NGL Energy Partners LP(NGL) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents NGL Energy Partners LP's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, changes in equity, and cash flows, with notes on presentation and accounting policies Unaudited Condensed Consolidated Balance Sheets - Total assets decreased from $6.50 billion at March 31, 2020, to $6.29 billion at September 30, 2020. Total liabilities decreased from $4.76 billion to $4.68 billion over the same period, while total equity declined from $1.74 billion to $1.61 billion[17] Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Total current assets | $728,714 | $774,087 | | Total assets | $6,286,411 | $6,498,736 | | Total current liabilities | $629,952 | $845,823 | | Long-term debt | $3,275,166 | $3,144,848 | | Total liabilities | $4,145,786 | $4,125,763 | | Total equity | $1,609,528 | $1,735,690 | | Total liabilities and equity | $6,286,411 | $6,498,736 | Unaudited Condensed Consolidated Statements of Operations - For the three months ended September 30, 2020, the company reported Net Income of $5.8 million, a significant improvement from a Net Loss of $201.4 million in the same period of 2019. The prior year's loss was heavily impacted by a $185.7 million loss from discontinued operations[19] - For the six months ended September 30, 2020, the company reported a Net Loss of $29.4 million, compared to a Net Loss of $193.3 million in the prior-year period. Total revenues for the six-month period decreased to $2.01 billion from $3.68 billion year-over-year[19] Key Operating Results (in thousands, except per unit amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,168,158 | $1,804,336 | $2,012,573 | $3,676,227 | | Operating Income | $36,316 | $30,115 | $25,531 | $77,635 | | Net Income (Loss) | $5,835 | $(201,366) | $(29,417) | $(193,327) | | Net Loss per Common Unit (Basic) | $(0.14) | $(1.72) | $(0.58) | $(2.68) | Unaudited Condensed Consolidated Statements of Cash Flows - For the six months ended September 30, 2020, net cash provided by operating activities was $143.7 million, a significant improvement from a net cash use of $4.5 million in the prior-year period, primarily driven by changes in operating assets and liabilities[29] - Net cash used in investing activities decreased substantially to $153.5 million from $633.2 million year-over-year, mainly due to the absence of large acquisitions and lower capital expenditures[29] Cash Flow Summary (in thousands) | Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $143,660 | $(4,488) | | Net cash used in investing activities | $(153,548) | $(633,214) | | Net cash provided by financing activities | $4,096 | $640,284 | | Net (decrease) increase in cash | $(5,792) | $2,582 | | Cash and cash equivalents, end of period | $16,912 | $21,154 | Notes to Unaudited Condensed Consolidated Financial Statements - The company operates through three segments: Crude Oil Logistics, Water Solutions, and Liquids and Refined Products[31][33] - The company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses," on April 1, 2020, resulting in a cumulative effect adjustment of $1.1 million to opening equity[52] - A significant customer, Extraction Oil & Gas, Inc., filed for Chapter 11 bankruptcy in June 2020, seeking to reject transportation contracts, which could materially impact the Crude Oil Logistics segment and lead to impairment charges against assets and goodwill, with the related pipeline's long-lived assets valued at $537.0 million as of September 30, 2020[172][176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operating results, emphasizing the COVID-19 pandemic and energy market downturn's impact on segments, liquidity, and capital resources, alongside the risk from a major customer's bankruptcy Recent Developments and Market Conditions - The energy industry experienced a simultaneous demand and supply shock in late fiscal 2020 due to increased production from Saudi Arabia/Russia and the COVID-19 pandemic, leading to a collapse in global crude oil prices and reduced demand for refined products[187][188] - All three business segments were negatively impacted by the lower commodity price environment and reduced demand, leading the company to discontinue its earnings guidance due to ongoing uncertainty[188][190] - A significant customer, Extraction Oil & Gas, Inc., filed for Chapter 11 bankruptcy and received a court ruling allowing contract rejection, which the company intends to appeal, but an unsuccessful appeal could significantly impact operating results[189] Segment Operating Results Segment Operating Income (Loss) (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Crude Oil Logistics | $48,239 | $38,520 | $71,559 | $72,322 | | Water Solutions | $(13,277) | $21,274 | $(29,324) | $34,963 | | Liquids and Refined Products | $14,338 | $8,798 | $18,900 | $24,169 | | Corporate and Other | $(12,984) | $(38,477) | $(35,604) | $(53,819) | | Total operating income | $36,316 | $30,115 | $25,531 | $77,635 | - Crude Oil Logistics operating income increased in Q2 2021 vs Q2 2020, primarily due to higher product margins from selling lower-cost inventory and increased revenue from the Grand Mesa Pipeline tariff increase, despite lower sales volumes and prices[195][198][201] - Water Solutions swung to an operating loss, driven by lower recovered crude oil revenue due to lower prices, reduced other service revenues from decreased drilling activity, and a significant increase in depreciation and amortization from recent acquisitions and developments[205][207][212] - Liquids and Refined Products operating income increased, largely due to a significant improvement in propane product margin, which offset a sharp decline in butane product margin, while refined products margins were negatively impacted by reduced demand due to COVID-19[214][218] Non-GAAP Financial Measures Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to NGL | $5,667 | $(201,237) | $(29,636) | $(192,930) | | EBITDA | $138,502 | $(92,208) | $230,166 | $10,542 | | Adjusted EBITDA | $137,781 | $103,263 | $228,469 | $190,023 | | Adjusted EBITDA - Continuing Operations | $137,971 | $123,466 | $228,953 | $227,184 | - Adjusted EBITDA from Continuing Operations for the three months ended September 30, 2020 was $138.0 million, compared to $123.5 million for the same period in 2019. For the six-month period, it was $229.0 million in 2020 compared to $227.2 million in 2019[284] Liquidity, Sources of Capital and Capital Resource Activities - The company is taking measures to increase liquidity and de-lever its balance sheet, including reducing quarterly common unit distributions twice (from $0.39 to $0.20 in April 2020, and then to $0.10 in October 2020) and cutting capital spending expectations for fiscal 2021[291] - The company is actively working with its syndicate of lenders to extend the maturity of its $1.915 billion Credit Agreement, which expires in October 2021, with a proposal including covenant modifications, commitment reductions, and limitations on distributions[294][295] - During the six months ended September 30, 2020, the company repurchased a total of $91.0 million in face value of its senior unsecured notes (2023, 2025, and 2026 notes)[301] - On June 3, 2020, the company entered into a new $250.0 million Term Credit Agreement expiring in June 2023 to refinance its previous bridge term credit agreement[303] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from variable-rate debt interest rates and commodity price fluctuations, with $1.7 billion outstanding on its Revolving Credit Facility and $250.0 million on its Term Credit Agreement, using derivatives to mitigate volatility without hedge accounting - At September 30, 2020, the company had $1.7 billion of outstanding borrowings under its variable-rate Revolving Credit Facility, where a 0.125% change in interest rates would impact annual interest expense by $2.1 million[326] - The company had $250.0 million outstanding under its Term Credit Agreement, which has a LIBOR floor of 1.50%, meaning a 0.125% change in LIBOR would not impact interest expense as the current rate is below the floor[327] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal controls during the quarter - Management concluded that as of September 30, 2020, the company's disclosure controls and procedures were effective[336] PART II - OTHER INFORMATION Legal Proceedings The company is involved in legal proceedings, including a lawsuit by LCT Capital, LLC for investment banking services, for which $2.5 million has been accrued, and actions related to Extraction Oil & Gas, Inc.'s bankruptcy - The company is involved in a lawsuit with LCT Capital, LLC regarding investment banking services, where a jury awarded $4.0 million for quantum meruit and $29.0 million for fraudulent misrepresentation, though the damages award was overturned and is under appeal, with $2.5 million accrued for this matter as of September 30, 2020[97] Risk Factors A key risk is customer and counterparty default, especially in a low commodity price environment, potentially leading to nonpayment, contract rejections in bankruptcy, and asset write-downs, materially impacting financial condition - A key risk is the potential for customer and counterparty default, especially in a low commodity price environment, which could lead to nonpayment, contract rejection in bankruptcy (as seen with Extraction Oil & Gas), and significant write-downs or impairment charges, materially harming the business[341] Other Items (Items 2-6) This section covers other required disclosures, noting Items 2, 3, and 4 were not applicable, Item 5 had no disclosures, and Item 6 lists the exhibits filed with the report