NGL Energy Partners LP (Form: 8-K/A, Received: 11/18/2019 06:01:18)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 30, 2019

NGL ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)



Delaware	001-35172	27-3427920
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240-14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).



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. o


Item 2.01.	Completion of Acquisition or Disposition of Assets.

This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by NGL Energy Partners LP (“the Partnership”) on November 1, 2019 regarding its acquisition of Hillstone Environmental Partners, LLC and its subsidiaries (collectively “Hillstone”). The purpose of this amendment is to provide the historical financial statements of Hillstone required under Item 9.01(a) and the pro forma financial information required under item 9.01(b).


Item 9.01.	Financial Statements and Exhibits.

(a) Audited Financial Statements of Hillstone Environmental Partners, LLC

The audited consolidated balance sheet as of June 30, 2019, the audited consolidated statement of operations, statement of members’ equity and statement of cash flows for the year ended June 30, 2019, of Hillstone Environmental Partners, LLC and the related notes are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and incorporated herein by reference.

(b) Pro Forma Financial Statements

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2019, the unaudited pro forma condensed consolidated statements of operations for the three months ended June 30, 2019 and the year ended March 31, 2019, of NGL Energy Partners LP and the related notes are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and incorporated herein by reference.

(d) Exhibits.



Exhibit No.		Description

23.1		Consent of PricewaterhouseCoopers LLP
99.1		Audited consolidated financial statements of Hillstone Environmental Partners, LLC
99.2		Unaudited pro forma condensed consolidated financial statements of NGL Energy Partners LP
101		Cover Page formatted as Inline XBRL.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	NGL ENERGY PARTNERS LP
	By:	NGL Energy Holdings LLC,
		its general partner
Date: November 15, 2019		By:	/s/ Robert W. Karlovich III
			Robert W. Karlovich III
			Chief Financial Officer

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-227201, 333-234153), on Form S-3 (Nos. 333-194035, 333-214479, 333-216079) and Form S-4 (Nos. 333-219056, 333-219059) of NGL Energy Partners LP of our report dated August 30, 2019, except for the adjustments to comply with Regulation S-X discussed in Note 2 to the consolidated financial statements, as to which the date is October 23, 2019 relating to the financial statements of Hillstone Environmental Partners, LLC, which appears in this Current Report on Form 8-K/A.



/s/ PricewaterhouseCoopers LLP
Denver, Colorado
November 15, 2019

Exhibit 99.1

Hillstone Environmental Partners, LLC

Consolidated Financial Statements

June 30, 2019

Hillstone Environmental Partners, LLC

Index

June 30, 2019



	Page (s)
Report of Independent Auditors	1

Consolidated Financial Statements

Balance Sheet	2

Statement of Operations	3

Statement of Members’ Equity	4

Statement of Cash Flows	5

Notes to Consolidated Financial Statements	6-17

Report of Independent Auditors

To the Management and Board of Directors of Hillstone Environmental Partners, LLC

We have audited the accompanying consolidated financial statements of Hillstone Environmental Partners, LLC and its subsidiaries, which comprise the consolidated balance sheet as of June 30, 2019, and the related consolidated statements of operations, of members' equity and of cash flows for the year then ended.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hillstone Environmental Partners, LLC and its subsidiaries as of June 30, 2019, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.



/s/ PricewaterhouseCoopers LLP

Denver, Colorado
August 30, 2019, except for the adjustments to comply with Regulation S-X discussed in Note 2 to the consolidated financial statements, as to which the date is October 23, 2019

Hillstone Environmental Partners, LLC

Consolidated Balance Sheet

June 30, 2019



(in thousands)
	2019

Assets

Current assets
Cash and cash equivalents	$	21,535
Accounts receivable, net	14,697
Inventory	349
Prepayments and other current assets	1,243
Due from affiliate - current	205
Total current assets	38,029
Property and equipment, net	151,460
Intangible assets	946
Other noncurrent assets	795
Investments in unconsolidated affiliates	808
Total assets	$	192,038

Liabilities and Members’ Equity

Current liabilities
Accounts payable	$	14,066
Accrued payroll expenses	1,585
Accrued interest	2,164
Accrued expenses and other current liabilities	9,772
Due to affiliate - current	113
Total current liabilities	27,700
Noncurrent liabilities
Long-term debt, net	118,470
Other long-term liability	739
Total liabilities	146,909
Commitments and contingencies (note 10)

Equity
Common stock: Class A 146,982,150 units; Class B 9,257,243 units; Class C 3,085,747 units	81,722
Members’ deficit	(38,586		)
Total Hillstone Environmental members’ equity	43,136
Noncontrolling interest in consolidated subsidiary	1,993
Total members’ equity	45,129
Total liabilities and members’ equity	$	192,038

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

Hillstone Environmental Partners, LLC

Consolidated Statement of Operations

June 30, 2019



(in thousands)
	2019

Operating revenues

Service	$	70,328
Product	3,233
Management fees	876
Total operating revenues, net	74,437

Operating expenses

Operating
Service	41,463
Product	894
General and administrative	18,537
Loss on contingent consideration	65
Depreciation and amortization	7,590
Insurance recoveries	(2,448		)
Loss on fire	13,520
Total operating expenses	79,621
Loss from operations	(5,184		)
Interest expense	(9,741		)
Loss before equity in net earnings of unconsolidated affiliates	(14,925		)
Equity in net earnings of unconsolidated affiliates	37
Net loss	(14,888		)
Net income attributable to noncontrolling interests	32
Net loss attributable to members	$	(14,856	)

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

Hillstone Environmental Partners, LLC

Consolidated Statement of Members' Equity

Year Ended June 30, 2019



(in thousands)
	Class A, B and C Units		Members’			Noncontrolling
	Class A, B and C Units		Equity (Deficit)			Interest			Total

Balances at June 30, 2018	$	67,755	$	(23,847	)	$	2,025		$	45,933

Contributions	13,967		—			—			13,967
Equity-based compensation	—		117			—			117
Net income (loss)	—		(14,856		)	(32		)	(14,888		)

Balances at June 30, 2019	$	81,722	$	(38,586	)	$	1,993		$	45,129

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

Hillstone Environmental Partners, LLC

Consolidated Statement of Cash Flows

Year Ended June 30, 2019



(in thousands)
	2019
Operating activities
Net loss	$	(14,888	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization expense	7,590
Amortization of debt issuance costs	762
Equity-based compensation	117
Loss on contingent consideration	65
Gain on disposal of property and equipment	(178		)
Equity in net income of other unconsolidated affiliates	(37		)
Loss on fire	11,987
Other long-term liability	739
Changes in operating assets and liabilities
Accounts receivable, net	(6,108		)
Inventory	35
Prepayments and other current assets	(426		)
Due from affiliate	(99		)
Other noncurrent assets	(19		)
Accounts payable	(416		)
Accrued payroll	478
Due to affiliate	34
Accrued interest	1,208
Accrued expenses and other current liabilities	7,412
Net cash provided by operating activities	8,256

Investing activities
Purchase of property and equipment	(71,357		)
DC SWD facility acquisition	(13,250		)
Proceeds from sale of property and equipment	314
Distribution from affiliate	150
Net cash used in investing activities	(84,143		)

Financing activities
Proceeds from debt	72,500
Payment of debt	(5,000		)
Payment of debt issuance costs	(2,385		)
Contributions from members	13,968
Net cash provided by financing activities	79,083

Cash and cash equivalents
Beginning	18,339
Net increase in cash and cash equivalents	3,196
Ending	$	21,535

Supplemental disclosures of cash flow information
Cash paid for interest	$	7,572
Non cash purchase of property and equipment	297

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

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019


1.	Nature of Business Operations

Hillstone Environmental Partners, LLC (the “Company”) is a Delaware Limited Liability Company formed in 2015. “We,” “us,” “our” and similar terms refer to the Company together with its consolidated subsidiaries. On June 30, 2015, the Company raised equity capital from Golden Gate Capital (“GGC”) for the purpose of building a water logistics platform servicing the oil and gas industry within the continental United States and simultaneously closed its first acquisition. Subsequent to the initial acquisition and augmented by the acquisitions discussed in Note 3, the Company expanded its operations through signing new customer contracts and building the associated infrastructure. At June 30, 2019, the Company’s primary activities include:


•	Water pipeline and wastewater disposal facilities. This includes services for the transportation and disposal of wastewater generated from development and production of crude oil and natural gas.


•	Water treatment and waste services. The Company currently operates near-field and on-pad treatment facilities which manage, recycle, treat and dispose of wastewater and solid waste generated by oil and gas producers. In addition, the near-field facilities are used to manufacture heavy brine water for product sales.


2.	Summary of Significant Accounting Policies

Basis of Financial Reporting

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles accepted in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries after elimination of all intercompany accounts and transactions. As of year ended June 30, 2019, there were 146,982,150 Class A units, 9,257,243 Class B units, and 3,085,747 Class C units authorized and outstanding.

Adjustments to comply with Regulation S-X

In order to conform the financial statements to the rules of Regulation S-X, the financial statements were updated as follows:


•	Additional detail added to the Consolidated Statement of Operations to disaggregate Operating Revenues and Operating Expenses between Service, Product and Related Party Management Fees.


•	Additional detail added to the Consolidated Balance Sheet to disclose as separate line items amounts Due to affiliates - current and Accrued Interest which were previously included in Accrued expenses and other current liabilities. Additional detail was added to disclose the number of units outstanding for each class of common stock.


•	Additional detail added to the Consolidated Statement of Cash Flows to incorporate the additional financial statement line items described above.


•	Additional detail added within Note 8 disclosing the amount available and undrawn on the letter of credit.


•	Additional detail added to Note 12 to disclose geographic concentrations of revenue.

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, including its wholly owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Following the formation of the Company, SBG Energy Services, LLC and BVI Infrastructure, LLC both owned 5% each as a noncontrolling interest in HEP Hidden Bench Holdco, LLC (“Hidden Bench”), which is 90% owned by a wholly owned subsidiary of the Company. In addition, DACO Permian 76, LLC owned a 20% non-controlling interest in Hillstone DACO Permian, LLC (“Hillstone DACO Permian”) which was 80% owned by the Company.

Investment in Unconsolidated Affiliates

The Company accounts for investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, using the equity method and reports them in “Investments in unconsolidated affiliates” within the Consolidated Balance Sheet.

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

Investments in unconsolidated affiliates are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of such investments may have experienced a decline in value that is considered other than temporary. When there is evidence that an other than temporary loss in value exists, we compare the estimated fair value of the investment to the carrying value of the investment to determine whether impairment has occurred. We assess the fair value of our investments in unconsolidated affiliates using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable transactions and discounted cash flow models. The difference between the carrying amount of the unconsolidated affiliates and their estimated fair value is recognized as an impairment loss when the loss in value is deemed to be other than temporary. See Note 9 - Investments in Unconsolidated Affiliates for additional information regarding our investment in unconsolidated affiliates.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Significant estimates have been used by management in conjunction with the following: (i) fair values of equity-based compensation; (ii) estimates and assumptions used in connection with business combinations; (iii) estimates of fair value for certain reporting units and asset impairments (including impairments of goodwill, long-lived assets and investments), and (iv) certain contingent liabilities. Management regularly evaluates these estimates utilizing historical experience, consultation with experts and other methods considered reasonable under the circumstances. Nevertheless, actual results may differ significantly from these estimates. Any effect on the financial statements resulting from revisions to these estimates is recorded prospectively in the period in which the facts that give rise to the revision become known.

Cash and Cash Equivalents

Cash and cash equivalents are defined as all highly marketable securities with maturities of three months or less when purchased. The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of these investments.

The Company maintains cash in bank deposit accounts. As of June 30, 2019, cash balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250 thousand per financial institution. At times, cash balances may be in excess of the FDIC limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

Accounts Receivable

Trade accounts receivable represent valid claims for services provided and goods sold on or before the balance sheet date. The Company grants unsecured credit to customers under normal industry standards and terms. Delinquent receivables are written off based on individual credit evaluation and when specific circumstances of the customer indicate the account will not be collected. The Company’s bad debt expense is de minimis for the year ended June 30, 2019. No allowance for bad debts was maintained at June 30, 2019. The Company evaluates the collectability of its accounts receivable based on a combination of factors, including length of time the receivables are outstanding and historical performance.

Inventory

Materials and Supplies

Materials and supplies inventory, which consists of chemicals, salt, diesel fuel and other miscellaneous materials and supplies, are valued at the lower of cost or market, cost being determined by the first-in, first-out (“FIFO”) method.

Brine Inventory

We state our brine inventory, which consists of product available for sale, at the lower of cost or net realizable value. Net realizable value represents the estimated future sales price based on spot prices and prices under contracts, less the estimated costs to complete production and bring the product to sale.

Property and Equipment

Property and equipment consist of rights of ways (“ROWs”), buildings, pipelines, wells, tanks, field equipment, vehicles, computer and office equipment, leasehold improvements, and construction in progress. The Company records property and equipment at historical cost, which includes indirect costs such as payroll taxes, other employee benefits, and other costs directly related to the projects. Costs of improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repairs are expensed as incurred. Depreciation for these assets is computed using the straight-line method over estimated useful lives. The company has acquired ROWs for water pipeline

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

activities. The ROWs are amortized over the life of the agreements, and in some cases said agreements do not expire. Those ROWs without expiration are not amortized. Upon retirement, impairment or disposition of assets, the costs and related accumulated depreciation are removed from the accounts with the resulting gain or losses, if any, reflected in the Consolidated Statement of Operations.

Goodwill and Intangible Assets

The Company records goodwill when the consideration paid in a business acquisition exceeds the fair value of the net tangible assets acquired, identifiable intangible assets acquired, and liabilities assumed. Goodwill is not amortized.

Definite-lived intangible assets subject to amortization include customer contracts. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition and are amortized over their estimated useful lives, which range from two to twenty-one years, based on a straight-line method or based on the pattern over which the Company expects to consume the economic benefit of each asset, which, in general, reflects the expected cash flows from each asset.

Impairment of Long-Lived Assets

Long-lived assets include property and equipment and definite-lived intangible assets are subject to amortization. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment loss is measured and recorded based on the estimated fair value of the long-lived assets being tested for impairment, and their carrying amounts. Fair value is typically determined through the use of an income approach utilizing estimates of discounted pre-tax future cash flows or a market approach utilizing recent transaction activity for comparable assets. These approaches are considered Level 3 measurements. Occasionally, such as when an asset is held for sale, market prices are used. The Company believes its estimates and models used to determine fair value are similar to what a market participant would use.

In estimating cash flows used to assess recoverability of long-lived assets and to measure the fair value of the Company’s operations, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of cash flows from other asset groups. The Company’s estimates of cash flows are based on numerous assumptions including the current business plan, oil and gas price environment and management’s long-term projections. It is possible that actual cash flows will be significantly different than the estimates, as actual results are each subject to significant risks and uncertainties.

Impairment of Goodwill

Goodwill is tested for impairment on each reporting unit’s carrying value annually or more frequently if events or circumstances occur that indicate an impairment may exist. The Company’s policy is to perform the annual goodwill impairment test as of the first day of April of each fiscal year.

Factors the Company considers important that could trigger an impairment review include significant underperformance relative to historical or projected operating results, significant changes in the Company’s use of the acquired assets in a business combination or the strategy for its overall business, and significant negative industry or economic trends.

Revenue and Cost Recognition

The Company recognizes revenue when all revenue recognition criteria are met. Costs include all direct material and labor costs and those indirect costs related to the service performance, such as indirect labor, supplies, tools, and repairs. These costs, as well as general and administrative costs, are expensed as incurred.

The Company offers cash discounts to certain customers for payments received within an agreed upon time, generally 10-20 days after services are performed. The Company also offers service discounts upon negotiations with customers based on certain circumstances. The Company records a reserve for cash discounts as a reduction to accounts receivable and a reduction to revenues, based on experience with each customer.

Debt Issuance Costs

Debt issuance costs represent fees and expenses associated with securing the Company’s Credit Agreement. Amortization of the capitalized debt issuance costs is recorded on a straight-line basis, which approximates the effective interest rate method, over the term of the Credit Agreement. See Note 8 - Credit Agreement for definition and additional discussion.

Equity-Based Compensation

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

We measure share-based compensation cost at fair value using the Black Scholes option pricing model with compensation cost amortized on a straight-line basis over each award’s full vesting period, except for awards with performance conditions, which we recognize using the accelerated method. In regard to inputs into the Black Scholes model, the expected term is based on management’s estimated time to liquidation, while the volatility is based on historical data for a group of peer companies for the expected term of the award. With the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting in fiscal 2017, share-based compensation expense is recorded with no estimated forfeitures. The effects of forfeitures are now recognized when they occur. We include share-based compensation expense in “General and administrative” expenses in the Consolidated Statement of Operations.

Income Taxes

The Company files their income tax returns on the accrual basis as a partnership under subchapter K for federal and related state income tax purposes, which provide that, in lieu of entity level income taxes, the members separately account for the Company’s items of income, deductions, losses and credits.

The Company is subject to the Texas franchise tax, which is considered an entity level state income tax. For Texas franchise tax purposes, income or loss generated by the Company does not pass through to the members and is subject to tax at the Company level. The tax on the Company’s net income is borne by the individual partners through the allocation of taxable income. Net income for financial statement purposes may differ significantly from taxable income of members as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under the Hillstone Environmental Partners Second Amended and Restated LLC agreement.

Accounting for Acquisitions

The purchase accounting of business combinations and acquisition purchase price allocations are based on management estimates and assumptions, which utilize established valuation techniques appropriate for the industry. These techniques include the income approach, cost approach or market approach, depending upon which approach is the most appropriate based on the nature and reliability of available data. The income approach is predicated upon the value of the future cash flows that an asset is expected to generate over its economic life. The cost approach takes into account the cost to replace or reproduce the asset and the effects on the asset’s value of physical, functional and/or economic obsolescence that has occurred with respect to the asset.

The market approach is used to estimate value from an analysis of actual transactions or offerings for economically comparable assets available as of the valuation date. See Note 3 - Business Combinations and Acquisitions for additional information.

Contingencies

The Company is involved in a variety of legal matters that arise in the normal course of business. Based on the available information, the Company evaluates the relevant range and likelihood of potential outcomes and records the appropriate liability when the amount is deemed probable and reasonably estimable.

Fair Value

The Company utilizes fair value measurements to measure or assess (i) equity-based compensation; (ii) assets and liabilities in a business combination or asset acquisition; and (iii) impairment of property and equipment, intangible assets, and goodwill. Fair value is the amount received from the sale of an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market-based measurement considered from the perspective of a market participant. The Company uses market data or assumptions that it believes market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. These inputs can be readily observable, market corroborated, or unobservable. The Company applies both market and income approaches for fair value measurements using the best available information while utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy prioritizes the inputs used to measure fair value, giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019


Level 1	Quoted prices for identical assets or liabilities in active markets that management has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.


Level 2	Inputs are other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.


Level 3	Inputs that are not observable for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value.

New Accounting Pronouncements Issued and Adopted

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which amends FASB Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other. The objective of this amendment is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. This pronouncement is effective for the Company on July 1, 2022. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has elected to early adopt these amendments effective April 1, 2017.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC 718, Stock Compensation. The objective of this amendment is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This pronouncement is effective for the Company on July 1, 2018, and allows for prospective, retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. The Company has elected to early adopt these amendments effective July 1, 2016. As the Company is a pass-through entity for tax purposes, there is no impact for the years ended June 30, 2019 and 2018, other than the application of the new forfeiture accounting policy as discussed in our summary of significant accounting policies.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company has elected to early adopt this amendment and has applied this guidance to the Chivo acquisition, as discussed further in Note 3 - Business Combinations and Acquisitions.

New Accounting Pronouncements Issued and Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue. The guidance is effective for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact on the Company’s financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including today’s operating leases. For public business entities, the standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all entities. The Company is currently evaluating the impact on the Company’s financial statements and related disclosures.

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019


3.	Business Combinations and Acquisitions

The Company pursues strategic acquisitions from time to time to leverage its existing capabilities and further build its business. Such acquisitions are accounted for as business combinations or acquisition of assets rather than a business pursuant to ASC 805, Business Combinations.

Acquisition of Chivo SWD

On May 13, 2019, the Company acquired all the assets of DC Disposal Systems, LLC (“Chivo”), the owner of a saltwater disposal well located in the Permian Basin of Texas and created its subsidiary Hillstone Permian Hamilton (“Hamilton”). The total consideration of $13,250 thousand was paid in cash. This acquisition is consistent with the Company’s growth strategy to expand its geographic reach within the Permian Basin.

As described in more detail in Note 2 - Summary of Significant Accounting Policies, the Company elected to early adopt ASU 2017-01, Clarifying the Definition of a Business, which includes a screen test to determine whether an acquisition meets the definition of a business. In applying the screen test for the Chivo acquisition, substantially all the fair value of the gross assets acquired was concentrated in a single asset. Therefore, the acquisition of Chivo was accounted for as an asset acquisition. The purchase price was allocated to the assets acquired, included in Property, Plant and Equipment.


4.	Contingent Consideration

Shalewater Solutions & ShaleApps

On January 15, 2016 the Company acquired substantially all of the assets and liabilities of Shalewater Solutions, LLC (“SWS”) and ShaleApps, LLC (“SA”). As part of this acquisition, the Company is obligated to pay an earn-out to the seller based upon certain Adjusted EBITDA in excess of designated thresholds for the calendar years ended December 31, 2016, December 31, 2017 and December 31, 2018. The Combined maximum payout amount for SWS and SA is $12,250 thousand. Per the Asset Purchase Agreement (“APA”), SWS and SA contingent consideration is determined on a combined basis based on Adjusted EBITDA defined in the APA.

At January 15, 2016, the fair value of the combined SWS and SA contingent consideration, using a geometric Brownian Motion Monte Carlo Simulation, was $1,400 thousand. SA is no longer part of the Company following a fiscal year 2017 spin-off transaction. Accordingly, $1,276 thousand was allocated to SWS at the acquisition date. The contingent consideration is remeasured on a fair value basis each fiscal year until the performance bonus is paid or expires.

On June 30, 2018 the combined fair value remeasurement resulted in $0 contingent consideration.

On December 31, 2018, when the agreement expired, the Company calculated a total amount to be paid out of $65 thousand, all attributable to SWS. As of June 30, 2019, no payment has been made and the final calculation was being disputed by the seller. In accordance with the APA, we engaged in a dispute resolution process. The seller and the Company have agreed to appoint an independent accounting firm to render a determination as to each unresolved item of dispute. We subsequently settled the dispute with the seller on September 13, 2019. Refer to Note 15 - Subsequent Events.


5.	Inventory

Inventory consisted of the following as of June 30, 2019 (in thousands):



	2019
Materials and supplies	$	349


6.	Property and Equipment

The Company’s policy is to review the carrying value of all property and equipment as well as leasehold improvements and purchased intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets. Impairment results when the carrying value of the asset group exceeds fair value. The fair value is based on estimated market values for similar assets or other reasonable estimates of fair market value based

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

upon a discounted cash flow model. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset group’s fair value.

The following is a summary of property and equipment at June 30, 2019 (in thousands):



Asset Category	Useful Lives	2019
	(years)
Right of ways - unamortizable		$	1,671
Right of ways - amortizable	10	390
Pipelines, wells, and facilities	15-30	137,003
Field equipment	5-9	3,167
Vehicles	4	505
Computer and office equipment	5	229
Leasehold improvements	5	3,738
Construction in progress		16,780
Property and equipment, gross		163,483
Less: Accumulated depreciation & amortization		(12,023		)
Property and equipment, net		$	151,460

Depreciation and amortization expense for the year ended June 30, 2019 was approximately $7,528 thousand, of which $7,140 thousand was depreciation expense.


7.	Goodwill and Intangible Assets

Goodwill

As of June 30, 2019, the carrying amount of goodwill was $0.

Intangible Assets

The Company’s policy is to review the carrying value of all property and equipment as well as purchased intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets. Impairment results when the carrying value of the asset group exceeds the undiscounted future cash flows over the life of the asset group. Our estimate of undiscounted future cash flows over the asset life is based on the Company’s projections of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated future results and general economic and market conditions as well as the impact of planned business and operational strategies. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset group’s fair value.

Intangible assets consisted of the following as of June 30, 2019 (in thousands):



	2019
	Gross Amount		Accumulated Amortization			Carrying Value

Customer contracts, net	$	1,195	$	(249	)	$	946
	$	1,195	$	(249	)	$	946

Amortization expense related to intangible assets was $62 thousand for the year ended June 30, 2019.

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

The estimated future amortization expense of intangible assets as of June 30, 2019 is as follows (in thousands):



Year Ending June 30,
2020	$	62
2021	62
2022	62
2023	62
2024	62
Thereafter	636
Total	$	946


8.	Credit Agreement

The Company is party to a credit agreement (“Credit Agreement”) that provides up to $165,000 thousand in borrowing capacity. The senior secured term loans had a total outstanding balance of $112,500 thousand and the revolving line of credit had a total outstanding balance of $10,000 thousand as of June 30, 2019. The Company is also a party to a letter of credit of $100,000 thousand, of which, $0 is outstanding at June 30, 2019.

Outstanding borrowings at June 30, 2019 under the Credit Agreement was as follows (in thousands):



	Beginning Balance			Activity			Ending Balance

Term loan	$	35,000		$	40,000		$	75,000
Delayed draw term loan	20,000			17,500			37,500
Revolver	—			10,000			10,000
Total borrowings	55,000			67,500			122,500
Less: Short-term portion of long-term debt	—			—			—
	55,000			67,500			122,500
Less: Debt issuance costs	(2,408		)	(1,622		)	(4,030		)
Long-term debt	$	52,592		$	65,878		$	118,470

The carrying value of the Company’s long-term debt approximates fair value, as the borrowings under the Credit Agreement are considered to be priced at market for debt instruments having similar terms and conditions (Level 2 of the fair value hierarchy).

All borrowings under the Credit Agreement bear interest, at our option, on the outstanding principal at (i) a base rate plus a margin of 6.75% per annum (“Base Rate Borrowings”) or (ii) equal to the LIBOR rate plus a margin of 7.75% per annum (“LIBOR Borrowings”). Generally, the interest rate on our Credit Agreement borrowings ranged between 10.11% and 10.12%.

The Company is subject to a number of customary covenants under its credit agreement, including affirmative and negative covenants, and requirements to maintain certain financial ratios. The Company was in compliance with such covenants under its credit agreement as of June 30, 2019.

The Company’s obligations under the amended credit agreement are collateralized by a first priority interest in substantially all of the Company’s assets.

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

Maturities on long-term debt are as follows (in thousands):



Year Ending June 30,
2020	$	—
2021	1,406
2022	4,219
2023	5,625
2024	111,250
	$	122,500


9.	Investments in Unconsolidated Affiliates

The Company has a 50% ownership interest in Hillstone-Silcor Treatment, LLC (“HST JV”), which is recorded under the equity method of accounting and reported as “Investments in unconsolidated affiliates” within our Consolidated Balance Sheet. The difference between the fair value of our investment in HST JV and the book value of the underlying net assets resulted in a positive basis difference. The basis difference at June 30, 2019 was allocated as follows (in thousand):



	Amortization Period	2019

Basis difference in equipment	5-7 years	$	245
Less: amortization		(57		)
Total basis difference		$	188

During the period ending June 30, 2019, we recognized a loss from equity in earnings from HST JV of negative $20 thousand.


10.	Related-Party Transactions

During the year ended June 30, 2019, we provided management services and incurred costs that were charged to ShaleApps, an affiliate of the Company, and HST JV. These balances were reported as “Due from affiliate - current” in the Consolidated Balance Sheet.

During the year ended June 30, 2019, we incurred costs associated with the Stateline Facility subsidy letter agreement, discussed further in Note 11 - Commitments and Contingencies. During the year ended June 30, 2019 the Company incurred costs for management fees, legal fees, acquisition fees, consulting fees, and other business-related expenses from multiple related parties including GGC, David Cowan, DACO Operating, LLC, Diversified Field Services Inc. (“DFS”) and Challenger Partners Stateline SWD, LLC (“Challenger Partners”). David Cowan is a consultant and member of the Board of Managers. DFS and Challenger Partners are oilfield services firms controlled by an affiliate of a minority member of the Company.

Totals of transactions with related parties included in the Consolidated Statement of Operations are as follows (in thousands):



	Fiscal Year Ended
	June 30, 2019
Revenue Category	HEP ShaleApps, LLC		Hillstone - Silcor Treatment, LLC

Management fees	$	94	$	782
	$	94	$	782

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019



	Year Ended
	June 30, 2019
Expenditure Category	Challenger Partners			David Cowan		Diversified Field Services, Inc.		DACO Operating		Golden Gate Capital

Management fees	$	—		$	—	$	—	$	—	$	381
Consulting fees	—			180		—		—		—
Legal fees	—			—		—		—		37
Subsidy fee	921			—		—		—		—
Plant electricity	—		—	—		—		534		—
Contracted oilfield services	—			—		665		—		—
	$	921		$	180	$	665	$	534	$	418

Details of balances with related parties included in the Consolidated Balance Sheet are as follows (in thousands):



Due From Affiliate - Current	2019

HEP ShaleApps, LLC	$	28
Hillstone - Silcor Treatment, LLC	177
	$	205



Accrued Expenses and Other Current Liabilities	2019

HEP ShaleApps, LLC	$	85
Hillstone - Silcor Treatment, LLC	27
Golden Gate Capital	381
David Cowan	15
Diversified Field Services, Inc.	(3		)
Challenger Partners	448
	$	953


11.	Commitments and Contingencies

Subsidy Letter Contingency

The Company has agreed to pay Challenger Partners a quarterly subsidy payment in the event that specified volumetric thresholds are not exceeded at the Stateline Facility. The term of the agreement is five years from commencement date of January 1, 2018. For the year ended June 30, 2019, we recorded $921 thousand in Operating expenses within the Consolidated Statement of Operations. At June 30, 2019, the range of potential payments we could be obligated to make pursuant to the subsidy agreement could be from $0 to $11,340 thousand.

Environmental Laws and Regulations

The Company is subjected to extensive federal, state, and local environmental laws and regulations, which are constantly changing. Governmental authorities may enforce these laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties, assessment, remediation requirements, and injunctions as to future activities. The Company has established procedures for ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly waste handling, disposal, or other environmental requirements could adversely affect the Company’s financial position and operations, as well as the industry in general. Management believes that the Company is in substantial compliance with current applicable environmental laws and regulations, and the Company has not experienced any material adverse effect from compliance with these environmental requirements. However, there is no assurance that this will continue in the future.

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

Operating Leases

The Company leases office facilities, yards, apartments, and land under operating lease agreements. These leases expire at various dates and provide for renewal options at the Company’s discretion. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties. Equipment is leased as needed. No leases extend past the June 30, 2024 year end. The expense associated with the Company’s operating leases was $701 thousand for the year ended June 30, 2019. The lease expense associated with the Company’s royalty payments was $6,684 thousand for the year ended June 30, 2019.

At June 30, 2019, minimum annual commitments under operating leases for real property are as follows (in thousands):



Year Ending June 30,
2020	$	765
2021	694
2022	519
2023	218
2024	19
	$	2,215

Poker Lake Contract

On March 15, 2019, the Company entered into a Produced Water Disposal Services Agreement (“Poker Lake Contract”) with XTO Delaware Basin, LLC (“XTO”). The Company is to provide services for the transportation and disposal of wastewater generated by XTO’s oil and natural gas production on certain specified acreage in the Permian-Delaware Basin. XTO will be obligated to deliver certain thresholds of wastewater to the Company, while the Company will supply XTO with minimum thresholds of transportation and disposal capacity (“Firm Capacity”).

In accordance with the Poker Lake Contract, the Company is obligated to construct and maintain pipelines and SWD facilities (“Disposal Facilities”) in order to supply the Firm Capacity. In order to provide XTO assurance that the Disposal Facilities construction is adequately funded, the Company has agreed to meet scheduled project financing hurdles, measured as cumulative capital expenditures plus working capital for a reporting period (“HPPL Project Financing”). Each Reporting Period has a Target Project Financing, as follows (in thousands):



Reporting Period	Target Project Financing
September 30, 2019	$	30,000
September 30, 2020	100,000
September 30, 2021	145,000
September 30, 2022	$250,000 (or system completion)

Upon execution of the Poker Lake Contract, the Company was issued an Irrevocable Standby Letter of Credit (“LC”) which guarantees the performance of all obligations of the Company under the Poker Lake Contract to perform work, provide services or pay money. As of June 30, 2019, the LC has $0 outstanding. Further, the Company does not anticipate drawing on the LC.


12.	Major Customers and Geographic Concentration

The Company has three significant customers representing approximately 86% of our total consolidated revenue for the year ended June 30, 2019, with the largest, second largest and third largest customers making up approximately 70%, 10% and 6% of total consolidated revenues, respectively.

For the year ended June 30, 2019, the Company had operations in Texas and New Mexico, within the Permian Basin, which generated approximately 84% of total revenues. The remaining revenues were earned in North Dakota, located within the Bakkan Formation and in West Virginia, within the Marcellus Basin.


13.	Equity-Based Compensation

The Company’s Board of Managers adopted a Profit Interest Unit plan (“Plan”) for certain employees within the Company and members of the Board of Managers. The Company has three classes of equity units; Class B, Class C

Hillstone Environmental Partners, LLC

Notes to Consolidated Financial Statements

Year Ended June 30, 2019

Tranche 2 and Class C Tranche 3 units. The three classes of units have different participation thresholds and are all non-voting. The Company recognized $117 thousand of equity-based compensation expense, included in “General and administrative” expenses, during the year ended June 30, 2019 specific to these units. Unrecognized compensation expense related to the Plan as of June 30, 2019, was $452 thousand.


14.	Roosevelt Fire

On August 2, 2018 there was a fire at our Roosevelt SWD facility, which we believe was caused by a vendor doing a chemical treatment. The fire resulted in the destruction of surface assets, although the subsequent setup of temporary operations allowed for minimal service disruption. As a result of the fire, it was necessary to dispose of certain surface assets and reclaim the site. All appropriate governmental agencies were contacted and informed of our cleanup procedures.

The Company is currently reconstructing the permanent facility, while operating the SWDs with temporary equipment.

Fire-related losses for the year ended June 30, 2019 were $13,520 thousand, which consisted of $11,987 thousand of property loss and $1,533 thousand of reclamation and associated clean-up costs. Costs incurred associated with the fire-related temporary operations were $3,832, recognized in “Operating Expenses” within the Consolidated Statement of Operations. To-date, we have received $2,448 thousand in insurance recoveries. We are seeking additional recoveries through our property insurance company we had at the time and/or through third party indemnification. We are currently unable to predict what any additional losses or recoveries will be, if any.


15.	Subsequent Events

Subsequent events have been evaluated, with no events occurring, through August 30, 2019, the date the financial statements were available to be issued.

Subsequent Events (Unaudited):

On September 13, 2019, the Company and SWS resolved the earnout dispute discussed in Note 4, Contingent Consideration. The agreement included payment of $65 thousand for the 2018 earnout liability, and an additional $163 thousand in settlement fees. No other events have occurred, through October 23, 2019, the date the financial statements were available to be issued.

On September 25, 2019, the Company entered into an equity purchase agreement with NGL Water Solutions Permian, LLC (the “Buyer”), a wholly owned subsidiary of NGL Energy Partners LP. The Buyer has agreed to purchase 100% of the outstanding equity interest in the Company.

Exhibit 99.2

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Introduction

On October 31, 2019, NGL Energy Partners LP (“we,” “us,” “our” or “the Partnership”) closed its transaction to acquire all of the equity interests of Hillstone Environmental Partners, LLC (“Hillstone”) for approximately $624.4 million, subject to certain adjustments. To fund a portion of this acquisition, the Partnership issued 200,000 Class D Preferred Units and 8.5 million warrants to purchase common units for estimated net proceeds of $194.6 million. The remaining amount of the purchase price was paid using funds available under our revolving credit facility.

On September 30, 2019, the Partnership sold TransMontaigne Product Services, LLC (“TPSL”) and associated assets to Trajectory Acquisition Company LLC (“Trajectory”) for total consideration of $275.5 million less estimated expenses of approximately $5.0 million. TPSL comprised a portion of the Partnership’s Refined Products and Renewables segment.

The unaudited pro forma condensed combined financial statements are presented for the Partnership and give effect to the sale of TPSL and the acquisition of Hillstone (as described above) and are based on the audited and unaudited financial statements of the Partnership and the audited and unaudited financial statements of Hillstone. These unaudited pro forma financial statements include all adjustments necessary to fairly present results for the periods and as of the dates presented. The following unaudited pro forma condensed consolidated balance sheet as of June 30, 2019 and the unaudited pro forma condensed consolidated statements of operations for the three months ended June 30, 2019 and the years ended March 31, 2019, 2018 and 2017 should be read in conjunction with the Partnership’s Current Reports on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on October 4, 2019 and November 1, 2019, the Partnership’s quarterly report on Form 10-Q for the three months ended June 30, 2019, filed with the SEC on August 9, 2019, the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2019, filed with the SEC on May 30, 2019, and with Hillstone’s audited consolidated financial statements for the year ended June 30, 2019, including the related notes, included within Exhibit 99.1 of this Current Report on Form 8-K.

The following unaudited pro forma condensed combined balance sheet as of June 30, 2019 is presented to illustrate the estimated effects of the sale of TPSL on September 30, 2019 and the acquisition of Hillstone, as if these transactions had occurred on June 30, 2019. The unaudited pro forma condensed combined balance sheet combines the Partnership’s unaudited consolidated balance sheet as of June 30, 2019 and Hillstone’s audited consolidated balance sheet as of June 30, 2019.

The following unaudited pro forma condensed combined statements of operations for the three months ended June 30, 2019 and for the years ended March 31, 2019, 2018 and 2017 are presented to illustrate the estimated effects of the sale of TPSL as if it had occurred on April 1, 2016 and the acquisition of Hillstone as if this transaction had occurred on April 1, 2018. The unaudited pro forma condensed combined statements of operations for the three months ended June 30, 2019 combined the Partnership’s unaudited consolidated statement of operations for the three months ended June 30, 2019 and Hillstone’s unaudited consolidated statement of operations for the three months ended June 30, 2019. The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2019 combined the Partnership’s audited consolidated statement of operations for the year ended March 31, 2019 and Hillstone’s audited consolidated statement of operations for the year ended June 30, 2019. The unaudited pro forma condensed combined statements of operations for the three months ended June 30, 2019 and for the year ended March 31, 2019 both contain the results recorded within Hillstone’s unaudited statement of operations for the three months ended June 30, 2019.

The following unaudited pro forma condensed consolidated financial statements are based on certain assumptions and do not purport to be indicative of the results that actually would have been achieved if the transaction described above had occurred on the dates indicated. Moreover, the accompanying unaudited pro forma condensed consolidated financial statements do not project the Partnership’s results of operations for any future date or period.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of June 30, 2019

(U.S. Dollars in Thousands)



	Historical NGL Energy Partners LP (As Reported)			Sale of TPSL				Pro Forma As Adjusted			Hillstone Environmental Partners, LLC		Pro Forma Adjustments				Pro Forma As Further Adjusted
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27,501		$	275,470		(A)	$	27,501		$	21,535	$	429,800		(E)	$	49,036
				(5,000		)	(A)						194,600			(F)
				(270,470		)	(B)						(624,400		)	(G)
Accounts receivable-trade, net	911,982			(121,543		)	(C)	790,439			14,697		—				805,136
Accounts receivable-affiliates	11,507			—				11,507			205		(205		)	(H)	11,507
Inventories	519,603			(212,111		)	(C)	307,492			349		(349		)	(H)	307,492
Prepaid expenses and other current assets	178,695			(15,704		)	(C)	162,991			1,243		(1,050		)	(H)	163,184
Total current assets	1,649,288			(349,358		)		1,299,930			38,029		(1,604		)		1,336,355
PROPERTY, PLANT AND EQUIPMENT, net	2,015,518			(15,185		)	(C)	2,000,333			151,460		(2,061		)	(I)	2,149,732
GOODWILL	1,153,029			(32,712		)	(C)	1,120,317			—		62,530			(H)	1,182,847
INTANGIBLE ASSETS, net	931,709			(136,074		)	(C)	795,635			946		401,231			(H)	1,197,812
INVESTMENTS IN UNCONSOLIDATED ENTITIES	1,585			—				1,585			808		—				2,393
OPERATING LEASE RIGHT-OF-USE ASSETS	518,035			(308,117		)	(C)	209,918			—		3,124			(H)	213,042
OTHER NONCURRENT ASSETS	125,741			(46,871		)	(C)	78,870			795		—				79,665
Total assets	$	6,394,905		$	(888,317	)		$	5,506,588		$	192,038	$	463,220			$	6,161,846
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	814,141		$	(77,352	)	(C)	$	736,789		$	14,066	$	—			$	750,855
Accounts payable-affiliates	23,071			—				23,071			—		—				23,071
Accrued expenses and other payables	214,243			(51,041		)	(C)	163,202			13,634		(3,144		)	(H)	173,692
Advance payments received from customers	28,313			(460		)	(C)	27,853			—		—				27,853
Current maturities of long-term debt	649			—				649			—		—				649
Operating lease obligations	77,021			(7,526		)	(C)	69,495			—		573			(H)	70,068
Total current liabilities	1,157,438			(136,379		)		1,021,059			27,700		(2,571		)		1,046,188
LONG-TERM DEBT, net of debt issuance costs and current maturities	2,586,954			(270,470		)	(B)	2,316,484			118,470		(118,470		)	(J)	2,746,284
													429,800			(E)
OPERATING LEASE OBLIGATIONS	439,083			(300,591		)	(C)	138,492			—		2,551			(H)	141,043
OTHER NONCURRENT LIABILITIES	61,165			—				61,165			739		446			(H)	62,350
COMMITMENTS AND CONTINGENCIES																	.

CLASS D PREFERRED UNITS	—			—				—					175,881			(F)	175,881

EQUITY:
General partner, representing a 0.1% interest	(50,773		)	(181		)	(D)	(50,954		)			—				(50,954		)
Limited partners, representing a 99.9% interest	1,897,407			(180,696		)	(D)	1,716,711			—		18,719			(F)	1,735,430
Members’ Equity - Hillstone Environmental Partners, LLC											43,136		(43,136		)	(K)	—
Class B preferred limited partners	202,731							202,731					—				202,731
Class C preferred limited partners	42,638							42,638									42,638
Accumulated other comprehensive loss	(218		)					(218		)			—				(218		)
Noncontrolling interests	58,480							58,480			1,993		—				60,473
Total equity	2,150,265			(180,877		)		1,969,388			45,129		(24,417		)		1,990,100
Total liabilities and equity	$	6,394,905		$	(888,317	)		$	5,506,588		$	192,038	$	463,220			$	6,161,846

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the three months ended June 30, 2019

(U.S. dollars in thousands, except unit and per unit amounts)



	Historical NGL Energy Partners LP (As Reported)			Sale of TPSL				Pro Forma As Adjusted			Hillstone Environmental Partners, LLC (L)			Pro Forma Adjustments				Pro Forma As Adjusted

REVENUES	$	6,637,891		$	(1,471,466	)	(N)	$	5,166,425		$	19,345		$	—			$	5,185,770

COST OF SALES	6,453,467			(1,458,501		)	(N)	4,994,966			—			—				4,994,966

OPERATING COSTS AND EXPENSES:
Operating	64,267			(2,171		)	(N)	62,096			8,807			—				70,903
General and administrative	20,363			(21		)	(N)	20,342			6,421			(2,912		)	(Q)	23,851
Depreciation and amortization	54,208			(454		)	(N)	53,754			2,724			4,923			(R)	61,401
Gain on disposal or impairment of assets, net	(967		)					(967		)	(85		)	—				(1,052		)
Revaluation of liabilities	—			—				—			65			—				65
Operating Income	46,553			(10,319		)		36,234			1,413			(2,011		)		35,636

OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated entities	8			—				8			(65		)	—				(57		)
Interest expense	(39,908		)	14			(N)	(37,007		)	(2,756		)	2,756			(S)	(41,595		)
				2,887			(O)							(4,588		)	(S)
Other income, net	1,075			(66		)	(N)	1,009			—			—				1,009
Income From Continuing Operations Before Income Taxes	7,728			(7,484		)		244			(1,408		)	(3,843		)		(5,007		)

INCOME TAX BENEFIT	311			10			(N)	321			—			—				321
Income From Continuing Operations	8,039			(7,474		)		565			(1,408		)	(3,843		)		(4,686		)
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	268			—				268			11			—				279
NET INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NGL ENERGY PARTNERS LP	8,307			(7,474		)		833			(1,397		)	(3,843		)		(4,407		)
LESS: DISTRIBUTIONS TO PREFERRED UNITHOLDERS	(129,460		)	—				(129,460		)	—			(4,500		)	(T)	(133,960		)
LESS: CONTINUING OPERATIONS NET LOSS ALLOCATED TO GENERAL PARTNER	85			8			(P)	93			—			10			(U)	103
NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS	$	(121,068	)	$	(7,466	)		$	(128,534	)	$	(1,397	)	$	(8,333	)		$	(138,264	)
BASIC AND DILUTED LOSS PER COMMON UNIT	$	(0.96	)					$	(1.02	)								$	(1.10	)
BASIC AND DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	125,886,738							125,886,738										125,886,738

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the year ended March 31, 2019

(U.S. dollars in thousands, except unit and per unit amounts)



	Historical NGL Energy Partners LP (As Reported)			Sale of TPSL				Pro Forma As Adjusted			Hillstone Environmental Partners, LLC (M)			Pro Forma Adjustments				Pro Forma As Adjusted

REVENUES	$	24,016,907		$	(6,196,287	)	(N)	$	17,820,620		$	74,437		$	—			$	17,895,057

COST OF SALES	23,284,917			(6,122,642		)	(N)	17,162,275			—			—				17,162,275

OPERATING COSTS AND EXPENSES:
Operating	240,684			(7,371		)	(N)	233,313			42,357			—				275,670
General and administrative	107,534			(127		)	(N)	107,407			18,537			(2,912		)	(Q)	123,032
Depreciation and amortization	212,860			(887		)	(N)	211,973			7,590			22,998			(R)	242,561
Loss on disposal or impairment of assets, net	34,296			—				34,296			11,137			—				45,433
Revaluation of liabilities	(5,373		)	—				(5,373		)	—			—				(5,373		)
Operating Income	141,989			(65,260		)		76,729			(5,184		)	(20,086		)		51,459

OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated entities	2,533			—				2,533			37			—				2,570
Interest expense	(164,726		)	1			(N)	(153,176		)	(9,741		)	9,741			(S)	(171,528		)
				11,549			(O)							(18,352		)	(S)
Loss on early extinguishment of liabilities, net	(12,340		)	—				(12,340		)	—			—				(12,340		)
Other expense, net	(29,946		)	(468		)	(N)	(30,414		)	—			—				(30,414		)
Loss From Continuing Operations Before Income Taxes	(62,490		)	(54,178		)		(116,668		)	(14,888		)	(28,697		)		(160,253		)

INCOME TAX EXPENSE	(1,234		)	1			(N)	(1,233		)	—			—				(1,233		)
Net Loss From Continuing Operations	(63,724		)	(54,177		)		(117,901		)	(14,888		)	(28,697		)		(161,486		)
LESS: CONTINUING OPERATIONS NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	20,206			—				20,206			32			—				20,238
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NGL ENERGY PARTNERS LP	(43,518		)	(54,177		)		(97,695		)	(14,856		)	(28,697		)		(141,248		)
LESS: DISTRIBUTIONS TO PREFERRED UNITHOLDERS	(111,936		)	—				(111,936		)	—			(18,000		)	(T)	(129,936		)
LESS: CONTINUING OPERATIONS NET LOSS ALLOCATED TO GENERAL PARTNER	17			54			(P)	71			—			61			(U)	132
NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS	$	(155,437	)	$	(54,123	)		$	(209,560	)	$	(14,856	)	$	(46,636	)		$	(271,052	)
BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS PER COMMON UNIT	$	(1.26	)					$	(1.70	)								$	(2.20	)
BASIC AND DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	123,017,064							123,017,064										123,017,064

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the year ended March 31, 2018

(U.S. dollars in thousands, except unit and per unit amounts)



	Historical NGL Energy Partners LP (As Reported)			Sale of TPSL				Pro Forma As Adjusted

REVENUES	$	16,907,296		$	(6,536,524	)	(N)	$	10,370,772

COST OF SALES	16,412,641			(6,709,772		)	(N)	9,702,869

OPERATING COSTS AND EXPENSES:
Operating	201,068			(6,972		)	(N)	194,096
General and administrative	98,129			(150		)	(N)	97,979
Depreciation and amortization	209,020			(622		)	(N)	208,398
(Gain) loss on disposal or impairment of assets, net	(17,104		)	(14		)	(N)	(17,118		)
Revaluation of liabilities	20,716			—				20,716
Operating (Loss) Income	(17,174		)	181,006				163,832

OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated entities	7,539			—				7,539
Interest expense	(199,148		)	(2		)	(N)	(199,150		)
Loss on early extinguishment of liabilities, net	(23,201		)	—				(23,201		)
Other income, net	6,953			(601		)	(N)	6,352
Loss From Continuing Operations Before Income Taxes	(225,031		)	180,403				(44,628		)

INCOME TAX EXPENSE	(1,354		)	1			(N)	(1,353		)
Net Loss From Continuing Operations	(226,385		)	180,404				(45,981		)
LESS: CONTINUING OPERATIONS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(240		)	—				(240		)
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NGL ENERGY PARTNERS LP	(226,625		)	180,404				(46,221		)
LESS: DISTRIBUTIONS TO PREFERRED UNITHOLDERS	(59,697		)	—				(59,697		)
LESS: CONTINUING OPERATIONS NET LOSS (INCOME) ALLOCATED TO GENERAL PARTNER	150			(180		)	(P)	(30		)
LESS: REPURCHASE OF WARRANTS	(349		)	—				(349		)
NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS	$	(286,521	)	$	180,224			$	(106,297	)
BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS PER COMMON UNIT	$	(2.37	)					$	(0.88	)
BASIC AND DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	120,991,340							120,991,340

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the year ended March 31, 2017

(U.S. dollars in thousands, except unit and per unit amounts)



	Historical NGL Energy Partners LP (As Reported)			Sale of TPSL				Pro Forma As Adjusted

REVENUES	$	12,707,203		$	(5,229,681	)	(N)	$	7,477,522

COST OF SALES	12,228,404			(5,231,227		)	(N)	6,997,177

OPERATING COSTS AND EXPENSES:
Operating	189,003			(15,380		)	(N)	173,623
General and administrative	105,805			(4,966		)	(N)	100,839
Depreciation and amortization	180,239			(626		)	(N)	179,613
(Gain) loss on disposal or impairment of assets, net	(208,890		)	(92		)	(N)	(208,982		)
Revaluation of liabilities	6,717			—				6,717
Operating Income	205,925			22,610				228,535

OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated entities	3,830			—				3,830
Revaluation of investments	(14,365		)	—				(14,365		)
Interest expense	(149,994		)	393			(N)	(149,601		)
Gain on early extinguishment of liabilities, net	24,727			—				24,727
Other income, net	26,612			(192		)	(N)	26,420
Income From Continuing Operations Before Income Taxes	96,735			22,811				119,546

INCOME TAX EXPENSE	(1,933		)	—				(1,933		)
Net Income From Continuing Operations	94,802			22,811				117,613
LESS: CONTINUING OPERATIONS NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	(6,832		)	—				(6,832		)
NET INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NGL ENERGY PARTNERS LP	87,970			22,811				110,781
LESS: DISTRIBUTIONS TO PREFERRED UNITHOLDERS	(30,142		)	—				(30,142		)
LESS: CONTINUING OPERATIONS NET INCOME ALLOCATED TO GENERAL PARTNER	(183		)	(22		)	(P)	(205		)
NET INCOME FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS	$	57,645		$	22,789			$	80,434
BASIC INCOME FROM CONTINUING OPERATIONS PER COMMON UNIT	$	0.53						$	0.74
DILUTED INCOME FROM CONTINUING OPERATIONS PER COMMON UNIT	$	0.52						$	0.72
BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	108,091,486							108,091,486
DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	111,850,621							111,850,621

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

See “Introduction” for more information regarding the basis of presentation for these unaudited pro forma condensed consolidated financial statements.

Note 2 - Preliminary Purchase Price Allocation

The following presents the preliminary purchase price allocation for Hillstone based on a preliminary purchase price of $624.4 million in cash and preliminary estimates of fair value (in thousands):



Current assets	$	36,425
Property, plant and equipment	149,399
Intangible assets	402,177
Investments in unconsolidated entities	808
Operating lease right-of-use assets	3,124
Other noncurrent assets	795
Goodwill	62,530
Current liabilities	(24,556		)
Operating lease obligations	(3,124		)
Asset retirement obligations	(446		)
Other long-term liabilities	(739		)
Noncontrolling interests	(1,993		)
	$	624,400

The purchase price and the allocation of the purchase price are preliminary. Items pending completion include the determination of the final purchase price, including any final closing adjustments and completion of independent appraisals of property, plant and equipment, intangible assets, investments in unconsolidated entities and noncontrolling interests and the valuations of the operating lease liabilities and right-of-use assets and the asset retirement obligations.

Note 3 - Pro Forma Adjustments

The unaudited pro forma condensed consolidated financial statements reflect the impact of the following pro forma adjustments:


A.	Represents the net cash proceeds received from Trajectory at closing from the sale of TPSL for total consideration of $275.5 million, less estimated expenses of approximately $5 million.


B.	The Partnership’s use of net proceeds from the consideration received from Trajectory to repay a portion of the outstanding debt under the revolving credit facility as of June 30, 2019, which bears interest primarily based on a LIBOR rate plus the applicable margin.


C.	Represents the removal of assets and liabilities of the discontinued operations from the balance sheet.


D.	Represents the non-recurring pro forma loss on sale that would have been recorded if the Partnership had completed the sale of TPSL on June 30, 2019.


E.	Represents the amount borrowed under our revolving credit facility and used to pay a portion of the consideration for the acquisition of Hillstone.


F.	Represents the net cash proceeds from the issuance of $194.6 million Class D Preferred Units and warrants to purchase common units. The net proceeds were allocated between Class D Preferred Units and the warrants based on the preliminary fair value of the instruments.


G.	Represents the payment of the preliminary purchase price for the purchase of Hillstone.


H.	Represents the step up in basis for the assets acquired and liabilities assumed as a result of the difference in valuation between the purchase price allocated to the assets and liabilities and their book value on June 30, 2019 in accordance with the acquisition method of accounting.


I.	Reflects the reclassification from property, plant and equipment to intangible assets the rights-of-way to conform to the Partnership’s presentation of these amounts.


J.	Represents the repayment of Hillstone’s outstanding debt as of June 30, 2019.


K.	Represents the reversal of Hillstone’s equity book value.


L.	Amounts in this column represent Hillstone’s unaudited consolidated statement of operations for the three months ended June 30, 2019.


M.	Amounts in this column represent Hillstone’s audited consolidated statement of operations for the year ended June 30, 2019.


N.	Amounts reflect the pro forma effect of eliminating the results of operations of TPSL for the three months ended June 30, 2019 and the years ended March 31, 2019, 2018 and 2017 from the presentation of continuing operations in the unaudited pro forma condensed consolidated statements of operations.

The reduction of interest expense from the net repayment of outstanding borrowings under the revolving credit facility as a result of the sale of TPSL. As the pro forma statements of operations assume that the transaction closed on April 1, 2016, the Partnership calculated the reduction by using $270.5 million and an assumed interest rate of 4.27%, the interest rate on the Partnership's revolving credit facility as of June 30, 2019. A change of 0.125% in the assumed interest rate would result in an adjustment of interest expense, on an annual basis, of approximately $0.3 million.


P.	Represents our general partner’s interest in the pro forma adjustments related to the sale of TPSL for the respective periods.


Q.	Represents the reversal of transaction expenses incurred by Hillstone related to this transaction for the respective periods.


R.	Represents the incremental increase in depreciation and amortization expense for the respective periods.

Represents the incremental increase in interest expense due to the repayment of Hillstone’s outstanding debt and the elimination of the amortization of the related debt issuance costs and the interest expense incurred related to the borrowings under the Partnership’s revolving credit facility. The additional interest expense was calculation by using $429.8 million and an assumed rate of 4.27%, the interest rate on the Partnership's revolving credit facility as of June 30, 2019. A change of 0.125% in the assumed interest rate would result in an adjustment of interest expense, on an annual basis, of approximately $0.5 million.


T.	Represents the distributions paid on the Class D preferred units for the respective periods.


U.	Represents our general partner’s interest in Hillstone’s operations and the pro forma adjustments for the respective periods.

Note 4 - Earnings per Unit

Basic earnings per unit is computed by dividing the net income (loss) by the weighted average number of units outstanding during a period. To determine net income (loss) allocated to each class of ownership, the Partnership first allocates net income (loss) in accordance with the amount of distributions made for the quarter by each class of units, if any. The remaining net income is allocated to each class of units in proportion to the weighted average number of units of such class outstanding for a period, as compared to the weighted average number of units outstanding for all classes for the period, with the exception of net losses. Net losses are allocated only to the common units.

Note 5 - Intercompany Transactions

Intercompany transactions have been eliminated within the consolidation in accordance with generally accepted accounting principles. The following are the intercompany transactions that were eliminated from TPSL for the periods presented:



	Three Months Ended June 30,		Years Ended March 31,
	2019		2019		2018		2017
	(in thousands)

Intercompany Revenue	$	62,419	$	277,356	$	243,796	$	146,143

Intercompany Cost of Sales	$	72,663	$	318,549	$	32,336	$	38,838