NGL Energy Partners LP Announces First Quarter Fiscal 2024 Financial Results

NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported its first quarter Fiscal 2024 financial results. Highlights include:

• Net income for the first quarter of Fiscal 2024 of $19.6 million, compared to net income of $23.1 million for the first quarter of Fiscal 2023
• Adjusted EBITDA⁽¹⁾ for the first quarter of Fiscal 2024 of $134.7 million, compared to $123.9 million for the first quarter of Fiscal 2023
• Produced water volumes processed of approximately 2.46 million barrels per day during the first quarter of Fiscal 2024, growing 14.1% from the first quarter of Fiscal 2023
• Water Solutions’ quarterly Adjusted EBITDA⁽¹⁾ of $123.2 million for the first quarter of Fiscal 2024, a 17.3% increase compared to the first quarter of Fiscal 2023
• Increasing asset sales guidance from $50 million to $75 million in Fiscal 2024
• Reducing growth capital expenditures by $10 million, from $75 million to $65 million

“Our Water Solutions segment achieved strong Adjusted EBITDA⁽¹⁾ growth of 17.3% in the 1^st quarter versus the same period in the prior year, with disposal volumes increasing 14.1%. During the quarter we purchased $99.3 million of the 2025 unsecured notes, leaving a very manageable outstanding balance of $280.7 million. We will continue to utilize operational free cash flow, reduced working capital, and proceeds from asset sales to further improve the balance sheet. We are reaffirming our full year consolidated Adjusted EBITDA⁽²⁾ guidance of $645 million plus,” stated Mike Krimbill NGL’s CEO.

Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted EBITDA⁽¹⁾ by reportable segment for the periods indicated:

_____________________________

Water Solutions

Operating income for the Water Solutions segment increased $15.7 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022. The Partnership processed approximately 2.46 million barrels of produced water per day during the quarter ended June 30, 2023, a 14.1% increase when compared to approximately 2.15 million barrels of water per day processed during the quarter ended June 30, 2022. This increase was due to an increase in produced water volumes processed from contracted customers mainly in the Delaware Basin, increased fees from new contracts entered into during fiscal year 2023 and higher fees charged for interruptible spot volumes.

Revenues from recovered skim oil totaled $23.0 million for the quarter ended June 30, 2023, a decrease of $15.4 million from the prior year period. This decrease was due primarily to lower realized crude oil prices received from the sale of skim oil barrels and lower skim oil volumes per barrel of produced water processed. While the amount of skim oil recovered was in line with historical averages, a certain amount of skim oil barrels was stored due to tighter pipeline specifications which reduced the amount of skim oil sold during the quarter. We expect to sell both stored and ongoing production of skim oil during the second quarter of fiscal year 2024.

Operating expenses in the Water Solutions segment increased $6.9 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022 due to increased produced water volumes processed while operating expense per produced barrel processed was $0.25 for the quarter ended June 30, 2023, compared to $0.25 in the comparative quarter last year.

Crude Oil Logistics

Operating income for the Crude Oil Logistics segment decreased $2.0 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022. The decrease was due to the sale of higher priced inventory into a market in which prices are declining. The lower crude oil prices resulted in lower contracted rates with certain producers, compared to the prior year. During the three months ended June 30, 2023, physical volumes on the Grand Mesa Pipeline averaged approximately 72,000 barrels per day, compared to approximately 79,000 barrels per day for the three months ended June 30, 2022, as lower demand for heavier crude oil grades, and resulting lower crude oil prices, resulted in lower contracted volumes. The decrease in operating income was offset by an increase in derivative gains of $33.1 million and lower operating and general and administrative expenses of $2.1 million, primarily related to the sale of our marine assets on March 30, 2023.

Liquids Logistics

Operating income for the Liquids Logistics segment decreased by $18.8 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022. The decline was primarily due to lower propane, butane and other product margins. Propane margins declined due to declining prices and weaker demand as the warm winter in the Northeast caused customers to pull their volumes later in the season and which carried them through the spring. Butane product margins declined as prices and volumes were lower due to weak spot and export markets. Margins for other product sales decreased due to an increase in supply in the market as the final renewable fuel standards mandate released by the EPA lowered the required amount of biodiesel required for blending. This decrease was offset by an increase in derivative gains of $19.7 million and increased refined products margin as a result of continuing to be well positioned from a supply and inventory perspective in certain markets experiencing tight supply during the first part of the current quarter.

Corporate and Other

The operating loss for the quarter ended June 30, 2023 includes losses from derivatives of $4.2 million. We have entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices that drive our working capital demands, as we experienced in the prior fiscal year, thus impacting our ability to reduce absolute indebtedness until commodity prices weakened. These positions will expire between August 2023 and December 2023. Incentive compensation was also higher compared to the prior year quarter due to the timing of payments compared to the prior year when incentive compensation was paid during the second quarter of our fiscal year.

Capitalization and Liquidity

Total liquidity (cash plus available capacity on our asset-based revolving credit facility (“ABL Facility”)) was approximately $286.1 million as of June 30, 2023. Borrowings on the Partnership’s ABL Facility totaled approximately $180.0 million. The increase from March 31, 2023 was primarily due to increases in working capital balances driven by increased inventory volumes and higher net account receivable balances.

The Partnership is in compliance with all of its debt covenants and has no significant debt maturities before March 2025.

First Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:30 pm Central Time on Wednesday, August 9, 2023. Analysts, investors, and other interested parties may join the webcast via the event link: https://www.webcaster4.com/Webcast/Page/2808/48748 or by dialing (888) 506-0062 and providing access code: 715919. An archived audio replay of the call will be available for 14 days, which can be accessed by dialing (877) 481-4010 and providing replay passcode 48748.

Non-GAAP Financial Measures

NGL defines EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. NGL defines Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. NGL also includes in Adjusted EBITDA certain inventory valuation adjustments related to certain refined products businesses within NGL’s Liquids Logistics segment as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net 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. NGL believes that EBITDA provides additional information to investors for evaluating NGL’s ability to make quarterly distributions to NGL’s unitholders and is presented solely as a supplemental measure. NGL believes that Adjusted EBITDA provides additional information to investors for evaluating NGL’s financial performance without regard to NGL’s financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.

Other than for certain businesses within NGL’s Liquids Logistics segment, for purposes of the Adjusted EBITDA calculation, NGL makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, NGL records changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, NGL reverses the previously recorded unrealized gain or loss and records a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of certain businesses within NGL’s Liquids Logistics segment. The primary hedging strategy of these businesses is to hedge against the risk of declines in the value of inventory over the course of the contract cycle, and many of the hedges cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost. NGL includes this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA. In NGL’s Crude Oil Logistics segment, they purchase certain crude oil barrels using the West Texas Intermediate (“WTI”) calendar month average (“CMA”) price and sell the crude oil barrels using the WTI CMA price plus the Argus CMA Differential Roll Component (“CMA Differential Roll”) per NGL’s contracts. To eliminate the volatility of the CMA Differential Roll, NGL entered into derivative instrument positions in January 2021 to secure a margin of approximately $0.20 per barrel on 1.5 million barrels per month from May 2021 through December 2023. Due to the nature of these positions, the cash flow and earnings recognized on a GAAP basis will differ from period to period depending on the current crude oil price and future estimated crude oil price which are valued utilizing third-party market quoted prices. NGL is recognizing in Adjusted EBITDA the gains and losses from the derivative instrument positions entered into in January 2021 to properly align with the physical margin NGL is hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. For the CMA Differential Roll transaction, as discussed above, we have included an adjustment to Distributable Cash Flow to reflect, in the period for which they relate, the actual cash flows for the positions that settled that are not being recognized in Adjusted EBITDA. Distributable Cash Flow is a performance metric used by senior management to compare cash flows generated by the Partnership (excluding growth capital expenditures and prior to the establishment of any retained cash reserves by the Board of Directors) to the cash distributions expected to be paid to unitholders. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. This financial measure also is important to investors as an indicator of whether the Partnership is generating cash flow at a level that can sustain, or support an increase in, quarterly distribution rates. Actual distribution amounts are set by the Board of Directors.

We do not provide a reconciliation for non-GAAP estimates on a forward-looking basis where we are unable to provide a meaningful calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various items that would impact the most directly comparable forward-looking U.S. GAAP financial measure that have not yet occurred, are out of the Partnership’s control and/or cannot be reasonably predicted. Forward-looking non-GAAP financial measures provided without the most directly comparable U.S. GAAP financial measures may vary materially from the corresponding U.S. GAAP financial measures.

Forward-Looking Statements

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

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

About NGL Energy Partners LP

NGL Energy Partners LP, a Delaware limited partnership, is a diversified midstream energy company that transports, stores, markets and provides other logistics services for crude oil, natural gas liquids and other products and transports, treats and disposes of produced water generated as part of the oil and natural gas production process.

For further information, visit the Partnership’s website at www.nglenergypartners.com.

_____________________________

_____________________________

View source version on businesswire.com: https://www.businesswire.com/news/home/20230809987810/en/