NGL Energy Partners LP Announces Third Quarter Fiscal 2025 Financial Results

Operating income for the Water Solutions segment decreased by $8.9 million for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. The decrease was due primarily to higher losses on the disposal or impairment of assets of $10.5 million in the current period compared to a gain of $0.5 million in the prior year period. This decrease was partially offset by a gain of $3.0 million due to the write-off of a contingent consideration liability and higher disposal revenues due to an increase in produced water volumes processed from contracted customers and higher fees charged for interruptible spot volumes. There was also higher water pipeline revenue due to the LEX II pipeline commencing operations during the current quarter. The Partnership processed approximately 2.62 million barrels of produced water per day during the quarter ended December 31, 2024, a 10.4% increase when compared to approximately 2.38 million barrels of water per day processed during the quarter ended December 31, 2023.

Revenues from recovered skim oil, including the impact from realized skim oil hedges, totaled $24.1 million for the quarter ended December 31, 2024, an increase of less than $0.1 million from the prior year period. The increase was due primarily to an increase in skim oil barrels sold due to more skim oil recovered from receiving more water in higher oil cut basins, partially offset by lower realized crude oil prices received from the sale of skim oil barrels. There was also an increase in unrealized losses on skim oil hedges for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023.

Operating expenses in the Water Solutions segment decreased $2.2 million for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023 due primarily to lower utilities expense due to a negotiated long-term utility contract with lower rates, lower chemical expense due to purchasing fewer chemicals and using them more efficiently and lower repairs and maintenance expense due to the timing of repairs and tank cleaning. These decreases were partially offset by higher royalty expense due to volumes related to the LEX II pipeline commencing operations and increased volumes at certain other saltwater disposal wells. Operating expense per produced barrel processed was $0.21 for the quarter ended December 31, 2024, compared to $0.25 in the comparative quarter last year.

Crude Oil Logistics

Operating income for the Crude Oil Logistics segment decreased by $7.0 million for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. The decrease was due to reduced sales volumes as a result of lower production on acreage dedicated to us in the DJ Basin and lower crude oil prices and an increase in derivative losses. During the quarter ended December 31, 2024, physical volumes on the Grand Mesa Pipeline averaged approximately 61,000 barrels per day, compared to approximately 70,000 barrels per day for the quarter ended December 31, 2023.

Liquids Logistics

Operating income for the Liquids Logistics segment decreased by $10.8 million for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023, primarily due to lower propane and refined products margins, excluding the impact of derivatives, and an increase in derivative losses for all products. Margins for propane declined due to lower contracted volumes due to reduced retail customer demand and lower spot volumes, both resulting from the warmer weather during the period. Margins for refined products declined due to lower customer demand and aggressive pricing by some competitors in certain markets. Losses on derivative instruments were $9.5 million for the quarter ended December 31, 2024, compared to losses of $0.5 million for the prior year period.

During the quarter, we completed the majority of the wind-down of our biodiesel business. We allowed our storage lease and certain railcar leases to expire and started to close out our open purchase and sale contracts. We expect to have all of our inventory liquidated by the end of February 2025 and to sublease the remaining railcars by March 31, 2025.

Corporate and Other

The operating loss for Corporate and Other was lower by $0.4 million for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. General and administrative expenses decreased due to lower business insurance expense and lower legal expenses due to the resolution of several large cases in prior periods. The results for the prior period included gains from derivatives of $1.8 million as we had entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices. We did not have any similar open hedge positions for the current period.

Capitalization and Liquidity

Total liquidity (cash plus available capacity on our asset-based revolving credit facility (“ABL Facility”)) was approximately $292.1 million as of December 31, 2024. Borrowings on the Partnership’s ABL Facility totaled approximately $226.0 million as of December 31, 2024, as we funded certain capital projects and built up our inventory for the blending and heating seasons.

The Partnership is in compliance with all of its debt covenants and has no upcoming debt maturities.

Third Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:00 pm Central Time on Monday, February 10, 2025. Analysts, investors, and other interested parties may join the webcast via the event link: https://www.webcaster4.com/Webcast/Page/2808/51875 or by dialing (888) 506-0062 and providing conference code: 239040. 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 51875.

Non-GAAP Financial 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 nine months ended December 31, 2023 would have been $149.9 million and $461.8 million, respectively.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions paid 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 of our general partner) 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 of our general partner.

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 master limited partnership, is a diversified midstream energy partnership that transports, treats, recycles and disposes of produced and flowback water generated as part of the energy production process as well as transports, stores, markets and provides other logistics services for crude oil and liquid hydrocarbons.

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

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Contacts

David Sullivan, 918-495-4631
Vice President – Finance
David.Sullivan@nglep.com