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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-35172

NGL Energy Partners LP
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
27-3427920
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
6120 South Yale Avenue, Suite 805
 
 
Tulsa,
Oklahoma
 
74136
(Address of Principal Executive Offices)
 
(Zip Code)
(918) 481-1119
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
☐
Emerging growth company
☐
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ☐   No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbols
 
Name of Each Exchange on Which Registered
Common units representing Limited Partner Interests
 
NGL
 
New York Stock Exchange
Fixed-to-floating rate cumulative redeemable perpetual preferred units
 
NGL-PB
 
New York Stock Exchange
Fixed-to-floating rate cumulative redeemable perpetual preferred units
 
NGL-PC
 
New York Stock Exchange

At November 4, 2019, there were 128,040,420 common units issued and outstanding.

Table of Contents


TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 


i
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Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by and information currently available to us. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Certain words in this Quarterly Report such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “project,” “will,” and similar expressions and statements regarding our plans and objectives for future operations, identify forward-looking statements. Although we and our general partner believe such forward-looking statements are reasonable, neither we nor our general partner can assure they will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected. Among the key risk factors that may affect our consolidated financial position and results of operations are:

•
the prices of crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
•
energy prices generally;
•
the general level of crude oil, natural gas, and natural gas liquids production;
•
the general level of demand, and the availability of supply, for crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
•
the level of crude oil and natural gas drilling and production in areas where we have water treatment and disposal facilities;
•
the price of gasoline relative to the price of corn, which affects the price of ethanol;
•
the ability to obtain adequate supplies of products if an interruption in supply or transportation occurs and the availability of capacity to transport products to market areas;
•
actions taken by foreign oil and gas producing nations;
•
the political and economic stability of foreign oil and gas producing nations;
•
the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
•
the effect of natural disasters, lightning strikes, or other significant weather events;
•
the availability of local, intrastate, and interstate transportation infrastructure with respect to our truck, railcar, and barge transportation services;
•
the availability, price, and marketing of competing fuels;
•
the effect of energy conservation efforts on product demand;
•
energy efficiencies and technological trends;
•
changes in applicable laws and regulations, including tax, environmental, transportation, and employment regulations, or new interpretations by regulatory agencies concerning such laws and regulations and the effect of such laws and regulations (now existing or in the future) on our business operations;
•
the effect of legislative and regulatory actions on hydraulic fracturing, wastewater disposal, and the treatment of flowback and produced water;
•
hazards or operating risks related to transporting and distributing petroleum products that may not be fully covered by insurance;
•
the maturity of the crude oil, natural gas liquids, and refined products industries and competition from other marketers;
•
loss of key personnel;
•
the ability to renew contracts with key customers;
•
the ability to maintain or increase the margins we realize for our terminal, barging, trucking, wastewater disposal, recycling, and discharge services;
•
the ability to renew leases for our leased equipment and storage facilities;

1
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•
the nonpayment or nonperformance 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 integrate acquired assets and businesses;
•
changes in the volume of hydrocarbons recovered during the wastewater treatment process;
•
changes in the financial condition and results of operations of entities in which we own noncontrolling equity interests;
•
the costs and effects of legal and administrative proceedings;
•
any reduction or the elimination of the federal Renewable Fuel Standard; and
•
changes in the jurisdictional characteristics of, or the applicable regulatory policies with respect to, our pipeline assets.

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, 2019.

2
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PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in Thousands, except unit amounts)
 
September 30, 2019
 
March 31, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
21,154

 
$
18,572

Accounts receivable-trade, net of allowance for doubtful accounts of $4,773 and $4,016, respectively
987,875

 
998,203

Accounts receivable-affiliates
14,374

 
12,867

Inventories
308,793

 
252,770

Prepaid expenses and other current assets
199,002

 
142,811

Assets held for sale
—

 
387,450

Total current assets
1,531,198

 
1,812,673

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $469,229 and $417,457, respectively
2,485,880

 
1,828,940

GOODWILL
1,176,042

 
1,113,149

INTANGIBLE ASSETS, net of accumulated amortization of $566,054 and $503,117, respectively
1,194,581

 
800,889

INVESTMENTS IN UNCONSOLIDATED ENTITIES
1,445

 
1,127

OPERATING LEASE RIGHT-OF-USE ASSETS
203,122

 
—

OTHER NONCURRENT ASSETS
71,755

 
113,857

ASSETS HELD FOR SALE
—

 
231,858

Total assets
$
6,664,023

 
$
5,902,493

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable-trade
$
842,064

 
$
879,063

Accounts payable-affiliates
24,542

 
28,469

Accrued expenses and other payables
336,126

 
191,731

Advance payments received from customers
27,045

 
8,461

Current maturities of long-term debt
649

 
648

Operating lease obligations
68,084

 
—

Liabilities held for sale
—

 
142,781

Total current liabilities
1,298,510

 
1,251,153

LONG-TERM DEBT, net of debt issuance costs of $20,581 and $12,008, respectively, and current maturities
2,773,235

 
2,160,133

OPERATING LEASE OBLIGATIONS
132,132

 
—

OTHER NONCURRENT LIABILITIES
64,487

 
63,575

COMMITMENTS AND CONTINGENCIES (NOTE 9)


 


 
 
 
 
CLASS A 10.75% CONVERTIBLE PREFERRED UNITS, 0 and 19,942,169 preferred units issued and outstanding, respectively
—

 
149,814

CLASS D 9.00% PREFERRED UNITS, 400,000 and 0 preferred units issued and outstanding, respectively
343,748

 
—

 
 
 
 
EQUITY:
 
 
 
General partner, representing a 0.1% interest, 128,169 and 124,633 notional units, respectively
(51,014
)
 
(50,603
)
Limited partners, representing a 99.9% interest, 128,040,420 and 124,508,497 common units issued and outstanding, respectively
1,697,015

 
2,067,197

Class B preferred limited partners, 12,585,642 and 8,400,000 preferred units issued and outstanding, respectively
305,488

 
202,731

Class C preferred limited partners, 1,800,000 and 0 preferred units issued and outstanding, respectively
42,905

 
—

Accumulated other comprehensive loss
(264
)
 
(255
)
Noncontrolling interests
57,781

 
58,748

Total equity
2,051,911

 
2,277,818

Total liabilities and equity
$
6,664,023

 
$
5,902,493

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in Thousands, except unit and per unit amounts)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
REVENUES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
641,152

 
$
860,054

 
$
1,357,312

 
$
1,643,884

Water Solutions
 
101,249

 
79,764

 
173,032

 
155,909

Liquids
 
328,509

 
550,442

 
676,156

 
1,010,339

Refined Products and Renewables
 
3,218,162

 
3,625,123

 
7,248,742

 
6,564,168

Other
 
264

 
592

 
519

 
747

Total Revenues
 
4,289,336

 
5,115,975

 
9,455,761

 
9,375,047

COST OF SALES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
569,699

 
792,735

 
1,218,939

 
1,540,980

Water Solutions
 
(6,496
)
 
7,892

 
(9,303
)
 
22,161

Liquids
 
296,246

 
520,944

 
613,598

 
961,459

Refined Products and Renewables
 
3,197,492

 
3,622,915

 
7,228,208

 
6,625,845

Other
 
435

 
718

 
900

 
987

Total Cost of Sales
 
4,057,376

 
4,945,204

 
9,052,342

 
9,151,432

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Operating
 
75,433

 
58,510

 
137,529

 
112,977

General and administrative
 
43,908

 
39,328

 
64,250

 
61,669

Depreciation and amortization
 
63,113

 
52,598

 
116,867

 
104,490

Loss on disposal or impairment of assets, net
 
3,111

 
5,988

 
2,144

 
107,323

Revaluation of liabilities
 
—

 
—

 
—

 
800

Operating Income (Loss)
 
46,395

 
14,347

 
82,629

 
(163,644
)
OTHER INCOME (EXPENSE):
 
 
 
 
 
 

 
 

(Loss) equity in earnings of unconsolidated entities
 
(265
)
 
379

 
(257
)
 
598

Interest expense
 
(45,016
)
 
(41,358
)
 
(84,910
)
 
(87,625
)
Loss on early extinguishment of liabilities, net
 
—

 
—

 
—

 
(137
)
Other income (expense), net
 
184

 
1,301

 
1,193

 
(32,602
)
Income (Loss) From Continuing Operations Before Income Taxes
 
1,298

 
(25,331
)
 
(1,345
)
 
(283,410
)
INCOME TAX EXPENSE
 
(640
)
 
(691
)
 
(319
)
 
(1,342
)
Income (Loss) From Continuing Operations
 
658

 
(26,022
)
 
(1,664
)
 
(284,752
)
(Loss) Income From Discontinued Operations, net of Tax
 
(202,024
)
 
380,961

 
(191,663
)
 
470,402

Net (Loss) Income
 
(201,366
)
 
354,939

 
(193,327
)
 
185,650

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
129

 
518

 
397

 
863

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
—

 
48

 
—

 
446

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(201,237
)
 
$
355,505

 
$
(192,930
)
 
$
186,959

NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
(16,295
)
 
$
(49,466
)
 
$
(147,714
)
 
$
(327,764
)
NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
(201,822
)
 
$
380,627

 
$
(191,471
)
 
$
470,377

NET (LOSS) INCOME ALLOCATED TO COMMON UNITHOLDERS
 
$
(218,117
)
 
$
331,161

 
$
(339,185
)
 
$
142,613

BASIC (LOSS) INCOME PER COMMON UNIT
 
 
 
 
 
 
 
 
Loss From Continuing Operations
 
$
(0.13
)
 
$
(0.40
)
 
$
(1.17
)
 
$
(2.69
)
(Loss) Income From Discontinued Operations, net of Tax
 
(1.59
)
 
3.10

 
(1.51
)
 
3.86

Net (Loss) Income
 
$
(1.72
)
 
$
2.70

 
$
(2.68
)
 
$
1.17

DILUTED (LOSS) INCOME PER COMMON UNIT
 
 
 
 
 
 
 
 
Loss From Continuing Operations
 
$
(0.13
)
 
$
(0.40
)
 
$
(1.17
)
 
$
(2.69
)
(Loss) Income From Discontinued Operations, net of Tax
 
(1.59
)
 
3.10

 
(1.51
)
 
3.86

Net (Loss) Income
 
$
(1.72
)
 
$
2.70

 
$
(2.68
)
 
$
1.17

BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(in Thousands)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net (loss) income
 
$
(201,366
)
 
$
354,939

 
$
(193,327
)
 
$
185,650

Other comprehensive loss
 
(46
)
 
(13
)
 
(9
)
 
(24
)
Comprehensive (loss) income
 
$
(201,412
)
 
$
354,926

 
$
(193,336
)
 
$
185,626


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three and Six Months Ended September 30, 2019
(in Thousands, except unit amounts)
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Accumulated
Other
 
 
 
 
 
 
General
Partner
 
Units
 
Amount
 

Units
 
Amount
 
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
BALANCES AT MARCH 31, 2019
 
$
(50,603
)
 
8,400,000

 
$
202,731

 
124,508,497

 
$
2,067,197

 
$
(255
)
 
$
58,748

 
$
2,277,818

Distributions to general and common unit partners and preferred unitholders (Note 10)
 
(85
)
 
—

 
—

 
—

 
(63,274
)
 
—

 
—

 
(63,359
)
Issuance of Class C preferred units, net of offering costs (Note 10)
 
—

 
1,800,000

 
42,638

 
—

 
—

 
—

 
—

 
42,638

Equity issued pursuant to incentive compensation plan (Note 10)
 
—

 
—

 
—

 
—

 
2,752

 
—

 
—

 
2,752

Warrants exercised (Note 10)
 
—

 
—

 
—

 
1,458,371

 
15

 
—

 
—

 
15

Accretion of beneficial conversion feature of Class A convertible preferred units (Note 10)
 
—

 
—

 
—

 
—

 
(36,517
)
 
—

 
—

 
(36,517
)
Class A convertible preferred units redemption - amount paid in excess of carrying value (Note 10)
 
—

 
—

 
—

 
—

 
(78,797
)
 
—

 
—

 
(78,797
)
Investment in NGL Energy Holdings LLC (Note 13)
 
—

 
—

 
—

 
—

 
(2,361
)
 
—

 
—

 
(2,361
)
Net (loss) income
 
(85
)
 
—

 
—

 
—

 
8,392

 
—

 
(268
)
 
8,039

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
37

 
—

 
37

BALANCES AT JUNE 30, 2019
 
(50,773
)
 
10,200,000

 
245,369

 
125,966,868

 
1,897,407

 
(218
)
 
58,480

 
2,150,265

Distributions to general and common unit partners and preferred unitholders (Note 10)
 
(85
)
 
—

 
—

 
—

 
(55,025
)
 
—

 
—

 
(55,110
)
Sawtooth joint venture
 
—

 
—

 
—

 
—

 
—

 
—

 
(570
)
 
(570
)
Common unit repurchases and cancellations (Note 10)
 
—

 
—

 
—

 
(78,229
)
 
(1,098
)
 
—

 
—

 
(1,098
)
Issuance of Class B preferred units, net of offering costs (see Note 10)
 
—

 
4,185,642

 
102,757

 
—

 
—

 
—

 
—

 
102,757

Class C preferred units issuance costs
 
—

 
—

 
267

 
—

 
—

 
—

 
—

 
267

Issuance of warrants, net of offering costs (Note 10)
 
—

 
—

 
—

 
—

 
41,685

 
—

 
—

 
41,685

Equity issued pursuant to incentive compensation plan (Note 10)
 
27

 
—

 
—

 
2,151,781

 
26,566

 
—

 
—

 
26,593

Investment in NGL Energy Holdings LLC (Note 13)
 
—

 
—

 
—

 
—

 
(11,466
)
 
—

 
—

 
(11,466
)
Net loss
 
(183
)
 
—

 
—

 
—

 
(201,054
)
 
—

 
(129
)
 
(201,366
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(46
)
 
—

 
(46
)
BALANCES AT SEPTEMBER 30, 2019
 
$
(51,014
)
 
14,385,642

 
$
348,393

 
128,040,420

 
$
1,697,015

 
$
(264
)
 
$
57,781

 
$
2,051,911


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three and Six Months Ended September 30, 2018
(in Thousands, except unit amounts)
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Accumulated
Other
 
 
 
 
 
 
General
Partner
 
Units
 
Amount
 

Units
 
Amount
 
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
BALANCES AT MARCH 31, 2018
 
$
(50,819
)
 
8,400,000

 
$
202,731

 
121,472,725

 
$
1,852,495

 
$
(1,815
)
 
$
83,503

 
2,086,095

Distributions to general and common unit partners and preferred unitholders
 
(82
)
 
—

 
—

 
—

 
(58,548
)
 
—

 
—

 
(58,630
)
Contributions
 
—

 
—

 
—

 
—

 
—

 
—

 
169

 
169

Sawtooth joint venture
 
—

 
—

 
—

 
—

 
(63
)
 
—

 
63

 
—

Purchase of noncontrolling interest
 
—

 
—

 
—

 
—

 
(33
)
 
—

 
(3,927
)
 
(3,960
)
Redeemable noncontrolling interest valuation adjustment
 
—

 
—

 
—

 
—

 
(3,300
)
 
—

 
—

 
(3,300
)
Repurchase of warrants
 
—

 
—

 
—

 
—

 
(14,988
)
 
—

 
—

 
(14,988
)
Equity issued pursuant to incentive compensation plan
 
—

 
—

 
—

 
50,992

 
4,619

 
—

 
—

 
4,619

Warrants exercised
 
—

 
—

 
—

 
228,797

 
2

 
—

 
—

 
2

Accretion of beneficial conversion feature of Class A convertible preferred units
 
—

 
—

 
—

 
—

 
(8,983
)
 
—

 
—

 
(8,983
)
Net loss
 
(155
)
 
—

 
—

 
—

 
(168,391
)
 
—

 
(345
)
 
(168,891
)
Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(11
)
 
—

 
(11
)
Cumulative effect adjustment for adoption of ASC 606
 
139

 
—

 
—

 
—

 
139,167

 
—

 
—

 
139,306

Cumulative effect adjustment for adoption of ASU 2016-01
 
(2
)
 
—

 
—

 
—

 
(1,567
)
 
1,569

 
—

 
—

BALANCES AT JUNE 30, 2018
 
(50,919
)
 
8,400,000

 
202,731

 
121,752,514

 
1,740,410

 
(257
)
 
79,463

 
1,971,428

Distributions to general and common unit partners and preferred unitholders
 
(82
)
 
—

 
—

 
—

 
(58,774
)
 
—

 
—

 
(58,856
)
Redeemable noncontrolling interest valuation adjustment
 
—

 
—

 
—

 
—

 
(49
)
 
—

 
—

 
(49
)
Common unit repurchases and cancellations
 
—

 
—

 
—

 
(4,661
)
 
(54
)
 
—

 
—

 
(54
)
Equity issued pursuant to incentive compensation plan
 
21

 
—

 
—

 
1,993,609

 
22,753

 
—

 
—

 
22,774

Accretion of beneficial conversion feature of Class A convertible preferred units
 
—

 
—

 
—

 
—

 
(12,803
)
 
—

 
—

 
(12,803
)
Net income (loss)
 
367

 
—

 
—

 
—

 
355,138

 
—

 
(518
)
 
354,987

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(13
)
 
—

 
(13
)
BALANCES AT SEPTEMBER 30, 2018
 
$
(50,613
)
 
8,400,000

 
$
202,731

 
123,741,462

 
$
2,046,621

 
$
(270
)
 
$
78,945

 
$
2,277,414


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.






7


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
 
 
Six Months Ended September 30,
 
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
 
Net (loss) income
 
$
(193,327
)
 
$
185,650

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
 
Loss (income) from discontinued operations, net of tax
 
191,663

 
(470,402
)
Depreciation and amortization, including amortization of debt issuance costs
 
121,697

 
109,661

Loss on early extinguishment or revaluation of liabilities, net
 
—

 
937

Non-cash equity-based compensation expense
 
24,996

 
24,730

Loss on disposal or impairment of assets, net
 
2,144

 
107,323

Provision for doubtful accounts
 
767

 
163

Net adjustments to fair value of commodity derivatives
 
(54,229
)
 
56,698

Equity in earnings of unconsolidated entities
 
257

 
(598
)
Lower of cost or market value adjustment
 
979

 
131

Other
 
445

 
624

Changes in operating assets and liabilities, exclusive of acquisitions:
 
 
 
 
Accounts receivable-trade and affiliates
 
7,836

 
(385,782
)
Inventories
 
(60,121
)
 
(105,639
)
Other current and noncurrent assets
 
(35,899
)
 
(6,132
)
Accounts payable-trade and affiliates
 
(41,637
)
 
181,650

Other current and noncurrent liabilities
 
13,736

 
60,072

Net cash used in operating activities-continuing operations
 
(20,693
)
 
(240,914
)
Net cash provided by operating activities-discontinued operations
 
16,205

 
153,033

Net cash used in operating activities
 
(4,488
)
 
(87,881
)
INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(259,075
)
 
(193,519
)
Acquisitions, net of cash acquired
 
(647,048
)
 
(197,971
)
Net settlements of commodity derivatives
 
49,293

 
(59,119
)
Proceeds from sales of assets
 
1,982

 
8,204

Proceeds from divestitures of businesses and investments, net
 
—

 
18,594

Investments in unconsolidated entities
 
(1,015
)
 
(92
)
Distributions of capital from unconsolidated entities
 
439

 
—

Repayments on loan for natural gas liquids facility
 
3,022

 
4,558

Loan to affiliate
 
—

 
(1,515
)
Deposit paid to acquire business
 
(49,875
)
 
—

Net cash used in investing activities-continuing operations
 
(902,277
)
 
(420,860
)
Net cash provided by investing activities-discontinued operations
 
269,063

 
810,019

Net cash (used in) provided by investing activities
 
(633,214
)
 
389,159

FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
2,198,000

 
2,008,000

Payments on Revolving Credit Facility
 
(2,276,000
)
 
(2,153,500
)
Issuance of senior unsecured notes and term credit agreement
 
700,000

 
—

Repayment and repurchase of senior unsecured notes
 
—

 
(5,069
)
Payments on other long-term debt
 
(326
)
 
(326
)
Debt issuance costs
 
(10,446
)
 
(780
)
Contributions from noncontrolling interest owners, net
 
—

 
169

Distributions to general and common unit partners and preferred unitholders
 
(117,386
)
 
(117,486
)
Distributions to noncontrolling interest owners
 
(570
)
 
—

Proceeds from sale of preferred units, net of offering costs
 
428,338

 
—

Payments for redemption of preferred units
 
(265,128
)
 
—

Repurchase of warrants
 
—

 
(14,988
)
Common unit repurchases and cancellations
 
(1,098
)
 
(54
)
Payments for settlement and early extinguishment of liabilities
 
(1,273
)
 
(2,639
)
Investment in NGL Energy Holdings LLC
 
(13,827
)
 
—

Net cash provided by (used in) financing activities-continuing operations
 
640,284

 
(286,673
)
Net cash used in financing activities-discontinued operations
 
—

 
(325
)
Net cash provided by (used in) financing activities
 
640,284

 
(286,998
)
Net increase in cash and cash equivalents
 
2,582

 
14,280

Cash and cash equivalents, beginning of period
 
18,572

 
22,094

Cash and cash equivalents, end of period
 
$
21,154

 
$
36,374

Supplemental cash flow information:
 
 
 
 
Cash interest paid
 
$
65,615

 
$
82,690

Income taxes paid (net of income tax refunds)
 
$
3,237

 
$
1,368

Supplemental non-cash investing and financing activities:
 
 
 
 
Distributions declared but not paid to Class B and Class C preferred unitholders
 
$
8,162

 
$
4,725

Accrued capital expenditures
 
$
48,393

 
$
21,508

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements


Note 1—Organization and Operations

NGL Energy Partners LP (“we,” “us,” “our,” or the “Partnership”) is a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At September 30, 2019, our operations included:

•
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, trucking, marine and pipeline transportation services through its owned assets.
•
Our Water Solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms, drilling fluids and drilling muds and performs truck and frac tank washouts. In addition, our Water Solutions segment sells the recovered hydrocarbons that result from performing these services and sells freshwater to producers for exploration and production activities.
•
Our Liquids segment supplies natural gas liquids to retailers, wholesalers, refiners, and petrochemical plants throughout the United States and in Canada using its leased underground storage and fleet of leased railcars, markets regionally through its 27 owned terminals throughout the United States, and provides terminaling and storage services at its salt dome storage facility joint venture in Utah.
•
Our Refined Products and Renewables segment conducts gasoline, diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, Southeast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. In addition, in certain storage locations, our Refined Products and Renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties. See below for a discussion of the sale of a portion of our Refined Products and Renewables segment.

Recent Developments

On September 30, 2019, we completed the sale of TransMontaigne Product Services, LLC (“TPSL”) and associated assets to Trajectory Acquisition Company, LLC (“Trajectory”) for total consideration of approximately $275.5 million, including equity consideration, inventory and net working capital. TPSL makes up a portion of our Refined Products and Renewables segment. The divested assets include (i) TPSL Terminaling Services Agreement with TransMontaigne Partners LP, including the exclusive rights to utilize 19 terminals; (ii) line space along Colonial and Plantation Pipelines; (iii) two wholly-owned refined products terminals in Georgia that we acquired in January 2019 and multiple third-party throughput agreements; and (iv) all associated customer contracts, inventory and other working capital associated with the assets. This transaction represents a strategic shift in our operations and will have a significant effect on our operations and financial results going forward. Accordingly, the results of operations and cash flows related to TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows. In addition, the assets and liabilities related to TPSL have been classified as held for sale in our March 31, 2019 unaudited condensed consolidated balance sheet.

As previously disclosed, on July 10, 2018, we completed the sale of virtually all of our remaining Retail Propane segment to Superior Plus Corp. (“Superior”) for total consideration of $889.8 million in cash. We retained our 50% ownership interest in Victory Propane, LLC (“Victory Propane”), which we subsequently sold on August 14, 2018. This transaction represented a strategic shift in our operations and will have a significant effect on our operations and financial results going forward. Accordingly, the results of operations and cash flows related to our former Retail Propane segment (including equity in earnings of Victory Propane) have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows.


9
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 2—Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include our accounts and those of our controlled subsidiaries. Intercompany transactions and account balances have been eliminated in consolidation. Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. We also own an undivided interest in a crude oil pipeline, and include our proportionate share of assets, liabilities, and expenses related to this pipeline in our unaudited condensed consolidated financial statements.

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited condensed consolidated financial statements exclude certain information and notes required by GAAP for complete annual consolidated financial statements. However, we believe that the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements include all adjustments that we consider necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed in this Quarterly Report. The unaudited condensed consolidated balance sheet at March 31, 2019 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2019 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on May 30, 2019.

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, 2020.

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 estimates we make in the preparation of our unaudited condensed consolidated financial statements include, among others, determining the fair value of assets and liabilities acquired in acquisitions, the fair value of derivative instruments, the collectibility of accounts receivable, the recoverability of inventories, useful lives and recoverability of property, plant and equipment and amortizable intangible assets, the impairment of long-lived assets and goodwill, the fair value of asset retirement obligations, the value of equity-based compensation, accruals for environmental matters and estimating certain revenues. Although we believe these estimates are reasonable, actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting policies are consistent with those disclosed in Note 2 of our audited consolidated financial statements included in our Annual Report.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value is based upon assumptions that market participants would use when pricing an asset or liability. We use the following fair value hierarchy, which prioritizes valuation technique inputs used to measure fair value into three broad levels:

•
Level 1: Quoted prices in active markets for identical assets and liabilities that we have the ability to access at the measurement date.
•
Level 2: Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted

10
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 include non-exchange traded derivatives such as over-the-counter commodity price swap and option contracts and forward commodity contracts. We determine the fair value of all of our derivative financial instruments utilizing pricing models for similar instruments. Inputs to the pricing models include publicly available prices and forward curves generated from a compilation of data gathered from third parties.
•
Level 3: Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability.

Derivative Financial Instruments

We record all derivative financial instrument contracts at fair value in our unaudited condensed consolidated balance sheets except for certain physical contracts that qualify for 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.

We have not designated any financial instruments as hedges for accounting purposes. 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.

We utilize various commodity derivative financial instrument contracts to attempt to reduce our exposure to price fluctuations. We do not enter into such contracts for trading purposes. Changes in assets and liabilities from commodity derivative financial instruments result primarily from changes in market prices, newly originated transactions, and the timing of settlements and are reported within cost of sales on the unaudited condensed consolidated statements of operations, along with related settlements. We attempt to balance our contractual portfolio in terms of notional amounts and timing of performance and delivery obligations. However, net unbalanced positions can exist or are established based on our assessment of anticipated market movements. Inherent in the resulting contractual portfolio are certain business risks, including commodity price risk and credit 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. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Procedures and limits for managing commodity price risks and credit risks are specified in our market risk policy and credit policy, respectively. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel. Credit risk is monitored daily and exposure is minimized through customer deposits, restrictions on product liftings, letters of credit, and entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions.

Income Taxes

We qualify as a partnership for income tax purposes. As such, we generally do not pay United States federal income tax. Rather, each owner reports his or her share of our income or loss on his or her individual tax return. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined, as we do not have access to information regarding each partner’s basis in the Partnership.

We have certain taxable corporate subsidiaries in the United States and Canada, and our operations in Texas are subject to a state franchise tax that is calculated based on revenues net of cost of sales.


11
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


We have a deferred tax liability of $12.6 million at September 30, 2019 as a result of acquiring a corporation in connection with one of our acquisitions, which is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheet. 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 for the six months ended September 30, 2019 was $1.0 million with an effective tax rate of 24.9%.

We evaluate uncertain tax positions for recognition and measurement in the unaudited condensed consolidated financial statements. To recognize a tax position, we determine whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the unaudited condensed consolidated financial statements. We had no material uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at September 30, 2019 or March 31, 2019.

Inventories

Our inventories are valued at the lower of cost or net realizable value, with cost determined using either the weighted-average cost or the first in, first out (FIFO) methods, including the cost of transportation and storage, and with net realizable value defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. In performing this analysis, we consider fixed-price forward commitments.

Inventories consist of the following at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Crude oil
 
$
62,794

 
$
51,359

Natural gas liquids:
 
 
 
 
Propane
 
49,060

 
33,478

Butane
 
35,386

 
15,294

Other
 
8,238

 
7,482

Refined products:
 
 
 
 
Gasoline
 
106,083

 
87,661

Diesel
 
23,751

 
37,791

Renewables:
 
 
 
 
Ethanol
 
10,790

 
14,955

Biodiesel
 
12,691

 
4,750

Total
 
$
308,793

 
$
252,770



Amounts as of March 31, 2019 in the table above do not include inventory related to TPSL, as these amounts have been classified as current assets held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

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. Under the equity method, we do not report the individual assets and liabilities of these entities on our unaudited condensed consolidated balance sheets; instead, our ownership interests are reported within investments in unconsolidated entities on our unaudited condensed consolidated balance sheets. Under the equity method, the investment is recorded at acquisition cost, increased by our proportionate share of any earnings and additional capital contributions and decreased by our proportionate share of any losses, distributions paid, and amortization of any excess investment. Excess investment is the amount by which our total investment exceeds our proportionate share of the net assets of the investee.


12
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Our investments in unconsolidated entities consist of the following at the dates indicated:
Entity
 
Segment
 
Ownership
Interest (1)
 
Date Acquired
 
September 30, 2019
 
March 31, 2019
 
 
 
 
 
 
 
 
(in thousands)
Aircraft rental company (2)
 
Corporate and Other
 
50%
 
June 2019
 
$
796

 
$
—

Water services company (3)
 
Water Solutions
 
50%
 
August 2018
 
480

 
920

Natural gas liquids terminal company (4)
 
Liquids
 
50%
 
March 2019
 
169

 
207

Total
 
 
 
 
 
 
 
$
1,445

 
$
1,127

 
(1)
Ownership interest percentages are at September 30, 2019.
(2)
This is an investment with a related party. See Note 13 for a further discussion.
(3)
This is an investment that we acquired as part of an acquisition in August 2018.
(4)
This is an investment that we acquired as part of an acquisition in March 2019.

Other Noncurrent Assets

Other noncurrent assets consist of the following at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Loan receivable (1)
 
$
12,637

 
$
19,474

Line fill (2)
 
33,437

 
33,437

Minimum shipping fees - pipeline commitments (3)
 
—

 
23,494

Other
 
25,681

 
37,452

Total
 
$
71,755

 
$
113,857

 
(1)
Represents the noncurrent portion of a loan receivable associated with our interest in the construction of a natural gas liquids loading/unloading facility that is utilized by a third party that filed for Chapter11 bankruptcy during the three months ended September 30, 2019. As of September 30, 2019, we are owed a total of $26.4 million under this loan receivable, of which $16.5 million is recorded within prepaid expenses and other current assets in our unaudited condensed unconsolidated balance sheet. Our loan receivable is secured by a lien interest on the natural gas liquids loading/unloading facility. We have filed our Proof of Claim within the bankruptcy case and while the third party may have the option to reject the receivable in the context of the bankruptcy proceeding, we believe, that due to the importance of the natural gas liquids loading/unloading facility to the third party’s overall business it will keep our note receivable in place once it emerges from bankruptcy or effectuates an asset sale and that we will be paid the full amount owed. We will continue to monitor the bankruptcy case as it progresses. The remaining amount represents the noncurrent portion of a loan receivable with Victory Propane.
(2)
Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At September 30, 2019, line fill consisted of 335,069 barrels of crude oil and 262,000 barrels of propane. At March 31, 2019, line fill consisted of 335,069 barrels of crude oil and 262,000 barrels of propane. Line fill held in pipelines we own is included within property, plant and equipment (see Note 5).
(3)
Represents the minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for one contract with a crude oil pipeline operator. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 9). At June 30, 2019, the deficiency credit of $23.5 million was reclassified to prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet. In October 2019, we extended our commitment with this crude oil pipeline operator and this extension provides us with an additional 5.5 years in which to use the deficiency credit (see Note 9).

Amounts as of March 31, 2019 in the table above do not include other noncurrent assets related to TPSL, as these amounts have been classified as noncurrent assets held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).


13
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, 2019
 
March 31, 2019
 
 
(in thousands)
Accrued compensation and benefits
 
$
16,174

 
$
19,312

Excise and other tax liabilities
 
12,737

 
10,481

Derivative liabilities
 
31,108

 
88,932

Accrued interest
 
39,865

 
24,882

Product exchange liabilities
 
7,486

 
5,945

Gavilon legal matter settlement (Note 9)
 
12,500

 
12,500

Contingent consideration liability (Note 4)
 
190,000

 
—

Other
 
26,256

 
29,679

Total
 
$
336,126

 
$
191,731



Amounts as of March 31, 2019 in the table above do not include accrued expenses and other payables related to TPSL, as these amounts have been classified as current liabilities held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

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.

Acquisitions

To determine if a transaction should be accounted for as a business combination or an acquisition of assets, we first calculate the relative fair values of the assets acquired. If substantially all of the relative fair value is concentrated in a single asset or group of similar assets, or if not but the transaction does not include a significant process (does not meet the definition of a business), we record the transaction as an acquisition of assets. For acquisitions of assets, the purchase price is allocated based on the relative fair values. For an acquisition of assets, goodwill is not recorded. All other transactions are recorded as business combinations. We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. For a business combination, the excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually.

Pursuant to GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination. As discussed in Note 4, certain of our acquisitions are still within this measurement period, and as a result, the acquisition date fair values we have recorded for the assets acquired and liabilities assumed are subject to change.

Also, as discussed in Note 4, we made certain adjustments during the six months ended September 30, 2019 to our estimates of the acquisition date fair values of the assets acquired and liabilities assumed in business combinations that occurred during the fiscal year ended March 31, 2019.

Reclassifications

We have reclassified certain prior period financial statement information to be consistent with the classification methods used in the current fiscal year. These reclassifications did not impact previously reported amounts of assets, liabilities, equity, net income, or cash flows.


14
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses.” The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected, which would include accounts receivable. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The ASU is effective for the Partnership beginning April 1, 2020, and requires a modified retrospective method of adoption, although early adoption is permitted. We are currently in the process of assessing the impact of this ASU on our consolidated financial statements.

In February 2016, the FASB issued ASC 842, “Leases.” This ASU replaced previous lease accounting guidance in GAAP. The new guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. It also retains a distinction between finance leases and operating leases. For lessors, the new accounting model remains largely the same, although some changes have been made to align it with the new lessee model and the ASC 606 revenue recognition guidance. We adopted ASC 842 effective April 1, 2019 using the modified retrospective method, with no adjustment to comparative period information, which remains reported under ASC 840, and no cumulative effect adjustment to equity. See Note 15 for a further discussion of the impact of adoption of ASC 842 to our unaudited condensed consolidated financial statements.

Note 3—(Loss) Income 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,
 
 
2019
 
2018
 
2019
 
2018
Weighted average common units outstanding during the period:
 
 
 
 
 
 
 
 
Common units - Basic
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593

Common units - Diluted
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593


All securities that could be potentially dilutive were anti-dilutive for all periods presented.


15
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Our (loss) income per common unit is as follows for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands, except unit and per unit amounts)
Income (loss) from continuing operations
 
$
658

 
$
(26,022
)
 
$
(1,664
)
 
$
(284,752
)
Less: Continuing operations loss attributable to noncontrolling interests
 
129

 
518

 
397

 
863

Net income (loss) from continuing operations attributable to NGL Energy Partners LP
 
787

 
(25,504
)
 
(1,267
)
 
(283,889
)
Less: Distributions to preferred unitholders (1)
 
(17,063
)
 
(23,977
)
 
(146,523
)
 
(44,134
)
Less: Continuing operations net (income) loss allocated to general partner (2)
 
(19
)
 
15

 
76

 
259

Net loss from continuing operations allocated to common unitholders
 
$
(16,295
)
 
$
(49,466
)
 
$
(147,714
)
 
$
(327,764
)
 
 
 
 
 
 
 
 
 
(Loss) income from discontinued operations, net of tax
 
$
(202,024
)
 
$
380,961

 
$
(191,663
)
 
$
470,402

Less: Discontinued operations loss attributable to redeemable noncontrolling interests
 
—

 
48

 
—

 
446

Less: Discontinued operations loss (income) allocated to general partner (2)
 
202

 
(382
)
 
192

 
(471
)
Net (loss) income from discontinued operations allocated to common unitholders
 
$
(201,822
)
 
$
380,627

 
$
(191,471
)
 
$
470,377

 
 
 
 
 
 
 
 
 
Net (loss) income allocated to common unitholders
 
$
(218,117
)
 
$
331,161

 
$
(339,185
)
 
$
142,613

 
 
 
 
 
 
 
 
 
Basic (loss) income per common unit
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(0.13
)
 
$
(0.40
)
 
$
(1.17
)
 
$
(2.69
)
(Loss) income from discontinued operations, net of tax
 
(1.59
)
 
3.10

 
(1.51
)
 
3.86

Net (loss) income
 
$
(1.72
)
 
$
2.70

 
$
(2.68
)
 
$
1.17

Diluted (loss) income per common unit
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(0.13
)
 
$
(0.40
)
 
$
(1.17
)
 
$
(2.69
)
(Loss) income from discontinued operations, net of tax
 
(1.59
)
 
3.10

 
(1.51
)
 
3.86

Net (loss) income
 
$
(1.72
)
 
$
2.70

 
$
(2.68
)
 
$
1.17

Basic weighted average common units outstanding
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593

Diluted weighted average common units outstanding
 
126,979,034

 
122,380,197

 
126,435,870

 
121,964,593

 
(1)
This amount includes distributions to preferred unitholders, the final accretion for the beneficial conversion of the Class A Preferred Units and the excess of the Class A Preferred Units repurchase price over the carrying value of the units, as discussed further in Note 10.
(2)
Net (income) loss allocated to the general partner includes distributions to which it is entitled as the holder of incentive distribution rights.

Note 4—Acquisitions

The following summarizes our acquisitions during the six months ended September 30, 2019:

Mesquite Acquisition

On July 2, 2019, we acquired all of the assets of Mesquite Disposals Unlimited, LLC (“Mesquite”) (including 34 saltwater disposal wells). The purchase price was comprised of (i) $592.5 million in cash, (ii) the issuance of $102.8 million of our Class B Preferred Units (as defined herein) and (iii) additional cash payments of $200.0 million to be paid in two deferred installments contingent on the average daily volume of wastewater processed utilizing the assets being acquired. Mesquite SWD Inc. will remain the operator of the Mesquite assets led by Mesquite’s current management team. The assets consist of a fully interconnected produced water pipeline transportation and disposal system in Eddy and Lea Counties, New Mexico, and Loving County, Texas.


16
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


To determine our preliminary purchase price of $885.3 million, we included the fair value of the deferred payments at the date of acquisition of $190.0 million, to the sum of the cash paid and the value of the preferred units issued.

As part of this acquisition, we recorded customer commitment, customer relationship and right-of way intangible assets. We estimated the value of these intangible assets using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

The agreement for this acquisition contemplates post-closing payments for certain working capital items. We are accounting for this transaction as a business combination. The following table summarizes the preliminary estimates of the fair values as of September 30, 2019 for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
377,525

Goodwill
57,782

Intangible assets
454,650

Other noncurrent liabilities
(4,700
)
Fair value of net assets acquired
$
885,257



As of September 30, 2019, the allocation of the purchase price is considered preliminary as we are continuing to gather additional information to (i) finalize the fair values of the property, plant and equipment and intangible assets and (ii) finalize the calculation of asset retirement obligations.

Goodwill represents the excess of the consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities assumed. Goodwill represents a premium paid to expand the number of our disposal sites in an oilfield production basin currently serviced by us, thereby enhancing our competitive position as a provider of disposal services in this oilfield production basin. We expect that all of the goodwill will be deductible for federal income tax purposes.

The operations of these water solutions facilities have been included in our unaudited condensed consolidated statement of operations since their acquisition date. Our unaudited condensed consolidated statement of operations for the six months ended September 30, 2019 includes revenues of $25.6 million and operating income of $8.4 million that were generated by the operations of these water solutions facilities. We incurred $5.9 million of transaction costs related to this acquisition during the six months ended September 30, 2019, which is recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

Saltwater Water Solutions Facilities

During the six months ended September 30, 2019, we acquired one saltwater disposal facility (including three saltwater disposal wells) for total consideration of approximately $53.0 million.

As part of this acquisition, we recorded customer relationship, favorable contract, non-compete agreement and right-of way intangible assets. We estimated the value of these intangible assets using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

The agreement for this acquisition contemplates post-closing payments for certain working capital items. We are accounting for this transaction as a business combination. The following table summarizes the preliminary estimates of the fair values as of September 30, 2019 for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
24,324

Goodwill
2,413

Intangible assets
26,688

Other noncurrent liabilities
(425
)
Fair value of net assets acquired
$
53,000



As of September 30, 2019, the allocation of the purchase price is considered preliminary as we are continuing to gather additional information to finalize the fair values of the property, plant and equipment and intangible assets.


17
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Goodwill represents the excess of the consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities assumed. Goodwill represents a premium paid to expand the number of our disposal sites in an oilfield production basin currently serviced by us, thereby enhancing our competitive position as a provider of disposal services in this oilfield production basin. We expect that all of the goodwill will be deductible for federal income tax purposes.

The operations of these water solutions facilities have been included in our unaudited condensed consolidated statement of operations since their acquisition date. Our unaudited condensed consolidated statement of operations for the six months ended September 30, 2019 includes revenues of $3.4 million and operating income of $0.8 million that were generated by the operations of these water solutions facilities. We incurred less than $0.1 million of transaction costs related to this acquisition during the six months ended September 30, 2019, which is recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

During the six months ended September 30, 2019, we also acquired land and two saltwater disposal wells for total consideration of $13.0 million, which we are accounting for as an acquisition of assets. The consideration paid for this transaction was allocated primarily to property, plant and equipment.

The following summarizes the status of the preliminary purchase price allocation of acquisitions prior to April 1, 2019:

Saltwater Water Solutions Facilities

During the three months ended June 30, 2019, we completed the acquisition accounting for all saltwater disposal facilities and saltwater disposal wells acquired during the fiscal year ended March 31, 2019. Due to the receipt of additional information, we recorded a decrease of $2.3 million to intangible assets with the offset recorded to goodwill. There were no other adjustments to the fair value of assets acquired and liabilities assumed during the three months ended June 30, 2019.

Freshwater Water Solutions Facilities

During the three months ended June 30, 2019, we completed the acquisition accounting for four freshwater facilities (including 16 freshwater wells). There were no adjustments to the fair value of assets acquired and liabilities assumed during the three months ended June 30, 2019 for this acquisition.

During the six months ended September 30, 2019, we completed the acquisition accounting for a separate freshwater acquisition. We paid $2.5 million in cash to the sellers during the six months ended September 30, 2019 to complete the settlement of the acquisition. The offset of the cash payment was recorded to goodwill. There were no other adjustments to the fair value of assets acquired and liabilities assumed during the six months ended September 30, 2019.

Natural Gas Liquids Terminal Business

During the six months ended September 30, 2019, we finalized the adjustments related to the working capital items received and recorded a decrease of $2.7 million to inventories, an increase of $0.3 million to other current assets, an increase of $0.1 million to property, plant and equipment, a decrease of $0.9 million to current liabilities and a decrease of $0.5 million to noncurrent liabilities. Also, due to the receipt of additional information, we recorded an increase of $29.0 million to property, plant and equipment, a decrease of $26.9 million to intangible assets and a decrease of $2.1 million to goodwill. The purchase price allocation is still preliminary as we are continuing to finalize the fair value of the property, plant and equipment.


18
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 5—Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:
Description
Estimated
Useful Lives
 
September 30, 2019
 
March 31, 2019
 
(in years)
 
(in thousands)
Natural gas liquids terminal and storage assets
2
-
30
 
$
307,886

 
$
280,106

Pipeline and related facilities
30
-
40
 
243,882

 
243,799

Vehicles and railcars
3
-
25
 
121,168

 
124,948

Water treatment facilities and equipment
3
-
30
 
1,101,336

 
704,666

Crude oil tanks and related equipment
2
-
30
 
227,829

 
225,476

Barges and towboats
5
-
30
 
120,912

 
103,735

Information technology equipment
3
-
7
 
32,933

 
31,831

Buildings and leasehold improvements
3
-
40
 
145,356

 
143,711

Land
 
 
 
 
77,001

 
62,379

Tank bottoms and line fill (1)
 
 
 
 
20,339

 
20,071

Other
3
-
20
 
15,024

 
14,870

Construction in progress
 
 
 
 
541,443

 
290,805

 
 
 
 
 
2,955,109

 
2,246,397

Accumulated depreciation
 
 
 
 
(469,229
)
 
(417,457
)
Net property, plant and equipment
 
 
 
 
$
2,485,880

 
$
1,828,940

 
(1)
Tank bottoms, which are product volumes required for the operation of storage tanks, are recorded at historical cost. We recover tank bottoms when the storage tanks are removed from service. Line fill, 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 as of March 31, 2019 in the table above do not include property, plant and equipment and accumulated depreciation related to TPSL, as these amounts have been classified as noncurrent assets held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation expense
 
$
31,334

 
$
25,831

 
$
56,790

 
$
50,408

Capitalized interest expense
 
$
—

 
$
173

 
$
—

 
$
322



Amounts in the table above do not include depreciation expense and capitalized interest related to TPSL and our former Retail Propane segment, as these amounts have been classified within discontinued operations in our unaudited condensed consolidated statements of operations (see Note 16).


19
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


We record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within loss on disposal or impairment of assets, net in our unaudited condensed consolidated statements of operations. The following table summarizes (gains) losses on the disposal or impairment of property, plant and equipment by segment for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Crude Oil Logistics
 
$
(257
)
 
$
3,367

 
$
(790
)
 
$
1,326

Water Solutions
 
3,551

 
730

 
3,599

 
3,205

Liquids
 
(4
)
 
1,004

 
(7
)
 
994

Total
 
$
3,290

 
$
5,101

 
$
2,802

 
$
5,525



Note 6—Goodwill

The following table summarizes changes in goodwill by segment during the six months ended September 30, 2019:
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products and
Renewables
 
Total
 
 
(in thousands)
Balances at March 31, 2019
 
$
579,846

 
$
410,139

 
$
103,421

 
$
19,743

 
$
1,113,149

Revisions to acquisition accounting (Note 4)
 
—

 
4,755

 
(2,057
)
 
—

 
2,698

Acquisitions (Note 4)
 
—

 
60,195

 
—

 
—

 
60,195

Balances at September 30, 2019
 
$
579,846

 
$
475,089

 
$
101,364

 
$
19,743

 
$
1,176,042



Note 7—Intangible Assets

Our intangible assets consist of the following at the dates indicated:
 
 
 
 
 
 
September 30, 2019
 
March 31, 2019
Description
 
Amortizable Lives
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
(in years)
 
(in thousands)
Amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
3
-
30
 
$
982,932

 
$
(406,049
)
 
$
576,883

 
$
742,832

 
$
(369,983
)
 
$
372,849

Customer commitments
 
10
-
25
 
500,000

 
(92,317
)
 
407,683

 
310,000

 
(74,917
)
 
235,083

Pipeline capacity rights
 
30
 
 
 
7,800

 
(1,517
)
 
6,283

 
7,799

 
(1,387
)
 
6,412

Rights-of-way and easements
 
1
-
45
 
85,001

 
(5,616
)
 
79,385

 
73,409

 
(4,509
)
 
68,900

Water rights
 
13
-
14
 
64,868

 
(5,479
)
 
59,389

 
64,868

 
(3,018
)
 
61,850

Executory contracts and other agreements
 
5
-
30
 
55,030

 
(18,636
)
 
36,394

 
47,230

 
(17,212
)
 
30,018

Non-compete agreements
 
2
-
24
 
19,823

 
(4,363
)
 
15,460

 
12,723

 
(2,570
)
 
10,153

Debt issuance costs (1)
 
5
 
 
 
42,381

 
(32,077
)
 
10,304

 
42,345

 
(29,521
)
 
12,824

Total amortizable
 
 
 
 
 
1,757,835

 
(566,054
)
 
1,191,781

 
1,301,206

 
(503,117
)
 
798,089

Non-amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
 
 
 
2,800

 
—

 
2,800

 
2,800

 
—

 
2,800

Total
 
 
 
 
 
$
1,760,635

 
$
(566,054
)
 
$
1,194,581

 
$
1,304,006

 
$
(503,117
)
 
$
800,889

 
(1)
Includes debt issuance costs related to the Revolving Credit Facility (as defined herein). Debt issuance costs related to fixed-rate notes and Term Credit Agreement (as defined herein) are reported as a reduction of the carrying amount of long-term debt.


20
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Amounts as of March 31, 2019 in the table above do not include intangible assets and accumulated amortization of TPSL, as these amounts have been classified as noncurrent assets held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

The weighted-average remaining amortization period for intangible assets is approximately 16.2 years.

Amortization expense is as follows for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
Recorded In
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation and amortization
 
$
31,779

 
$
26,766

 
$
60,077

 
$
54,082

Cost of sales
 
88

 
101

 
176

 
283

Interest expense
 
1,280

 
1,225

 
2,556

 
2,418

Operating expenses
 
111

 
—

 
262

 
—

Total
 
$
33,258

 
$
28,092

 
$
63,071

 
$
56,783


Amounts in the table above do not include amortization expense related to TPSL and our former Retail Propane segment, as these amounts have been classified within discontinued operations within our unaudited condensed consolidated statements of operations (see Note 16).

Expected amortization of our intangible assets is as follows (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
68,078

2021
124,549

2022
111,700

2023
103,672

2024
97,533

Thereafter
686,249

Total
$
1,191,781





21
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 8—Long-Term Debt

Our long-term debt consists of the following at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
Face
Amount
 
Unamortized
Debt Issuance
Costs (1)
 
Book
Value
 
Face
Amount
 
Unamortized
Debt Issuance
Costs (1)
 
Book
Value
 
 
(in thousands)
Revolving credit facility:
 
 
 
 
 
 
 
 
 
 
 
 
Expansion capital borrowings
 
$
450,000

 
$
—

 
$
450,000

 
$
275,000

 
$
—

 
$
275,000

Working capital borrowings
 
643,000

 
—

 
643,000

 
896,000

 
—

 
896,000

Senior unsecured notes:
 
 
 
 
 
 
 
 
 
 
 
 
7.500% Notes due 2023 ("2023 Notes")
 
607,323

 
(6,159
)
 
601,164

 
607,323

 
(6,916
)
 
600,407

6.125% Notes due 2025 ("2025 Notes")
 
389,135

 
(4,665
)
 
384,470

 
389,135

 
(5,092
)
 
384,043

7.500% Notes due 2026 ("2026 Notes")
 
450,000

 
(7,452
)
 
442,548

 
—

 
—

 
—

Term credit agreement
 
250,000

 
(2,305
)
 
247,695

 
—

 
—

 
—

Other long-term debt
 
5,007

 
—

 
5,007

 
5,331

 
—

 
5,331

 
 
2,794,465

 
(20,581
)
 
2,773,884

 
2,172,789

 
(12,008
)
 
2,160,781

Less: Current maturities
 
649

 
—

 
649

 
648

 
—

 
648

Long-term debt
 
$
2,793,816

 
$
(20,581
)
 
$
2,773,235

 
$
2,172,141

 
$
(12,008
)
 
$
2,160,133

 
(1)
Debt issuance costs related to the Revolving Credit Facility are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt.

Amortization expense for debt issuance costs related to long-term debt in the table above was $1.0 million and $1.2 million during the three months ended September 30, 2019 and 2018, respectively, and $1.8 million and $2.5 million during the six months ended September 30, 2019 and 2018.

Expected amortization of debt issuance costs is as follows (in thousands):
Fiscal Year Ending March 31,
 
 
2020 (six months)
 
$
2,571

2021
 
3,867

2022
 
3,854

2023
 
3,854

2024
 
3,230

Thereafter
 
3,205

Total
 
$
20,581



Credit Agreement

As of September 30, 2019, we were party to a $1.765 billion credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement includes a revolving credit facility to fund working capital needs, which had a capacity of $1.250 billion for cash borrowings and letters of credit (the “Working Capital Facility”), and a revolving credit facility to fund acquisitions and expansion projects, which had a capacity of $515.0 million (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”). We had letters of credit of $189.6 million on the Working Capital Facility at September 30, 2019. The capacity under the Working Capital Facility may be limited by a “borrowing base” (as defined in the Credit Agreement) which is calculated based on the value of certain working capital items at any point in time.



22
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


On October 30, 2019, we amended the Credit Agreement, to, among other things, adjust the allocation of the commitments of the lenders to make revolving loans thereunder and, effective with the fiscal quarter ending December 31, 2019, eliminate the leverage ratio financial covenant (as defined in the Credit Agreement) and adjust the senior secured leverage ratio (as defined in the Credit Agreement), interest coverage ratio (as defined in the Credit Agreement) and total leverage indebtedness ratio financial covenants (as defined in the Credit Agreement). The new debt covenant levels are presented in the table below. As amended, the Credit Agreement provides for up to $1.790 billion in aggregate commitments, consisting of (i) a $600 million Working Capital Facility for working capital requirements and other general corporate purposes and (ii) a $1.190 billion Expansion Capital Facility, for acquisitions, internal growth projects, other capital expenditures and general corporate purposes.

At September 30, 2019, the borrowings under the Credit Agreement had a weighted average interest rate of 4.23%, calculated as the weighted average LIBOR rate of 2.05% plus a margin of 2.00% for LIBOR borrowings and the prime rate of 5.00% plus a margin of 1.00% on alternate base rate borrowings. At September 30, 2019, the interest rate in effect on letters of credit was 2.00%. Commitment fees are charged at a rate ranging from 0.375% to 0.50% on any unused capacity.

The following table summarizes the debt covenant levels specified in the Credit Agreement (as amended):
 
 
 
 
Senior Secured
 
Interest
 
Total Leverage
Period Beginning
 
Leverage Ratio (1)
 
Leverage Ratio (1)
 
Coverage Ratio (2)
 
Indebtedness Ratio (1)
September 30, 2019
 
4.50

 
3.25

 
2.75

 
6.25

December 31, 2019
 
—

 
3.50

 
2.50

 
5.75

June 30, 2020 and thereafter
 
—

 
3.50

 
2.50

 
5.50

 
(1)
Represents the maximum ratio for the period presented.
(2)
Represents the minimum ratio for the period presented.

At September 30, 2019, our leverage ratio was approximately 3.73 to 1, our senior secured leverage ratio was approximately 1.22 to 1, our interest coverage ratio was approximately 3.73 to 1 and our total leverage indebtedness ratio was approximately 4.85 to 1.

We were in compliance with the covenants under the Credit Agreement at September 30, 2019.

Senior Unsecured Notes

On April 9, 2019, we issued $450.0 million of 7.50% Senior Unsecured Notes Due 2026 (the “2026 Notes”) in a private placement. The 2026 Notes bear interest, which is payable on April 15 and October 15 of each year, beginning on October 15, 2019 at 7.50% per annum. We received net proceeds of $442.1 million, after the initial purchasers’ discount of $6.8 million and offering costs of $1.1 million. The 2026 Notes mature on April 15, 2026.

At September 30, 2019, we were in compliance with the covenants under the indentures for all of the Senior Unsecured Notes.

Term Credit Agreement

On July 2, 2019 (the “Closing Date”), we entered into a term credit agreement (the “Term Credit Agreement”) with Toronto Dominion (Texas) LLC for a $250.0 million term loan facility. Toronto Dominion (Texas) LLC and certain of its affiliates are also lenders under our Credit Agreement. Proceeds from the term loan facility were used to fund a portion of the purchase price for the Mesquite (as defined herein) acquisition (see Note 4).

The commitments under the Term Credit Agreement expire on July 2, 2024. We are subject to prepayments of principal if we enter into certain transactions to sell assets, issue equity or obtain new borrowings.

The obligations under the Term Credit Agreement are guaranteed by the Partnership and certain of the Borrower’s wholly owned subsidiaries, and are secured by substantially all of the assets of the Borrower, the Partnership and the other subsidiary guarantors subject to certain customary exclusions.

23
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



All borrowings under the Term Credit Agreement bear interest, at either (a) an alternate base rate plus (i) during the first three-month period after the Closing Date, margin equal to the applicable margin for alternate base rate loans calculated under our existing revolving credit facility, (ii) 2.00% per annum for the second three-month period after the Closing Date, (iii) 2.25% per annum for the third three-month period after the Closing Date, (iv) 2.50% per annum for the fourth three-month period after the Closing Date, and (v) thereafter, the rate per year such that the alternate base rate equals a rate of interest agreed to between us and the administrative agent, or (b) an adjusted LIBOR rate plus (i) during the first three-month period after the Closing Date, margin equal to the applicable margin for LIBOR rate loans calculated under our existing revolving credit facility, (ii) 3.00% per annum for the second three-month period after the Closing Date, (iii) 3.25% per annum for the third three-month period after the Closing Date, (iv) 3.50% per annum for the fourth three-month period after the Closing Date, and (v) thereafter, such rate per annum such that the adjusted LIBOR rate equals a rate of interest agreed to between us and the administrative agent. At September 30, 2019, the borrowings under the Term Credit Agreement had a weighted average interest rate of 3.79% calculated as the prime rate of 2.04% plus a margin of 1.75%.

The Term Credit Agreement contains various customary representations, warranties and covenants by the Partnership and its subsidiaries, including, without limitation, (i) commencing September 30, 2019, the Partnership and the subsidiary guarantors will be subject to financial covenants limiting leverage, including senior leverage, secured leverage and total leverage, and requiring a minimum interest coverage, (ii) negative covenants limiting indebtedness, liens, equity distributions and fundamental changes involving the Partnership or its subsidiaries and (iii) affirmative covenants requiring, among other things, reporting of financial information and material events and covenants to maintain existence and pay taxes, in each case substantially consistent with the Partnership’s existing Revolving Credit Facility, which is described above.

On October 30, 2019, we amended the Term Credit Agreement, to, among other things, conform financial covenants in the Term Credit Agreement to the financial covenants set forth in the amended Credit Agreement, as described above.

Other Long-Term Debt

We have other notes payable related to equipment financing. The interest rates on these instruments range from 4.13% to 7.10% per year and have an aggregate principal balance of $5.0 million at September 30, 2019.

Debt Maturity Schedule

The scheduled maturities of our long-term debt are as follows at September 30, 2019:
Fiscal Year Ending March 31,
 
Revolving
Credit
Facility
 
Senior Unsecured Notes
 
Term Credit Agreement
 
Other
Long-Term
Debt
 
Total
 
 
(in thousands)
2020 (six months)
 
$
—

 
$
—

 
$
—

 
$
630

 
$
630

2021
 
—

 
—

 
—

 
4,377

 
4,377

2022
 
1,093,000

 
—

 
—

 
—

 
1,093,000

2023
 
—

 
—

 
—

 
—

 
—

2024
 
—

 
607,323

 
—

 
—

 
607,323

Thereafter
 
—

 
839,135

 
250,000

 
—

 
1,089,135

Total
 
$
1,093,000

 
$
1,446,458

 
$
250,000

 
$
5,007

 
$
2,794,465



Note 9—Commitments and Contingencies

Legal Contingencies

In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against NGL Energy Holdings LLC (the “GP”) and the Partnership seeking payment for investment banking services relating to the purchase of TransMontaigne Inc. and related assets in July 2014. After pre-trial rulings, LCT was limited to pursuing claims of (i) quantum meruit (the value of the services rendered by LCT) and (ii) fraudulent misrepresentation against the defendants. Following a jury trial conducted in Delaware state court from July 23, 2018 through August 1, 2018, the jury returned a verdict consisting of an award of $4.0 million for quantum meruit and $29.0 million for fraudulent misrepresentation, subject to statutory interest. The GP and the Partnership

24
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


contend that the jury verdict, at least in respect of fraudulent misrepresentation, is not supportable by either controlling law or the evidentiary record. Both defendants have a pending motion for judgment as a matter of law on the fraudulent misrepresentation claim and plan to file post-verdict motions as appropriate before the trial court, and, if need be, will file an appeal to the Delaware Supreme Court. It is our position that the awards, even if they each stand, are not cumulative. Any allocation of the ultimate verdict award between the GP and the Partnership will be made by the board of directors once all information is available to it and after the post-trial and any appellate process has run its course and the verdict is final as a matter of law. Because the Partnership is a named defendant in the lawsuit, and any judgment ultimately awarded would be joint and several with the GP, we have determined that it is probable that the Partnership could be liable for a portion of this judgment. At this time, we believe the amount that could be allocated to the Partnership would not be material as it is estimated to be less than $4.0 million. As of September 30, 2019, we have accrued $2.5 million related to this matter.

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, 2019, we have an environmental liability, measured on an undiscounted basis, of $2.3 million, which is recorded within accrued expenses and other payables in our unaudited condensed consolidated balance sheet. Our operations are subject to extensive federal, state, and local environmental laws and regulations. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our business, and there can be no assurance that we will not incur significant costs. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, could result in substantial costs. Accordingly, we have adopted policies, practices, and procedures in the areas of pollution control, product safety, occupational health, and the handling, storage, use, and disposal of hazardous materials designed to prevent material environmental or other damage, and to limit the financial liability that could result from such events. However, some risk of environmental or other damage is inherent in our business.

In 2015, as previously disclosed, the U.S. Environmental Protection Agency (“EPA”) informed NGL Crude Logistics, LLC, formerly known as Gavilon, LLC (“Gavilon Energy”), of alleged violations that occurred in 2011 by Gavilon Energy of the Clean Air Act’s renewable fuel standards regulations (prior to its acquisition by us in December 2013). On October 4, 2016, the U.S. Department of Justice, acting at the request of the EPA, filed a civil complaint in the Northern District of Iowa against Gavilon Energy and one of its then suppliers, Western Dubuque Biodiesel LLC (“Western Dubuque”). Consistent with the earlier allegations by the EPA, the civil complaint related to transactions between Gavilon Energy and Western Dubuque and the generation of biodiesel renewable identification numbers (“RINs”) sold by Western Dubuque to Gavilon Energy in 2011. On December 19, 2016, we filed a motion to dismiss the complaint. On January 9, 2017, the EPA filed an amended complaint. The amended complaint seeks an order declaring Western Dubuque’s RINs invalid and requiring the defendants to retire an equivalent number of valid RINs and that the defendants pay statutory civil penalties. On January 23, 2017, we filed a motion to dismiss the amended complaint. On May 24, 2017, the court denied our motion to dismiss. Subsequently, the EPA filed a second amended complaint seeking an order declaring Western Dubuque’s RINs invalid, an order requiring us to retire an equivalent number of valid RINs and an award against us of statutory civil penalties. In May 2018, the parties completed briefing on cross-motions for summary judgment concerning liability issues in the case. On July 3, 2018, the Court denied our summary judgment motion and largely granted the plaintiff’s two summary judgment motions on liability. On July 19, 2018, Gavilon Energy reached an agreement in principle with the EPA regarding the terms of a settlement of the case, which was memorialized in a consent decree lodged to the Court on September 27, 2018. Such terms will result in Gavilon Energy paying cash of $25.0 million and retiring 36 million RINs, over a twelve-month period. The consent decree was approved by the Court on November 8, 2018. The consent decree resolves all matters between Gavilon Energy and the EPA in connection with the above-described complaint. During the fiscal year ended March 31, 2019, we paid the EPA $12.5 million and retired all 36 million RINs. As of September 30, 2019, we have an accrual, which is included within accrued expenses and other payables in our unaudited condensed consolidated balance sheet, of $12.5 million.

25
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Asset Retirement Obligations

We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement, or removal activities when the assets are retired. Our liability for asset retirement obligations is discounted to present value. To calculate the liability, we make estimates and assumptions about the retirement cost and the timing of retirement. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events. The following table summarizes changes in our asset retirement obligation, which is reported within other noncurrent liabilities in our unaudited condensed consolidated balance sheets (in thousands):
Balance at March 31, 2019
$
9,723

Liabilities incurred
609

Liabilities assumed in acquisitions
5,125

Liabilities settled
(127
)
Accretion expense
382

Balance at September 30, 2019
$
15,712



In addition to the obligations described above, we may be obligated to remove facilities or perform other remediation upon retirement of certain other assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminable. We will record an asset retirement obligation for these assets in the periods in which settlement dates are reasonably determinable.

Other Commitments

We have various noncancelable agreements for product storage, railcar spurs and real estate. The following table summarizes future minimum payments under these agreements at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
8,520

2021
12,005

2022
9,621

2023
5,605

2024
4,478

Thereafter
679

Total
$
40,908



Pipeline Capacity Agreements

We have executed noncancelable agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on the pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement, with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We currently have an asset recorded in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet for minimum shipping fees paid in both the current and previous periods that are expected to be recovered in future periods by exceeding the minimum monthly volumes (see Note 2). During September 2019, we extended our commitment with one pipeline operator through March 31, 2025 and in October 2019, we extended our commitment with another pipeline operator through October 31, 2024. Both extensions are backed by long-term purchase agreements. The extension with the second operator also allows us an additional 5.5 years to recapture the minimum shipping deficiency fees discussed above.



26
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes future minimum throughput payments under these agreements at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
21,341

2021
35,314

2022
35,314

2023
35,314

2024
35,410

Thereafter
30,897

Total
$
193,590



Construction Commitments

At September 30, 2019, we had construction commitments of $8.0 million.

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, 2019, we had the following commodity purchase commitments (in thousands):
 
 
Crude Oil (1)
 
Natural Gas Liquids
 
 
Value
 
Volume
(in barrels)
 
Value
 
Volume
(in gallons)
Fixed-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2020 (six months)
 
$
75,128

 
1,327

 
$
15,597

 
27,786

2021
 
—

 
—

 
1,341

 
2,100

Total
 
$
75,128

 
1,327

 
$
16,938

 
29,886

 
 
 
 
 
 
 
 
 
Index-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2020 (six months)
 
$
731,963

 
14,717

 
$
341,410

 
795,303

2021
 
226,304

 
5,212

 
1,561

 
3,914

2022
 
118,158

 
2,783

 
—

 
—

Total
 
$
1,076,425

 
22,712

 
$
342,971

 
799,217


 
(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.

27
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



At September 30, 2019, we had the following commodity sale commitments (in thousands):
 
 
Crude Oil
 
Natural Gas Liquids
 
 
Value
 
Volume
(in barrels)
 
Value
 
Volume
(in gallons)
Fixed-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2020 (six months)
 
$
75,367

 
1,310

 
$
164,900

 
213,980

2021
 
—

 
—

 
10,257

 
14,651

2022
 
—

 
—

 
157

 
204

Total
 
$
75,367

 
1,310

 
$
175,314

 
228,835

 
 
 
 
 
 
 
 
 
Index-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2020 (six months)
 
$
693,194

 
12,872

 
$
607,644

 
928,007

2021
 
—

 
—

 
13,214

 
23,254

Total
 
$
693,194

 
12,872

 
$
620,858

 
951,261



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 11) 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 11, and represent $33.9 million of our prepaid expenses and other current assets and $31.0 million of our accrued expenses and other payables at September 30, 2019.

Note 10—Equity

Partnership Equity

The Partnership’s equity consists of a 0.1% general partner interest and a 99.9% limited partner interest, which consists of common units. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 0.1% general partner interest. Our general partner is not required to guarantee or pay any of our debts and obligations.

General Partner Contributions

In connection with the issuance of common units for the vesting of restricted units and the warrants that were exercised for common units during the six months ended September 30, 2019, we issued 3,536 notional units to our general partner for less than $0.1 million in order to maintain its 0.1% interest in us.

Equity Issuances

On August 24, 2016, we entered into an equity distribution agreement in connection with an at-the-market program (the “ATM Program”) pursuant to which we may issue and sell up to $200.0 million of common units. We did not sell any common units under the ATM Program during the six months ended September 30, 2019, and approximately $134.7 million remained available for sale under the ATM Program at September 30, 2019. The registration statement applicable to this program expired in July 2019.


28
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Common Unit Repurchase Program

On August 30, 2019, the board of directors of our general partner authorized a common unit repurchase plan, under which we may repurchase up to $150.0 million of our outstanding common units through September 30, 2021 from time to time in the open market or in other privately negotiated transactions. We did not repurchase any units under this plan during the three months ended September 30, 2019.

Our Distributions

The following table summarizes distributions declared on our common units during the last three quarters:
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Unit
 
Amount Paid/Payable to Limited Partners
 
Amount Paid/Payable to General Partner
 
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
April 24, 2019
 
May 7, 2019
 
May 15, 2019
 
$
0.3900

 
$
49,127

 
$
85

July 23, 2019
 
August 7, 2019
 
August 14, 2019
 
$
0.3900

 
$
49,217

 
$
85

October 23, 2019
 
November 7, 2019
 
November 14, 2019
 
$
0.3900

 
$
49,936

 
$
86



Class A Convertible Preferred Units

In 2016, we received net proceeds of $235.0 million (net of offering costs of $5.0 million) in connection with the issuance of 19,942,169 Class A Convertible Preferred Units (“Class A Preferred Units”) and 4,375,112 warrants.

We allocated the net proceeds on a relative fair value basis to the Class A Preferred Units, which includes the value of a beneficial conversion feature, and warrants. There was no accretion for the beneficial conversion feature, recorded as a deemed distribution, for the three months ended September 30, 2019 as all Class A Preferred units have been redeemed, compared to $12.8 million for the three months ended September 30, 2018 and $36.5 million and $21.8 million during the six months ended September 30, 2019 and 2018, respectively.

On April 5, 2019, we redeemed 7,468,978 of the Class A Preferred Units. The applicable Class A redemption price was $13.389 per Class A Preferred Unit, calculated at 111.25% of $12.035 (the Class A Preferred Unit price), plus accrued but unpaid and accumulated distributions of $0.338. The amount per Class A Preferred Unit paid to each Class A preferred unitholder was $13.727, for a total payment of $102.5 million. On April 5, 2019, all 1,458,371 outstanding warrants to purchase common units were exercised for proceeds of less than $0.1 million.

On May 11, 2019, we redeemed the remaining 12,473,191 outstanding Class A Preferred Units. The applicable Class A redemption price was $13.2385 per Class A Preferred Unit, calculated at 110% of $12.035, plus accrued but unpaid and accumulated distributions of $0.1437. The amount per Class A Preferred Unit paid to each Class A preferred unitholder was $13.3822, for a total payment of $166.9 million. In addition, we paid the Class A preferred unitholders the distribution declared on April 24, 2019 for the quarter ended March 31, 2019 of $4.0 million, or $0.3234 per unit, which was paid to the holders of the Class A Preferred Units on May 10, 2019.

Class B Preferred Units

On June 13, 2017, we issued 8,400,000 of our 9.00% Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) representing limited partner interests at a price of $25.00 per unit for net proceeds of $202.7 million (net of the underwriters’ discount of $6.6 million and offering costs of $0.7 million).

On July 2, 2019, we issued 4,185,642 Class B Preferred Units to fund a portion of the purchase price for the Mesquite acquisition (see Note 4).


29
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The current distribution rate for the Class B Preferred Units is 9.0% per year of the $25.00 liquidation preference per unit (equal to $2.25 per unit per year). The following table summarizes distributions declared on our Class B Preferred Units during the last three quarters:
 
 
 
 
 
 
 
 
Amount Paid to Class B
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Unit
 
Preferred Unitholders
 
 
 
 
 
 
 
 
(in thousands)
March 15, 2019
 
April 1, 2019
 
April 15, 2019
 
$
0.5625

 
$
4,725

June 14, 2019
 
July 1, 2019
 
July 15, 2019
 
$
0.5625

 
$
4,725

September 16, 2019
 
October 1, 2019
 
October 15, 2019
 
$
0.5625

 
$
7,079



The distribution amount paid on October 15, 2019 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at September 30, 2019.

Class C Preferred Units

On April 2, 2019, we issued 1,800,000 of our 9.625% Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) representing limited partner interests at a price of $25.00 per unit for net proceeds of $42.9 million (net of the underwriters’ discount of $1.4 million and offering costs of $0.7 million).

The current distribution rate for the Class C Preferred Units is 9.625% per year of the $25.00 liquidation preference per unit (equal to $2.41 per unit per year). The following table summarizes distributions declared on our Class C Preferred Units during the last two quarters:
 
 
 
 
 
 
 
 
Amount Paid to Class C
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Unit
 
Preferred Unitholders
 
 
 
 
 
 
 
 
(in thousands)
June 14, 2019
 
July 1, 2019
 
July 15, 2019
 
$
0.5949

 
$
1,071

September 16, 2019
 
October 1, 2019
 
October 15, 2019
 
$
0.6016

 
$
1,083



The distribution amount paid on October 15, 2019 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at September 30, 2019.

Class D Preferred Units

On July 2, 2019, the closing date of the Mesquite acquisition, we completed a private placement of an aggregate of 400,000 preferred units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of 17,000,000 common units for an aggregate purchase price of $400.0 million. The private placement resulted in aggregate net proceeds to us of approximately $385.4 million (net of a closing fee of $14.6 million payable to affiliates of the purchasers and certain estimated expenses and expense reimbursements). We allocated the net proceeds, on a relative fair value basis, to the Class D Preferred Units ($343.7 million) and warrants ($41.7 million). Proceeds from this issuance of Class D Preferred Units were used to fund a portion of the purchase price for the Mesquite acquisition (see Note 4).

The holders of the Class D Preferred Units will be entitled to receive a cumulative, quarterly distribution in arrears on each Class D Preferred Unit then held at an annual rate of (i) 9.00% per annum for all periods during which the Class D Preferred Units are outstanding beginning on the Closing Date and ending on the date and including the last day of the eleventh full quarter following the Closing Date, (ii) 10.00% per annum for all periods during which the Class D Preferred Units are outstanding beginning on and including the first day of the twelfth full quarter following the Closing Date and ending on the last day of the nineteenth full quarter following the Closing Date, and (iii) thereafter, 10.00% per annum or, at the purchasers’ election from time to time, a floating rate equal to the applicable three-month LIBOR, plus 7.00% per annum. The current distribution rate for the Class D Preferred Units is 9.00% per year per unit (equal to $90.00 per unit per year). On October 23, 2019, the board of directors of our general partner declared a distribution on the Class D Preferred Units for the three months ended September 30, 2019 of $4.5 million or $11.125 per unit, which represents 50% of the Class D Preferred Units distribution amount. In accordance with the terms of our Partnership Agreement, the value of each Class D Preferred Units shall automatically increase by the non-cash accretion which is approximately $4.5 million in the aggregate with respect to the

30
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


distribution for the three months ended September 30, 2019. The Class D Preferred distribution will be paid to the holders of the Class D Preferred Units on November 14, 2019.

At any time after the Closing Date, the Partnership shall have the right to redeem all of the outstanding Class D Preferred Units at a price per Class D Preferred Unit equal to the sum of the then-unpaid accumulations with respect to such Class D Preferred Unit and the greater of either the applicable multiple on invested capital or the applicable redemption price based on an applicable internal rate of return, as more fully described in the Amended and Restated Partnership Agreement. At any time on or after the eighth anniversary of the Closing Date, each Class D Preferred Unitholder will have the right to require the Partnership to redeem on a date not prior to the 180th day after such anniversary all or a portion of the Class D Preferred Units then held by such preferred unitholder for the then-applicable redemption price, which may be paid in cash or, at the Partnership’s election, a combination of cash and a number of Common Units not to exceed one-half of the aggregate then-applicable redemption price, as more fully described in the Amended and Restated Partnership Agreement. Upon a Class D Change of Control (as defined in the Amended and Restated Partnership Agreement), each Class D Preferred Unitholder will have the right to require the Partnership to redeem the Class D Preferred Units then held by such Preferred Unitholder at a price per Class D Preferred Unit equal to applicable redemption price. The Class D Preferred Units generally will not have any voting rights, except with respect to certain matters which require the vote of the Class D Preferred Units. The Class D Preferred Units generally do not have any voting rights, except that the Class D Preferred Units shall be entitled to vote as a separate class on any matter on which unitholders are entitled to vote that adversely affects the rights, powers, privileges or preferences of the Class D Preferred Units in relation to other classes of Partnership Interests (as defined in the Amended and Restated Partnership Agreement) or as required by law. The consent of a majority of the then-outstanding Class D Preferred Units, with one vote per Class D Preferred Unit, shall be required to approve any matter for which the preferred unitholders are entitled to vote as a separate class or the consent of the representative of the Class D Preferred Unitholders, as applicable.

The warrants issued in the private placement are exercisable for, in the aggregate, 17,000,000 common units. Warrants to purchase 10,000,000 common units were issued with an exercise price of $17.45 per common unit (the “Premium Warrants”), and the remaining warrants to purchase 7,000,000 common units were issued with an exercise price of $14.54 per common unit (the “Par Warrants”). The warrants may be exercised from and after the first anniversary of the Closing Date. Unexercised warrants will expire on the tenth anniversary of the Closing Date. The warrants will not participate in cash distributions.

Upon a change of control, all unvested warrants shall immediately vest and be exercisable in full. A change of control occurs when (a) the current general partner owners cease to own, directly or indirectly, at least 50% of the outstanding voting securities of the general partner, (b) the general partner withdraws or is removed by the limited partners, (c) the common units are no longer listed on a national exchange, or (d) the general partners and/or its affiliates become beneficial owner, directly or indirectly, of 80% or more of the outstanding common units or any transaction or event that occurs due to default on our credit agreement.

On October 31, 2019, the closing date of the Hillstone (as defined herein) acquisition, we completed a private placement of an aggregate of 200,000 Class D Preferred Units and warrants exercisable to purchase an aggregate of 8,500,000 common units for an aggregate purchase price of $200.0 million. Proceeds from this issuance of Class D Preferred Units were used to fund a portion of the purchase price for the acquisition of Hillstone (see Note 17).
 















31
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Registration Rights Agreement

In connection with the issuance of the Class D Preferred Units, we entered into a registrations rights agreements (“Registration Rights Agreement”) with the purchasers of the Class D Preferred Units (“Purchasers”), pursuant to which we are required to prepare and file a registration statement (the “Registration Statement”) within 180 days of the Closing Date, to permit the public resale of (i) the Class D Preferred Units, (ii) the common units issued or issuable upon the exercise of the warrants, (iii) the common units that are issuable pursuant to the terms of the Class D Preferred Units in connection with a redemption of the Class D Preferred Units and (iv) any common units issued in lieu of cash as liquidated damages under the Registration Rights Agreement. The Partnership is also required to use its commercially reasonable efforts to cause the Registration Statement to become effective no later than 360 days after the Closing Date. The Registration Rights Agreement provides that if the Registration Statement is not declared effective on or prior to the Registration Statement Deadline, the Partnership will be liable to the Purchasers for liquidated damages in accordance with a formula, subject to the limitations set forth in the Registration Rights Agreement. Such liquidated damages would be payable in cash, or if payment in cash would breach any covenant or a cause a default under a credit facility or any other debt instrument filed by the Partnership as an exhibit to a periodic report filed with the SEC, then such liquidated damages would be payable in the form of newly issued common units. In addition, the Registration Rights Agreement grants the Purchasers piggyback registration rights. These registration rights are transferable to affiliates of the Purchasers and, in certain circumstances, to third parties.

Board Rights Agreement

In connection with the issuance of the Class D Preferred Units, we entered into a board rights agreement pursuant to which affiliates of the Purchasers will have the right to designate up to one director on the board of directors of our general partner, so long as the Purchasers and their respective affiliates, in the aggregate, own either at least (i) (A) 50% of the number of Preferred Units issued on the Closing Date or (B) 50% of the aggregate liquidation preference of any class or series of Class D Parity Securities (as defined in the Amended and Restated Partnership Agreement), or (ii) Warrants and/or common units that, in the aggregate, comprise 10% or more of the then-outstanding Common Units.
 
Amended and Restated Partnership Agreement

On July 2, 2019, NGL Energy Holdings LLC executed the Sixth Amended and Restated Agreement of Limited Partnership. The preferences, rights, powers and duties of holders of Class D Preferred Units are defined in the Amended and Restated Partnership Agreement. The Class D Preferred Units rank senior to the common units with respect to payment of distributions and distribution of assets upon liquidation, dissolution and winding up, and are in parity with the Class B Preferred Units and Class C Preferred Units. The Class D Preferred Units have no stated maturity, but we may redeem the Class D Preferred Units at any time after the Closing Date or upon the occurrence of a change in control.

Equity-Based Incentive Compensation

Our general partner has adopted a long-term incentive plan (“LTIP”), which allows for the issuance of equity-based compensation. Our general partner has granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of the recipients. The awards may also vest upon a change of control, at the discretion of the board of directors of our general partner. No distributions accrue to or are paid on the restricted units during the vesting period.

The restricted units vest contingent on the continued service of the recipients through the vesting date (the “Service Awards”).

The following table summarizes the Service Award activity during the six months ended September 30, 2019:
Unvested Service Award units at March 31, 2019
 
2,308,400

Units granted
 
1,956,181

Units vested and issued
 
(2,151,781
)
Units forfeited
 
(32,425
)
Unvested Service Award units at September 30, 2019
 
2,080,375




32
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


In connection with the vesting of certain restricted units during the six months ended September 30, 2019, we canceled 78,229 of the newly-vested common units in satisfaction of $1.1 million of employee tax liability paid by us. Pursuant to the terms of the LTIP, these canceled units are available for future grants under the LTIP.

The following table summarizes the scheduled vesting of our unvested Service Award units at September 30, 2019:
Fiscal Year Ending March 31,
 
 
2020 (six months)
 
756,450

2021
 
882,200

2022
 
441,725

Total
 
2,080,375



Service Awards are valued at the average of the high/low sales price as of the grant date less the present value of the expected distribution stream over the vesting period using a risk-free interest rate. We record the expense for each Service Award on a straight-line basis over the requisite period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date value of the award that is vested at that date.

During the three months ended September 30, 2019 and 2018, we recorded compensation expense related to Service Award units of $2.1 million and $2.4 million, respectively. During the six months ended September 30, 2019 and 2018, we recorded compensation expense related to Service Award units of $4.9 million and $5.1 million, respectively.

Of the restricted units granted and vested during the six months ended September 30, 2019, 1,886,131 units were granted as a bonus for performance during the fiscal year ended March 31, 2019. The total amount of these bonus payments was $24.5 million, of which we had accrued $8.7 million as of March 31, 2019.

The following table summarizes the estimated future expense we expect to record on the unvested Service Award units at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
 
2020 (six months)
 
$
3,501

2021
 
4,373

2022
 
1,445

Total
 
$
9,319



As of September 30, 2019, there are approximately 2.6 million common units remaining available for issuance under the LTIP.

Note 11—Fair Value of Financial Instruments

Our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature.


33
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Commodity Derivatives

The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our unaudited condensed consolidated balance sheet at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
Derivative
Assets
 
Derivative
Liabilities
 
Derivative
Assets
 
Derivative
Liabilities

 
(in thousands)
Level 1 measurements
 
$
45,652

 
$
(7,986
)
 
$
49,509

 
$
(7,273
)
Level 2 measurements
 
35,310

 
(31,409
)
 
77,926

 
(89,124
)

 
80,962

 
(39,395
)
 
127,435

 
(96,397
)
 
 
 
 
 
 
 
 
 
Netting of counterparty contracts (1)
 
(8,350
)
 
8,350

 
(7,501
)
 
7,501

Net cash collateral held
 
(23,848
)
 
(179
)
 
(18,271
)
 
(208
)
Commodity derivatives
 
$
48,764

 
$
(31,224
)
 
$
101,663

 
$
(89,104
)
 
(1)
Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a netting arrangement with the counterparty. Our physical contracts that do not qualify as normal purchase normal sale transactions are not subject to such netting arrangements.

The following table summarizes the accounts that include our commodity derivative assets and liabilities in our unaudited condensed consolidated balance sheets at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Prepaid expenses and other current assets
 
$
48,718

 
$
101,662

Other noncurrent assets
 
46

 
1

Accrued expenses and other payables
 
(31,108
)
 
(88,932
)
Other noncurrent liabilities
 
(116
)
 
(172
)
Net commodity derivative asset
 
$
17,540

 
$
12,559




34
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes our open commodity derivative contract positions at the dates indicated. We do not account for these derivatives as hedges.
Contracts
 
Settlement Period
 
Net Long
(Short)
Notional Units
(in barrels)
 
Fair Value
of
Net Assets
(Liabilities)
 
 
 
 
(in thousands)
At September 30, 2019:
 
 
 
 
 
 
Crude oil fixed-price (1)
 
October 2019–December 2020
 
(3,246
)
 
$
12,670

Propane fixed-price (1)
 
October 2019–March 2021
 
1,740

 
(6,850
)
Refined products fixed-price (1)
 
October 2019–January 2021
 
(2,206
)
 
31,737

Other
 
October 2019–March 2022
 
 
 
4,010

 
 
 
 
 
 
41,567

Net cash collateral held
 
 
 
 
 
(24,027
)
Net commodity derivative asset
 
 
 
 
 
$
17,540

 
 
 
 
 
 
 
At March 31, 2019:
 
 
 
 
 
 
Crude oil fixed-price (1)
 
April 2019–December 2020
 
(1,961
)
 
1,014

Propane fixed-price (1)
 
April 2019–March 2020
 
198

 
608

Refined products fixed-price (1)
 
April 2019–January 2021
 
(2,884
)
 
24,669

Other
 
April 2019–March 2022
 
 
 
4,747

 
 
 
 
 
 
31,038

Net cash collateral held
 
 
 
 
 
(18,479
)
Net commodity derivative asset
 
 
 
 
 
$
12,559

 
(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.

Amounts as of March 31, 2019 in the tables above do not include commodity derivative contract positions related to TPSL, as these amounts have been classified as current assets and liabilities held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

During the three months and six months ended September 30, 2019, we recorded net gains of $24.6 million and $54.2 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, 2018, we recorded net losses of $21.6 million and $56.7 million, respectively, from our commodity derivatives to revenues and cost of sales 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, 2019, 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.


35
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Interest Rate Risk

The Revolving Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At September 30, 2019, we had $1.1 billion of outstanding borrowings under the Revolving Credit Facility at a weighted average interest rate of 4.23%.

The Term Credit Agreement is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At September 30, 2019, we had $250.0 million of outstanding borrowings under the Term Credit Agreement at a weighted average interest rate of 3.79%.

Fair Value of Fixed-Rate Notes

The following table provides fair value estimates of our fixed-rate notes at September 30, 2019 (in thousands):
Senior Unsecured Notes:
 
2023 Notes
$
617,769

2025 Notes
$
370,286

2026 Notes
$
452,396



For the Senior Unsecured Notes, the fair value estimates were developed based on publicly traded quotes and would be classified as Level 1 in the fair value hierarchy.


36
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 12—Segments

The following table summarizes revenues related to our segments. Transactions between segments are recorded based on prices negotiated between the segments. The “Corporate and Other” category in the table below includes certain corporate expenses that are not allocated to the reportable segments.
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
Crude Oil Logistics:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Crude oil sales
 
$
596,674

 
$
825,571

 
$
1,278,743

 
$
1,582,082

Crude oil transportation and other
 
43,157

 
38,483

 
83,154

 
67,029

Non-Topic 606 revenues
 
3,619

 
3,084

 
7,240

 
6,382

Elimination of intersegment sales
 
(2,298
)
 
(7,084
)
 
(11,825
)
 
(11,609
)
Total Crude Oil Logistics revenues
 
641,152

 
860,054

 
1,357,312

 
1,643,884

Water Solutions:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Disposal service fees
 
80,209

 
58,099

 
131,349

 
112,103

Sale of recovered hydrocarbons
 
14,761

 
18,348

 
29,096

 
38,726

Freshwater revenues
 
2,007

 
788

 
4,103

 
1,288

Other service revenues
 
4,272

 
2,516

 
8,484

 
3,767

Non-Topic 606 revenues
 
—

 
13

 
—

 
25

Total Water Solutions revenues
 
101,249

 
79,764

 
173,032

 
155,909

Liquids:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Propane sales
 
115,778

 
234,892

 
255,152

 
421,381

Butane sales
 
87,821

 
145,847

 
170,046

 
259,047

Other product sales
 
116,461

 
168,496

 
231,066

 
320,301

Service revenues
 
8,262

 
4,222

 
17,049

 
9,893

Non-Topic 606 revenues
 
5,307

 
5,795

 
9,152

 
10,192

Elimination of intersegment sales
 
(5,120
)
 
(8,810
)
 
(6,309
)
 
(10,475
)
Total Liquids revenues
 
328,509

 
550,442

 
676,156

 
1,010,339

Refined Products and Renewables:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Refined products sales
 
810,409

 
934,410

 
1,643,228

 
1,748,481

Non-Topic 606 revenues
 
2,407,753

 
2,690,713

 
5,605,514

 
4,815,687

Total Refined Products and Renewables revenues
 
3,218,162

 
3,625,123

 
7,248,742

 
6,564,168

Corporate and Other:
 
 
 
 
 
 
 
 
Non-Topic 606 revenues
 
264

 
371

 
519

 
747

Elimination of intersegment sales
 
—

 
221

 
—

 
—

Total Corporate and Other revenues
 
264

 
592

 
519

 
747

Total revenues
 
$
4,289,336

 
$
5,115,975

 
$
9,455,761

 
$
9,375,047



37
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 7 and Note 8) and operating income (loss) by segment for the periods indicated.
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation and Amortization:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
17,693

 
$
18,870

 
$
35,278

 
$
38,179

Water Solutions
 
38,031

 
26,342

 
66,254

 
51,651

Liquids
 
6,634

 
6,495

 
13,885

 
13,000

Refined Products and Renewables
 
190

 
233

 
381

 
466

Corporate and Other
 
3,031

 
3,218

 
5,899

 
6,365

Total depreciation and amortization
 
$
65,579

 
$
55,158

 
$
121,697

 
$
109,661

 
 
 
 
 
 
 
 
 
Operating Income (Loss):
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
38,520

 
$
31,022

 
$
72,322

 
$
(68,716
)
Water Solutions
 
21,274

 
9,770

 
34,963

 
10,739

Liquids
 
8,397

 
10,758

 
16,881

 
13,381

Refined Products and Renewables
 
16,681

 
(1,851
)
 
12,282

 
(66,266
)
Corporate and Other
 
(38,477
)
 
(35,352
)
 
(53,819
)
 
(52,782
)
Total operating income (loss)
 
$
46,395

 
$
14,347

 
$
82,629

 
$
(163,644
)


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. The information below does not include goodwill by segment.
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Crude Oil Logistics
 
$
4,059

 
$
7,150

 
$
18,864

 
$
15,532

Water Solutions
 
941,511

 
217,073

 
1,145,411

 
347,495

Liquids
 
5,275

 
389

 
10,824

 
1,381

Refined Products and Renewables
 
220

 
—

 
224

 
—

Corporate and Other
 
2,319

 
267

 
3,058

 
598

Total
 
$
953,384

 
$
224,879

 
$
1,178,381

 
$
365,006


The following tables summarize long-lived assets (consisting of property, plant and equipment, intangible assets, operating lease right-of-use assets and goodwill) and total assets by segment at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Long-lived assets, net:
 
 
 
 
Crude Oil Logistics
 
$
1,595,979

 
$
1,584,636

Water Solutions
 
2,746,489

 
1,600,836

Liquids (1)
 
625,794

 
498,767

Refined Products and Renewables
 
58,641

 
32,170

Corporate and Other
 
32,722

 
26,569

Total
 
$
5,059,625

 
$
3,742,978


 
(1)
Includes $28.4 million and $0.5 million of non-US long-lived assets at September 30, 2019 and March 31, 2019, respectively.

38
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Total assets:
 
 
 
 
Crude Oil Logistics
 
$
2,188,858

 
$
2,237,612

Water Solutions
 
2,851,109

 
1,668,292

Liquids (1)
 
844,059

 
721,008

Refined Products and Renewables
 
622,713

 
579,254

Corporate and Other
 
157,284

 
77,019

Assets held for sale
 
—

 
619,308

Total
 
$
6,664,023

 
$
5,902,493

 
(1)
Includes $46.0 million and $12.0 million of non-US total assets at September 30, 2019 and March 31, 2019, respectively.

All of the tables above do not include amounts related to TPSL and our former Retail Propane segment, as these amounts have been classified within discontinued operations in our unaudited condensed consolidated statements of operations and held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

Note 13—Transactions with Affiliates

A member of the board of directors of our general partner is an executive officer of WPX Energy, Inc. (“WPX”). We purchase crude oil from and sell crude oil to WPX (certain of the purchases and sales that were entered into in contemplation of each other are recorded on a net basis within revenues in our unaudited condensed consolidated statement of operations). We also treat and dispose of wastewater and solids received from WPX.

SemGroup Corporation (“SemGroup”) holds ownership interests in our general partner. We sell product to and purchase product from SemGroup, and these transactions are included within revenues and cost of sales, respectively, in our unaudited condensed consolidated statements of operations. We also lease crude oil storage from SemGroup.

The following table summarizes these related party transactions for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Sales to WPX
 
$
14,392

 
$
8,553

 
$
22,828

 
$
9,771

Purchases from WPX (1)
 
$
85,396

 
$
82,185

 
$
166,167

 
$
157,327

Sales to SemGroup
 
$
217

 
$
549

 
$
458

 
$
669

Purchases from SemGroup
 
$
—

 
$
317

 
$
—

 
$
1,337

Sales to entities affiliated with management
 
$
699

 
$
1,583

 
$
1,720

 
$
5,645

Purchases from entities affiliated with management
 
$
959

 
$
414

 
$
2,115

 
$
1,806

Purchases from equity method investees
 
$
129

 
$
—

 
$
129

 
$
—


 
(1)
Amount primarily relates to purchases of crude oil under the definitive agreement we signed with WPX.

39
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Accounts receivable from affiliates consist of the following at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Receivables from NGL Energy Holdings LLC
 
$
7,808

 
$
7,277

Receivables from WPX
 
6,312

 
5,185

Receivables from SemGroup
 
85

 
71

Receivables from entities affiliated with management
 
169

 
334

Total
 
$
14,374

 
$
12,867



Accounts payable to affiliates consist of the following at the dates indicated:
 
 
September 30, 2019
 
March 31, 2019
 
 
(in thousands)
Payables to WPX
 
$
24,185

 
$
27,844

Payables to entities affiliated with management
 
287

 
625

Payables to equity method investees
 
70

 
—

Total
 
$
24,542

 
$
28,469



Other Related Party Transactions

Acquisition of Interest in KAIR2014 LLC

During the three months ended June 30, 2019, we purchased a 50% interest in an aircraft rental company, KAIR2014 LLC, for $0.9 million in cash and accounted for our interest using the equity method of accounting (see Note 2). The remaining interest in KAIR2014 LLC is owned by our Chief Executive Officer, H. Michael Krimbill.

Acquisition of Interest in NGL Energy Holdings LLC

During the three months ended June 30, 2019, we purchased, in two transactions, a 1.89% interest in our general partner, NGL Energy Holdings LLC, for $2.4 million in cash and accounted for this as a deduction within limited partners’ equity in our unaudited condensed consolidated balance sheet.

During the three months ended September 30, 2019, we purchased a 5.73% interest in our general partner, NGL Energy Holdings LLC, for $11.5 million in cash and accounted for this as a deduction within limited partners’ equity in our unaudited condensed consolidated balance sheet. This interest was purchased from a fund controlled by The Energy & Minerals Group, which is represented on the board of directors of our general partner.

Note 14—Revenue from Contracts with Customers

Effective April 1, 2018, 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. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation in the contract and is recognized as revenue when, or as, the performance obligation is satisfied. Our revenue contracts in scope under ASC 606 primarily have a single performance obligation. The evaluation of when performance obligations have been satisfied and the transaction price that is allocated to our performance obligations requires significant judgment and assumptions, including our evaluation of the timing of when control of the underlying good or service has transferred to our customers and the relative stand-alone selling price of goods and services provided to customers under contracts with multiple performance obligations. Actual results can vary from those judgments and assumptions. We do not have any material contracts with multiple performance obligations or under which we receive material amounts of non-cash consideration. Our costs to obtain or fulfill our revenue contracts were not material as of September 30, 2019.

The majority of our revenue agreements are within scope under ASC 606 and the remainder of our revenue comes from contracts that are accounted for as derivatives under ASC 815 or that contain nonmonetary exchanges or leases and are in

40
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


scope under Topics 845 and 842, respectively. See Note 12 for a detail of disaggregated revenue. Revenue from contracts accounted for as derivatives under ASC 815 within our Refined Products and Renewables segment includes $81.0 million of net gains related to changes in the mark-to-market value of these arrangements recorded during the six months ended September 30, 2019.

Remaining Performance Obligations

Most of our service contracts are such that we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. Therefore, we are utilizing the practical expedient in ASC 606-10-55-18 under which we recognize revenue in the amount to which we have the right to invoice. Applying this practical expedient, we are not required to disclose the transaction price allocated to remaining performance obligations under these agreements. The following table summarizes the amount and timing of revenue recognition for such contracts at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
116,337

2021
152,770

2022
143,533

2023
137,354

2024
122,880

Thereafter
275,952

Total
$
948,826



Contract Assets and Liabilities

The following tables summarize the balances of our contract assets and liabilities at the dates indicated:
 
 
Balance at
 
 
March 31, 2019
 
September 30, 2019
 
 
(in thousands)
Accounts receivable from contracts with customers
 
$
613,827

 
$
553,407

Contract liabilities balance at March 31, 2019
 
$
8,461

Payment received and deferred
 
30,925

Payment recognized in revenue
 
(12,341
)
Contract liabilities balance at September 30, 2019
 
$
27,045


Amounts as of March 31, 2019 in the tables above do not include contract assets and liabilities related to TPSL, as these amounts have been classified as current assets and current liabilities held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 16).

Note 15—Leases

We adopted ASC 842 effective April 1, 2019 using the modified retrospective method, with no adjustment to comparative period information, which remains reported under ASC 840, and no cumulative effect adjustment to equity. Upon adoption, we recorded operating lease right-of-use assets of $551.2 million and operating lease obligations of $549.0 million, including amounts classified as assets and liabilities held for sale. The adoption of this standard did not impact our unaudited condensed consolidated statement of operations or unaudited condensed consolidated statement of cash flows for the three months ended June 30, 2019.

We also elected the following transitional practical expedients, which allowed us to (i) not evaluate land easements prior to April 1, 2019; (ii) use hindsight in determining the lease term; (iii) not reassess whether current or expired contracts contain leases; (iv) not reassess the lease classification for any expired or existing leases; and (v) not reassess initial costs.


41
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Lessee Accounting

Our leasing activity primarily consists of product storage, office space, real estate, railcars, and equipment. We determine if an agreement contains a lease at the inception of the arrangement. If an arrangement is determined to contain a lease, we classify the lease as an operating lease or a finance lease depending on the terms of the arrangement. All of our leases are classified as operating leases. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term when we control the use of the asset by obtaining substantially all of the economic benefits of the asset and direct the use of the asset. Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities with an initial term of greater than one year are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our incremental borrowing rate represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We do not have any leases that provide for guarantees of residual value.

Our lease agreements may include options to extend or terminate the lease which are included in the measurement of our operating lease liability when it is reasonably certain that we will exercise the option. Lease renewal terms vary from one year to 30 years. Operating lease expense is recognized on a straight-line basis over the lease term. We have variable lease payments, including adjustments to lease payments based on an index or rate, such as a consumer price index, fair value adjustments to lease payments, and common area maintenance, real estate taxes, and insurance payments in certain real estate leases. We also have certain land leases within our Water Solutions segment that require us to pay a royalty, which could be based on a flat rate per barrel disposed or a percentage of revenue generated. Variable lease payments are excluded from operating lease right-of-use assets and operating lease liabilities and are expensed as incurred. Operating lease right-of-use assets also include any lease prepayments and exclude lease incentives. For leases acquired as a result of an acquisition, the right-of-use asset also includes adjustments for any favorable or unfavorable market terms present in the lease.

Short-term leases with an initial term of 12 months or less that do not include a purchase option, with the exception of railcar leases, are not recorded on the unaudited condensed consolidated balance sheet. Operating lease expense for short-term leases is recognized on a straight-line basis over the lease term and amounts related to short-term leases are disclosed within our condensed consolidated financial statements.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases of buildings and land, we account for the lease and non-lease components as a single lease component based on the election of the practical expedient to not separate lease components from non-lease components.

At September 30, 2019, we had operating lease right-of-use assets of $203.1 million and current and noncurrent operating lease obligations of $68.1 million and $132.1 million, respectively, on our unaudited condensed consolidated balance sheet. At September 30, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating leases was 6.04 years and 5.78%, respectively.

The following table summarizes the components of our lease expense for the periods indicated:
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2019
 
2019
 
(in thousands)
Operating lease cost
$
22,294

 
$
44,387

Variable lease cost
3,857

 
5,665

Short-term lease cost
133

 
259

Total lease cost
$
26,284

 
$
50,311



Amounts in the table above do not include lease expense related to TPSL, as these amounts have been classified within discontinued operations within our unaudited condensed consolidated statements of operations (see Note 16).

Rental expense relating to operating leases was $26.4 million and $53.5 million during the three months and six months ended September 30, 2018. These amounts do not include rental expense related to TPSL and our former Retail Propane segment, as these amounts have been classified within discontinued operations in our unaudited condensed consolidated statements of operations (see Note 16).

42
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



The following table summarizes maturities of our operating lease liabilities at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
39,970

2021
66,193

2022
45,490

2023
25,392

2024
14,081

Thereafter
53,452

Total lease payments
244,578

Less imputed interest
(44,362
)
Total operating lease liabilities
$
200,216



The following table summarizes future minimum lease payments under various noncancelable operating lease agreements at March 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020
$
100,552

2021
76,485

2022
54,611

2023
30,379

2024
18,341

Thereafter
41,845

Total
$
322,213



Amounts in the table above do not include future minimum lease payments related to TPSL as TPSL has been classified as discontinued operations in our unaudited condensed consolidated statements of operations (see Note 16).

The following table summarizes supplemental cash flow and non-cash information related to our operating leases for the period indicated:
 
Six Months Ended September 30,
 
2019
 
(in thousands)
Cash paid for amounts included in the measurement of operating lease liabilities
$
59,528

Operating lease right-of-use assets obtained in exchange for operating lease obligations
$
565,152

 

Lessor Accounting and Subleases

Our lessor arrangements include storage and railcar contracts, of which certain agreements contain renewal options for periods of between one year and five years. We determine if an agreement contains a lease at the inception of the arrangement. If an arrangement is determined to contain a lease, we classify the lease as operating, sales-type or direct financing. Lessor accounting under ASC 842 is substantially unchanged and all of our leases will continue to be classified as operating leases. 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, 2019, fixed rental revenue was $5.5 million, which includes $1.0 million of sublease revenue. During the six months ended September 30, 2019, fixed rental revenue was $10.9 million, which includes $2.4 million of sublease revenue.


43
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes future minimum lease payments receivable under various noncancelable operating lease agreements at September 30, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (six months)
$
11,695

2021
15,940

2022
6,247

2023
5,282

2024
5,057

Thereafter
16,282

Total
$
60,503



Note 16—Assets and Liabilities Held for Sale and Discontinued Operations

As discussed in Note 1, we met the criteria for classifying the assets and liabilities of TPSL as held for sale and the operations as discontinued. On September 30, 2019, we completed the sale of TPSL and associated assets to Trajectory. See Note 1 for a further discussion.

As discussed in Note 1, as of June 30, 2018, the operations of our Retail Propane segment were classified as discontinued. On July 10, 2018, we completed the sale of virtually all of our remaining Retail Propane segment to Superior and on August 14, 2018, we sold our previously held interest in Victory Propane. See Note 1 for a further discussion.

The following table summarizes the major classes of assets and liabilities of TPSL classified as held for sale at March 31, 2019 (in thousands):
Current Assets Held for Sale
 
 
Accounts receivable-trade, net
 
$
164,716

Inventories
 
210,373

Prepaid expenses and other current assets
 
12,361

Total current assets held for sale
 
387,450

Noncurrent Assets Held for Sale
 
 
Property, plant and equipment, net
 
15,553

Goodwill
 
32,712

Intangible assets, net
 
137,446

Other noncurrent assets (1)
 
46,147

Total noncurrent assets held for sale
 
231,858

Total assets held for sale
 
$
619,308

 
 
 
Current Liabilities Held for Sale
 
 
Accounts payable-trade
 
$
85,602

Accrued expenses and other payables
 
56,719

Advance payments received from customers
 
460

Total current liabilities held for sale
 
$
142,781

 
(1)
Primarily comprised of tank bottoms, which are product volumes required for the operation of storage tanks, that are recorded at historical cost. We recover tank bottoms when the storage tanks are removed from service. At March 31, 2019, tank bottoms held in third party terminals consisted of 389,737 barrels of refined products. Tank bottoms held in terminals we own are included within property, plant and equipment.

44
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes the results of operations from discontinued operations for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Revenues
 
$
1,304,232

 
$
1,542,845

 
$
2,775,698

 
$
3,194,880

Cost of sales
 
1,329,458

 
1,566,585

 
2,787,959

 
3,091,009

Operating expenses
 
1,999

 
4,126

 
4,170

 
30,762

General and administrative expense
 
32

 
234

 
53

 
2,679

Depreciation and amortization
 
295

 
152

 
749

 
9,011

Loss (gain) on disposal or impairment of assets, net
 
174,449

 
(407,837
)
 
174,449

 
(407,383
)
Operating (loss) income from discontinued operations
 
(202,001
)
 
379,585

 
(191,682
)
 
468,802

Equity in earnings of unconsolidated entities
 
—

 
1,298

 
—

 
1,183

Interest expense
 
(80
)
 
(1
)
 
(94
)
 
(126
)
Other income, net
 
67

 
204

 
133

 
668

(Loss) income from discontinued operations before taxes (1)
 
(202,014
)
 
381,086

 
(191,643
)
 
470,527

Income tax expense
 
(10
)
 
(125
)
 
(20
)
 
(125
)
(Loss) income from discontinued operations, net of tax
 
$
(202,024
)
 
$
380,961

 
$
(191,663
)
 
$
470,402

 
(1)
Amount includes losses attributable to redeemable noncontrolling interests of less than $0.1 million and $0.4 million for the three months and six months ended September 30, 2018, respectively.

Continuing Involvement

As of September 30, 2019, we have commitments to sell 0.1 million gallons of finished gasoline, valued at $7.1 million (based on the contract price), to Trajectory, the purchaser of TPSL, through October 2019, and we have commitments to purchase 0.1 million gallons of finished gasoline, valued at $5.2 million (based on the contract price), from Trajectory through October 2019.

As of September 30, 2019, we have commitments to sell up to 49.2 million gallons of propane, valued at $29.5 million (based on the contract price), to Superior and DCC LPG, the purchasers of our former Retail Propane segment, through March 2021. During the three months and six months ended September 30, 2019, we received a combined $2.3 million and $3.7 million, respectively, from Superior and DCC LPG for propane sold to them during the period.

Note 17—Subsequent Events

On October 31, 2019, we acquired all of the equity interests of Hillstone Environmental Partners, LLC (“Hillstone”) from Water Remainco, LLC (“Seller Representative”), Hillstone, GGCOF HEP Blocker II, LLC, GGCOF HEP Blocker, LLC, Golden Gate Capital Opportunity Fund-A, L.P., GGCOF AIV L.P. and GGCOF HEP Blocker II Holdings, LLC for $624.4 million, subject to certain adjustments. Hillstone provides water pipeline and disposal infrastructure solutions to producers with a core operational focus in the state line area of southern Eddy and Lea Counties, New Mexico and northern Loving County, Texas in the Delaware Basin. Hillstone has a fully interconnected produced water pipeline transportation and disposal system, which currently consists of 19 saltwater disposal wells, representing approximately 580,000 barrels per day of permitted disposal capacity, and a newly-built network of produced water pipelines with approximately 680,000 barrels per day of transportation capacity. Hillstone also has an additional 22 permits to develop another 660,000 barrels per day of disposal capacity.

In connection with entering into the purchase agreement, we deposited with Seller Representative approximately $49.9 million, which was credited against the purchase price at closing. This deposit is recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet as of September 30, 2019. As of the filing date of this Quarterly Report, we have not obtained all of the information to determine the preliminary purchase price allocation.

On November 7, 2019, we closed on a transaction to acquire 50% of one entity and 100% of another entity. Collectively, the entities we purchased own real property, right-of-ways and saltwater disposal permits. In addition, we entered

45
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


into a joint development agreement and surface use agreements with the seller and affiliates to build and operate produced, treated and blended water facilities. The total purchase price for this transaction was $55.9 million.

Note 18—Unaudited Condensed Consolidating Guarantor and Non-Guarantor Financial Information

Certain of our wholly owned subsidiaries have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes and Term Credit Agreement (see Note 8). Pursuant to Rule 3-10 of Regulation S-X, we have presented in columnar format the unaudited condensed consolidating financial information for NGL Energy Partners LP (Parent), NGL Energy Finance Corp., the guarantor subsidiaries on a combined basis, and the non-guarantor subsidiaries on a combined basis in the tables below. NGL Energy Partners LP and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes. Since NGL Energy Partners LP received the proceeds from the issuance of the Senior Unsecured Notes, this activity has been included in the NGL Energy Partners LP (Parent) column in the tables below. NGL Energy Operating LLC entered into the Term Credit Agreement and the proceeds have been included in the Guarantor Subsidiaries column in the tables below.

During the periods presented in the tables below, the status of certain subsidiaries changed, in that they either became guarantors of or ceased to be guarantors of the Senior Unsecured Notes and Term Credit Agreement. For purposes of the tables below, when the status of a subsidiary changes, all subsidiary activity is included in either the guarantor subsidiaries column or non-guarantor subsidiaries column based on the status of the subsidiary at the balance sheet date regardless of activity during the year.

There are no significant restrictions that prevent the parent or any of the guarantor subsidiaries from obtaining funds from their respective subsidiaries by dividend or loan. None of the assets of the guarantor subsidiaries (other than the investments in non-guarantor subsidiaries) are restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.

For purposes of the tables below, (i) the unaudited condensed consolidating financial information is presented on a legal entity basis, (ii) investments in consolidated subsidiaries are accounted for as equity method investments, and (iii) contributions, distributions, and advances to (from) consolidated entities are reported on a net basis within net changes in advances with consolidated entities in the unaudited condensed consolidating statement of cash flow tables below.

As discussed further in Note 1 and Note 16, the assets and liabilities related to TPSL have been classified as held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet and the results of operations and cash flows related to TPSL and our former Retail Propane segment (including equity in earnings of Victory Propane) have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows.


46
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Balance Sheet
(in Thousands)
 
 
September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
22,504

 
$
—

 
$
(9,173
)
 
$
7,823

 
$
—

 
$
21,154

Accounts receivable-trade, net of allowance for doubtful accounts
 
—

 
—

 
982,746

 
5,129

 
—

 
987,875

Accounts receivable-affiliates
 
—

 
—

 
14,366

 
8

 
—

 
14,374

Inventories
 
—

 
—

 
307,796

 
997

 
—

 
308,793

Prepaid expenses and other current assets
 
—

 
—

 
197,483

 
1,519

 
—

 
199,002

Total current assets
 
22,504

 
—

 
1,493,218

 
15,476

 
—

 
1,531,198

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
 
—

 
—

 
2,208,380

 
277,500

 
—

 
2,485,880

GOODWILL
 
—

 
—

 
1,170,867

 
5,175

 
—

 
1,176,042

INTANGIBLE ASSETS, net of accumulated amortization
 
—

 
—

 
1,119,321

 
75,260

 
—

 
1,194,581

INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
—

 
—

 
1,445

 
—

 
—

 
1,445

NET INTERCOMPANY RECEIVABLES (PAYABLES)
 
1,602,365

 
—

 
(1,457,102
)
 
(145,263
)
 
—

 
—

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES
 
2,183,804

 
—

 
150,843

 
—

 
(2,334,647
)
 
—

OPERATING LEASE RIGHT-OF-USE ASSETS
 
—

 
—

 
199,277

 
3,845

 
—

 
203,122

OTHER NONCURRENT ASSETS
 
—

 
—

 
71,755

 
—

 
—

 
71,755

Total assets
 
$
3,808,673

 
$
—

 
$
4,958,004

 
$
231,993

 
$
(2,334,647
)
 
$
6,664,023

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable-trade
 
$
—

 
$
—

 
$
832,144

 
$
9,920

 
$
—

 
$
842,064

Accounts payable-affiliates
 
1

 
—

 
24,541

 
—

 
—

 
24,542

Accrued expenses and other payables
 
42,611

 
—

 
291,926

 
1,589

 
—

 
336,126

Advance payments received from customers
 
—

 
—

 
21,657

 
5,388

 
—

 
27,045

Current maturities of long-term debt
 
—

 
—

 
649

 
—

 
—

 
649

Operating lease obligations
 
—

 
—

 
67,725

 
359

 
—

 
68,084

Total current liabilities
 
42,612

 
—

 
1,238,642

 
17,256

 
—

 
1,298,510

LONG-TERM DEBT, net of debt issuance costs and current maturities
 
1,428,183

 
—

 
1,345,052

 
—

 
—

 
2,773,235

OPERATING LEASE OBLIGATIONS
 
—

 
—

 
128,739

 
3,393

 
—

 
132,132

OTHER NONCURRENT LIABILITIES
 
—

 
—

 
61,767

 
2,720

 
—

 
64,487

CLASS D 9.00% PREFERRED UNITS
 
343,748

 
—

 
—

 
—

 
—

 
343,748

EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity
 
1,994,130

 
—

 
2,183,804

 
208,888

 
(2,392,428
)
 
1,994,394

Accumulated other comprehensive loss
 
—

 
—

 
—

 
(264
)
 
—

 
(264
)
Noncontrolling interests
 
—

 
—

 
—

 
—

 
57,781

 
57,781

Total equity
 
1,994,130

 
—

 
2,183,804

 
208,624

 
(2,334,647
)
 
2,051,911

Total liabilities and equity
 
$
3,808,673

 
$
—

 
$
4,958,004

 
$
231,993

 
$
(2,334,647
)
 
$
6,664,023


47
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Balance Sheet
(in Thousands)
 
 
March 31, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,798

 
$
—

 
$
3,728

 
$
2,046

 
$
—

 
$
18,572

Accounts receivable-trade, net of allowance for doubtful accounts
 
—

 
—

 
996,192

 
2,011

 
—

 
998,203

Accounts receivable-affiliates
 
—

 
—

 
12,867

 
—

 
—

 
12,867

Inventories
 
—

 
—

 
251,736

 
1,034

 
—

 
252,770

Prepaid expenses and other current assets
 
—

 
—

 
142,336

 
475

 
—

 
142,811

Assets held for sale
 
—

 
—

 
387,450

 
—

 
—

 
387,450

Total current assets
 
12,798

 
—

 
1,794,309

 
5,566

 
—

 
1,812,673

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
 
—

 
—

 
1,620,084

 
208,856

 
—

 
1,828,940

GOODWILL
 
—

 
—

 
1,107,974

 
5,175

 
—

 
1,113,149

INTANGIBLE ASSETS, net of accumulated amortization
 
—

 
—

 
725,542

 
75,347

 
—

 
800,889

INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
—

 
—

 
1,127

 
—

 
—

 
1,127

NET INTERCOMPANY RECEIVABLES (PAYABLES)
 
862,186

 
—

 
(808,610
)
 
(53,576
)
 
—

 
—

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES
 
2,503,848

 
—

 
170,690

 
—

 
(2,674,538
)
 
—

OTHER NONCURRENT ASSETS
 
—

 
—

 
113,857

 
—

 
—

 
113,857

ASSETS HELD FOR SALE
 
—

 
—

 
231,858

 
—

 
—

 
231,858

Total assets
 
$
3,378,832

 
$
—

 
$
4,956,831

 
$
241,368

 
$
(2,674,538
)
 
$
5,902,493

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable-trade
 
$
—

 
$
—

 
$
872,122

 
$
6,941

 
$
—

 
$
879,063

Accounts payable-affiliates
 
1

 
—

 
28,468

 
—

 
—

 
28,469

Accrued expenses and other payables
 
25,497

 
—

 
164,737

 
1,497

 
—

 
191,731

Advance payments received from customers
 
—

 
—

 
7,550

 
911

 
—

 
8,461

Current maturities of long-term debt
 
—

 
—

 
648

 
—

 
—

 
648

Liabilities held for sale
 
—

 
—

 
142,781

 
—

 
—

 
142,781

Total current liabilities
 
25,498

 
—

 
1,216,306

 
9,349

 
—

 
1,251,153

LONG-TERM DEBT, net of debt issuance costs and current maturities
 
984,450

 
—

 
1,175,683

 
—

 
—

 
2,160,133

OTHER NONCURRENT LIABILITIES
 
—

 
—

 
60,994

 
2,581

 
—

 
63,575

CLASS A 10.75% CONVERTIBLE PREFERRED UNITS
 
149,814

 
—

 
—

 
—

 
—

 
149,814

EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity
 
2,219,070

 
—

 
2,503,848

 
229,693

 
(2,733,286
)
 
2,219,325

Accumulated other comprehensive loss
 
—

 
—

 
—

 
(255
)
 
—

 
(255
)
Noncontrolling interests
 
—

 
—

 
—

 
—

 
58,748

 
58,748

Total equity
 
2,219,070

 
—

 
2,503,848

 
229,438

 
(2,674,538
)
 
2,277,818

Total liabilities and equity
 
$
3,378,832

 
$
—

 
$
4,956,831

 
$
241,368

 
$
(2,674,538
)
 
$
5,902,493



48
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Three Months Ended September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
4,272,431

 
$
18,369

 
$
(1,464
)
 
$
4,289,336

COST OF SALES
 
—

 
—

 
4,058,083

 
507

 
(1,214
)
 
4,057,376

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 
—

 
—

 
69,052

 
6,631

 
(250
)
 
75,433

General and administrative
 
—

 
—

 
43,646

 
262

 
—

 
43,908

Depreciation and amortization
 
—

 
—

 
59,370

 
3,743

 
—

 
63,113

Loss (gain) on disposal or impairment of assets, net
 
—

 
—

 
3,115

 
(4
)
 
—

 
3,111

Operating Income
 
—

 
—

 
39,165

 
7,230

 
—

 
46,395

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
 
 
Loss in earnings of unconsolidated entities
 
—

 
—

 
(265
)
 
—

 
—

 
(265
)
Interest expense
 
(26,666
)
 
—

 
(18,350
)
 
(12
)
 
12

 
(45,016
)
Other income, net
 
—

 
—

 
164

 
32

 
(12
)
 
184

(Loss) Income From Continuing Operations Before Income Taxes
 
(26,666
)
 
—

 
20,714

 
7,250

 
—

 
1,298

INCOME TAX EXPENSE
 
—

 
—

 
(640
)
 
—

 
—

 
(640
)
EQUITY IN NET (LOSS) INCOME FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
(174,571
)
 
—

 
7,379

 
—

 
167,192

 
—

(Loss) Income From Continuing Operations
 
(201,237
)
 
—

 
27,453

 
7,250

 
167,192

 
658

Loss From Discontinued Operations, Net of Tax
 
—

 
—

 
(202,024
)
 
—

 
—

 
(202,024
)
Net (Loss) Income
 
(201,237
)
 
—

 
(174,571
)
 
7,250

 
167,192

 
(201,366
)
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
129

 
129

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(201,237
)
 
$
—

 
$
(174,571
)
 
$
7,250

 
$
167,321

 
$
(201,237
)

49
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Three Months Ended September 30, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
5,115,057

 
$
1,789

 
$
(871
)
 
$
5,115,975

COST OF SALES
 
—

 
—

 
4,946,062

 
13

 
(871
)
 
4,945,204

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 
—

 
—

 
56,470

 
2,040

 
—

 
58,510

General and administrative
 
—

 
—

 
39,139

 
189

 
—

 
39,328

Depreciation and amortization
 
—

 
—

 
50,391

 
2,207

 
—

 
52,598

Loss on disposal or impairment of assets, net
 
—

 
—

 
5,988

 
—

 
—

 
5,988

Revaluation of liabilities
 
—

 
—

 
800

 
(800
)
 
—

 
—

Operating Income (Loss)
 
—

 
—

 
16,207

 
(1,860
)
 
—

 
14,347

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated entities
 
—

 
—

 
379

 
—

 
—

 
379

Interest expense
 
(29,485
)
 
—

 
(11,874
)
 
(11
)
 
12

 
(41,358
)
Other income, net
 
—

 
—

 
1,313

 
—

 
(12
)
 
1,301

(Loss) Income From Continuing Operations Before Income Taxes
 
(29,485
)
 
—

 
6,025

 
(1,871
)
 
—

 
(25,331
)
INCOME TAX EXPENSE
 
—

 
—

 
(691
)
 
—

 
—

 
(691
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
384,990

 
—

 
(1,373
)
 
—

 
(383,617
)
 
—

Income (Loss) From Continuing Operations
 
355,505

 
—

 
3,961

 
(1,871
)
 
(383,617
)
 
(26,022
)
Income (Loss) From Discontinued Operations, Net of Tax
 
—

 
—

 
381,029

 
(68
)
 
—

 
380,961

Net Income (Loss)
 
355,505

 
—

 
384,990

 
(1,939
)
 
(383,617
)
 
354,939

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
518

 
518

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
48

 
48

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
355,505

 
$
—

 
$
384,990

 
$
(1,939
)
 
$
(383,051
)
 
$
355,505




50
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Six Months Ended September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
9,425,327

 
$
33,374

 
$
(2,940
)
 
$
9,455,761

COST OF SALES
 
—

 
—

 
9,054,283

 
499

 
(2,440
)
 
9,052,342

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 
—

 
—

 
126,813

 
11,216

 
(500
)
 
137,529

General and administrative
 
—

 
—

 
63,778

 
472

 
—

 
64,250

Depreciation and amortization
 
—

 
—

 
110,234

 
6,633

 
—

 
116,867

Loss (gain) on disposal or impairment of assets, net
 
—

 
—

 
2,148

 
(4
)
 
—

 
2,144

Operating Income
 
—

 
—

 
68,071

 
14,558

 
—

 
82,629

OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Loss in earnings of unconsolidated entities
 
—

 
—

 
(257
)
 
—

 
—

 
(257
)
Interest expense
 
(52,455
)
 
—

 
(32,455
)
 
(23
)
 
23

 
(84,910
)
Other income, net
 
—

 
—

 
1,176

 
40

 
(23
)
 
1,193

(Loss) Income From Continuing Operations Before Income Taxes
 
(52,455
)
 
—

 
36,535

 
14,575

 
—

 
(1,345
)
INCOME TAX EXPENSE
 
—

 
—

 
(319
)
 
—

 
—

 
(319
)
EQUITY IN NET (LOSS) INCOME FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
(140,475
)
 
—

 
14,972

 
—

 
125,503

 
—

(Loss) Income From Continuing Operations
 
(192,930
)
 
—

 
51,188

 
14,575

 
125,503

 
(1,664
)
Loss From Discontinued Operations, Net of Tax
 
—

 
—

 
(191,663
)
 
—

 
—

 
(191,663
)
Net (Loss) Income
 
(192,930
)
 
—

 
(140,475
)
 
14,575

 
125,503

 
(193,327
)
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 

 
 

 
 

 
 

 
397

 
397

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(192,930
)
 
$
—

 
$
(140,475
)
 
$
14,575

 
$
125,900

 
$
(192,930
)

51
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Six Months Ended September 30, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
9,370,234

 
$
6,482

 
$
(1,669
)
 
$
9,375,047

COST OF SALES
 
—

 
—

 
9,153,124

 
(23
)
 
(1,669
)
 
9,151,432

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 
—

 
—

 
108,847

 
4,130

 
—

 
112,977

General and administrative
 
—

 
—

 
61,138

 
531

 
—

 
61,669

Depreciation and amortization
 
—

 
—

 
99,369

 
5,121

 
—

 
104,490

Loss on disposal or impairment of assets, net
 
—

 
—

 
107,323

 
—

 
—

 
107,323

Revaluation of liabilities
 
—

 
—

 
800

 
—

 
—

 
800

Operating Loss
 
—

 
—

 
(160,367
)
 
(3,277
)
 
—

 
(163,644
)
OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
 
—

 
—

 
598

 
—

 
—

 
598

Interest expense
 
(58,985
)
 
—

 
(28,640
)
 
(23
)
 
23

 
(87,625
)
Loss on early extinguishment of liabilities, net
 
(137
)
 
—

 
—

 
—

 
—

 
(137
)
Other expense, net
 
—

 
—

 
(32,394
)
 
—

 
(208
)
 
(32,602
)
Loss From Continuing Operations Before Income Taxes
 
(59,122
)
 
—

 
(220,803
)
 
(3,300
)
 
(185
)
 
(283,410
)
INCOME TAX EXPENSE
 
—

 
—

 
(1,342
)
 
—

 
—

 
(1,342
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
246,081

 
—

 
(3,020
)
 
—

 
(243,061
)
 
—

Income (Loss) From Continuing Operations
 
186,959

 
—

 
(225,165
)
 
(3,300
)
 
(243,246
)
 
(284,752
)
Income (Loss) From Discontinued Operations, Net of Tax
 
—

 
—

 
471,246

 
(1,029
)
 
185

 
470,402

Net Income (Loss)
 
186,959

 
—

 
246,081

 
(4,329
)
 
(243,061
)
 
185,650

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
863

 
863

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
446

 
446

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
186,959

 
$
—

 
$
246,081

 
$
(4,329
)
 
$
(241,752
)
 
$
186,959




52
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statements of Comprehensive (Loss) Income
(in Thousands)
 
 
Three Months Ended September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net (loss) income
 
$
(201,237
)
 
$
—

 
$
(174,571
)
 
$
7,250

 
$
167,192

 
$
(201,366
)
Other comprehensive income (loss)
 
—

 
—

 
1

 
(47
)
 
—

 
(46
)
Comprehensive (loss) income
 
$
(201,237
)
 
$
—

 
$
(174,570
)
 
$
7,203

 
$
167,192

 
$
(201,412
)

 
 
Three Months Ended September 30, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
355,505

 
$
—

 
$
384,990

 
$
(1,939
)
 
$
(383,617
)
 
$
354,939

Other comprehensive loss
 
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Comprehensive income (loss)
 
$
355,505

 
$
—

 
$
384,990

 
$
(1,952
)
 
$
(383,617
)
 
$
354,926



 
 
Six Months Ended September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net (loss) income
 
$
(192,930
)
 
$
—

 
$
(140,475
)
 
$
14,575

 
$
125,503

 
$
(193,327
)
Other comprehensive income (loss)
 
—

 
—

 
18

 
(27
)
 
—

 
(9
)
Comprehensive (loss) income
 
$
(192,930
)
 
$
—

 
$
(140,457
)
 
$
14,548

 
$
125,503

 
$
(193,336
)

 
 
Six Months Ended September 30, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
186,959

 
$
—

 
$
246,081

 
$
(4,329
)
 
$
(243,061
)
 
$
185,650

Other comprehensive loss
 
—

 
—

 
(1
)
 
(23
)
 
—

 
(24
)
Comprehensive income (loss)
 
$
186,959

 
$
—

 
$
246,080

 
$
(4,352
)
 
$
(243,061
)
 
$
185,626






53
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Six Months Ended September 30, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidated
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities-continuing operations
 
$
(34,677
)
 
$
—

 
$
18,330

 
$
(4,346
)
 
$
(20,693
)
Net cash provided by operating activities-discontinued operations
 
—

 
—

 
16,205

 
—

 
16,205

Net cash (used in) provided by operating activities
 
(34,677
)
 
—

 
34,535

 
(4,346
)
 
(4,488
)
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
—

 
—

 
(212,887
)
 
(46,188
)
 
(259,075
)
Acquisitions, net of cash acquired
 
—

 
—

 
(647,048
)
 
—

 
(647,048
)
Net settlements of commodity derivatives
 
—

 
—

 
49,293

 
—

 
49,293

Proceeds from sales of assets
 
—

 
—

 
1,978

 
4

 
1,982

Investments in unconsolidated entities
 
—

 
—

 
(1,015
)
 
—

 
(1,015
)
Distributions of capital from unconsolidated entities
 
—

 
—

 
439

 
—

 
439

Repayments on loan for natural gas liquids facility
 
—

 
—

 
3,022

 
—

 
3,022

Deposit paid to acquire business
 
—

 
—

 
(49,875
)
 
—

 
(49,875
)
Net cash used in investing activities-continuing operations
 
—

 
—

 
(856,093
)
 
(46,184
)
 
(902,277
)
Net cash provided by investing activities-discontinued operations
 
—

 
—

 
269,063

 
—

 
269,063

Net cash used in investing activities
 
—

 
—

 
(587,030
)
 
(46,184
)
 
(633,214
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
—

 
—

 
2,198,000

 
—

 
2,198,000

Payments on Revolving Credit Facility
 
—

 
—

 
(2,276,000
)
 
—

 
(2,276,000
)
Issuance of senior unsecured notes and term credit agreement
 
450,000

 
—

 
250,000

 
—

 
700,000

Payments on other long-term debt
 
—

 
—

 
(326
)
 
—

 
(326
)
Debt issuance costs
 
(7,999
)
 
—

 
(2,447
)
 
—

 
(10,446
)
Distributions to general and common unit partners and preferred unitholders
 
(117,386
)
 
—

 
—

 
—

 
(117,386
)
Distributions to noncontrolling interest owners
 
—

 
—

 
—

 
(570
)
 
(570
)
Proceeds from sale of preferred units, net of offering costs
 
428,338

 
—

 
—

 
—

 
428,338

Payments for redemption of preferred units
 
(265,128
)
 
—

 
—

 
—

 
(265,128
)
Common unit repurchases and cancellations
 
(1,098
)
 
—

 
—

 
—

 
(1,098
)
Payments for settlement and early extinguishment of liabilities
 
—

 
—

 
(1,273
)
 
—

 
(1,273
)
Investment in NGL Energy Holdings LLC
 
(13,827
)
 
—

 
—

 
—

 
(13,827
)
Net changes in advances with consolidated entities
 
(428,517
)
 
—

 
371,640

 
56,877

 
—

Net cash provided by financing activities
 
44,383

 
—

 
539,594

 
56,307

 
640,284

Net increase (decrease) in cash and cash equivalents
 
9,706

 
—

 
(12,901
)
 
5,777

 
2,582

Cash and cash equivalents, beginning of period
 
12,798

 
—

 
3,728

 
2,046

 
18,572

Cash and cash equivalents, end of period
 
$
22,504

 
$
—

 
$
(9,173
)
 
$
7,823

 
$
21,154


54
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Six Months Ended September 30, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities-continuing operations
 
$
(56,673
)
 
$
—

 
$
(186,335
)
 
$
2,279

 
$
(185
)
 
$
(240,914
)
Net cash provided by operating activities-discontinued operations
 
—

 
—

 
146,463

 
6,570

 
—

 
153,033

Net cash (used in) provided by operating activities
 
(56,673
)
 
—

 
(39,872
)
 
8,849

 
(185
)
 
(87,881
)
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
—

 
—

 
(191,559
)
 
(1,960
)
 
—

 
(193,519
)
Acquisitions, net of cash acquired
 
—

 
—

 
(194,044
)
 
(3,927
)
 
—

 
(197,971
)
Net settlements of commodity derivatives
 
—

 
—

 
(59,119
)
 
—

 
—

 
(59,119
)
Proceeds from sales of assets
 
—

 
—

 
8,204

 
—

 
—

 
8,204

Proceeds from divestitures of businesses and investments, net
 
—

 
—

 
18,594

 
—

 
—

 
18,594

Investments in unconsolidated entities
 
—

 
—

 
(92
)
 
—

 
—

 
(92
)
Repayments on loan for natural gas liquids facility
 
—

 
—

 
4,558

 
—

 
—

 
4,558

Loan to affiliate
 
—

 
—

 
(1,515
)
 
—

 
—

 
(1,515
)
Net cash used in investing activities-continuing operations
 
—

 
—

 
(414,973
)
 
(5,887
)
 
—

 
(420,860
)
Net cash provided by investing activities-discontinued operations
 
—

 
—

 
803,037

 
6,982

 
—

 
810,019

Net cash provided by investing activities
 
—

 
—

 
388,064

 
1,095

 
—

 
389,159

FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
—

 
—

 
2,008,000

 
—

 
—

 
2,008,000

Payments on Revolving Credit Facility
 
—

 
—

 
(2,153,500
)
 
—

 
—

 
(2,153,500
)
Repurchase of senior unsecured notes
 
(5,069
)
 
—

 
—

 
—

 
—

 
(5,069
)
Payments on other long-term debt
 
—

 
—

 
(326
)
 
—

 
—

 
(326
)
Debt issuance costs
 
—

 
—

 
(780
)
 
—

 
—

 
(780
)
Contributions from noncontrolling interest owners, net
 
—

 
—

 
—

 
169

 
—

 
169

Distributions to general and common unit partners and preferred unitholders
 
(117,486
)
 
—

 
—

 
—

 
—

 
(117,486
)
Repurchase of warrants
 
(14,988
)
 
—

 
—

 
—

 
—

 
(14,988
)
Common unit repurchases and cancellations
 
(54
)
 
—

 
—

 
—

 
—

 
(54
)
Payments for settlement and early extinguishment of liabilities
 
—

 
—

 
(2,639
)
 
—

 
—

 
(2,639
)
Net changes in advances with consolidated entities
 
201,413

 
—

 
(197,214
)
 
(4,384
)
 
185

 
—

Net cash provided by (used in) financing activities-continuing operations
 
63,816

 
—

 
(346,459
)
 
(4,215
)
 
185

 
(286,673
)
Net cash used in financing activities-discontinued operations
 
—

 
—

 
(295
)
 
(30
)
 
—

 
(325
)
Net cash provided by (used in) financing activities
 
63,816

 
—

 
(346,754
)
 
(4,245
)
 
185

 
(286,998
)
Net increase in cash and cash equivalents
 
7,143

 
—

 
1,438

 
5,699

 
—

 
14,280

Cash and cash equivalents, beginning of period
 
16,915

 
—

 
3,329

 
1,850

 
—

 
22,094

Cash and cash equivalents, end of period
 
$
24,058

 
$
—

 
$
4,767

 
$
7,549

 
$
—

 
$
36,374



55

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, 2019. 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 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, 2019 (“Annual Report”) filed with the Securities and Exchange Commission on May 30, 2019.

Overview

We are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At September 30, 2019, our operations included:

•
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, trucking, marine and pipeline transportation services through its owned assets.
•
Our Water Solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms, drilling fluids and drilling muds and performs truck and frac tank washouts. In addition, our Water Solutions segment sells the recovered hydrocarbons that result from performing these services and sells freshwater to producers for exploration and production activities.
•
Our Liquids segment supplies natural gas liquids to retailers, wholesalers, refiners, and petrochemical plants throughout the United States and in Canada using its leased underground storage and fleet of leased railcars, markets regionally through its 27 owned terminals throughout the United States, and provides terminaling and storage services at its salt dome storage facility joint venture in Utah.
•
Our Refined Products and Renewables segment conducts gasoline, diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, Southeast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. In addition, in certain storage locations, our Refined Products and Renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties. See Note 1 and Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of the accounting for the sale of a portion of our Refined Products and Renewables segment.

On September 30, 2019, we completed the sale of TransMontaigne Product Services, LLC (“TPSL”) and associated assets to Trajectory Acquisition Company, LLC (“Trajectory”) for total consideration of approximately $275.5 million, including equity consideration, inventory and net working capital. TPSL makes up a portion of our Refined Products and Renewables segment. The divested assets include (i) TPSL Terminaling Services Agreement with TransMontaigne Partners LP, including the exclusive rights to utilize 19 terminals; (ii) line space along Colonial and Plantation Pipelines; (iii) two wholly-owned refined products terminals in Georgia that we acquired in January 2019 and multiple third-party throughput agreements; and (iv) all associated customer contracts, inventory and other working capital associated with the assets. This transaction represents a strategic shift in our operations and will have a significant effect on our operations and financial results going forward. Accordingly, the results of operations and cash flows related to TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows. In addition, the assets and liabilities related to TPSL have been classified as held for sale in our March 31, 2019 unaudited condensed consolidated balance sheet. See Note 1 and Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the transaction.

As previously disclosed, on July 10, 2018, we completed the sale of virtually all of our remaining Retail Propane segment to Superior Plus Corp. (“Superior”) for total consideration of $889.8 million in cash. We retained our 50% ownership interest in Victory Propane, LLC (“Victory Propane”), which we subsequently sold on August 14, 2018. This transaction represented a strategic shift in our operations and will have a significant effect on our operations and financial results going forward. Accordingly, the results of operations and cash flows related to our former Retail Propane segment (including equity

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in earnings of Victory Propane) have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows. See Note 1 and Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the transaction.

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,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Total revenues
 
$
4,289,336

 
$
5,115,975

 
$
9,455,761

 
$
9,375,047

Total cost of sales
 
4,057,376

 
4,945,204

 
9,052,342

 
9,151,432

Operating expenses
 
75,433

 
58,510

 
137,529

 
112,977

General and administrative expense
 
43,908

 
39,328

 
64,250

 
61,669

Depreciation and amortization
 
63,113

 
52,598

 
116,867

 
104,490

Loss on disposal or impairment of assets, net
 
3,111

 
5,988

 
2,144

 
107,323

Revaluation of liabilities
 
—

 
—

 
—

 
800

Operating income (loss)
 
46,395

 
14,347

 
82,629

 
(163,644
)
(Loss) equity in earnings of unconsolidated entities
 
(265
)
 
379

 
(257
)
 
598

Interest expense
 
(45,016
)
 
(41,358
)
 
(84,910
)
 
(87,625
)
Loss on early extinguishment of liabilities, net
 
—

 
—

 
—

 
(137
)
Other income (expense), net
 
184

 
1,301

 
1,193

 
(32,602
)
Income (loss) from continuing operations before income taxes
 
1,298

 
(25,331
)
 
(1,345
)
 
(283,410
)
Income tax expense
 
(640
)
 
(691
)
 
(319
)
 
(1,342
)
Income (loss) from continuing operations
 
658

 
(26,022
)
 
(1,664
)
 
(284,752
)
(Loss) income from discontinued operations, net of tax
 
(202,024
)
 
380,961

 
(191,663
)
 
470,402

Net (loss) income
 
(201,366
)
 
354,939

 
(193,327
)
 
185,650

Less: Net loss attributable to noncontrolling interests
 
129

 
518

 
397

 
863

Less: Net loss attributable to redeemable noncontrolling interests
 
—

 
48

 
—

 
446

Net (loss) income attributable to NGL Energy Partners LP
 
$
(201,237
)
 
$
355,505

 
$
(192,930
)
 
$
186,959


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 business combinations, disposals and other transactions. Our results of operations for the three months and six months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2020.

Recent Developments
    
Acquisitions

As discussed below, we completed numerous acquisitions during the fiscal year ended March 31, 2019 and the six months ended September 30, 2019. These acquisitions impact the comparability of our results of operations between our current and prior fiscal years.

On July 2, 2019, we acquired all of the assets of Mesquite Disposals Unlimited, LLC (“Mesquite”) (including 34 saltwater disposal wells). The assets consist of a fully interconnected produced water pipeline transportation and disposal system in Eddy and Lea Counties, New Mexico, and Loving County, Texas. Also, during the six months ended September 30, 2019, in our Water Solutions segment, we acquired land and one saltwater disposal facility (including five saltwater disposal

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wells). See Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

During the fiscal year ended March 31, 2019, in our Water Solutions segment, we acquired the remaining 18.375% interest in NGL Water Pipelines, LLC, six saltwater disposal facilities (including 22 saltwater disposal wells), two ranches and four freshwater facilities (including 45 freshwater wells). In our Liquids segment, we acquired the natural gas liquids terminal business of DCP Midstream, LP. In our Refined Products and Renewables segment, we acquired two refined products terminals, which were included in the sale of TPSL on September 30, 2019 and the operations have been classified as discontinued (see “Dispositions” below).

Disposition of TPSL

On September 30, 2019, we completed the sale of TPSL and associated assets to Trajectory for $275.5 million of total consideration and recorded a loss on disposal of $174.4 million during the six months ended September 30, 2019 (see Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Term Credit Agreement

On July 2, 2019, we entered into a term credit agreement (“the Term Credit Agreement”) with Toronto Dominion (Texas) LLC for a $250.0 million term loan facility. Toronto Dominion (Texas) LLC and certain of its affiliates are also lenders under our Credit Agreement (as defined herein). Proceeds from the term loan facility were used to fund a portion of the purchase price for the Mesquite acquisition discussed above (see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Issuance of Class D Preferred Units

On July 2, 2019, we completed a private placement of 400,000 of our 9.00% Class D Preferred Units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of 17,000,000 common units for net proceeds of $385.4 million. Proceeds from this issuance were used to fund a portion of the purchase price for the Mesquite acquisition discussed above (see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

On October 31, 2019, the closing date of the Hillstone (as defined herein) acquisition, we completed a private placement of an aggregate of 200,000 Class D Preferred Units and warrants exercisable to purchase an aggregate of 8,500,000 common units for an aggregate purchase price of $200.0 million. Proceeds from this issuance of Class D Preferred Units were used to fund a portion of the purchase price for the acquisition of Hillstone (see Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Common Unit Repurchase Program

On August 30, 2019, the board of directors of our general partner authorized a common unit repurchase plan, under which we may repurchase up to $150.0 million of our outstanding common units through September 30, 2021 from time to time in the open market or in other privately negotiated transactions. See Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Subsequent Events

See Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of transactions that occurred subsequent to September 30, 2019.

 

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Segment Operating Results for the Three Months Ended September 30, 2019 and 2018

Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
596,674

 
$
825,571

 
$
(228,897
)
Crude oil transportation and other
 
46,776

 
41,567

 
5,209

Total revenues (1)
 
643,450

 
867,138

 
(223,688
)
Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
578,789

 
799,377

 
(220,588
)
Cost of sales-derivative (gain) loss
 
(6,792
)
 
422

 
(7,214
)
Operating expenses
 
14,237

 
12,444

 
1,793

General and administrative expenses
 
1,633

 
1,636

 
(3
)
Depreciation and amortization expense
 
17,693

 
18,870

 
(1,177
)
(Gain) loss on disposal or impairment of assets, net
 
(630
)
 
3,367

 
(3,997
)
Total expenses
 
604,930

 
836,116

 
(231,186
)
Segment operating income (loss)
 
$
38,520

 
$
31,022

 
$
7,498

 
 
 
 
 
 
 
Crude oil sold (barrels)
 
10,421

 
11,891

 
(1,470
)
Crude oil transported on owned pipelines (barrels)
 
10,922

 
9,578

 
1,344

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,232

 
7,287

 
(2,055
)
Crude oil storage capacity leased to third parties (barrels) (2)
 
2,563

 
—

 
2,563

Crude oil inventory (barrels) (2)
 
1,425

 
681

 
744

Crude oil sold ($/barrel)
 
$
57.257

 
$
69.428

 
$
(12.171
)
Cost per crude oil sold ($/barrel)
 
$
54.889

 
$
67.261

 
$
(12.372
)
Crude oil product margin ($/barrel)
 
$
2.368

 
$
2.167

 
$
0.201

 
(1)
Revenues include $2.3 million and $7.1 million of intersegment sales during the three months ended September 30, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Crude Oil Sales Revenues. The decrease was due primarily to a decrease in crude oil prices during the three months ended September 30, 2019, compared to the three months ended September 30, 2018. The decrease in volumes is due to a decrease in production due to the decreased crude oil prices.

Crude Oil Transportation and Other Revenues. The increase was partially due to our Grand Mesa Pipeline, which increased revenues by $2.9 million during the three months ended September 30, 2019, compared to the three months ended September 30, 2018, primarily due to increased production growth in the DJ Basin. During the three months ended September 30, 2019, financial volumes on the Grand Mesa Pipeline averaged approximately 128,000 barrels per day (volume amounts are from both internal and external parties). Also, crude transportation increased $2.3 million due to increased barge activity.

Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to a decrease in crude oil prices during the three months ended September 30, 2019, compared to the three months ended September 30, 2018.

Cost of Sales-Derivatives. Our cost of sales during the three months ended September 30, 2019 included $2.7 million of net realized gains on derivatives and $4.1 million of net unrealized gains on derivatives. Our cost of sales during the three months ended September 30, 2018 included $6.6 million of net realized losses on derivatives and $6.2 million of net unrealized gains on derivatives.

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Operating and General and Administrative Expenses. The increase was due to utilities related to the higher volumes on Grand Mesa.

Depreciation and Amortization Expense. The decrease during the three months ended September 30, 2019, compared to the three months ended September 30, 2018 was due to asset retirements.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2019, we recorded a net gain of $0.6 million related to the disposal of certain assets. During the three months ended September 30, 2018, we recorded a net loss of $3.4 million primarily related to the sale of a terminal.

Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Wastewater disposal service fees
 
$
74,335

 
$
51,471

 
$
22,864

Sale of recovered hydrocarbons
 
14,761

 
18,262

 
(3,501
)
Other service revenues
 
12,153

 
10,031

 
2,122

Total revenues
 
101,249

 
79,764

 
21,485

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
1,039

 
780

 
259

Cost of sales-derivative (gain) loss
 
(7,535
)
 
7,112

 
(14,647
)
Operating expenses
 
43,860

 
34,229

 
9,631

General and administrative expenses
 
946

 
801

 
145

Depreciation and amortization expense
 
37,921

 
26,342

 
11,579

Loss on disposal or impairment of assets, net
 
3,744

 
730

 
3,014

Total expenses
 
79,975

 
69,994

 
9,981

Segment operating income
 
$
21,274

 
$
9,770

 
$
11,504

 
 
 
 
 
 
 
Wastewater processed (barrels per day)
 
 
 
 
 
 
Northern Delaware Basin
 
465,453

 
7,850

 
457,603

Permian Basin
 
332,925

 
482,011

 
(149,086
)
Eagle Ford Basin
 
279,754

 
271,059

 
8,695

DJ Basin
 
169,485

 
166,152

 
3,333

Other Basins
 
10,736

 
80,577

 
(69,841
)
Total
 
1,258,353

 
1,007,649

 
250,704

Solids processed (barrels per day)
 
5,759

 
6,995

 
(1,236
)
Skim oil sold (barrels per day)
 
3,079

 
3,326

 
(247
)
Service fees for wastewater processed ($/barrel)
 
$
0.64

 
$
0.56

 
$
0.08

Recovered hydrocarbons for wastewater processed ($/barrel)
 
$
0.13

 
$
0.20

 
$
(0.07
)
Operating expenses for wastewater processed ($/barrel)
 
$
0.38

 
$
0.37

 
$
0.01


Wastewater Disposal Service Fee Revenues. The increase was due primarily to an increase in the price we are receiving to dispose of a barrel of water and an increase in the volume of wastewater processed at acquired and newly developed facilities, partially offset by wastewater volume reductions as a result of the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

Recovered Hydrocarbon Revenues. The decrease was due primarily to a decrease in the percentage of skim oil volumes recovered per wastewater barrel processed and lower crude oil prices. This lower percentage was due primarily to an

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increase in wastewater transported through pipelines (which contains less oil per barrel of wastewater), as well as operational changes made by producers in the DJ Basin.

Other Service Revenues. Other service revenues primarily include solids disposal revenues, water pipeline revenues, land surface use revenues and freshwater revenues. The increase was due primarily to an increase in land surface use revenues and freshwater revenues in our New Mexico operations which began during the three months ended September 30, 2018 as well as freshwater revenues due to acquisitions. These increases were partially offset by lower solids disposal revenues and volumes due to a facility not currently in operation as well as reduced operations at another facility.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to operational changes in the Eagle Ford Basin during the three months ended September 30, 2019.

Cost of Sales-Derivatives. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil. Our cost of sales during the three months ended September 30, 2019 included $5.8 million of net unrealized gains on derivatives and $1.7 million of net realized gains on derivatives. Our cost of sales during the three months ended September 30, 2018 included $5.3 million of net realized losses on derivatives and $1.8 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operate, both through acquisitions and development of new facilities, partially offset by the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

Depreciation and Amortization Expense. The increase was due primarily to acquisitions and newly developed facilities, partially offset by the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2019, we recorded a net loss of $3.6 million on the disposals of certain assets. During the three months ended September 30, 2018, we recorded a net loss of $0.7 million on the disposals of certain assets.


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Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
116,449

 
$
236,319

 
$
(119,870
)
Cost of sales-excluding impact of derivatives
 
108,356

 
222,355

 
(113,999
)
Cost of sales-derivative loss (gain)
 
4,676

 
(1,574
)
 
6,250

Product margin
 
3,417

 
15,538

 
(12,121
)
 
 
 
 
 
 
 
Butane sales:
 


 


 
 
Revenues (1)
 
87,983

 
146,951

 
(58,968
)
Cost of sales-excluding impact of derivatives
 
74,833

 
142,962

 
(68,129
)
Cost of sales-derivative (gain) loss
 
(1,384
)
 
4,092

 
(5,476
)
Product margin (loss)
 
14,534

 
(103
)
 
14,637

 
 
 

 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
117,997

 
171,099

 
(53,102
)
Cost of sales-excluding impact of derivatives
 
110,909

 
161,970

 
(51,061
)
Cost of sales-derivative loss (gain)
 
46

 
(665
)
 
711

Product margin
 
7,042

 
9,794

 
(2,752
)
 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
11,200

 
4,883

 
6,317

Cost of sales
 
3,930

 
614

 
3,316

Product margin
 
7,270

 
4,269

 
3,001

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
15,764

 
9,888

 
5,876

General and administrative expenses
 
1,495

 
1,389

 
106

Depreciation and amortization expense
 
6,611

 
6,459

 
152

(Gain) loss on disposal or impairment of assets, net
 
(4
)
 
1,004

 
(1,008
)
Total expenses
 
23,866

 
18,740

 
5,126

Segment operating income
 
$
8,397

 
$
10,758

 
$
(2,361
)
 
 
 
 
 
 
 
Liquids storage capacity - owned and leased (gallons) (2)
 
397,343

 
399,967

 
(2,624
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
262,183

 
266,654

 
(4,471
)
Propane sold ($/gallon)
 
$
0.444

 
$
0.886

 
$
(0.442
)
Cost per propane sold ($/gallon)
 
$
0.431

 
$
0.828

 
$
(0.397
)
Propane product margin ($/gallon)
 
$
0.013

 
$
0.058

 
$
(0.045
)
Propane inventory (gallons) (2)
 
104,048

 
117,206

 
(13,158
)
Propane storage capacity leased to third parties (gallons) (2)
 
45,436

 
30,440

 
14,996

 
 
 
 
 
 
 
Butane sold (gallons)
 
170,169

 
131,424

 
38,745

Butane sold ($/gallon)
 
$
0.517

 
$
1.118

 
$
(0.601
)
Cost per butane sold ($/gallon)
 
$
0.432

 
$
1.119

 
$
(0.687
)
Butane product margin (loss) ($/gallon)
 
$
0.085

 
$
(0.001
)
 
$
0.086

Butane inventory (gallons) (2)
 
80,839

 
67,448

 
13,391

Butane storage capacity leased to third parties (gallons) (2)
 
33,894

 
59,220

 
(25,326
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
124,614

 
124,935

 
(321
)
Other products sold ($/gallon)
 
$
0.947

 
$
1.370

 
$
(0.423
)
Cost per other products sold ($/gallon)
 
$
0.890

 
$
1.291

 
$
(0.401
)
Other products product margin ($/gallon)
 
$
0.057

 
$
0.079

 
$
(0.022
)
Other products inventory (gallons) (2)
 
9,705

 
7,658

 
2,047


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(1)
Revenues include $5.1 million and $8.8 million of intersegment sales during the three months ended September 30, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due primarily to lower commodity prices.

Cost of Sales-Derivatives. Our cost of wholesale propane sales included $4.8 million of net unrealized losses on derivatives and $0.1 million of net realized gains on derivatives during the three months ended September 30, 2019. During the three months ended September 30, 2018, our cost of wholesale propane sales included $2.4 million of net unrealized gains on derivatives and $0.8 million of net realized losses on derivatives.

Propane product margins, excluding the impact of derivatives, decreased as inventory values were slow to align with reduced commodity prices.

Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to lower commodity prices, partially offset by increased volumes.

Cost of Sales-Derivatives. Our cost of butane sales during the three months ended September 30, 2019 included $0.3 million of net unrealized gains on derivatives and $1.1 million of net realized gains on derivatives. Our cost of butane sales included $5.0 million of net unrealized losses on derivatives and $0.9 million of net realized gains on derivatives during the three months ended September 30, 2018.

Butane product margins, excluding the impact of derivatives, increased versus the prior year quarter in large part due to increased volumes, including steady volumes at our Chesapeake, Virginia export terminal and strong domestic blending economics.

Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to lower commodity prices.

Cost of Sales-Derivatives. Our cost of sales of other products included less than $0.1 million of net unrealized losses on derivatives and less than $0.1 million of net realized losses on derivatives during the three months ended September 30, 2019. Our cost of sales of other products during the three months ended September 30, 2018 included $0.2 million of net unrealized gains on derivatives and $0.5 million of net realized gains on derivatives.

Other product sales product margins during the three months ended September 30, 2019 were impacted by decreasing commodity prices.

Service Revenues. This revenue includes storage, terminaling and transportation services income. Revenue for the current quarter increased due to the addition of the new terminals in the northeast from the March 2019 acquisition.

Operating and General and Administrative Expenses. Expenses for the current quarter were higher primarily due to the addition of the new terminals in the northeast from the March 2019 acquisition.

Depreciation and Amortization Expense. Expense for the current quarter was higher due to the addition of the new terminals in the northeast from the March 2019 acquisition.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2019 we recorded a gain of less than $0.1 million related to the sale of assets and during the three months ended September 30, 2018, we recorded a loss of $1.0 million related to the retirement of assets.


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Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated. On September 30, 2019, we sold TPSL and the operating results related to TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted.
 
 
Three Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
$
3,084,572

 
$
3,558,229

 
$
(473,657
)
Cost of sales-excluding impact of derivatives
 
3,076,356

 
3,542,281

 
(465,925
)
Derivative (gain) loss
 
(14,369
)
 
11,884

 
(26,253
)
Product margin
 
22,585

 
4,064

 
18,521

 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
86,252

 
66,386

 
19,866

Cost of sales-excluding impact of derivatives
 
88,173

 
68,471

 
19,702

Derivative loss
 
763

 
279

 
484

Product loss
 
(2,684
)
 
(2,364
)
 
(320
)
 
 
 
 
 
 
 
Service fees and other revenues
 
769

 
508

 
261

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
1,573

 
1,647

 
(74
)
General and administrative expenses
 
2,291

 
2,244

 
47

Depreciation and amortization expense
 
125

 
168

 
(43
)
Total expenses
 
3,989

 
4,059

 
(70
)
Segment operating income (loss)
 
$
16,681

 
$
(1,851
)
 
$
18,532

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
33,182

 
33,719

 
(537
)
Diesel sold (barrels)
 
8,611

 
7,388

 
1,223

Ethanol sold (barrels)
 
454

 
621

 
(167
)
Biodiesel sold (barrels)
 
195

 
250

 
(55
)
Refined products and renewables storage capacity - leased (barrels) (1)
 
4,474

 
3,773

 
701

Gasoline inventory (barrels) (1)
 
1,548

 
1,711

 
(163
)
Diesel inventory (barrels) (1)
 
288

 
527

 
(239
)
Ethanol inventory (barrels) (1)
 
1,087

 
1,072

 
15

Biodiesel inventory (barrels) (1)
 
406

 
942

 
(536
)
Refined products sold ($/barrel)
 
$
73.806

 
$
86.560

 
$
(12.754
)
Cost per refined products sold ($/barrel)
 
$
73.266

 
$
86.461

 
$
(13.195
)
Refined products product margin ($/barrel)
 
$
0.540

 
$
0.099

 
$
0.441

Renewable products sold ($/barrel)
 
$
132.900

 
$
76.218

 
$
56.682

Cost per renewable products sold ($/barrel)
 
$
137.035

 
$
78.932

 
$
58.103

Renewable products product loss ($/barrel)
 
$
(4.135
)
 
$
(2.714
)
 
$
(1.421
)
 
(1)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Refined Products Revenues-Excluding Impact of Derivatives and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues-excluding impact of derivatives and cost of sales-excluding impact of derivatives were due to a decrease in refined product prices, partially offset by increased volumes. The decrease in prices was due primarily to supply and demand for refined fuels at our wholesale locations. During the three months ended September 30, 2019, Gulf Coast prices decreased

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compared to such prices during the three months ended September 30, 2018, which negatively affected our margins-excluding impact of derivatives. The increased volumes were due primarily to the continued demand for motor fuels.

Refined Products-Derivative (Gain) Loss. Our margin during the three months ended September 30, 2019 included a gain of $14.4 million from our risk management activities due primarily to unrealized gains on our open forward physical positions and due to NYMEX futures prices decreasing on our short future positions. Our margin during the three months ended September 30, 2018 included a loss of $11.9 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Renewables Revenues-Excluding Impact of Derivatives and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues-excluding impact of derivatives and cost of sales-excluding impact of derivatives were due primarily to an increase in renewables prices, partially offset by decreased volumes. The increase in prices was due primarily to more sales of ethanol renewable identification numbers during the three months ended September 30, 2019, compared to more sales of biodiesel and ethanol during the three months ended September 30, 2018.

Renewables-Derivative Loss. Our margin during the three months ended September 30, 2019 included a loss of $0.8 million from our risk management activities due primarily to unrealized losses on our open forward physical positions. Our margin during the three months ended September 30, 2018 included a loss of $0.3 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Service Fees and Other Revenues. The increase was due primarily to increased ancillary charges billed to our sublessee for returned railcars.

Operating and General and Administrative Expenses. Operating and general and administrative expense for the current quarter was consistent with the prior year.

Depreciation and Amortization Expense. The decrease was due primarily to certain assets being fully depreciated during the year ended March 31, 2019.

Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:
 
 
Three Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
264

 
$
371

 
$
(107
)
Cost of sales
 
435

 
497

 
(62
)
Loss
 
(171
)
 
(126
)
 
(45
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
(1
)
 
322

 
(323
)
General and administrative expenses
 
37,543

 
33,258

 
4,285

Depreciation and amortization expense
 
763

 
759

 
4

Loss on disposal or impairment of assets, net
 
1

 
887

 
(886
)
Total expenses
 
38,306

 
35,226

 
3,080

Operating loss
 
$
(38,477
)
 
$
(35,352
)
 
$
(3,125
)

General and Administrative Expenses. The increase during the three months ended September 30, 2019 was due primarily to higher equity-based compensation expense. During the three months ended September 30, 2019, equity-based compensation expense was $21.3 million, compared to $19.2 million during the three months ended September 30, 2018. The increase is primarily due to an increase in bonuses paid in common units of approximately $2.9 million, which is partially offset by a decrease in expense related to the cancellation of our performance awards during the year ended March 31, 2019. In addition, there was an increase in acquisition expense. During the three months ended September 30, 2019, acquisition expense

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was $5.4 million, compared to $2.9 million during the three months ended September 30, 2018. The increase is primarily due to expenses incurred in connection with our acquisitions of both Mesquite and Hillstone.

 
Equity in Earnings of Unconsolidated Entities

The decrease of $0.6 million during the three months ended September 30, 2019 was due primarily to lower earnings from our 50% interest in a water services company that we acquired in August 2018 and a loss from our 50% interest in an aircraft rental company during the three months ended September 30, 2019.

Interest Expense

Interest expense includes interest charged on the Revolving Credit Facility (as defined herein), senior unsecured notes and the Term Credit Agreement (as defined herein), as well as amortization of debt issuance costs, letter of credit fees, interest on equipment financing notes, and accretion of interest on non-interest bearing debt obligations. The increase of $3.7 million during the three months ended September 30, 2019 was primarily due to the issuance of our 2026 Notes (as defined herein), our entering in the Term Credit Agreement and higher average outstanding balances on our Revolving Credit Facility. These increases were offset by the redemption of our senior unsecured notes that were scheduled to mature in 2019 and 2021.

Other Income, Net

The following table summarizes the components of other income, net for the periods indicated:
 
Three Months Ended September 30,
 
2019
 
2018
 
(in thousands)
Interest income (1)
$
192

 
$
1,212

Other
(8
)
 
89

Other income, net
$
184

 
$
1,301

 
(1)
Relates primarily to a loan receivable associated with our interest in the construction of a natural gas liquids loading/unloading facility that is utilized by a third party and a loan receivable with Victory Propane (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 $0.6 million during the three months ended September 30, 2019, compared to income tax expense of $0.7 million during the three months ended September 30, 2018. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Noncontrolling Interests - Redeemable and Non-redeemable

Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. The decrease in the noncontrolling interest loss of $0.4 million during the three months ended September 30, 2019 was due primarily to a loss from operations of Mesquite, which we acquired in July 2019.

 

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Segment Operating Results for the Six Months Ended September 30, 2019 and 2018

Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
 
 
Six Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
1,278,743

 
$
1,582,082

 
$
(303,339
)
Crude oil transportation and other
 
90,394

 
73,411

 
16,983

Total revenues (1)
 
1,369,137

 
1,655,493

 
(286,356
)
Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
1,240,827

 
1,540,887

 
(300,060
)
Cost of sales-derivative (gain) loss
 
(10,063
)
 
11,680

 
(21,743
)
Operating expenses
 
28,615

 
25,039

 
3,576

General and administrative expenses
 
3,404

 
3,243

 
161

Depreciation and amortization expense
 
35,278

 
38,099

 
(2,821
)
(Gain) loss on disposal or impairment of assets, net
 
(1,246
)
 
105,261

 
(106,507
)
Total expenses
 
1,296,815

 
1,724,209

 
(427,394
)
Segment operating income (loss)
 
$
72,322

 
$
(68,716
)
 
$
141,038

 
 
 
 
 
 
 
Crude oil sold (barrels)
 
21,712

 
23,116

 
(1,404
)
Crude oil transported on owned pipelines (barrels)
 
22,711

 
19,565

 
3,146

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,232

 
7,287

 
(2,055
)
Crude oil storage capacity leased to third parties (barrels) (2)
 
2,563

 
—

 
2,563

Crude oil inventory (barrels) (2)
 
1,425

 
681

 
744

Crude oil sold ($/barrel)
 
$
58.896

 
$
68.441

 
$
(9.545
)
Cost per crude oil sold ($/barrel)
 
$
56.686

 
$
67.164

 
$
(10.478
)
Crude oil product margin ($/barrel)
 
$
2.210

 
$
1.277

 
$
0.933

 
(1)
Revenues include $11.8 million and $11.6 million of intersegment sales during the six months ended September 30, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Crude Oil Sales Revenues. The decrease was due primarily to a decrease in crude oil prices and sales volumes during the six months ended September 30, 2019, compared to the six months ended September 30, 2018.

Crude Oil Transportation and Other Revenues. The increase was partially due to our Grand Mesa Pipeline, which increased revenues by $5.8 million during the six months ended September 30, 2019, compared to the six months ended September 30, 2018, primarily due to increased production growth in the DJ Basin. During the six months ended September 30, 2019, 22.7 million barrels of crude were transported on the Grand Mesa Pipeline averaged approximately 130,000 barrels per day (volume amounts are from both internal and external parties). In addition, during the six months ended September 30, 2019, a new crude marketing contract increased revenues by $7.2 million. Also, crude transportation increased $2.5 million due to increased barge activity.

Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to a decrease in crude oil prices during the six months ended September 30, 2019, compared to the six months ended September 30, 2018.

Cost of Sales-Derivatives. Our cost of sales during the six months ended September 30, 2019 included $4.1 million of net realized gains on derivatives and $6.0 million of net unrealized gains on derivatives. Our cost of sales during the six months ended September 30, 2018 included $10.4 million of net realized losses on derivatives and $1.3 million of net unrealized losses on derivatives.

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Operating and General and Administrative Expenses. The increase was due primarily to higher utility costs related to the higher volumes on Grand Mesa.

Depreciation and Amortization Expense. The decrease was due to the retirement of certain assets and other assets being fully depreciated or amortized during the six months ended September 30, 2018.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2019, we recorded a net gain of $1.2 million related to the disposal of certain assets. During the six months ended September 30, 2018 we recorded a net loss of $105.3 million, which included the loss of $105.0 million on our transaction with a third party in which they agreed to be fully responsible for our future minimum volume commitment in exchange for $67.7 million of deficiency credits on a contract with a crude oil pipeline operator and $35.3 million in cash. The loss also includes additional costs related to this transaction of $2.0 million. In addition, we recorded a loss of $1.3 million primarily related to the sale of two terminals.

Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
 
 
Six Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Wastewater disposal service fees
 
$
120,262

 
$
99,474

 
$
20,788

Sale of recovered hydrocarbons
 
29,096

 
38,489

 
(9,393
)
Other service revenues
 
23,674

 
17,946

 
5,728

Total revenues
 
173,032

 
155,909

 
17,123

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
1,287

 
1,369

 
(82
)
Cost of sales-derivative (gain) loss
 
(10,590
)
 
20,792

 
(31,382
)
Operating expenses
 
76,316

 
65,753

 
10,563

General and administrative expenses
 
1,909

 
1,600

 
309

Depreciation and amortization expense
 
65,992

 
51,651

 
14,341

Loss on disposal or impairment of assets, net
 
3,155

 
3,205

 
(50
)
Revaluation of liabilities
 
—

 
800

 
(800
)
Total expenses
 
138,069

 
145,170

 
(7,101
)
Segment operating income
 
$
34,963

 
$
10,739

 
$
24,224

 
 
 
 
 
 
 
Wastewater processed (barrels per day)
 
 
 
 
 
 
Northern Delaware Basin
 
277,802

 
3,946

 
273,856

Permian Basin
 
322,291

 
451,939

 
(129,648
)
Eagle Ford Basin
 
273,533

 
275,099

 
(1,566
)
DJ Basin
 
169,552

 
151,216

 
18,336

Other Basins
 
11,561

 
81,801

 
(70,240
)
Total
 
1,054,739

 
964,001

 
90,738

Solids processed (barrels per day)
 
5,601

 
6,450

 
(849
)
Skim oil sold (barrels per day)
 
2,970

 
3,470

 
(500
)
Service fees for wastewater processed ($/barrel)
 
$
0.62

 
$
0.56

 
$
0.06

Recovered hydrocarbons for wastewater processed ($/barrel)
 
$
0.15

 
$
0.22

 
$
(0.07
)
Operating expenses for wastewater processed ($/barrel)
 
$
0.40

 
$
0.37

 
$
0.03


Wastewater Disposal Service Fee Revenues. The increase was due primarily to an increase in the price we are receiving to dispose of a barrel of water and an increase in the volume of wastewater processed at acquired and newly developed facilities, partially offset by wastewater volume reductions as a result of the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

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Recovered Hydrocarbon Revenues. The decrease was due primarily to a decrease in the percentage of skim oil volumes recovered per wastewater barrel processed and lower crude oil prices. This lower percentage was due primarily to an increase in wastewater transported through pipelines (which contains less oil per barrel of wastewater), as well as operational changes made by producers in the DJ Basin.

Other Service Revenues. The increase was due primarily to an increase in land surface use revenues and freshwater revenues in our New Mexico operations which began during the three months ended September 30, 2018 as well as freshwater revenues due to acquisitions. These increases were partially offset by lower solids disposal revenues and volumes due to a facility not currently in operation as well as reduced operations at another facility.

Cost of Sales-Excluding Impact of Derivatives. Cost of sales-excluding impact of derivatives for the current period was consistent with the prior year.

Cost of Sales-Derivatives. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil. Our cost of sales during the six months ended September 30, 2019 included $6.0 million of net unrealized gains on derivatives and $4.6 million of net realized gains on derivatives. In June 2019, we settled derivative contracts that had scheduled settlement dates from April through December 2020 and recorded a gain of $1.9 million on those derivatives. Our cost of sales during the six months ended September 30, 2018 included $9.9 million of net realized losses on derivatives and $10.9 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operate, both through acquisitions and development of new facilities, partially offset by the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

Depreciation and Amortization Expense. The increase was due primarily to acquisitions and newly developed facilities, partially offset by the sale of our Bakken and South Pecos water disposal businesses during the fiscal year ended March 31, 2019.

Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2019, we recorded a net loss of $3.6 million on the disposals of certain assets. In addition, during the six months ended September 30, 2019, we recorded a gain of $1.0 million for cash received related to a previous loan receivable. During the six months ended September 30, 2018, we recorded a net loss of $3.2 million on the disposals of certain assets.

Revaluation of Liabilities. The revaluation of liabilities represents the change in the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations. The expense during the six months ended September 30, 2018 was due primarily to higher actual and expected production from new customers, resulting in an increase to the expected future royalty payment.


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Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Six Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
256,608

 
$
424,710

 
$
(168,102
)
Cost of sales-excluding impact of derivatives
 
243,555

 
402,900

 
(159,345
)
Cost of sales-derivative loss (gain)
 
7,486

 
(1,222
)
 
8,708

Product margin
 
5,567

 
23,032

 
(17,465
)
 
 
 
 
 
 
 
Butane sales:
 
 
 
 
 
 
Revenues (1)
 
170,295

 
261,174

 
(90,879
)
Cost of sales-excluding impact of derivatives
 
150,374

 
254,405

 
(104,031
)
Cost of sales-derivative (gain) loss
 
(7,489
)
 
6,658

 
(14,147
)
Product margin
 
27,410

 
111

 
27,299

 
 
 
 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
233,813

 
324,417

 
(90,604
)
Cost of sales-excluding impact of derivatives
 
217,865

 
309,649

 
(91,784
)
Cost of sales-derivative loss (gain)
 
203

 
(1,735
)
 
1,938

Product margin
 
15,745

 
16,503

 
(758
)
 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
21,749

 
10,513

 
11,236

Cost of sales
 
7,913

 
1,279

 
6,634

Product margin
 
13,836

 
9,234

 
4,602

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
28,862

 
18,715

 
10,147

General and administrative expenses
 
2,982

 
2,863

 
119

Depreciation and amortization expense
 
13,840

 
12,927

 
913

(Gain) loss on disposal or impairment of assets, net
 
(7
)
 
994

 
(1,001
)
Total expenses
 
45,677

 
35,499

 
10,178

Segment operating income
 
$
16,881

 
$
13,381

 
$
3,500

 
 
 
 
 
 
 
Liquids storage capacity - owned and leased (gallons) (2)
 
397,343

 
399,967

 
(2,624
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
507,450

 
500,440

 
7,010

Propane sold ($/gallon)
 
$
0.506

 
$
0.849

 
$
(0.343
)
Cost per propane sold ($/gallon)
 
$
0.495

 
$
0.803

 
$
(0.308
)
Propane product margin ($/gallon)
 
$
0.011

 
$
0.046

 
$
(0.035
)
Propane inventory (gallons) (2)
 
104,048

 
117,206

 
(13,158
)
Propane storage capacity leased to third parties (gallons) (2)
 
45,436

 
30,440

 
14,996

 
 
 
 
 
 
 
Butane sold (gallons)
 
312,648

 
244,449

 
68,199

Butane sold ($/gallon)
 
$
0.545

 
$
1.068

 
$
(0.523
)
Cost per butane sold ($/gallon)
 
$
0.457

 
$
1.068

 
$
(0.611
)
Butane product margin ($/gallon)
 
$
0.088

 
$
—

 
$
0.088

Butane inventory (gallons) (2)
 
80,839

 
67,448

 
13,391

Butane storage capacity leased to third parties (gallons) (2)
 
33,894

 
59,220

 
(25,326
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
243,872

 
241,920

 
1,952

Other products sold ($/gallon)
 
$
0.959

 
$
1.341

 
$
(0.382
)
Cost per other products sold ($/gallon)
 
$
0.894

 
$
1.273

 
$
(0.379
)
Other products product margin ($/gallon)
 
$
0.065

 
$
0.068

 
$
(0.003
)
Other products inventory (gallons) (2)
 
9,705

 
7,658

 
2,047


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(1)
Revenues include $6.3 million and $10.5 million of intersegment sales during the six months ended September 30, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due primarily to lower commodity prices.

Cost of Sales-Derivatives. Our cost of wholesale propane cost of sales included $8.0 million of net unrealized losses on derivatives and $0.5 million of net realized gains on derivatives during the six months ended September 30, 2019. During the six months ended September 30, 2018, our cost of wholesale propane sales included $2.0 million of net unrealized gains on derivatives and $0.8 million of net realized losses on derivatives.

Propane product margins per gallon of propane sold were lower during the six months ended September 30, 2019 than during the six months ended September 30, 2018. Propane product margins decreased due to inventory values being slow to align with reduced commodity prices.

Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales were due primarily to lower commodity prices in the first six months of the year. Volumes increased due to strong demand from domestic and international markets.

Cost of Sales-Derivatives. Our cost of butane sales during the six months ended September 30, 2019 included $5.1 million of net unrealized gains on derivatives and $2.4 million of net realized gains on derivatives. Our cost of butane sales included $7.5 million of net unrealized losses on derivatives and $0.8 million of net realized gains on derivatives during the six months ended September 30, 2018.

Butane product margins per gallon of butane sold were higher during the six months ended September 30, 2019 than during the six months ended September 30, 2018 due primarily to stronger domestic markets and international demand.

Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to lower commodity prices.

Cost of Sales-Derivatives. Our cost of sales of other products included less than $0.1 million of net unrealized gains on derivatives and $0.2 million of net realized losses on derivatives during the six months ended September 30, 2019. Our cost of sales of other products during the six months ended September 30, 2018 included $0.6 million of net unrealized gains on derivatives and $1.1 million of net realized gains on derivatives.

Other product sales product margins during the six months ended September 30, 2019 were consistent with the prior year.

Service Revenues. This revenue includes storage, terminaling and transportation services income. The increase during the six months ended September 30, 2019 was primarily related to the addition of the new terminals in the northeast from the March 2019 acquisition.

Operating and General and Administrative Expenses. Expenses were higher due to the addition of the new terminals in the northeast from the March 2019 acquisition.

Depreciation and Amortization Expense. Expense for the current quarter increased due to the addition of the new terminals in the northeast from the March 2019 acquisition.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2019, we recorded a net gain of less than $0.1 million and during the six months ended September 30, 2018 we recorded a loss of $1.0 million related to the retirement of assets.


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Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated. On September 30, 2019, we sold TPSL and the operating results related to TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted.
 
 
Six Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
$
6,999,835

 
$
6,431,540

 
$
568,295

Cost of sales-excluding impact of derivatives
 
7,017,481

 
6,471,572

 
545,909

Derivative (gain) loss
 
(38,874
)
 
19,455

 
(58,329
)
Product margin (loss)
 
21,228

 
(59,487
)
 
80,715

 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
166,392

 
131,470

 
34,922

Cost of sales-excluding impact of derivatives
 
163,486

 
133,749

 
29,737

Derivative loss
 
5,096

 
1,069

 
4,027

Product loss
 
(2,190
)
 
(3,348
)
 
1,158

 
 
 
 
 
 
 
Service fees and other revenues
 
1,496

 
1,158

 
338

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
3,432

 
2,789

 
643

General and administrative expenses
 
4,569

 
4,490

 
79

Depreciation and amortization expense
 
251

 
336

 
(85
)
Gain on disposal or impairment of assets, net
 
—

 
(3,026
)
 
3,026

Total expenses
 
8,252

 
4,589

 
3,663

Segment operating income (loss)
 
$
12,282

 
$
(66,266
)
 
$
78,548

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
72,992

 
60,334

 
12,658

Diesel sold (barrels)
 
18,357

 
14,580

 
3,777

Ethanol sold (barrels)
 
1,133

 
1,165

 
(32
)
Biodiesel sold (barrels)
 
358

 
578

 
(220
)
Refined products and renewables storage capacity - leased (barrels) (1)
 
4,474

 
3,773

 
701

Gasoline inventory (barrels) (1)
 
1,548

 
1,711

 
(163
)
Diesel inventory (barrels) (1)
 
288

 
527

 
(239
)
Ethanol inventory (barrels) (1)
 
1,087

 
1,072

 
15

Biodiesel inventory (barrels) (1)
 
406

 
942

 
(536
)
Refined products sold ($/barrel)
 
$
76.627

 
$
85.852

 
$
(9.225
)
Cost per refined products sold ($/barrel)
 
$
76.395

 
$
86.646

 
$
(10.251
)
Refined products product margin (loss) ($/barrel)
 
$
0.232

 
$
(0.794
)
 
$
1.026

Renewable products sold ($/barrel)
 
$
111.598

 
$
75.427

 
$
36.171

Cost per renewable products sold ($/barrel)
 
$
113.066

 
$
77.348

 
$
35.718

Renewable products product loss ($/barrel)
 
$
(1.468
)
 
$
(1.921
)
 
$
0.453

 
(1)
Information is presented as of September 30, 2019 and September 30, 2018, respectively.

Refined Products Revenues-Excluding Impact of Derivatives and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues-excluding impact of derivatives and cost of sales-excluding impact of derivatives were due to increased volumes, partially offset by a decrease in refined products prices. The increased volumes were due primarily to the continued

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demand for motor fuels. The decrease in prices was due primarily to supply and demand for refined fuels at our wholesale locations. During the six months ended September 30, 2019, Gulf Coast prices decreased compared to such prices during the six months ended September 30, 2018, which negatively affected our margins-excluding impact of derivatives.

Refined Products-Derivative (Gain) Loss. Our margin during the six months ended September 30, 2019 included a gain of $38.9 million from our risk management activities due primarily to unrealized gains on our open forward physical positions and due to NYMEX futures prices decreasing on our short future positions. Our margin during the six months ended September 30, 2018 included a loss of $19.5 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Renewables Revenues-Excluding Impact of Derivatives and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues-excluding impact of derivatives and cost of sales-excluding impact of derivatives were due primarily to an increase in renewables prices, partially offset by decreased volumes. The increase in prices was due primarily to more sales of ethanol renewable identification numbers during the six months ended September 30, 2019, compared to the six months ended September 30, 2018.

Renewables-Derivative Loss. Our margin during the six months ended September 30, 2019 included a loss of $5.1 million from our risk management activities due primarily to unrealized losses on our open forward physical positions. Our margin during the six months ended September 30, 2018 included a loss of $1.1 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Service Fees and Other Revenues. The increase was due primarily to increased ancillary charges billed to our sublessee for returned railcars.

Operating and General and Administrative Expenses. The increase was due primarily to lower environmental expense during the six months ended September 30, 2018 as a result of an insurance recovery we received related to a historical environmental indemnification agreement.

Depreciation and Amortization Expense. The decrease was due primarily to certain assets being fully depreciated during the year ended March 31, 2019.

Gain on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2018, we recorded a gain of $3.0 million on the sale of our previously held 20% interest in E Energy Adams, LLC.

Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:
 
 
Six Months Ended September 30,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
519

 
$
747

 
$
(228
)
Cost of sales
 
900

 
987

 
(87
)
Loss
 
(381
)
 
(240
)
 
(141
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
304

 
703

 
(399
)
General and administrative expenses
 
51,386

 
49,473

 
1,913

Depreciation and amortization expense
 
1,506

 
1,477

 
29

Loss on disposal or impairment of assets, net
 
242

 
889

 
(647
)
Total expenses
 
53,438

 
52,542

 
896

Operating loss
 
$
(53,819
)
 
$
(52,782
)
 
$
(1,037
)

General and Administrative Expenses. The increase during the six months ended September 30, 2019 was due primarily to higher acquisition expense. During the six months ended September 30, 2019, acquisition expense was $7.5

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million, compared to $4.0 million during the six months ended September 30, 2018. The increase is primarily due to expenses incurred in connection with our acquisitions of both Mesquite and Hillstone. In addition, there was an increase in compensation expense. During the six months ended September 30, 2019, compensation expense was $18.5 million, compared to $16.4 million during the six months ended September 30, 2018. The increase was primarily due to an increase in group health insurance costs of approximately $0.8 million. These increases are partially offset by a decrease in legal expense of approximately $2.8 million.
 
 
Equity in Earnings of Unconsolidated Entities

The decrease of $0.9 million during the six months ended September 30, 2019 was due primarily to lower earnings from our 50% interest in a water services company that we acquired in August 2018, the sale of our investment in E Energy Adams, LLC on May 3, 2018, and a loss from our 50% interest in an aircraft rental company during the six months ended September 30, 2019.

Interest Expense

The decrease of $2.7 million during the six months ended September 30, 2019 was due to the repurchase of all of the unsecured notes that were scheduled to mature in 2019 and 2021 during our fiscal year ended March 31, 2019. This decrease was partially offset by the issuance of the 2026 Notes (as defined herein) and the Term Credit Agreement (as defined herein) which was entered into as part of the Mesquite acquisition.

Loss on Early Extinguishment of Liabilities, Net

During the six months ended September 30, 2018, the net loss (inclusive of debt issuance costs written off) relates to the early extinguishment of a portion of the outstanding senior unsecured notes.

Other Income (Expense), Net

The following table summarizes the components of other income (expense), net for the periods indicated:
 
Six Months Ended September 30,
 
2019
 
2018
 
(in thousands)
Interest income (1)
$
1,204

 
$
2,468

Gavilon legal matter settlement (2)
—

 
(35,000
)
Other
(11
)
 
(70
)
Other income (expense), net
$
1,193

 
$
(32,602
)
 
(1)
Relates primarily to a loan receivable associated with our interest in the construction of a natural gas liquids loading/unloading facility that is utilized by a third party and a loan receivable with Victory Propane (see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).
(2)
Represents the accrual for the estimated cost of the settlement of the Gavilon legal matter (see Note 9 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 six months ended September 30, 2019, compared to income tax expense of $1.3 million during the six months ended September 30, 2018. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Noncontrolling Interests - Redeemable and Non-redeemable

The decrease in the noncontrolling interest loss of $0.9 million during the six months ended September 30, 2019 was due primarily to a loss from operations of Atlantic Propane, LLC in the prior year quarter, which we sold in July 2018, a loss from operations of Mesquite, which we acquired in July 2019, and a loss from operations of the Sawtooth joint venture.


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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 market adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to our Refined Products and Renewables segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net (loss) income, income (loss) from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. We believe that EBITDA provides additional information to investors for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information to investors for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.

Other than for our Refined Products and Renewables segment, for purposes of our Adjusted EBITDA calculation, we make a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, we record changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, we reverse the previously recorded unrealized gain or loss and record a realized gain or loss. We do not draw such a distinction between realized and unrealized gains and losses on derivatives of our Refined Products and Renewables segment. The primary hedging strategy of our Refined Products and Renewables segment 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 are six months to one year in duration at inception. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of our Refined Products and Renewables segment at the balance sheet date and its cost, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. We include this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA.


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The following table reconciles net (loss) income to EBITDA and Adjusted EBITDA:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net (loss) income
 
$
(201,366
)
 
$
354,939

 
$
(193,327
)
 
$
185,650

Less: Net loss attributable to noncontrolling interests
 
129

 
518

 
397

 
863

Less: Net loss attributable to redeemable noncontrolling interests
 
—

 
48

 
—

 
446

Net (loss) income attributable to NGL Energy Partners LP
 
(201,237
)
 
355,505

 
(192,930
)
 
186,959

Interest expense
 
45,113

 
41,367

 
85,023

 
87,779

Income tax expense
 
650

 
815

 
339

 
1,466

Depreciation and amortization
 
63,266

 
53,507

 
118,110

 
115,082

EBITDA
 
(92,208
)
 
451,194

 
10,542

 
391,286

Net unrealized (gains) losses on derivatives
 
(5,462
)
 
(1,893
)
 
(8,936
)
 
17,060

Inventory valuation adjustment (1)
 
(5,439
)
 
25,770

 
(25,185
)
 
1,168

Lower of cost or market adjustments
 
(901
)
 
—

 
(1,819
)
 
(413
)
Loss (gain) on disposal or impairment of assets, net
 
177,561

 
(403,185
)
 
176,594

 
(301,418
)
Loss on early extinguishment of liabilities, net
 
—

 
—

 
—

 
137

Equity-based compensation expense (2)
 
21,295

 
19,219

 
24,996

 
24,730

Acquisition expense (3)
 
5,085

 
2,863

 
7,176

 
4,115

Revaluation of liabilities (4)
 
—

 
—

 
—

 
800

Gavilon legal matter settlement (5)
 
—

 
—

 
—

 
35,000

Other (6)
 
3,332

 
1,402

 
6,655

 
3,219

Adjusted EBITDA
 
$
103,263

 
$
95,370

 
$
190,023

 
$
175,684

Adjusted EBITDA - Discontinued Operations
 
$
(15,714
)
 
$
3,708

 
$
(22,782
)
 
$
12,505

Adjusted EBITDA - Continuing Operations
 
$
118,977

 
$
91,662

 
$
212,805

 
$
163,179

 
(1)
Amount reflects the difference between the market value of the inventory of our Refined Products and Renewables segment at the balance sheet date and its cost, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. See “Non-GAAP Financial Measures” section above for a further discussion.
(2)
Equity-based compensation expense in the table above may differ from equity-based compensation expense reported in Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report. Amounts reported in the table above include expense accruals for bonuses expected to be paid in common units, whereas the amounts reported in Note 10 to our unaudited condensed consolidated financial statements only include expenses associated with equity-based awards that have been formally granted.
(3)
Amounts represent expenses we incurred related to legal and advisory costs associated with acquisitions, including amounts accrued related to the LCT Capital, LLC legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion), partially offset by reimbursement for certain legal costs incurred in prior periods.
(4)
Amounts represent the non-cash valuation adjustment of contingent consideration liabilities, offset by the cash payments, related to royalty agreements acquired as part of acquisitions in our Water Solutions segment.
(5)
Represents the accrual for the estimated cost of the settlement of the Gavilon legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). We have excluded this amount from Adjusted EBITDA as it relates to transactions that occurred prior to our acquisition of Gavilon LLC in December 2013.
(6)
Amounts for the three months and six months ended September 30, 2019 and 2018 represent non-cash operating expenses related to our Grand Mesa Pipeline, unrealized losses on marketable securities and accretion expense for asset retirement obligations.


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The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts reported in our unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of operations:
 
 
 
 
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
63,266

 
$
53,507

 
$
118,110

 
$
115,082

Intangible asset amortization recorded to cost of sales
 
(88
)
 
(101
)
 
(176
)
 
(283
)
Depreciation and amortization of unconsolidated entities
 
(76
)
 
(45
)
 
(82
)
 
(234
)
Depreciation and amortization attributable to noncontrolling interests
 
733

 
722

 
1,474

 
1,456

Depreciation and amortization attributable to discontinued operations
 
(722
)
 
(1,485
)
 
(2,459
)
 
(11,531
)
Depreciation and amortization per unaudited condensed consolidated statements of operations
 
$
63,113

 
$
52,598

 
$
116,867

 
$
104,490

 
 
Six Months Ended September 30,
 
 
2019
 
2018
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of cash flows:
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
118,110

 
$
115,082

Amortization of debt issuance costs recorded to interest expense
 
4,392

 
4,888

Amortization of royalty expense recorded to operating expense
 
262

 
—

Depreciation and amortization of unconsolidated entities
 
(82
)
 
(234
)
Depreciation and amortization attributable to noncontrolling interests
 
1,474

 
1,456

Depreciation and amortization attributable to discontinued operations
 
(2,459
)
 
(11,531
)
Depreciation and amortization per unaudited condensed consolidated statements of cash flows
 
$
121,697

 
$
109,661


The following table reconciles interest expense per the EBITDA table above to interest expense reported in our unaudited condensed consolidated statements of operations for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Interest expense per EBITDA table
 
$
45,113

 
$
41,367

 
$
85,023

 
$
87,779

Interest expense attributable to unconsolidated entities
 
(16
)
 
—

 
(18
)
 
(14
)
Interest expense attributable to discontinued operations
 
(81
)
 
(9
)
 
(95
)
 
(140
)
Interest expense per unaudited condensed consolidated statements of operations
 
$
45,016

 
$
41,358

 
$
84,910

 
$
87,625


The following table summarizes additional amounts attributable to discontinued operations in the EBITDA table above for the periods indicated:
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Income tax expense
 
$
10

 
$
125

 
$
20

 
$
125

Net unrealized (gains) losses on derivatives
 
$
—

 
$
(16
)
 
$
—

 
$
78

Inventory valuation adjustment
 
$
(1,339
)
 
$
15,589

 
$
(9,535
)
 
$
(387
)
Lower of cost or market adjustments
 
$
20

 
$
(53
)
 
$
(730
)
 
$
2

Loss (gain) on disposal or impairment of assets, net
 
$
174,449

 
$
(409,173
)
 
$
174,449

 
$
(408,740
)

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The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated.
 
Three Months Ended September 30, 2019
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
Discontinued Operations (TPSL)
 
Consolidated
 
(in thousands)
Operating income (loss)
$
38,520

 
$
21,274

 
$
8,397

 
$
16,681

 
$
(38,477
)
 
$
46,395

 
$
—

 
$
46,395

Depreciation and amortization
17,693

 
37,921

 
6,611

 
125

 
763

 
63,113

 
—

 
63,113

Amortization recorded to cost of sales
—

 
—

 
23

 
65

 
—

 
88

 
—

 
88

Net unrealized (gains) losses on derivatives
(4,126
)
 
(5,870
)
 
4,534

 
—

 
—

 
(5,462
)
 
—

 
(5,462
)
Inventory valuation adjustment
—

 
—

 
—

 
(4,100
)
 
—

 
(4,100
)
 
—

 
(4,100
)
Lower of cost or market adjustments
—

 
—

 
—

 
(921
)
 
—

 
(921
)
 
—

 
(921
)
(Gain) loss on disposal or impairment of assets, net
(630
)
 
3,744

 
(4
)
 
—

 
1

 
3,111

 
—

 
3,111

Equity-based compensation expense
—

 
—

 
—

 
—

 
21,295

 
21,295

 
—

 
21,295

Acquisition expense
—

 
—

 
—

 
—

 
5,085

 
5,085

 
—

 
5,085

Other income (expense), net
43

 
(2
)
 
32

 
(51
)
 
162

 
184

 
—

 
184

Adjusted EBITDA attributable to unconsolidated entities
—

 
—

 
(26
)
 
—

 
(147
)
 
(173
)
 
—

 
(173
)
Adjusted EBITDA attributable to noncontrolling interest
—

 
(319
)
 
(283
)
 
—

 
—

 
(602
)
 
—

 
(602
)
Intersegment transactions (1)
—

 
—

 
—

 
(12,368
)
 
—

 
(12,368
)
 
—

 
(12,368
)
Other
3,132

 
131

 
17

 
52

 
—

 
3,332

 
—

 
3,332

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
(15,714
)
 
(15,714
)
Adjusted EBITDA
$
54,632

 
$
56,879

 
$
19,301

 
$
(517
)
 
$
(11,318
)
 
$
118,977

 
$
(15,714
)
 
$
103,263


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Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
 
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
TPSL
 
Retail Propane
 
Consolidated
 
(in thousands)
Operating income (loss)
$
31,022

 
$
9,770

 
$
10,758

 
$
(1,851
)
 
$
(35,352
)
 
$
14,347

 
$
—

 
$
—

 
$
14,347

Depreciation and amortization
18,870

 
26,342

 
6,459

 
168

 
759

 
52,598

 
—

 
—

 
52,598

Amortization recorded to cost of sales
—

 
—

 
36

 
65

 
—

 
101

 
—

 
—

 
101

Net unrealized (gains) losses on derivatives
(6,142
)
 
1,788

 
2,476

 
—

 
—

 
(1,878
)
 
—

 
—

 
(1,878
)
Inventory valuation adjustment
—

 
—

 
—

 
10,181

 
—

 
10,181

 
—

 
—

 
10,181

Lower of cost or market adjustments
—

 
—

 
—

 
53

 
—

 
53

 
—

 
—

 
53

Loss on disposal or impairment of assets, net
3,367

 
730

 
1,004

 
—

 
887

 
5,988

 
—

 
—

 
5,988

Equity-based compensation expense
—

 
—

 
—

 
—

 
19,219

 
19,219

 
—

 
—

 
19,219

Acquisition expense
—

 
—

 
1

 
—

 
2,864

 
2,865

 
—

 
—

 
2,865

Other income (expense), net
9

 
(370
)
 
9

 
93

 
1,560

 
1,301

 
—

 
—

 
1,301

Adjusted EBITDA attributable to unconsolidated entities
—

 
423

 
—

 
—

 
—

 
423

 
—

 
—

 
423

Adjusted EBITDA attributable to noncontrolling interest
—

 
26

 
(229
)
 
—

 
—

 
(203
)
 
—

 
—

 
(203
)
Intersegment transactions (1)
—

 
—

 
—

 
(14,734
)
 
—

 
(14,734
)
 
—

 
—

 
(14,734
)
Other
1,351

 
104

 
16

 
(70
)
 
—

 
1,401

 
—

 
—

 
1,401

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
4,219

 
(511
)
 
3,708

Adjusted EBITDA
$
48,477

 
$
38,813

 
$
20,530

 
$
(6,095
)
 
$
(10,063
)
 
$
91,662

 
$
4,219

 
$
(511
)
 
$
95,370



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Six Months Ended September 30, 2019
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
Discontinued Operations (TPSL)
 
Consolidated
 
(in thousands)
Operating income (loss)
$
72,322

 
$
34,963

 
$
16,881

 
$
12,282

 
$
(53,819
)
 
$
82,629

 
$
—

 
$
82,629

Depreciation and amortization
35,278

 
65,992

 
13,840

 
251

 
1,506

 
116,867

 
—

 
116,867

Amortization recorded to cost of sales
—

 
—

 
46

 
130

 
—

 
176

 
—

 
176

Net unrealized (gains) losses on derivatives
(5,984
)
 
(6,037
)
 
3,085

 
—

 
—

 
(8,936
)
 
—

 
(8,936
)
Inventory valuation adjustment
—

 
—

 
—

 
(15,650
)
 
—

 
(15,650
)
 
—

 
(15,650
)
Lower of cost or market adjustments
—

 
—

 
(1,508
)
 
419

 
—

 
(1,089
)
 
—

 
(1,089
)
(Gain) loss on disposal or impairment of assets, net
(1,246
)
 
3,155

 
(7
)
 
—

 
242

 
2,144

 
—

 
2,144

Equity-based compensation expense
—

 
—

 
—

 
—

 
24,996

 
24,996

 
—

 
24,996

Acquisition expense
—

 
20

 
—

 
—

 
7,156

 
7,176

 
—

 
7,176

Other income (expense), net
39

 
(2
)
 
44

 
(44
)
 
1,156

 
1,193

 
—

 
1,193

Adjusted EBITDA attributable to unconsolidated entities
—

 
—

 
(22
)
 
—

 
(136
)
 
(158
)
 
—

 
(158
)
Adjusted EBITDA attributable to noncontrolling interest
—

 
(394
)
 
(680
)
 
—

 
—

 
(1,074
)
 
—

 
(1,074
)
Intersegment transactions (1)
—

 
—

 
—

 
(2,124
)
 
—

 
(2,124
)
 
—

 
(2,124
)
Other
6,297

 
271

 
35

 
52

 
—

 
6,655

 
—

 
6,655

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
(22,782
)
 
(22,782
)
Adjusted EBITDA
$
106,706

 
$
97,968

 
$
31,714

 
$
(4,684
)
 
$
(18,899
)
 
$
212,805

 
$
(22,782
)
 
$
190,023


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Six Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
 
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
TPSL
 
Retail Propane
 
Consolidated
 
(in thousands)
Operating (loss) income
$
(68,716
)
 
$
10,739

 
$
13,381

 
$
(66,266
)
 
$
(52,782
)
 
$
(163,644
)
 
$
—

 
$
—

 
$
(163,644
)
Depreciation and amortization
38,099

 
51,651

 
12,927

 
336

 
1,477

 
104,490

 
—

 
—

 
104,490

Amortization recorded to cost of sales
80

 
—

 
73

 
130

 
—

 
283

 
—

 
—

 
283

Net unrealized losses on derivatives
1,270

 
10,898

 
4,813

 
—

 
—

 
16,981

 
—

 
—

 
16,981

Inventory valuation adjustment
—

 
—

 
—

 
1,555

 
—

 
1,555

 
—

 
—

 
1,555

Lower of cost or market adjustments
—

 
—

 
(504
)
 
89

 
—

 
(415
)
 
—

 
—

 
(415
)
Loss (gain) on disposal or impairment of assets, net
105,261

 
3,205

 
994

 
(3,026
)
 
889

 
107,323

 
—

 
—

 
107,323

Equity-based compensation expense
—

 
—

 
—

 
—

 
24,730

 
24,730

 
—

 
—

 
24,730

Acquisition expense
—

 
—

 
161

 
—

 
4,000

 
4,161

 
—

 
—

 
4,161

Other income (expense), net
23

 
(370
)
 
44

 
(58
)
 
(32,241
)
 
(32,602
)
 
—

 
—

 
(32,602
)
Adjusted EBITDA attributable to unconsolidated entities
—

 
369

 
—

 
476

 
—

 
845

 
—

 
—

 
845

Adjusted EBITDA attributable to noncontrolling interest
—

 
(86
)
 
(551
)
 
—

 
—

 
(637
)
 
—

 
—

 
(637
)
Revaluation of liabilities
—

 
800

 
—

 
—

 
—

 
800

 
—

 
—

 
800

Gavilon legal matter settlement
—

 
—

 
—

 
—

 
35,000

 
35,000

 
—

 
—

 
35,000

Intersegment transactions (1)
—

 
—

 
—

 
61,091

 
—

 
61,091

 
—

 
—

 
61,091

Other
2,901

 
204

 
33

 
80

 
—

 
3,218

 
—

 
—

 
3,218

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
7,480

 
5,025

 
12,505

Adjusted EBITDA
$
78,918

 
$
77,410

 
$
31,371

 
$
(5,593
)
 
$
(18,927
)
 
$
163,179

 
$
7,480

 
$
5,025

 
$
175,684

 
(1)
Amount reflects the intersegment transactions between the continuing businesses within the Refined Products and Renewables segment and TPSL that are eliminated in consolidation.


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Liquidity, Sources of Capital and Capital Resource Activities

Our principal sources of liquidity and capital are the cash flows from our operations, borrowings under the Revolving Credit Facility and accessing capital markets. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a detailed description of our long-term debt. Our cash flows from operations are discussed below.

Our borrowing needs vary during the year due in part to the seasonal nature of our Liquids and Refined Products and Renewables businesses. 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 heating season as well as building our gasoline inventory in anticipation of the winter gasoline contango and blending season. Our working capital borrowing needs generally decline during the period of January through March, when the cash flows from our Liquids segment are the greatest and gasoline inventories need to be minimized due to certain inventory requirements.

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement) to unitholders as of the record date. Available cash for any quarter generally consists of all cash on hand at the end of that quarter, less the amount of cash reserves established by our general partner, to (i) provide for the proper conduct of our business, (ii) comply with applicable law, any of our debt instruments or other agreements, and (iii) provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters.

We believe that our anticipated cash flows from operations and the borrowing capacity under the Revolving Credit Facility are sufficient to meet our liquidity needs. If our plans or assumptions change or are inaccurate, or if we make acquisitions, we may need to raise additional capital or sell assets. Our ability to raise additional capital, if necessary, depends on various factors and conditions, including market conditions. We cannot give any assurances that we can raise additional capital to meet these needs. Commitments or expenditures, if any, we may make toward any acquisition projects are at our discretion.

We believe our Water Solutions and Crude Oil Logistics businesses have organic growth opportunities with the activity in our core basins, including the Delaware Basin and DJ Basin in particular. We plan to pursue a strategy of growth through acquisitions as well as undertaking certain capital expansion projects. We expect to consider financing future acquisitions and capital expansion projects through available capacity on the Revolving Credit Facility or other forms of financing.

Other sources of liquidity during the three months ended September 30, 2019 are discussed below.

Term Credit Agreement

On July 2, 2019, we entered into the Term Credit Agreement with Toronto Dominion (Texas) LLC for a $250.0 million term loan facility. Toronto Dominion (Texas) LLC and certain of its affiliates are also lenders under our Credit Agreement. Proceeds from the term loan facility were used to fund a portion of the purchase price for the Mesquite acquisition discussed above (see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Issuance of Class D Preferred Units

On July 2, 2019, we completed a private placement of 400,000 Class D Preferred Units and warrants exercisable to purchase an aggregate of 17,000,000 common units for net proceeds of $385.4 million. Proceeds from this issuance were used to fund a portion of the purchase price for the Mesquite acquisition discussed above (see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

On October 31, 2019, the closing date of the Hillstone (as defined herein) acquisition, we completed a private placement of an aggregate of 200,000 Class D Preferred Units and warrants exercisable to purchase an aggregate of 8,500,000 common units for an aggregate purchase price of $200.0 million. Proceeds from this issuance of Class D Preferred Units were used to fund a portion of the purchase price for the acquisition of Hillstone (see Note 17) to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).


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Disposition of TPSL

On September 30, 2019, we completed the sale of TPSL and associated assets to Trajectory for $275.5 million of total consideration and recorded a loss on disposal of $174.4 million during the six months ended September 30, 2019 (see Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Subsequent Events

See Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of transactions that occurred subsequent to September 30, 2019.

Long-Term Debt

Credit Agreement

As of September 30, 2019, we were a party to a $1.765 billion credit agreement (the “Credit Agreement”) with a syndicate of banks. The Credit Agreement includes a revolving credit facility to fund working capital needs, which had a capacity of $1.250 billion for cash borrowings and letters of credit (the “Working Capital Facility”), and a revolving credit facility to fund acquisitions and expansion projects, which had a capacity of $515.0 million (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”). We had letters of credit of $189.6 million on the Working Capital Facility at September 30, 2019. The commitments under the Credit Agreement expire on October 5, 2021.

On October 30, 2019, we amended the Credit Agreement, to, among other things, adjust the allocation of the commitments of the lenders to make revolving loans thereunder and, effective with the fiscal quarter ending December 31, 2019, eliminate the leverage ratio financial covenant (as defined in the Credit Agreement) and adjust the senior secured leverage ratio (as defined in the Credit Agreement), interest coverage ratio (as defined in the Credit Agreement) and total leverage indebtedness ratio (as defined in the Credit Agreement). As amended, the Credit Agreement provides for up to $1.790 billion in aggregate commitments, consisting of (i) a $600 million Working Capital Facility capacity for working capital requirements and other general corporate purposes and (ii) a $1.190 billion Expansion Capital Facility capacity, for acquisitions, internal growth projects, other capital expenditures and general corporate purposes.

We were in compliance with the covenants under the Credit Agreement at September 30, 2019.

Senior Unsecured Notes

The senior unsecured notes include the 2023 Notes, 2025 Notes and 2026 Notes (collectively, the “Senior Unsecured Notes”).

On April 9, 2019, we issued $450.0 million of the 7.50% Senior Unsecured Notes Due 2026 (the “2026 Notes”) in a private placement. Interest is payable on April 15 and October 15 of each year, beginning on October 15, 2019. We received net proceeds of $442.1 million, after the initial purchasers’ discount of $6.8 million and offering costs of $1.1 million. The 2026 Notes mature on April 15, 2026.

At September 30, 2019, we were in compliance with the covenants under the indentures for all of the Senior Unsecured Notes.

Term Credit Agreement

On July 2, 2019, we entered into the Term Credit Agreement with Toronto Dominion (Texas) LLC for a $250.0 million term loan facility. Toronto Dominion (Texas) LLC and certain of its affiliates are also lenders under our Credit Agreement. The commitments under the Term Credit Agreement expire on July 2, 2024.

On October 30, 2019, we amended the Term Credit Agreement, to, among other things, conform financial covenants in the Term Credit Agreement to the financial covenants set forth in the amended Credit Agreement, as described above.

For a further discussion of the Revolving Credit Facility, Senior Unsecured Notes and the Term Credit Agreement, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.


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Revolving Credit Facility Borrowings

The following table summarizes the Revolving Credit Facility borrowings for the periods indicated:
 
 
Average Balance
Outstanding
 
Lowest
Balance
 
Highest
Balance
 
 
(in thousands)
Six Months Ended September 30, 2019
 
 
 
 
 
 
Expansion capital borrowings
 
$
256,115

 
$
—

 
$
480,000

Working capital borrowings
 
$
846,541

 
$
643,000

 
$
981,000

 
 
 
 
 
 
 
Six Months Ended September 30, 2018
 
 
 
 
 
 
Expansion capital borrowings
 
$
73,008

 
$
—

 
$
296,500

Working capital borrowings
 
$
795,568

 
$
439,000

 
$
1,095,500


Capital Expenditures, Acquisitions and Other Investments

The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and line fill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated. Amounts in the table below include capital expenditures and acquisitions related to TPSL and our former Retail Propane segment.
 
 
Capital Expenditures
 
 
 
Other
 
 
Expansion (1)
 
Maintenance (2)
 
Acquisitions (3)
 
Investments (4)
 
 
(in thousands)
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2019
 
$
102,690

 
$
16,461

 
$
592,500

 
$
126

2018
 
$
113,767

 
$
15,299

 
$
94,209

 
$
86

 
 
 
 
 
 
 
 
 
Six Months Ended September 30,
 
 
 
 
 
 
 
 
2019
 
$
261,955

 
$
33,390

 
$
647,048

 
$
1,015

2018
 
$
190,765

 
$
27,689

 
$
229,871

 
$
92

 
(1)
There was no amount for the three months ended September 30, 2018 and the amount for the six months ended September 30, 2018 includes $0.4 million related to our former Retail Propane segment. There were no amounts for the three months and six months ended September 30, 2019 and 2018 related to TPSL.
(2)
Amounts for the three months and six months ended September 30, 2018 include $0.4 million and $3.8 million, respectively, related to our former Retail Propane segment. There were no amounts for the three months and six months ended September 30, 2019 and 2018 related to TPSL.
(3)
Amounts for the three months and six months ended September 30, 2018 include $12.8 million and $31.9 million, respectively, related to our former Retail Propane segment. There were no amounts for the three months and six months ended September 30, 2019 and 2018 related to TPSL.
(4)
Amounts for the three months and six months ended September 30, 2019 and 2018 primarily related to contributions made to unconsolidated entities. There were no amounts for the three months and six months ended September 30, 2019 and 2018 related to TPSL. There were no amounts for the three months and six months ended September 30, 2018 related to our former Retail Propane segment.


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Cash Flows

The following table summarizes the sources (uses) of our cash flows from continuing operations for the periods indicated:
 
 
Six Months Ended September 30,
Cash Flows Provided by (Used in):
 
2019
 
2018
 
 
(in thousands)
Operating activities, before changes in operating assets and liabilities
 
$
95,392

 
$
14,917

Changes in operating assets and liabilities
 
(116,085
)
 
(255,831
)
Operating activities-continuing operations
 
$
(20,693
)
 
$
(240,914
)
Investing activities-continuing operations
 
$
(902,277
)
 
$
(420,860
)
Financing activities-continuing operations
 
$
640,284

 
$
(286,673
)

Operating Activities-Continuing Operations. The seasonality of our Liquids business has a significant effect on our cash flows from operating activities. Increases in natural gas liquids prices typically reduce our operating cash flows due to higher cash requirements to fund increases in inventories, and decreases in natural gas liquids prices typically increase our operating cash flows due to lower cash requirements to fund increases in inventories. In our Liquids business, we typically experience operating losses or lower operating income during our first and second quarters, or the six months ending September 30, as a result of lower volumes of natural gas liquids sales and when we are building our inventory levels for the upcoming heating season. The heating season runs through the six months ending March 31. The seasonal motor fuel blend during the third quarter of our fiscal year impacts the value of our gasoline inventory in our Refined Products and Renewables business and also represents a period when we build inventory into our system. We borrow under the Revolving Credit Facility to supplement our operating cash flows during the periods in which we are building inventory. Our operations, and as a result our cash flows, are also impacted by positive and negative movements in commodity prices, which cause fluctuations in the value of inventory, accounts receivable and payables, due to increases and decreases in revenues and cost of sales. The decrease in net cash used in operating activities during the six months ended September 30, 2019 was due primarily to fluctuations in the value of accounts receivable and accounts payable during the six months ended September 30, 2019.

Investing Activities-Continuing Operations. Net cash used in investing activities was $902.3 million during the six months ended September 30, 2019, compared to net cash used in investing activities of $420.9 million during the six months ended September 30, 2018. The increase in net cash used in investing activities was due primarily to:

•
a $450.0 million increase in cash paid for acquisitions and investments in unconsolidated entities during the six months ended September 30, 2019;
•
an increase in capital expenditures from $193.5 million during the six months ended September 30, 2018 to $259.1 million during the six months ended September 30, 2019 due primarily to expansion projects in our Water Solutions segment; and
•
a $49.9 million deposit paid during the six months ended September 30, 2019 related to the acquisition of the equity interests of Hillstone (see Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

These increases in net cash used in investing activities were partially offset by a $108.4 million decrease in payments to settle derivatives.

Financing Activities-Continuing Operations. Net cash provided by financing activities was $640.3 million during the six months ended September 30, 2019, compared to net cash used in financing activities of $286.7 million during the six months ended September 30, 2018. The increase in net cash provided by financing activities was due primarily to:

•
$450.0 million in proceeds from the issuance of the 2026 Notes during the six months ended September 30, 2019;
•
$428.3 million in net proceeds from the issuance of the 9.625% Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) and Class D Preferred Units during the six months ended September 30, 2019;
•
$250.0 million in proceeds from the Term Loan Agreement during the six months ended September 30, 2019; and

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•
an increase of $67.5 million in borrowings on the Revolving Credit Facility (net of repayments) during the six months ended September 30, 2019.

These increases in net cash provided by financing activities were partially offset by $265.1 million in payments for the redemption of the 10.75% Class A Convertible Preferred Units during the six months ended September 30, 2019.

Distributions Declared

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement) to unitholders as of the record date. See further discussion of our cash distribution policy in Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities included in our Annual Report.

On September 16, 2019, the board of directors of our general partner declared a distribution on the 9.00% Class B Fixed-to Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) and Class C Preferred Units for the three months ended September 30, 2019 of $7.1 million and $1.1 million, respectively. The distributions were paid to the holders of the Class B Preferred Units and Class C Preferred Units on October 15, 2019.

On October 23, 2019, the board of directors of our general partner declared a distribution on the common units and the Class D Preferred Units of $49.9 million and $4.5 million, respectively, for the holders of record on November 7, 2019. The distributions are to be paid on November 14, 2019.

For a further discussion of our distributions, see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report.


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Contractual Obligations

The following table summarizes our contractual obligations at September 30, 2019 for our fiscal years ending thereafter:
 
 
 
 
Six Months Ending March 31,
 
Fiscal Year Ending March 31,
 
 
 
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
 
(in thousands)
Principal payments on long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expansion capital borrowings
 
$
450,000

 
$
—

 
$
—

 
$
450,000

 
$
—

 
$
—

 
$
—

Working capital borrowings
 
643,000

 
—

 
—

 
643,000

 
—

 
—

 
—

Senior unsecured notes
 
1,446,458

 
—

 
—

 
—

 
—

 
607,323

 
839,135

Term credit agreement
 
250,000

 
—

 
—

 
—

 
—

 
—

 
250,000

Other long-term debt
 
5,007

 
630

 
4,377

 
—

 
—

 
—

 
—

Interest payments on long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility (1)
 
112,522

 
26,791

 
53,582

 
32,149

 
—

 
—

 
—

Senior unsecured notes
 
572,874

 
52,129

 
103,134

 
103,134

 
103,134

 
103,134

 
108,209

Term credit agreement
 
45,052

 
4,738

 
9,475

 
9,475

 
9,475

 
9,475

 
2,414

Other long-term debt
 
210

 
194

 
16

 
—

 
—

 
—

 
—

Letters of credit
 
189,644

 
—

 
—

 
189,644

 
—

 
—

 
—

Future minimum commitment payments under noncancelable agreements (2)
 
234,498

 
29,861

 
47,319

 
44,935

 
40,919

 
39,888

 
31,576

Future minimum lease payments under noncancelable operating leases
 
244,578

 
39,970

 
66,193

 
45,490

 
25,392

 
14,081

 
53,452

Construction commitments (3)
 
7,992

 
7,992

 
—

 
—

 
—

 
—

 
—

Fixed-price commodity purchase commitments:
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil
 
75,128

 
75,128

 
—

 
—

 
—

 
—

 
—

Natural gas liquids
 
16,938

 
15,597

 
1,341

 
—

 
—

 
—

 
—

Index-price commodity purchase commitments (4):
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil (5)
 
1,076,425

 
731,963

 
226,304

 
118,158

 
—

 
—

 
—

Natural gas liquids
 
342,971

 
341,410

 
1,561

 
—

 
—

 
—

 
—

Total contractual obligations
 
$
5,713,297

 
$
1,326,403

 
$
513,302

 
$
1,635,985

 
$
178,920

 
$
773,901

 
$
1,284,786

 
(1)
The estimated interest payments on the Revolving Credit Facility are based on principal and letters of credit outstanding at September 30, 2019. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information on the Credit Agreement.
(2)
We have executed agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on the pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement, with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We have extended these agreements and have an additional 5.5 years to recapture the minimum shipping deficiency fees. We also have executed noncancelable agreements for product storage, railcar spurs and real estate. See Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.
(3)
At September 30, 2019, the construction commitments relate to two new barges currently being built.
(4)
Index prices are based on a forward price curve at September 30, 2019. A theoretical change of $0.10 per gallon of natural gas liquids in the underlying commodity price at September 30, 2019 would result in a change of $79.9 million in the value of our index-price natural gas liquids purchase commitments. A theoretical change of $1.00 per barrel of crude oil in the underlying commodity price at September 30, 2019 would result in a change of $22.7 million in the value of our index-price crude oil purchase commitments. See Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for further detail of the commitments.
(5)
Our crude oil index-price purchase commitments exceed our crude oil index-price sales commitments (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report) 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,

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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.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements other than the letters of credit discussed in Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report and short-term leases discussed in Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Environmental Legislation

See our Annual Report for a discussion of proposed environmental legislation and regulations that, if enacted, could result in increased compliance and operating costs. However, at this time we cannot predict the structure or outcome of any future legislation or regulations or the eventual cost we could incur in compliance.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements that are applicable to us, see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires the selection and application of appropriate accounting principles to the relevant facts and circumstances of our operations and the use of estimates made by management. We have identified certain accounting policies that are most important to the portrayal of our consolidated financial position and results of operations. The application of these accounting policies, which requires subjective or complex judgments regarding estimates and projected outcomes of future events, and changes in these accounting policies, could have a material effect on our consolidated financial statements. There have been no material changes in the critical accounting policies previously disclosed in our Annual Report.


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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

A significant 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 Revolving Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At September 30, 2019, we had $1.1 billion of outstanding borrowings under the Revolving Credit Facility at a weighted average interest rate of 4.23%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $1.4 million, based on borrowings outstanding at September 30, 2019.

The Term Credit Agreement is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At September 30, 2019, we had $250.0 million of outstanding borrowings under the Term Credit Agreement at a weighted average interest rate of 3.79%. 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, 2019.

Commodity Price and Credit Risk

Our operations are subject to certain business risks, including commodity price risk and credit 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. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract.

Procedures and limits for managing commodity price risks and credit risks are specified in our market risk policy and credit policy, respectively. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel. Credit risk is monitored daily and exposure is minimized through customer deposits, restrictions on product liftings, letters of credit, and entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions. At September 30, 2019, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.

The crude oil, natural gas liquids, and refined and renewables products industries are “margin-based” and “cost-plus” businesses in which gross profits depend on the differential of sales prices over supply costs. We have no control over market conditions. As a result, our profitability may be impacted by sudden and significant changes in the price of crude oil, natural gas liquids, and refined and renewables products.

We engage in various types of forward contracts and financial derivative transactions to reduce the effect of price volatility on our product costs, to protect the value of our inventory positions, and to help ensure the availability of product during periods of short supply. We attempt to balance our contractual portfolio by purchasing volumes when we have a matching purchase commitment from our wholesale and retail customers. We may experience net unbalanced positions from time to time. In addition to our ongoing policy to maintain a balanced position, for accounting purposes we are required, on an ongoing basis, to track and report the market value of our derivative portfolio.

Although we use financial derivative instruments to reduce the market price risk associated with forecasted transactions, we do not account for financial derivative transactions as hedges. All changes in the fair value of our physical contracts that do not qualify as normal purchases and normal sales and settlements (whether cash transactions or non-cash mark-to-market adjustments) are reported either within revenue (for sales contracts) or cost of sales (for purchase contracts) in our unaudited condensed consolidated statements of operations, regardless of whether the contract is physically or financially settled.


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The following table summarizes the hypothetical impact on the September 30, 2019 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 (Crude Oil Logistics segment)
$
(16,378
)
Propane (Liquids segment)
$
3,359

Butane (Liquids segment and Refined Products and Renewables segment)
$
(711
)
Gasoline (Refined Products and Renewables segment)
$
(13,035
)
Diesel (Refined Products and Renewables segment)
$
(3,764
)
Ethanol (Refined Products and Renewables segment)
$
(898
)
Biodiesel (Refined Products and Renewables segment)
$
(5
)
Canadian dollars (Liquids segment)
$
384


Fair Value

We use observable market values for determining the fair value of our derivative instruments. In cases where actively quoted prices are not available, other external sources are used which incorporate information about commodity prices in actively quoted markets, quoted prices in less active markets and other market fundamental analysis.

Item 4.
Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer of our general partner, as appropriate, to allow timely decisions regarding required disclosure.

We completed an evaluation under the supervision and with participation of our management, including the principal executive officer and principal financial officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures at September 30, 2019. Based on this evaluation, the principal executive officer and principal financial officer of our general partner have concluded that as of September 30, 2019, such disclosure controls and procedures were effective to provide the reasonable assurance described above.

There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


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PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

We are involved from time to time in various legal proceedings and claims arising in the ordinary course of business. For information related to legal proceedings, see the discussion under the captions “Legal Contingencies” and “Environmental Matters” in Note 9 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, 2019.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

On July 2, 2019, we completed a private placement of 400,000 of our 9.00% Class D Preferred Units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of 17,000,000 common units for net proceeds of $385.4 million.

On August 30, 2019, the board of directors of our general partner authorized a common unit repurchase plan, under which we may repurchase up to $150.0 million of our outstanding common units through September 30, 2021 from time to time in the open market or in other privately negotiated transactions. The common unit repurchase program authorization does not obligate us to repurchase any dollar amount or number of our common units.

On October 31, 2019, we completed a private placement of an aggregate of 200,000 Class D Preferred Units and warrants exercisable to purchase an aggregate of 8,500,000 common units for an aggregate purchase price of $200.0 million.

The following table summarizes the repurchase of common units during the three months ended September 30, 2019:
 
 
 
 
 
 
Total Number of
 
 
 
 
 
 
 
 
Common Units
 
Approximate Dollar Value
 
 
Total Number of
 
Average Price
 
Purchased as Part
 
of Common Units
 
 
Common Units
 
Paid Per
 
of Publicly Announced
 
that May Yet Be Purchased
Period
 
Purchased
 
Common Unit
 
Program
 
Under the Program
July 1-31, 2019
 
34,350

 
$
15.00

 
—

 
$
—

August 1-31, 2019
 
43,879

 
$
13.28

 
—

 
$
150,000,000

September 1-30, 2019
 
—

 
$
—

 
—

 
$
150,000,000

Total
 
78,229

 
 
 
—

 
$
150,000,000


The common units not repurchased under the publicly announced program were surrendered by employees to pay tax withholding in connection with the vesting of restricted common units. As a result, we are including the common units surrendered in the Total Number of Common Units Purchased column.

Item 3.    Defaults Upon Senior Securities

Not applicable.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

None.


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Item 6.    Exhibits
Exhibit Number
 
Exhibit
2.1
 
2.2
 
2.3
 
3.1
 
3.2
 
3.3
 
4.1
 
4.2
 
4.3*
 
4.4*
 
4.5*
 
10.1
 
10.2
 
10.3
 
10.4
 
10.5
 
10.6
 
10.7
 
10.8
 
10.9
 

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Exhibit Number
 
Exhibit
10.10
 
10.11
 
10.12
 
10.13
 
31.1*
 
31.2*
 
32.1*
 
32.2*
 
101.INS**
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH**
 
Inline XBRL Schema Document
101.CAL**
 
Inline XBRL Calculation Linkbase Document
101.DEF**
 
Inline XBRL Definition Linkbase Document
101.LAB**
 
Inline XBRL Label Linkbase Document
101.PRE**
 
Inline XBRL Presentation Linkbase Document
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
*
Exhibits filed with this report.
**
The following documents are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at September 30, 2019 and March 31, 2019, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2019 and 2018, (iii) Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months and six months ended September 30, 2019 and 2018, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months and six months ended September 30, 2019 and 2018, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2019 and 2018, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
NGL ENERGY PARTNERS LP
 
 
 
 
By:
NGL Energy Holdings LLC, its general partner
 
 
 
Date: November 8, 2019
 
By:
/s/ H. Michael Krimbill
 
 
 
H. Michael Krimbill
 
 
 
Chief Executive Officer
 
 
 
Date: November 8, 2019
 
By:
/s/ Robert W. Karlovich III
 
 
 
Robert W. Karlovich III
 
 
 
Chief Financial Officer


94


Exhibit 4.3

FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE, dated as of October 31, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (“NGL LP”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with NGL LP, the “Issuers”), NGL Delaware Basin Holdings, LLC, a Delaware limited liability company and Subsidiary of NGL LP (the “Guaranteeing Subsidiary”), the other Guarantors (as defined in the Indenture referred to below), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H
WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee an indenture, dated as of October 24, 2016 (the “Original Indenture”), providing for the issuance by the Issuers of 7.5% Senior Notes due 2023 (the “Notes”);

WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee the First Supplemental Indenture, dated as of February 21, 2017 (the “First Supplemental Indenture”), pursuant to which certain Subsidiaries of NGL LP became Guarantors;

WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee the Second Supplemental Indenture, dated as of July 18, 2018 (the “Second Supplemental Indenture”), pursuant to which certain Subsidiaries of NGL LP became Guarantors;

WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee the Third Supplemental Indenture, dated as of January 25, 2019 (the “Third Supplemental Indenture”), pursuant to which certain Subsidiaries of NGL LP became Guarantors;

WHEREAS, the Original Indenture as amended and supplemented by the First Supplemental Indenture, the Second Supplemental Indenture and the Third Supplemental Indenture is referred to herein as the “Indenture”;

WHEREAS, the Indenture provides that under certain circumstances, the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1.
CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.
AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

3.
EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.

4.
NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, partner, employee, incorporator, organizer, manager, unitholder or other owner of Capital Stock (as defined in the Indenture) of the Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or the Guaranteeing Subsidiary or any other Subsidiary of an Issuer providing a Note Guarantee under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and




release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

5.
NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

6.
COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7.
EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

8.
THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

(Signature Pages Follow)




IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARY:

NGL DELAWARE BASIN HOLDINGS, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


ISSUERS:

NGL ENERGY PARTNERS LP

By: NGL Energy Holdings, LLC,
its general partner


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


NGL ENERGY FINANCE CORP.


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Fourth Supplemental Indenture)



EXISTING GUARANTORS:
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL CRUDE LOGISTICS, LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE CUSHING, LLC
ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
NGL WATER SOLUTIONS DJ, LLC
NGL MARINE, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL MILAN INVESTMENTS, LLC
GRAND MESA PIPELINE, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES LLC
NGL ENERGY EQUIPMENT LLC
CHOYA OPERATING, LLC
NGL WATER PIPELINES, LLC
NGL SOUTH RANCH, INC.
NGL WATER SOLUTIONS - ORLA SWD, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Fourth Supplemental Indenture)



TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee



By:
/s/ Michael K. Herberger
Name:
Michael K. Herberger
Title:
Vice President


(Signature Page to Fourth Supplemental Indenture)



Exhibit 4.4

THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated as of October 31, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (“NGL LP”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with NGL LP, the “Issuers”), NGL Delaware Basin Holdings, LLC, a Delaware limited liability company and Subsidiary of NGL LP (the “Guaranteeing Subsidiary”), the other Guarantors (as defined in the Indenture referred to below), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H
WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee an indenture, dated as of February 22, 2017 (the “Original Indenture”), providing for the issuance by the Issuers of 6.125% Senior Notes due 2025 (the “Notes”);

WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee the First Supplemental Indenture, dated as of July 18, 2018 (the “First Supplemental Indenture”), pursuant to which certain Subsidiaries of NGL LP became Guarantors;

WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee the Second Supplemental Indenture, dated as of January 25, 2019 (the “Second Supplemental Indenture”), pursuant to which certain Subsidiaries of NGL LP became Guarantors;

WHEREAS, the Original Indenture as amended and supplemented by the First Supplemental Indenture and the Second Supplemental Indenture is referred to herein as the “Indenture”;

WHEREAS, the Indenture provides that under certain circumstances, the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1.
CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2.
AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

3.
EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.

4.
NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, partner, employee, incorporator, organizer, manager, unitholder or other owner of Capital Stock (as defined in the Indenture) of the Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or the Guaranteeing Subsidiary or any other Subsidiary of an Issuer providing a Note Guarantee under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.




5.
NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

6.
COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7.
EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

8.
THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

(Signature Pages Follow)




IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARY:

NGL DELAWARE BASIN HOLDINGS, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


ISSUERS:

NGL ENERGY PARTNERS LP

By: NGL Energy Holdings, LLC,
its general partner


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


NGL ENERGY FINANCE CORP.


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Third Supplemental Indenture)



EXISTING GUARANTORS:
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL CRUDE LOGISTICS, LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE CUSHING, LLC
ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
NGL WATER SOLUTIONS DJ, LLC
NGL MARINE, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL MILAN INVESTMENTS, LLC
GRAND MESA PIPELINE, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES LLC
NGL ENERGY EQUIPMENT LLC
CHOYA OPERATING, LLC
NGL WATER PIPELINES, LLC
NGL SOUTH RANCH, INC.
NGL WATER SOLUTIONS - ORLA SWD, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Third Supplemental Indenture)



TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee



By:
/s/ Michael K. Herberger
Name:
Michael K. Herberger
Title:
Vice President

(Signature Page to Third Supplemental Indenture)



Exhibit 4.5

FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of October 31, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (“NGL LP”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with NGL LP, the “Issuers”), NGL Delaware Basin Holdings, LLC, a Delaware limited liability company and Subsidiary of NGL LP (the “Guaranteeing Subsidiary”), the other Guarantors (as defined in the Indenture referred to below), and U.S. Bank National Association, as trustee under the Indenture referred to below (the “Trustee”).
 
W I T N E S S E T H
WHEREAS, the Issuers and certain Subsidiaries of NGL LP have heretofore executed and delivered to the Trustee an indenture, dated as of April 9, 2019 (the “Indenture”), providing for the issuance by the Issuers of 6.125% Senior Notes due 2026 (the “Notes”);
 
WHEREAS, the Indenture provides that under certain circumstances, the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
 
1.
CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
 
2.
AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.
 
3.
EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.
 
4.
NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, partner, employee, incorporator, organizer, manager, unitholder or other owner of Capital Stock (as defined in the Indenture) of the Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or the Guaranteeing Subsidiary or any other Subsidiary of an Issuer providing a Note Guarantee under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.
 
5.
NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
 
6.
COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
 
7.
EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.
 
8.
THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.
 
(Signature Pages Follow)




IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

GUARANTEEING SUBSIDIARY:

NGL DELAWARE BASIN HOLDINGS, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


ISSUERS:

NGL ENERGY PARTNERS LP

By: NGL Energy Holdings, LLC,
its general partner


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer


NGL ENERGY FINANCE CORP.


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to First Supplemental Indenture)



EXISTING GUARANTORS:
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL CRUDE LOGISTICS, LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE CUSHING, LLC
ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
NGL WATER SOLUTIONS DJ, LLC
NGL MARINE, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL MILAN INVESTMENTS, LLC
GRAND MESA PIPELINE, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES LLC
NGL ENERGY EQUIPMENT LLC
CHOYA OPERATING, LLC
NGL WATER PIPELINES, LLC
NGL SOUTH RANCH, INC.
NGL WATER SOLUTIONS - ORLA SWD, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to First Supplemental Indenture)



TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee



By:
/s/ Michael K. Herberger
Name:
Michael K. Herberger
Title:
Vice President

(Signature Page to First Supplemental Indenture)



Exhibit 31.1
CERTIFICATION

I, H. Michael Krimbill, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of NGL Energy Partners LP;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2019
/s/ H. Michael Krimbill
 
H. Michael Krimbill
 
Chief Executive Officer of NGL Energy Holdings LLC, the general partner of NGL Energy Partners LP





Exhibit 31.2
CERTIFICATION

I, Robert W. Karlovich III, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of NGL Energy Partners LP;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2019
/s/ Robert W. Karlovich III
 
Robert W. Karlovich III
 
Chief Financial Officer of NGL Energy Holdings LLC, the general partner of NGL Energy Partners LP
 





Exhibit 32.1

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of NGL Energy Partners LP (the “Partnership”) on Form 10-Q for the fiscal quarter ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. Michael Krimbill, Chief Executive Officer of NGL Energy Holdings LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: November 8, 2019
/s/ H. Michael Krimbill
 
H. Michael Krimbill
 
Chief Executive Officer of NGL Energy Holdings LLC, the general partner of NGL Energy Partners LP

This certification is being furnished solely pursuant to Section 906 and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.





Exhibit 32.2

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of NGL Energy Partners LP (the “Partnership”) on Form 10-Q for the fiscal quarter ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert W. Karlovich III, Chief Financial Officer of NGL Energy Holdings LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), that, to my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: November 8, 2019
/s/ Robert W. Karlovich III
 
Robert W. Karlovich III
 
Chief Financial Officer of NGL Energy Holdings LLC, the general partner of NGL Energy Partners LP

This certification is being furnished solely pursuant to Section 906 and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.