, 2023 consisted of debt issuance costs previously written off that were reversed. We did not repurchase any debt during the three months ended September 30, 2024.
Other Income, Net
Other income, net of $1.8 million during the three months ended September 30, 2024 consisted of an unrealized gain on an investment and interest income on loan receivables. Other income, net of $0.3 million during the three months ended September 30, 2023 consisted primarily of interest income on loan receivables (see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).
Income Tax Expense
Income tax expense was $0.3 million during the three months ended September 30, 2024, compared to income tax expense of $0.3 million during the three months ended September 30, 2023. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Noncontrolling Interests - Redeemable and Nonredeemable
Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third-parties. Noncontrolling interest income was $0.9 million during the three months ended September 30, 2024, compared to $0.3 million during the three months ended September 30, 2023. The increase of $0.7 million during the three months ended September 30, 2024 was due primarily to higher income from certain water solutions operations.
Segment Operating Results for theSix Months Ended September 30, 2024 and 2023
Water Solutions
The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
Six Months Ended September 30,
2024
2023
Change
(in thousands, except per barrel and per day amounts)
Revenues:
Water disposal service fees
$
289,239
$
297,703
$
(8,464)
Sale of recovered crude oil
55,484
54,118
1,366
Recycled water
2,939
5,167
(2,228)
Other revenues
15,615
21,558
(5,943)
Total revenues
363,277
378,546
(15,269)
Expenses:
Cost of sales-excluding impact of derivatives
3,577
5,521
(1,944)
Derivative (gain) loss
(3,144)
4,472
(7,616)
Operating expenses
106,436
108,949
(2,513)
General and administrative expenses
2,731
2,361
370
Depreciation and amortization expense
105,235
106,476
(1,241)
(Gain) loss on disposal or impairment of assets, net
(8,745)
22,318
(31,063)
Total expenses
206,090
250,097
(44,007)
Segment operating income
$
157,187
$
128,449
$
28,738
Produced water processed (barrels per day)
Delaware Basin
2,255,861
2,154,906
100,955
Eagle Ford Basin
182,311
135,737
46,574
DJ Basin
135,867
157,745
(21,878)
Other Basins
—
1,481
(1,481)
Total
2,574,039
2,449,869
124,170
Recycled water (barrels per day)
98,334
67,213
31,121
Total (barrels per day)
2,672,373
2,517,082
155,291
Skim oil sold (barrels per day) (1)
4,099
4,046
53
Service fees for produced water processed ($/barrel) (2)(3)
$
0.61
$
0.66
$
(0.05)
Recovered crude oil for produced water processed ($/barrel) (2)
$
0.12
$
0.12
$
—
Operating expenses for produced water processed ($/barrel) (2)
$
0.23
$
0.24
$
(0.01)
(1) As of March 31, 2023, approximately 34,380 barrels of skim oil were stored and were sold during the six months ended September 30, 2023.
(2) Total produced water barrels processed during the six months ended September 30, 2024 and 2023 were 471,049,065 and 448,325,889, respectively. These amounts do not include 19,393,348 barrels and 23,873,967 barrels for the six months ended September 30, 2024 and 2023, respectively, related to payments received from producers for committed volumes not delivered, as discussed further below.
(3) Excluding the one-time item discussed below, service fees for produced water processed ($/barrel) would have been $0.64/barrel during the six months ended September 30, 2023.
Water Disposal Service Fee Revenues. During July 2023, we entered into a transaction in which a portion of the total consideration received was allocated to revenue due to the termination of a minimum volume water disposal contract. Excluding this item, revenue decreased due primarily to lower fees for produced water processed during the period due to rate changes for certain existing contracts, the expiration of certain higher fee per barrel contracts which were replaced with lower fee per barrel contracts with an extended term and higher volumes received under contracts with lower fees per barrel. These decreases were partially offset by an increase in produced water volumes processed from contracted customers and higher fees charged for interruptible spot volumes.
Recovered Crude Oil Revenues. The increase was due primarily to an increase in skim oil barrels sold from increased produced water processed and higher realized crude oil prices received from the sale of skim oil barrels, partially offset by
certain producers recycling their water for use in their operations. Also, during the six months ended September 30, 2023, we sold approximately 34,380 barrels of skim oil that were stored as of March 31, 2023 due to tighter pipeline specifications.
Recycled Water Revenues. The decrease was due primarily to lower pricing for recycled water, partially offset by an increase in recycled water volumes related to timing of water to be used in completions.
Other Revenues. The decrease was due primarily to lower land surface use revenues, mining revenues and lease revenue from certain surface use and compensation agreements primarily due to the sale of our ranches in April 2024 (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report). We also had lower reimbursements from construction projects. These decreases were partially offset by higher reimbursements from booster operating fees and generator rentals.
Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to lower recycling costs and lower third-party disposal fees, partially offset by costs incurred that will be reimbursed by producers for generator and fuel costs at various booster stations.
Derivative (Gain) Loss. During the six months ended September 30, 2024, we had $0.5 million of net unrealized gains on derivatives and $2.7 million of net realized gains on derivatives. During the six months ended September 30, 2023, we had $4.5 million of net unrealized losses on derivatives and less than $0.1 million of net realized losses on derivatives.
Operating and General and Administrative Expenses. The decrease was due primarily to lower chemical expense due to purchasing fewer chemicals and using chemicals more efficiently and lower repairs and maintenance expense due to the timing of repairs and tank cleaning. These decreases were partially offset by higher utilities expense due to increased produced water volumes processed, higher business insurance expense for remediation costs incurred and lower severance taxes in the prior year quarter as a result of a severance tax refund in September 2023 related to prior periods.
Depreciation and Amortization Expense. The decrease was due primarily to certain long-term assets being fully amortized, impaired or sold during the fiscal year ended March 31, 2024 and six months ended September 30, 2024, partially offset by depreciation of newly developed facilities and infrastructure.
(Gain) Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2024, we recorded a net gain of $10.5 million primarily related to the sale of certain assets (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report) and a gain of $1.8 million from insurance recoveries for certain saltwater disposal facilities and boosters damaged in a prior period. In addition, we recorded a net loss of $3.6 million primarily related to the write down of the value of certain saltwater disposal wells as well as abandonment of certain capital projects and the retirement of certain other assets. During the six months ended September 30, 2023, we recorded a net loss of $16.2 million primarily related to the sale of certain assets and a net loss of $6.1 million related to the abandonment of certain capital projects and the retirement of certain assets.
The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
Six Months Ended September 30,
2024
2023
Change
(in thousands, except per barrel amounts)
Revenues:
Crude oil sales
$
487,622
$
925,231
$
(437,609)
Crude oil transportation and other sales
36,434
29,171
7,263
Total revenues (1)
524,056
954,402
(430,346)
Expenses:
Cost of sales-excluding impact of derivatives
467,044
872,379
(405,335)
Derivative (gain) loss
(5,203)
8,146
(13,349)
Operating expenses
19,590
20,409
(819)
General and administrative expenses
1,382
1,935
(553)
Depreciation and amortization expense
12,726
19,319
(6,593)
(Gain) loss on disposal or impairment of assets, net
(412)
429
(841)
Total expenses
495,127
922,617
(427,490)
Segment operating income
$
28,929
$
31,785
$
(2,856)
Crude oil sold (barrels)
6,042
11,643
(5,601)
Crude oil transported on owned pipelines (barrels)
11,520
13,047
(1,527)
Crude oil storage capacity - owned and leased (barrels) (2)
5,232
5,232
—
Crude oil storage capacity leased to third-parties (barrels) (2)
1,650
2,250
(600)
Crude oil inventory (barrels) (2)
450
660
(210)
Crude oil sold ($/barrel)
$
80.705
$
79.467
$
1.238
Cost per crude oil sold ($/barrel) (3)
$
77.300
$
74.927
$
2.373
Crude oil product margin ($/barrel) (3)
$
3.405
$
4.540
$
(1.135)
(1) Revenues include $0.2 million and $0.3 million of intersegment sales during the six months ended September 30, 2024 and 2023, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2) Information is presented as of September 30, 2024 and September 30, 2023, respectively.
(3) Cost and product margin per barrel excludes the impact of derivatives.
Crude Oil Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to lower sales volumes due to lower production on acreage dedicated to us in the DJ Basin during the six months ended September 30, 2024, compared to the six months ended September 30, 2023. This decrease was partially offset by higher crude oil prices and price differentials.
During the six months ended September 30, 2024, product margin decreased primarily due to the lower contracted volumes shipped on the Grand Mesa Pipeline, which is discussed above. During the six months ended September 30, 2024, margin per barrel decreased as higher priced inventory was sold into a market of declining prices. In the prior year period, while we experienced a decline in margin due to declining prices during the three months ended June 30, 2023, the market experienced a steeper increase in prices during the three months ended September 30, 2023, which resulted in improved margins for the prior period. The decrease in margin per barrel year over year is partially offset by higher price and quality differentials realized in the current period compared to the prior period. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin.
Derivative (Gain) Loss. Our cost of sales during the six months ended September 30, 2024 included $0.8 million of net realized losses on derivatives and $6.0 million of net unrealized gains on derivatives. Our cost of sales during the six months ended September 30, 2023 included $1.5 million of net realized gains on derivatives and $9.7 million of net unrealized losses on derivatives. The amounts for the six months ended September 30, 2023 included net realized gains of $0.7 million and net unrealized gains of $0.4 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below under “Non-GAAP Financial Measures.” The CMA hedge expired as of December 31, 2023 and we did not enter into another hedge.
Crude Oil Transportation and Other Sales. The increase was primarily due to higher tariff revenue on the Grand Mesa Pipeline as a result of signing a new shipper during the open season that ended on January 5, 2024. Additionally, the six months ended September 30, 2024 also benefited from higher terminaling revenue from an acreage dedication in the Eagle Ford Basin as compared to the prior period. These increases were partially offset by lower throughput fees due to lower volumes, and lower storage fees at our Cushing terminal during the six months ended September 30, 2024, compared to the prior period.
During the six months ended September 30, 2024, physical volumes on the Grand Mesa Pipeline averaged approximately 63,000 barrels per day, compared to approximately 71,000 barrels per day during the six months ended September 30, 2023. Lower contracted volumes were shipped on the Grand Mesa Pipeline due to lower production on acreage dedicated to us in the DJ Basin.
Operating and General and Administrative Expenses. The decrease was primarily due to lower utilities expense and lower materials and supplies expense on the Grand Mesa Pipeline and at our Cushing terminal due to lower volumes flowing through the system during the six months ended September 30, 2024, compared to the six months ended September 30, 2023. Additionally, the six months ended September 30, 2024 benefited from lower cleaning, repairs and maintenance costs on our owned railcars, lower environmental costs at one of our terminals, and lower corporate cost allocations. These decreases were partially offset by higher ad valorem taxes on our Grand Mesa Pipeline assets due to a higher assessed value by the State of Colorado, which we are currently protesting, and higher compensation expense.
Depreciation and Amortization Expense. The decrease was primarily due to certain assets becoming fully depreciated during the year ended March 31, 2024.
(Gain) Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2024, we recorded a net gain of $0.4 million primarily due to a gain on the sale of certain assets. During the six months ended September 30, 2023, we recorded a net loss of $0.4 million primarily due to disposals and retirements of certain assets including linefill and certain real estate assets.
Natural gas liquids and refined products storage capacity - owned and leased (gallons) (1)
124,141
157,589
(33,448)
Refined products sold (gallons)
406,864
430,006
(23,142)
Refined products sold ($/gallon)
$
2.463
$
2.787
$
(0.324)
Cost per refined products sold ($/gallon) (2)
$
2.451
$
2.744
$
(0.293)
Refined products product margin ($/gallon) (2)
$
0.012
$
0.043
$
(0.031)
Refined products inventory (gallons) (1)
1,404
707
697
Propane sold (gallons)
221,093
269,741
(48,648)
Propane sold ($/gallon)
$
0.852
$
0.797
$
0.055
Cost per propane sold ($/gallon) (2)
$
0.839
$
0.763
$
0.076
Propane product margin ($/gallon) (2)
$
0.013
$
0.034
$
(0.021)
Propane inventory (gallons) (1)
80,323
115,491
(35,168)
Butane sold (gallons)
204,972
186,574
18,398
Butane sold ($/gallon)
$
1.082
$
0.946
$
0.136
Cost per butane sold ($/gallon) (2)
$
1.022
$
0.905
$
0.117
Butane product margin ($/gallon) (2)
$
0.060
$
0.041
$
0.019
Butane inventory (gallons) (1)
81,441
92,651
(11,210)
Other products sold (gallons)
208,124
191,488
16,636
Other products sold ($/gallon)
$
2.282
$
2.437
$
(0.155)
Cost per other products sold ($/gallon) (2)
$
2.261
$
2.428
$
(0.167)
Other products product margin ($/gallon) (2)
$
0.021
$
0.009
$
0.012
Other products inventory (gallons) (1)
12,813
18,012
(5,199)
(1) Information is presented as of September 30, 2024 and September 30, 2023, respectively.
(2) Cost and product margin per gallon excludes the impact of derivatives.
Refined Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, during the six months ended September 30, 2024 were primarily due to a decrease in commodity prices and a decrease in volumes due to demand.
Refined Products product margins, excluding the impact of derivatives, decreased during the six months ended September 30, 2024. This decrease was due primarily to higher margins during the three months ended June 30, 2023 due to higher demand in several markets experiencing tighter supply.
Refined Products Derivative (Gain) Loss. Our Refined Products product margin during the six months ended September 30, 2024 included realized gains of $0.1 million and the six months ended September 30, 2023 included realized losses of $0.2 million.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to decreased volumes during the six months ended September 30, 2024. Propane volumes decreased during the six months ended September 30, 2024 due to lower contracted volumes and reduced retail customer demand.
Propane product margins, excluding the impact of derivatives,decreased as we sold higher priced inventory into a market of declining prices during the six months ended September 30, 2024 compared to selling lower priced inventory into a market with rising prices during the six months ended September 30, 2023. Also contributing to the decrease is the continued consolidation in the retail propane industry. Also, we incurred higher than anticipated costs to clean and repair railcars coming off lease during the six months ended September 30, 2024.
Propane Derivative (Gain) Loss. Our cost of propane sales included $6.3 millionof net unrealized losses on derivatives and $8.1 million of net realized gains on derivatives during the six months ended September 30, 2024. During the
six months ended September 30, 2023, our cost of propane sales included $3.2 million of net unrealized gains on derivatives and $3.9 million of net realized losses on derivatives.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in sales and cost of sales, excluding the impact of derivatives, during the six months ended September 30, 2024, as compared to the six months ended September 30, 2023, were due to higher butane prices, higher demand during the end of the gasoline blending season in April 2024 and a stronger start to the gasoline blending season in August through September 2024. Also, export markets were stronger during the six months ended September 30, 2024, as compared to the six months ended September 30, 2023.
Butane product margins, excluding the impact of derivatives, increased during the six months ended September 30, 2024, as compared to the six months ended September 30, 2023, due to increased prices and volumes, as discussed further above.
Butane Derivative Loss (Gain). Our cost of butane sales during the six months ended September 30, 2024 included $7.7 millionof net unrealized losses on derivatives and $0.1 million of net realized gains on derivatives. Our cost of butane sales included $2.3 million of net unrealized gains on derivatives and $2.7 million of net realized gains on derivatives during the six months ended September 30, 2023.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in sales and cost of sales, excluding the impact of derivatives, were primarily due to higher volumes, partially offset by lower commodity prices for biodiesel and RINs during the three months ended September 30, 2024.
Other products sales product margins, excluding the impact of derivatives, during the six months ended September 30, 2024 increased due to the increase in biodiesel and asphalt volumes and higher commodity prices for other natural gas liquids.
Other Products Derivatives Loss (Gain). Our derivatives of other products during the six months ended September 30, 2024 included $16.0 million of net unrealized losses on derivatives and $9.2 million of net realized gains on derivatives. Our derivatives of other products during the six months ended September 30, 2023 included no unrealized gains/losses on derivatives and $8.3 million of net realized gains on derivatives.
Service Sales and Cost of Sales. The sales includes storage, terminaling and transportation services income. Revenues and cost of sales during the six months ended September 30, 2024 were consistent with the six months ended September 30, 2023.
Operating and General and Administrative Expenses. The decrease during the six months ended September 30, 2024 compared to the six months ended September 30, 2023 was due to a decrease in travel and entertainment expenses due to a push in the prior year to visit all customers, lower office lease expense due to the sale of certain terminals in the prior year, and a lower allocation of overhead costs. The decrease was offset by an increase to the provision for expected credit losses and sales commissions.
Depreciation and Amortization Expense. The decrease during the six months ended September 30, 2024 compared to the six months ended September 30, 2023 was due to a customer relationship intangible asset being fully amortized as of June 30, 2023.
Gain on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2023, we recorded a net gain of $6.9 million due to the sale of two terminals in July 2023 and recorded a net gain of $0.8 million due to disposal of certain other assets.
The operating loss within “Corporate and Other” includes the following components for the periods indicated:
Six Months Ended September 30,
2024
2023
Change
(in thousands)
Other Revenues
Service revenues
$
74
$
—
$
74
Cost of sales
Derivative loss
—
833
(833)
Expenses:
General and administrative expenses
19,470
29,646
(10,176)
Depreciation and amortization expense
1,357
3,113
(1,756)
Total expenses
20,827
32,759
(11,932)
Operating loss
$
(20,753)
$
(33,592)
$
12,839
Service Revenues. These revenues relate to payments made by the noncontrolling interest holder for usage of the airplane acquired in June 2024.
Cost of Sales - Derivative Loss. Our cost of sales during the six months ended September 30, 2023 included $0.4 million of net realized losses on derivatives and $0.4 million of net unrealized losses on derivatives. We entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices that drive our working capital demands. There were no open hedge positions that would impact cost of sales as of September 30, 2024.
General and Administrative Expenses. The expenses during the six months ended September 30, 2024 were lower than the six months ended September 30, 2023 due to lower legal expenses as several large cases ended and from the reimbursement of legal expenses relating to a dispute associated with commercial activities in prior periods, lower compensation expense due to incentive compensation and due to the elimination of share-based compensation expense due to all outstanding long-term incentive plan awards being fully vested in November 2023. Business insurance expense was also lower in the current period, as we paid the insurance company to be released from any future supplementary calls on our indemnity policy related to our former crude marine business (which we sold on March 30, 2023) during the prior year periods, as well as accruing for higher claims in the prior year.
Depreciation and Amortization Expense. The decrease during the six months ended September 30, 2024 was due to software that became fully depreciated during the year ended March 31, 2024.
Equity in Earnings of Unconsolidated Entities
Equity in earnings of unconsolidated entities was $1.8 million during the six months ended September 30, 2024, compared to $0.9 million during the six months ended September 30, 2023. The increase of $0.9 million during the six months ended September 30, 2024 was due primarily to higher earnings from certain membership interests related to specific land and water services operations and a lower loss from our interest in an aircraft company which was dissolved on April 30, 2024.
The following table summarizes the components of our consolidated interest expense for the periods indicated:
Six Months Ended September 30,
2024
2023
Change
(in thousands)
Senior secured notes
$
91,000
$
76,875
$
14,125
Term Loan B
34,052
—
34,052
ABL Facility
9,545
9,805
(260)
Senior unsecured notes
—
21,260
(21,260)
Other indebtedness
1,128
1,969
(841)
Total debt interest expense
135,725
109,909
25,816
Amortization of debt issuance costs
5,775
8,240
(2,465)
Unrealized loss on interest rate swaps
7,473
—
7,473
Realized gain on interest rate swaps
(1,830)
—
(1,830)
Total interest expense
$
147,143
$
118,149
$
28,994
The debt interest expense increased $25.8 million during the six months ended September 30, 2024 primarily due to higher interest rates on Term Loan B, the 2029 Senior Secured Notes, and the 2032 Senior Secured Notes.
Gain on Early Extinguishment of Liabilities, Net
Gain on early extinguishment of liabilities, net of $6.9 million during the six months ended September 30, 2023 consisted of a net gain (inclusive of debt issuance costs written off) primarily related to the early extinguishment of a portion of the outstanding senior unsecured notes. We did not repurchase any debt during the six months ended September 30, 2024.
Other Income, Net
Other income, net of $2.0 million during the six months ended September 30, 2024 consisted of an unrealized gain on an investment and interest income on loan receivables. Other income, net of $0.6 million during the six months ended September 30, 2023 consisted primarily of interest income on loan receivables (see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).
Income Tax Benefit (Expense)
Income tax benefit was $4.5 million during the six months ended September 30, 2024, compared to income tax expense of $0.5 million during the six months ended September 30, 2023. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Noncontrolling Interests - Redeemable and Nonredeemable
Noncontrolling interest income was $1.7 million during the six months ended September 30, 2024, compared to $0.5 million during the six months ended September 30, 2023. The increase of $1.2 million during the six months ended September 30, 2024 was due primarily to higher income from certain 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, revaluation of
liabilities and other. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, income 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.
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. 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 differed from period to period depending on the current crude oil price and future estimated crude oil price which were valued utilizing third-party market quoted prices. We recognized 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 hedged each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction. The derivative instrument positions we entered into related to the CMA Differential Roll expired as of December 31, 2023, and we have not entered into any new derivative instrument positions related to the CMA Differential Roll.
As previously reported, for purposes of our Adjusted EBITDA calculation, we did not draw 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. We include this in Adjusted EBITDA because the unrealized gains and losses for 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. Beginning April 1, 2024, and going forward, we will now be drawing a distinction between realized and unrealized gains and losses on derivatives and will no longer include the activity on the “inventory valuation adjustment” row in the reconciliation table for these certain businesses within our Liquids Logistics segment. This change aligns with how management now views and evaluates the transactions within these businesses and is also consistent with the calculation of Adjusted EBITDA used in our other businesses. If this change was made as of April 1, 2023, Adjusted EBITDA for the three months and six months ended September 30, 2023 would have been $175.8 million and $311.8 million, respectively.
The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
(in thousands)
Net income
$
3,391
$
28,285
$
13,866
$
47,848
Less: Net income attributable to nonredeemable noncontrolling interests
(932)
(257)
(1,724)
(519)
Less: Net income attributable to redeemable noncontrolling interests
(5)
—
(5)
—
Net income attributable to NGL Energy Partners LP
2,454
28,028
12,137
47,329
Interest expense
77,391
58,642
147,129
118,178
Income tax expense (benefit)
278
342
(4,518)
482
Depreciation and amortization
61,546
65,502
123,395
134,423
EBITDA
141,669
152,514
278,143
300,412
Net unrealized losses on derivatives
5,632
9,691
23,588
9,059
Lower of cost or net realizable value adjustments
(901)
1,080
(1,231)
3,844
Loss (gain) on disposal or impairment of assets, net
1,515
16,207
(9,151)
15,011
CMA Differential Roll net losses (gains) (1)
—
2,233
—
(6,904)
Inventory valuation adjustment (2)
—
(6,436)
—
(6,100)
Gain on early extinguishment of liabilities, net
—
(63)
—
(6,871)
Equity-based compensation expense
—
410
—
884
Other (3)
(645)
578
263
1,534
Adjusted EBITDA
$
147,270
$
176,214
$
291,612
$
310,869
(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 represents the difference between the market value of the inventory at the balance sheet date and its cost. See “Non-GAAP Financial Measures” section above for a further discussion.
(3) Amounts represent accretion expense for asset retirement obligations and expenses incurred related to legal and advisory costs associated with acquisitions and dispositions. Also, amounts for the three months and six months ended September 30, 2023 included unrealized gains/losses on marketable securities.
The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts 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,
2024
2023
2024
2023
(in thousands)
Depreciation and amortization per EBITDA table
$
61,546
$
65,502
$
123,395
$
134,423
Intangible asset amortization recorded to cost of sales
(102)
(65)
(167)
(130)
Depreciation and amortization attributable to unconsolidated entities
(108)
(193)
(179)
(352)
Depreciation and amortization attributable to noncontrolling interests
595
282
1,101
564
Depreciation and amortization per unaudited condensed consolidated statements of operations
Amortization of debt issuance costs recorded to interest expense
5,775
8,240
Amortization of royalty expense recorded to operating expense
123
123
Depreciation and amortization attributable to unconsolidated entities
(179)
(352)
Depreciation and amortization attributable to noncontrolling interests
1,101
564
Depreciation and amortization per unaudited condensed consolidated statements of cash flows
$
130,215
$
142,998
The following table reconciles interest expense per the EBITDA table above to interest expense in our unaudited condensed consolidated statements of operations for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
(in thousands)
Interest expense per EBITDA table
$
77,391
$
58,642
$
147,129
$
118,178
Interest expense attributable to noncontrolling interests
13
—
14
—
Interest expense attributable to unconsolidated entities
—
(15)
—
(29)
Interest expense per unaudited condensed consolidated statements of operations
$
77,404
$
58,627
$
147,143
$
118,149
The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated:
Three Months Ended September 30, 2024
Water Solutions
Crude Oil Logistics
Liquids Logistics
Corporate and Other
Consolidated
(in thousands)
Operating income (loss)
$
72,829
$
14,840
$
(1,133)
$
(8,807)
$
77,729
Depreciation and amortization
52,523
6,285
2,421
702
61,931
Amortization recorded to cost of sales
—
—
102
—
102
Net unrealized losses (gains) on derivatives
388
(4,012)
9,256
—
5,632
Lower of cost or net realizable value adjustments
—
540
(1,441)
—
(901)
Loss (gain) on disposal or impairment of assets, net
1,951
(442)
—
—
1,509
Other income (expense), net
1,805
(1)
(12)
30
1,822
Adjusted EBITDA attributable to unconsolidated entities
1,649
—
(19)
—
1,630
Adjusted EBITDA attributable to noncontrolling interest
Liquidity, Sources of Capital and Capital Resource Activities
General
Our principal sources of liquidity and capital resource requirements are cash flows from our operations, borrowings under the $600.0 million asset-based revolving credit facility (“ABL Facility”), issuing long-term notes, common and/or preferred units, loans from financial institutions, asset securitizations or asset sales. We expect our primary cash outflows to be related to capital expenditures, interest, repayment of debt maturities and distributions.
We believe that our anticipated cash flows from operations and the borrowing capacity under the 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 propane 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. In addition, our working capital borrowing needs vary with changes in commodity prices. A significant increase in commodity prices could drive up our working capital demands and limit our ability to continue to delever our balance sheet and restrict our financial flexibility. To protect our liquidity and leverage, we have in the past and may in the future enter into economic hedges that mitigate this exposure when we are building inventory. There were no open hedge positions as of September 30, 2024.
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 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 flows from our operations and borrowings under the ABL Facility, which we believe will provide liquidity to operate our business, manage our working capital requirements and repay current maturities.
Commitments under the ABL Facility are $600.0 million, subject to a borrowing base, and includes a sub-limit for letters of credit of $200.0 million. At September 30, 2024, $274.0 million had been borrowed under the ABL Facility and we had letters of credit outstanding of $79.4 million. The ABL Facility is scheduled to mature at the earliest of (a) February 2, 2029 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, subject to certain exceptions.
For additional information related to the ABL Facility, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
As of September 30, 2024, our current assets exceeded our current liabilities by approximately $174.5 million.
Long-Term Financing
We expect to fund our long-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or asset sales.
Senior Secured Notes
On February 2, 2024, we closed on our private offering of $900.0 million of the 2029 Senior Secured Notes and $1.3 billion of the 2032 Senior Secured Notes. Interest on the 2029 Senior Secured Notes and 2032 Senior Secured Notes is payable on February 15, May 15, August 15 and November 15 of each year, beginning on May 15, 2024.
On February 2, 2024, we entered into a new seven-year $700.0 million senior secured Term Loan B. The Term Loan B matures on February 2, 2031 and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal amount beginning with the quarter ended June 30, 2024, with the balance payable on maturity.
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, maintenance and other non-cash 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
Other (1)
Acquisitions (2)
Investments (3)
(in thousands)
Three Months Ended September 30,
2024
$
77,643
$
16,572
$
—
$
—
$
106
2023
$
29,476
$
16,358
$
—
$
—
$
—
Six Months Ended September 30,
2024
$
132,320
$
39,376
$
50
$
—
$
106
2023
$
57,041
$
32,885
$
—
$
—
$
258
(1) Amount for the six months ended September 30, 2024 is related to a transaction classified as an acquisition of assets in a prior period.
(2) There were no acquisitions during the three months or six months ended September 30, 2024 or 2023.
(3) Amounts for the three months ended September 30, 2024 and six months ended September 30, 2024 and 2023 relate to contributions made to unconsolidated entities. There were no other investments during the three months ended September 30, 2023.
Capital expenditures for the fiscal year ending March 31, 2025 are expected to be approximately $210 million.
Distributions Declared
On February 4, 2021, the board of directors of our GP temporarily suspended all distributions, including common unit distributions which began with the quarter ended December 31, 2020 and preferred unit distributions which began with the quarter ended March 31, 2021.
On April 4, 2024, the board of directors of our GP declared a cash distribution of 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”), the Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) and the 9.00% Class D Preferred Units (“Class D Preferred Units”). The total distribution of $120.0 million was made on April 18, 2024 to the holders of record at the close of trading on April 12, 2024.
On April 9, 2024, the board of directors of our GP declared a cash distribution to fully pay the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units. The total distribution of $98.1 million, which included a distribution of $27.3 million earned during the quarter ended March 31, 2024, was made on April 25, 2024 to the holders of record at the close of trading on April 19, 2024.
As of April 25, 2024, all preferred unit distributions in arrears have been paid.
On June 21, 2024, the board of directors of our GP declared a cash distribution for the quarter ended June 30, 2024 to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units. The total distribution of $28.8 million was made on July 15, 2024 to the holders of record at the close of trading on July 1, 2024.
On September 19, 2024, the board of directors of our GP declared a cash distribution for the quarter ended September 30, 2024 to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units. The total distribution of $30.8 million was made on October 15, 2024 to the holders of record a the close of trading on October 1, 2024.
The board of directors of our GP expects to evaluate the reinstatement of the common 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.
For additional information related to the payment of distributions, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Contractual Obligations
Our contractual obligations primarily consist of purchase commitments, outstanding debt principal and interest obligations, operating lease obligations, pipeline commitments, asset retirement obligations and other commitments.
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.
Sources (Uses) of Cash
The following table summarizes the sources (uses) of cash and cash equivalents for each of the periods presented (see the footnotes to our unaudited condensed consolidated financial statements included in this Quarterly Report for the footnotes referenced in the table):
Cash Flow
Six Months Ended September 30,
Category
2024
2023
(in thousands)
Sources of cash and cash equivalents:
Net cash provided by operating activities
Operating
$
—
$
131,100
Net proceeds from borrowings under ABL Facility (see Note 6)
Financing
274,000
18,000
Proceeds from divestitures of businesses and investments, net (see Note 15)
Investing
68,500
16,000
Proceeds from sales of assets (see Note 15)
Investing
18,556
23,908
Net settlements of derivatives (see Note 9)
Investing
12,745
—
Proceeds from borrowings on other long-term debt (see Note 6)
Financing
6,360
—
Uses of cash and cash equivalents:
Net cash used in operating activities
Operating
(11,341)
—
Distributions to preferred unitholders (see Note 8)
Financing
(245,604)
—
Capital expenditures (see Note 10)
Investing
(149,545)
(80,443)
Payments on Term Loan B (see Note 6)
Financing
(3,500)
—
Repayment and repurchase of senior unsecured notes
Financing
—
(91,982)
Net settlements of derivatives (see Note 9)
Investing
—
(16,461)
Other sources / (uses) – net
Investing and Financing
(4,585)
(2,873)
Net decrease in cash and cash equivalents
$
(34,414)
$
(2,751)
Operating Activities. The decrease in net cash provided by operating activities during the six months ended September 30, 2024 was due primarily to fluctuations in working capital, particularly accounts receivable and accounts payable, due to lower crude oil volumes and lower crude oil prices, lower purchases and sales of natural gas liquids due to seasonal demand and the timing of invoices and payments on construction projects as well as fluctuations in inventory due to building our natural gas liquids inventories in anticipation of the butane blending and propane heating seasons, and lower earnings from operations.
On June 13, 2024, we paid LCT Capital, LLC (“LCT”) $63.3 million related to the legal judgment against us, of which $27.2 million represented interest and $0.1 million of costs awarded to LCT.
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 Estimates
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 more critical judgment areas in the application of our 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 estimates 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 prime rate or a secured overnight financing rate (“SOFR”). At September 30, 2024, we had $274.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of 7.83%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $0.3 million, based on borrowings outstanding at September 30, 2024.
The Term Loan B is variable-rate debt with interest rates that are generally indexed to SOFR. At September 30, 2024, there was $696.5 million of outstanding borrowings under the Term Loan B with an interest rate of SOFR rate of 4.85% plus a margin of 3.75%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $0.9 million, based on borrowings outstanding at September 30, 2024.
In March and April 2024, we entered into interest rate swaps totaling $400.0 million to reduce the variability of cash outflows associated with our floating-rate, SOFR-based borrowings, including borrowings on the Term Loan B. In September 2024, for the $200.0 million interest rate swap entered into in April 2024, we entered into a transaction to extend the original maturity date and to blend the existing swap rate (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). An increase of 10% in the value of the underlying interest rate swaps would result in a net change in the fair value of our interest rate swaps of $0.7 million at September 30, 2024.
The current distribution rate for the Class B Preferred Units is a floating rate of the three-month CME Term SOFR plus a tenor spread adjustment plus a spread of 7.213% (see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). A change in interest rates of 0.125% would result in an increase or decrease of our Class B Preferred Unit distribution of $0.1 million, based on the Class B Preferred Units outstanding at September 30, 2024.
The current distribution rate for the Class C Preferred Units is a floating rate of the three-month CME Term SOFR plus a spread of 7.384% (see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). A change in interest rates of 0.125% would result in an increase or decrease of our Class C Preferred Unit distribution of less than $0.1 million, based on the Class C Preferred Units outstanding at September 30, 2024.
The current distribution rate for the Class D Preferred Units is a floating rate of the three-month CME Term SOFR plus a spread of 7.00% (see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly
Report for a further discussion). A change in interest rates of 0.125% would result in an increase or decrease of our Class D Preferred Unit distribution of $0.2 million, based on the Class D Preferred Units outstanding at September 30, 2024.
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 our realized margins depend on the differential of sales prices over our 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 our unaudited condensed consolidated statements of operations, regardless of whether the contract is physically or financially settled, and within cash flows from operations in our unaudited condensed consolidated statements of cash flows.
The following table summarizes the hypothetical impact on the September 30, 2024 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)
$
9
Crude oil (Crude Oil Logistics segment)
$
(1,135)
Propane (Liquids Logistics segment)
$
948
Butane (Liquids Logistics segment)
$
(7,435)
Refined Products (Liquids Logistics segment)
$
(1,684)
Other Products (Liquids Logistics segment)
$
(2,125)
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, 2024, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.
Fair Value
We determine the fair value of our exchange traded derivative financial instruments utilizing publicly available prices, and for non-exchange traded derivative financial instruments, we utilize pricing models for similar instruments including publicly available prices and forward curves generated from a compilation of data gathered from third-parties.
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 (“Exchange Act”), that are designed to ensure the 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 GP, as appropriate, to allow timely decisions regarding required disclosure.
We completed an evaluation under the supervision and with participation of our management, including the principal executive officer and principal financial officer of our GP, of the effectiveness of the design and operation of our disclosure controls and procedures at September 30, 2024. Based on this evaluation, the principal executive officer and principal financial officer of our GP have concluded that as of September 30, 2024, such disclosure controls and procedures were effective.
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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 5, 2024, the board of directors of our general partner authorized a common unit repurchase program, under which we may repurchase up to $50.0 million of our outstanding common units from time to time in the open market or in other privately held negotiated transactions. This program does not have a fixed expiration date. The common unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of our common units. The following table summarizes the repurchase of common units during the three months ended September 30, 2024:
Total Number of
Approximate Dollar
Common Units
Value of Common
Total Number of
Average Price
Purchased as Part
Units that May Yet Be
Common Units
Paid Per
of Publicly Announced
Purchased under
Period
Purchased
Common Unit
Program
the Program
July 1-31, 2024
—
$
—
—
$
50,000,000
August 1-31, 2024
500,000
$
4.2529
500,000
$
47,873,555
September 1-30, 2024
—
$
—
—
$
47,873,555
Total
500,000
500,000
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended September 30, 2024, no director or officer of the Partnership adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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, 2024 and March 31, 2024, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2024 and 2023, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended September 30, 2024 and 2023, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months and six months ended September 30, 2024 and 2023, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2024 and 2023, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.