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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 December 31, 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 February 3, 2020, there were 128,348,906 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, 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, 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, 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, produced water disposal and transportation, 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 markets;
•
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, produced water 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 produced water 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)
 
December 31, 2019
 
March 31, 2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
12,008

 
$
18,572

Accounts receivable-trade, net of allowance for doubtful accounts of $4,055 and $4,016, respectively
947,534

 
998,203

Accounts receivable-affiliates
12,445

 
12,867

Inventories
183,738

 
136,128

Prepaid expenses and other current assets
90,694

 
65,918

Assets held for sale
95,093

 
580,985

Total current assets
1,341,512

 
1,812,673

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $504,731 and $417,457, respectively
2,704,112

 
1,828,940

GOODWILL
1,307,055

 
1,110,456

INTANGIBLE ASSETS, net of accumulated amortization of $603,573 and $503,117, respectively
1,600,555

 
800,889

INVESTMENTS IN UNCONSOLIDATED ENTITIES
22,236

 
1,127

OPERATING LEASE RIGHT-OF-USE ASSETS
183,141

 
—

OTHER NONCURRENT ASSETS
83,944

 
113,857

ASSETS HELD FOR SALE
—

 
234,551

Total assets
$
7,242,555

 
$
5,902,493

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable-trade
$
846,767

 
$
879,063

Accounts payable-affiliates
29,374

 
28,469

Accrued expenses and other payables
352,848

 
107,759

Advance payments received from customers
29,993

 
8,461

Current maturities of long-term debt
4,835

 
648

Operating lease obligations
57,091

 
—

Liabilities held for sale
40,899

 
226,753

Total current liabilities
1,361,807

 
1,251,153

LONG-TERM DEBT, net of debt issuance costs of $20,263 and $12,008, respectively, and current maturities
3,068,205

 
2,160,133

OPERATING LEASE OBLIGATIONS
122,798

 
—

OTHER NONCURRENT LIABILITIES
104,060

 
63,542

NONCURRENT LIABILITIES HELD FOR SALE
—

 
33

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, 600,000 and 0 preferred units issued and outstanding, respectively
531,768

 
—

 
 
 
 
EQUITY:
 
 
 
General partner, representing a 0.1% interest, 128,477 and 124,633 notional units, respectively
(51,038
)
 
(50,603
)
Limited partners, representing a 99.9% interest, 128,348,906 and 124,508,497 common units issued and outstanding, respectively
1,682,071

 
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
(248
)
 
(255
)
Noncontrolling interests
74,739

 
58,748

Total equity
2,053,917

 
2,277,818

Total liabilities and equity
$
7,242,555

 
$
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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
REVENUES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
690,989

 
$
751,180

 
$
2,048,301

 
$
2,395,064

Water Solutions
 
121,607

 
75,458

 
294,639

 
231,367

Liquids
 
685,625

 
749,433

 
1,361,781

 
1,759,772

Refined Products and Renewables
 
728,028

 
718,979

 
2,197,236

 
2,178,734

Other
 
280

 
319

 
799

 
1,066

Total Revenues
 
2,226,529

 
2,295,369

 
5,902,756

 
6,566,003

COST OF SALES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
628,443

 
685,417

 
1,847,382

 
2,226,397

Water Solutions
 
14,004

 
(39,470
)
 
4,701

 
(17,309
)
Liquids
 
592,340

 
707,187

 
1,205,938

 
1,668,646

Refined Products and Renewables
 
700,248

 
695,033

 
2,155,247

 
2,167,458

Other
 
437

 
494

 
1,337

 
1,481

Total Cost of Sales
 
1,935,472

 
2,048,661

 
5,214,605

 
6,046,673

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Operating
 
94,412

 
60,465

 
230,610

 
172,219

General and administrative
 
29,150

 
24,759

 
93,400

 
86,428

Depreciation and amortization
 
73,726

 
53,281

 
190,593

 
157,771

(Gain) loss on disposal or impairment of assets, net
 
(12,626
)
 
(36,246
)
 
(10,482
)
 
71,077

Revaluation of liabilities
 
10,000

 
—

 
10,000

 
800

Operating Income
 
96,395

 
144,449

 
174,030

 
31,035

OTHER INCOME (EXPENSE):
 
 
 
 
 
 

 
 

Equity in earnings of unconsolidated entities
 
534

 
1,777

 
277

 
2,375

Interest expense
 
(46,920
)
 
(39,151
)
 
(131,814
)
 
(126,776
)
Loss on early extinguishment of liabilities, net
 
—

 
(10,083
)
 
—

 
(10,220
)
Other (expense) income, net
 
(226
)
 
1,187

 
967

 
(31,415
)
Income (Loss) From Continuing Operations Before Income Taxes
 
49,783

 
98,179

 
43,460

 
(135,001
)
INCOME TAX EXPENSE
 
(677
)
 
(980
)
 
(996
)
 
(2,322
)
Income (Loss) From Continuing Operations
 
49,106

 
97,199

 
42,464

 
(137,323
)
(Loss) Income From Discontinued Operations, net of Tax
 
(6,115
)
 
13,329

 
(192,800
)
 
433,501

Net Income (Loss)
 
42,991

 
110,528

 
(150,336
)
 
296,178

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
166

 
307

 
563

 
1,170

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
—

 
—

 
—

 
446

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
43,157

 
$
110,835

 
$
(149,773
)
 
$
297,794

NET INCOME (LOSS) FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
28,895

 
$
67,656

 
$
(123,792
)
 
$
(209,928
)
NET (LOSS) INCOME FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
(6,109
)
 
$
13,316

 
$
(192,607
)
 
$
433,513

NET INCOME (LOSS) ALLOCATED TO COMMON UNITHOLDERS
 
$
22,786

 
$
80,972

 
$
(316,399
)
 
$
223,585

BASIC INCOME (LOSS) PER COMMON UNIT
 
 
 
 
 
 
 
 
Income (Loss) From Continuing Operations
 
$
0.23

 
$
0.54

 
$
(0.97
)
 
$
(1.71
)
(Loss) Income From Discontinued Operations, net of Tax
 
$
(0.05
)
 
$
0.11

 
$
(1.52
)
 
$
3.53

Net Income (Loss)
 
$
0.18

 
$
0.65

 
$
(2.49
)
 
$
1.82

DILUTED INCOME (LOSS) PER COMMON UNIT
 
 
 
 
 
 
 
 
Income (Loss) From Continuing Operations
 
$
0.22

 
$
0.53

 
$
(0.97
)
 
$
(1.71
)
(Loss) Income From Discontinued Operations, net of Tax
 
$
(0.05
)
 
$
0.11

 
$
(1.52
)
 
$
3.53

Net Income (Loss)
 
$
0.18

 
$
0.64

 
$
(2.49
)
 
$
1.82

BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
128,201,369

 
123,892,680

 
127,026,510

 
122,609,625

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
129,358,590

 
125,959,751

 
127,026,510

 
122,609,625


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 Income (Loss)
(in Thousands)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
42,991

 
$
110,528

 
$
(150,336
)
 
$
296,178

Other comprehensive income (loss)
 
16

 
(3
)
 
7

 
(27
)
Comprehensive income (loss)
 
$
43,007

 
$
110,525

 
$
(150,329
)
 
$
296,151


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 Nine Months Ended December 31, 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

Distributions to general and common unit partners and preferred unitholders (Note 10)
 
(86
)
 
—

 
—

 
—

 
(69,353
)
 
—

 
—

 
(69,439
)
Common unit repurchases and cancellations (Note 10)
 
—

 
—

 
—

 
(10,489
)
 
(107
)
 
—

 
—

 
(107
)
Issuance of warrants, net of offering costs (Note 10)
 
—

 
—

 
—

 
—

 
11,057

 
—

 
—

 
11,057

Equity issued pursuant to incentive compensation plan (Note 10)
 
3

 
—

 
—

 
318,975

 
1,760

 
—

 
—

 
1,763

Mesquite acquisition (Note 4)
 
—

 
—

 
—

 
—

 
—

 
—

 
17,124

 
17,124

Investment in NGL Energy Holdings LLC (Note 13)
 
—

 
—

 
—

 
—

 
(1,399
)
 
—

 
—

 
(1,399
)
Net income (loss)
 
59

 
—

 
—

 
—

 
43,098

 
—

 
(166
)
 
42,991

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
16

 
—

 
16

BALANCES AT DECEMBER 31, 2019
 
$
(51,038
)
 
14,385,642

 
$
348,393

 
128,348,906

 
$
1,682,071

 
$
(248
)
 
$
74,739

 
$
2,053,917

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 Nine Months Ended December 31, 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
 
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

Distributions to general and common unit partners and preferred unitholders
 
(83
)
 
—

 
—

 
—

 
(59,434
)
 
—

 
—

 
(59,517
)
Sawtooth joint venture
 
—

 
—

 
—

 
—

 
—

 
—

 
(854
)
 
(854
)
Common unit repurchases and cancellations
 
—

 
—

 
—

 
(10,889
)
 
(108
)
 
—

 
—

 
(108
)
Equity issued pursuant to incentive compensation plan
 
—

 
—

 
—

 
303,150

 
6,554

 
—

 
—

 
6,554

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

 
—

 
—

 
—

 
(18,573
)
 
—

 
—

 
(18,573
)
Net income
 
115

 
—

 
—

 
—

 
110,720

 
—

 
(307
)
 
110,528

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
BALANCES AT DECEMBER 31, 2018
 
$
(50,581
)
 
8,400,000

 
$
202,731

 
124,033,723

 
$
2,085,780

 
$
(273
)
 
$
77,784

 
$
2,315,441

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)
 
 
Nine Months Ended December 31,
 
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
 
Net (loss) income
 
$
(150,336
)
 
$
296,178

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Loss (income) from discontinued operations, net of tax
 
192,800

 
(433,501
)
Depreciation and amortization, including amortization of debt issuance costs
 
198,613

 
165,266

Loss on early extinguishment or revaluation of liabilities, net
 
10,000

 
11,020

Non-cash equity-based compensation expense
 
27,209

 
32,575

(Gain) loss on disposal or impairment of assets, net
 
(10,482
)
 
71,077

Provision for doubtful accounts
 
718

 
422

Net adjustments to fair value of commodity derivatives
 
(773
)
 
(30,031
)
Equity in earnings of unconsolidated entities
 
(277
)
 
(2,375
)
Distributions of earnings from unconsolidated entities
 
—

 
1,500

Lower of cost or market value adjustment
 
291

 
12,525

Other
 
1,630

 
(225
)
Changes in operating assets and liabilities, exclusive of acquisitions:
 
 
 
 
Accounts receivable-trade and affiliates
 
58,457

 
(59,155
)
Inventories
 
(50,658
)
 
(95,372
)
Other current and noncurrent assets
 
11,061

 
29,597

Accounts payable-trade and affiliates
 
(31,862
)
 
747

Other current and noncurrent liabilities
 
17,197

 
2,947

Net cash provided by operating activities-continuing operations
 
273,588

 
3,195

Net cash provided by operating activities-discontinued operations
 
59,890

 
112,463

Net cash provided by operating activities
 
333,478

 
115,658

INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(427,253
)
 
(303,989
)
Acquisitions, net of cash acquired
 
(1,262,853
)
 
(197,971
)
Net settlements of commodity derivatives
 
2,735

 
5,066

Proceeds from sales of assets
 
17,056

 
8,335

Proceeds from divestitures of businesses and investments, net
 
—

 
103,594

Investments in unconsolidated entities
 
(21,272
)
 
(92
)
Distributions of capital from unconsolidated entities
 
440

 
—

Repayments on loan for natural gas liquids facility
 
3,022

 
8,371

Loan to affiliate
 
—

 
(1,515
)
Net cash used in investing activities-continuing operations
 
(1,688,125
)
 
(378,201
)
Net cash provided by investing activities-discontinued operations
 
281,908

 
936,691

Net cash (used in) provided by investing activities
 
(1,406,217
)
 
558,490

FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
3,461,000

 
2,956,500

Payments on Revolving Credit Facility
 
(3,240,000
)
 
(3,037,000
)
Issuance of senior unsecured notes and term credit agreement
 
700,000

 
—

Repayment and repurchase of senior unsecured notes
 
—

 
(395,471
)
Payments on other long-term debt
 
(489
)
 
(488
)
Debt issuance costs
 
(13,198
)
 
(915
)
Contributions from noncontrolling interest owners, net
 
—

 
169

Distributions to general and common unit partners and preferred unitholders
 
(180,021
)
 
(177,003
)
Distributions to noncontrolling interest owners
 
(570
)
 
—

Proceeds from sale of preferred units, net of offering costs
 
622,965

 
—

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

Repurchase of warrants
 
—

 
(14,988
)
Common unit repurchases and cancellations
 
(1,205
)
 
(162
)
Payments for settlement and early extinguishment of liabilities
 
(1,953
)
 
(3,534
)
Investment in NGL Energy Holdings LLC
 
(15,226
)
 
—

Net cash provided by (used in) financing activities-continuing operations
 
1,066,175

 
(672,892
)
Net cash used in financing activities-discontinued operations
 
—

 
(325
)
Net cash provided by (used in) financing activities
 
1,066,175

 
(673,217
)
Net (decrease) increase in cash and cash equivalents
 
(6,564
)
 
931

Cash and cash equivalents, beginning of period
 
18,572

 
22,094

Cash and cash equivalents, end of period
 
$
12,008

 
$
23,025

Supplemental cash flow information:
 
 
 
 
Cash interest paid
 
$
123,562

 
$
132,318

Income taxes paid (net of income tax refunds)
 
$
4,272

 
$
1,893

Supplemental non-cash investing and financing activities:
 
 
 
 
Distributions declared but not paid to Class B, Class C and Class D preferred unitholders
 
$
12,612

 
$
4,725

Accrued capital expenditures
 
$
40,834

 
$
34,734

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 December 31, 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 produced water 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 diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, West Coast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. 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 $233.8 million, including equity consideration, inventory and net working capital (see Note 17). TPSL made 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. In December 2019, the Partnership formalized a plan and received approval to divest of its gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”) and its refined products marketing business in the mid-continent region of the United States (“Mid-Con”). The Partnership had determined that these businesses were no longer core to the Partnership’s strategy. These transactions represent 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, Mid-Con and Gas Blending 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 and certain assets and liabilities, particularly inventory, derivatives and leases, related to Mid-Con and Gas Blending have been classified as held for sale in our December 31, 2019 and March 31, 2019 unaudited condensed consolidated balance sheets. On January 3, 2020, we completed the sale of Mid-Con to a third-party. See Note 16 for a further discussion of these transactions.

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 Current Report on Form 8-K (“Current Report”) filed with the SEC on November 22, 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 Current 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 Current 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.

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


•
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 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 $51.3 million at December 31, 2019 as a result of acquiring corporations in connection with certain of our acquisitions, which is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheet. The deferred tax liability at December 31, 2019 increased by $38.7 million from September 30, 2019 due to our acquisition of Hillstone (as defined herein), which included entities taxed as corporations for United States federal income tax purposes. 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 during the nine months ended December 31, 2019 was $1.4 million with an effective tax rate of 25.1%.

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 December 31, 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:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Crude oil
 
$
48,901

 
$
51,359

Natural gas liquids:
 
 
 
 
Propane
 
68,144

 
33,478

Butane
 
37,134

 
15,294

Other
 
11,506

 
7,482

Refined products and renewables:
 
 
 
 
Diesel
 
10,474

 
9,186

Ethanol
 
1,668

 
14,650

Biodiesel
 
5,911

 
4,679

Total
 
$
183,738

 
$
136,128



Amounts as of December 31, 2019 and March 31, 2019 in the table above do not include inventory related to Mid-Con and Gas Blending, as these amounts have been classified as current assets held for sale within our December 31, 2019 and March 31, 2019 unaudited condensed consolidated balance sheets (see Note 16). 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,

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


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.

Our investments in unconsolidated entities consist of the following at the dates indicated:
Entity
 
Segment
 
Ownership
Interest (1)
 
Date Acquired
 
December 31, 2019
 
March 31, 2019
 
 
 
 
 
 
 
 
(in thousands)
Water services and land company (2)
 
Water Solutions
 
50%
 
November 2019
 
$
15,624

 
$
—

Water services and land company (3)
 
Water Solutions
 
50%
 
November 2019
 
2,067

 
—

Water services and land company (4)
 
Water Solutions
 
10%
 
November 2019
 
3,247

 
—

Aircraft company (5)
 
Corporate and Other
 
50%
 
June 2019
 
638

 
—

Water services company (6)
 
Water Solutions
 
50%
 
August 2018
 
480

 
920

Natural gas liquids terminal company (7)
 
Liquids
 
50%
 
March 2019
 
180

 
207

Total
 
 
 
 
 
 
 
$
22,236

 
$
1,127

 
(1)
Ownership interest percentages are at December 31, 2019.
(2)
This is an investment that we acquired as part of an acquisition in November 2019 (see Note 4), and represents certain membership interests related to specific land operations.
(3)
This is an investment that we acquired as part of an acquisition in November 2019 (see Note 4), and represents certain membership interests related to specific land operations.
(4)
This is an investment that we acquired as part of an acquisition in November 2019 (see Note 4), and represents certain membership interests related to specific water services operations.
(5)
This is an investment with a related party. See Note 13 for a further discussion.
(6)
This is an investment that we acquired as part of an acquisition in August 2018.
(7)
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:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Loan receivable (1)
 
$
9,060

 
$
19,474

Line fill (2)
 
33,437

 
33,437

Minimum shipping fees - pipeline commitments (3)
 
18,510

 
23,494

Other
 
22,937

 
37,452

Total
 
$
83,944

 
$
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 (the “Facility”) that is utilized by a third party that filed for Chapter 11 bankruptcy during the three months ended September 30, 2019. As of December 31, 2019, we are owed a total of $26.4 million under this loan receivable, of which approximately $20.2 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 on the Facility. We have filed our Proof of Claim within the bankruptcy case and although the third party may have the option to reject the agreement governing the receivable in the context of the bankruptcy proceeding, subject to bankruptcy court approval, the third party’s current intention appears to be to transfer the Facility to a third party purchaser in satisfaction of the full amount owed under the receivable. It is also possible that the third party may deviate from this course and propose a different plan. Accordingly, we will continue to monitor the bankruptcy case through its conclusion. 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 December 31, 2019, line fill consisted of 335,069 barrels of crude oil and 262,000 barrels of propane. At March 31,

13
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


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 noncurrent portion of 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). As of March 31, 2019, the deficiency credit was $23.5 million. 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). As of December 31, 2019, the deficiency credit was $22.8 million, of which $4.3 million is recorded within prepaid expenses and other current assets in our unaudited condensed unconsolidated balance sheet.

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).

Accrued Expenses and Other Payables

Accrued expenses and other payables consist of the following at the dates indicated:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Accrued compensation and benefits
 
$
17,940

 
$
19,312

Excise and other tax liabilities
 
19,300

 
10,481

Derivative liabilities
 
5,353

 
4,960

Accrued interest
 
25,838

 
24,882

Product exchange liabilities
 
7,382

 
5,945

Gavilon legal matter settlement (Note 9)
 
—

 
12,500

Contingent consideration liability (Note 4)
 
200,000

 
—

TPSL working capital settlement (Note 17)
 
41,508

 
—

Other
 
35,527

 
29,679

Total
 
$
352,848

 
$
107,759



Amounts as of December 31, 2019 and March 31, 2019 in the table above do not include derivative liabilities related to Mid-Con and Gas Blending, as these amounts have been classified as current liabilities held for sale within our December 31, 2019 and March 31, 2019 unaudited condensed consolidated balance sheets (see Note 16). 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

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


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 nine months ended December 31, 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.

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—Income (Loss) 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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
Weighted average common units outstanding during the period:
 
 
 
 
 
 
 
 
Common units - Basic
 
128,201,369

 
123,892,680

 
127,026,510

 
122,609,625

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
Warrants
 
—

 
1,456,947

 
—

 
—

Service awards
 
1,157,221

 
610,124

 
—

 
—

Common units - Diluted
 
129,358,590

 
125,959,751

 
127,026,510

 
122,609,625


For the three months ended December 31, 2019, the warrants were antidilutive. For the three months ended December 31, 2018, the Class A Preferred Units (as defined herein) were considered antidilutive. For the nine months ended December 31, 2019 and 2018, the warrants, Service Awards (as defined herein) and Class A Preferred Units were considered antidilutive.


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


Our income (loss) per common unit is as follows for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands, except unit and per unit amounts)
Income (loss) from continuing operations
 
$
49,106

 
$
97,199

 
$
42,464

 
$
(137,323
)
Less: Continuing operations loss attributable to noncontrolling interests
 
166

 
307

 
563

 
1,170

Net income (loss) from continuing operations attributable to NGL Energy Partners LP
 
49,272

 
97,506

 
43,027

 
(136,153
)
Less: Distributions to preferred unitholders (1)
 
(20,312
)
 
(29,748
)
 
(166,835
)
 
(73,882
)
Less: Continuing operations net (income) loss allocated to general partner (2)
 
(65
)
 
(102
)
 
16

 
107

Net income (loss) from continuing operations allocated to common unitholders
 
$
28,895

 
$
67,656

 
$
(123,792
)
 
$
(209,928
)
 
 
 
 
 
 
 
 
 
(Loss) income from discontinued operations, net of tax
 
$
(6,115
)
 
$
13,329

 
$
(192,800
)
 
$
433,501

Less: Discontinued operations loss attributable to redeemable noncontrolling interests
 
—

 
—

 
—

 
446

Less: Discontinued operations loss (income) allocated to general partner (2)
 
6

 
(13
)
 
193

 
(434
)
Net (loss) income from discontinued operations allocated to common unitholders
 
$
(6,109
)
 
$
13,316

 
$
(192,607
)
 
$
433,513

 
 
 
 
 
 
 
 
 
Net income (loss) allocated to common unitholders
 
$
22,786

 
$
80,972

 
$
(316,399
)
 
$
223,585

 
 
 
 
 
 
 
 
 
Basic income (loss) per common unit
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.23

 
$
0.54

 
$
(0.97
)
 
$
(1.71
)
(Loss) income from discontinued operations, net of tax
 
$
(0.05
)
 
$
0.11

 
$
(1.52
)
 
$
3.53

Net income (loss)
 
$
0.18

 
$
0.65

 
$
(2.49
)
 
$
1.82

Diluted income (loss) per common unit
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.22

 
$
0.53

 
$
(0.97
)
 
$
(1.71
)
(Loss) income from discontinued operations, net of tax
 
$
(0.05
)
 
$
0.11

 
$
(1.52
)
 
$
3.53

Net income (loss)
 
$
0.18

 
$
0.64

 
$
(2.49
)
 
$
1.82

Basic weighted average common units outstanding
 
128,201,369

 
123,892,680

 
127,026,510

 
122,609,625

Diluted weighted average common units outstanding
 
129,358,590

 
125,959,751

 
127,026,510

 
122,609,625

 
(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 nine months ended December 31, 2019:

Business Combinations

Hillstone Acquisition

On October 31, 2019, we acquired all of the equity interests of Hillstone Environmental Partners, LLC (“Hillstone”) for $642.5 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 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

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


transportation capacity. Hillstone also has an additional 22 permits to develop another 660,000 barrels per day of disposal capacity. The acquired assets also include minimum volume commitments and long-term dedications covering over 110,000 contracted acres, including a 20-year acreage dedication, a 10-year acreage dedication, including first call rights, with a leading independent exploration and production company, and multiple contracts with one of the largest crude oil and natural gas exploration and production companies in the United States.

As part of this acquisition, we recorded a customer relationship intangible asset. We estimated the value of this intangible asset 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 December 31, 2019 for the assets acquired and liabilities assumed (in thousands):
Current assets
$
35,171

Property, plant and equipment
144,803

Goodwill
113,939

Intangible assets
400,000

Investments in unconsolidated entities
335

Operating lease right-of-use assets
3,090

Other noncurrent assets
811

Assets held for sale
5,100

Current liabilities
(16,234
)
Operating lease obligations
(3,090
)
Other noncurrent liabilities
(1,448
)
Deferred tax liability
(39,178
)
Liabilities held for sale
(786
)
Fair value of net assets acquired
$
642,513



As of December 31, 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 the operating lease liabilities and right-of-use assets, asset retirement obligations and the deferred tax liability.

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 nine months ended December 31, 2019 includes revenues of $13.2 million and an operating loss of $4.4 million that were generated by the operations of these water solutions facilities. We incurred $12.0 million of transaction costs related to this acquisition during the nine months ended December 31, 2019, which is recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations. In addition, on December 31, 2019, the Partnership sold its interest in the unconsolidated entity acquired as part of this transaction.

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 produced water 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.

17
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. During the three months ended December 31, 2019, the volume of produced water processed utilizing the assets acquired surpassed both thresholds, thus triggering the payment of the full $200.0 million. The agreement was amended by both parties for the payment to be made in six installments over the next six months. The first installment payment of $55.0 million was made on January 10, 2020.

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 December 31, 2019 for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
370,923

Goodwill
77,549

Intangible assets
458,678

Other noncurrent liabilities
(4,769
)
Noncontrolling interests
(17,124
)
Fair value of net assets acquired
$
885,257



As of December 31, 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 nine months ended December 31, 2019 includes revenues of $57.6 million and operating income of $3.4 million that were generated by the operations of these water solutions facilities. We incurred $6.0 million of transaction costs related to this acquisition during the nine months ended December 31, 2019, which is recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

Saltwater Water Solutions Facilities

During the nine months ended December 31, 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.


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


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 December 31, 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 December 31, 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.

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 nine months ended December 31, 2019 includes revenues of $4.8 million and operating income of $0.9 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 nine months ended December 31, 2019, which is recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

Acquisitions of Assets

On November 7, 2019, we acquired the exclusive rights to use certain land for produced and treated water operations from one entity, certain membership interests (see Note 2) in another entity and other assets. The membership interests are in an entity that owns real property and provides freshwater services. In addition, we entered into a joint development agreement with the seller and affiliates to build and operate produced, treated and blended water facilities. The total purchase price for this transaction was $56.6 million, of which $36.1 million was allocated to the produced and treated water rights (intangible asset), $20.3 million to the membership interests and $0.3 million to net other current and noncurrent assets.

During the nine months ended December 31, 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.


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


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.

Note 5—Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:
Description
Estimated
Useful Lives
 
December 31, 2019
 
March 31, 2019
 
(in years)
 
(in thousands)
Natural gas liquids terminal and storage assets
2
-
30
 
$
310,091

 
$
280,106

Pipeline and related facilities
30
-
40
 
244,021

 
243,799

Vehicles and railcars
3
-
25
 
122,219

 
124,948

Water treatment facilities and equipment
3
-
30
 
1,277,654

 
704,666

Crude oil tanks and related equipment
2
-
30
 
228,012

 
225,476

Barges and towboats
5
-
30
 
123,847

 
103,735

Information technology equipment
3
-
7
 
34,331

 
31,831

Buildings and leasehold improvements
3
-
40
 
147,964

 
143,711

Land
 
 
 
 
87,593

 
62,379

Tank bottoms and line fill (1)
 
 
 
 
20,339

 
20,071

Other
3
-
20
 
15,069

 
14,870

Construction in progress
 
 
 
 
597,703

 
290,805

 
 
 
 
 
3,208,843

 
2,246,397

Accumulated depreciation
 
 
 
 
(504,731
)
 
(417,457
)
Net property, plant and equipment
 
 
 
 
$
2,704,112

 
$
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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation expense
 
$
37,687

 
$
26,263

 
$
94,477

 
$
76,671

Capitalized interest expense
 
$
439

 
$
160

 
$
439

 
$
482



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).


20
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 (gain) 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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Crude Oil Logistics
 
$
198

 
$
(75
)
 
$
(592
)
 
$
1,251

Water Solutions
 
4,476

 
(443
)
 
8,075

 
2,762

Liquids
 
(26
)
 
—

 
(33
)
 
994

Total
 
$
4,648

 
$
(518
)
 
$
7,450

 
$
5,007



Note 6—Goodwill

The following table summarizes changes in goodwill by segment during the nine months ended December 31, 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

 
$
17,050

 
$
1,110,456

Revisions to acquisition accounting (Note 4)
 
—

 
4,755

 
(2,057
)
 
—

 
2,698

Acquisitions (Note 4)
 
—

 
193,901

 
—

 
—

 
193,901

Balances at December 31, 2019
 
$
579,846

 
$
608,795

 
$
101,364

 
$
17,050

 
$
1,307,055


Amounts in the table above do not include goodwill that was allocated to Gas Blending, as the amount has been classified as current assets held for sale in our December 31, 2019 unaudited condensed consolidated balance sheet. Amounts in the table above do not include goodwill that was allocated to TPSL and Gas Blending, as the amounts have been classified as noncurrent assets held for sale within our March 31, 2019 unaudited condensed consolidated balance sheet (see Note 1 and Note 16).


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


Note 7—Intangible Assets

Our intangible assets consist of the following at the dates indicated:
 
 
 
 
 
 
December 31, 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
 
$
1,384,922

 
$
(428,971
)
 
$
955,951

 
$
742,832

 
$
(369,983
)
 
$
372,849

Customer commitments
 
10
-
25
 
502,000

 
(102,007
)
 
399,993

 
310,000

 
(74,917
)
 
235,083

Pipeline capacity rights
 
30
 
 
 
7,800

 
(1,582
)
 
6,218

 
7,799

 
(1,387
)
 
6,412

Rights-of-way and easements
 
1
-
45
 
86,988

 
(6,185
)
 
80,803

 
73,409

 
(4,509
)
 
68,900

Water rights
 
13
-
30
 
100,936

 
(6,709
)
 
94,227

 
64,868

 
(3,018
)
 
61,850

Executory contracts and other agreements
 
5
-
30
 
55,029

 
(19,412
)
 
35,617

 
47,230

 
(17,212
)
 
30,018

Non-compete agreements
 
2
-
24
 
19,823

 
(5,259
)
 
14,564

 
12,723

 
(2,570
)
 
10,153

Debt issuance costs (1)
 
3
-
5
 
43,830

 
(33,448
)
 
10,382

 
42,345

 
(29,521
)
 
12,824

Total amortizable
 
 
 
 
 
2,201,328

 
(603,573
)
 
1,597,755

 
1,301,206

 
(503,117
)
 
798,089

Non-amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
 
 
 
2,800

 
—

 
2,800

 
2,800

 
—

 
2,800

Total
 
 
 
 
 
$
2,204,128

 
$
(603,573
)
 
$
1,600,555

 
$
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.

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 17.4 years.

Amortization expense is as follows for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
Recorded In
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation and amortization
 
$
36,039

 
$
27,018

 
$
96,116

 
$
81,100

Cost of sales
 
86

 
101

 
262

 
385

Interest expense
 
1,371

 
1,250

 
3,927

 
3,668

Operating expenses
 
110

 
—

 
372

 
—

Total
 
$
37,606

 
$
28,369

 
$
100,677

 
$
85,153


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).


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


Expected amortization of our intangible assets is as follows (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
39,679

2021
146,692

2022
133,534

2023
125,159

2024
118,961

Thereafter
1,033,730

Total
$
1,597,755



Note 8—Long-Term Debt

Our long-term debt consists of the following at the dates indicated:
 
 
December 31, 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
 
$
945,000

 
$
—

 
$
945,000

 
$
275,000

 
$
—

 
$
275,000

Working capital borrowings
 
447,000

 
—

 
447,000

 
896,000

 
—

 
896,000

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

 
(5,782
)
 
601,541

 
607,323

 
(6,916
)
 
600,407

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

 
(4,451
)
 
384,684

 
389,135

 
(5,092
)
 
384,043

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

 
(7,198
)
 
442,802

 
—

 
—

 
—

Term credit agreement
 
250,000

 
(2,832
)
 
247,168

 
—

 
—

 
—

Other long-term debt
 
4,845

 
—

 
4,845

 
5,331

 
—

 
5,331

 
 
3,093,303

 
(20,263
)
 
3,073,040

 
2,172,789

 
(12,008
)
 
2,160,781

Less: Current maturities
 
4,835

 
—

 
4,835

 
648

 
—

 
648

Long-term debt
 
$
3,088,468

 
$
(20,263
)
 
$
3,068,205

 
$
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 $1.6 million and $0.9 million during the three months ended December 31, 2019 and 2018, respectively, and $3.5 million and $3.4 million during the nine months ended December 31, 2019 and 2018, respectively.

Expected amortization of debt issuance costs is as follows (in thousands):
Fiscal Year Ending March 31,
 
 
2020 (three months)
 
$
1,922

2021
 
3,942

2022
 
3,929

2023
 
3,929

2024
 
3,305

Thereafter
 
3,236

Total
 
$
20,263




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


Credit Agreement

During the quarter, we utilized a portion of the accordion feature under our credit agreement (“Credit Agreement”) whereby two new lenders and one existing lender committed to provide an additional $150.0 million of commitments in total. The Credit Agreement provides up to $1.915 billion in aggregate commitments and consists of a revolving credit facility to fund working capital needs, which had a capacity of $641.5 million 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 $1.273 billion (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”) at December 31, 2019. We had letters of credit of $117.2 million on the Working Capital Facility at December 31, 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.

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, amend the covenant package to include the senior secured leverage ratio, interest coverage ratio and total leverage indebtedness ratio financial covenants (each as defined in the Credit Agreement). The new debt covenant levels are presented in the table below.

At December 31, 2019, the borrowings under the Credit Agreement had a weighted average interest rate of 4.07%, calculated as the weighted average LIBOR rate of 1.76% plus a margin of 2.25% for LIBOR borrowings and the prime rate of 4.75% plus a margin of 1.25% on alternate base rate borrowings. At December 31, 2019, the interest rate in effect on letters of credit was 2.25%. 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)
 
Coverage Ratio (2)
 
Indebtedness Ratio (1)
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 December 31, 2019, our senior secured leverage ratio was approximately 1.83 to 1, our interest coverage ratio was approximately 3.89 to 1, and our total leverage indebtedness ratio was approximately 5.00 to 1.

We were in compliance with the covenants under the Credit Agreement at December 31, 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. We filed a registration statement for the 2026 Notes with the SEC which became effective on January 22, 2020. Our exchange offer launched on January 23, 2020 and is set to expire on February 21, 2020, unless we decide to extend it.

At December 31, 2019, we were in compliance with the covenants under the indentures for all of the Senior Unsecured Notes.


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


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.

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 December 31, 2019, the borrowings under the Term Credit Agreement had an interest rate of 4.74% calculated as the LIBOR rate of 1.74% plus a margin of 3.00%.

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.

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.

Sawtooth Credit Agreement

On November 27, 2019, Sawtooth Caverns LLC (“Sawtooth”), a joint venture in which we own a 71.48% interest, entered into a credit agreement with Zions Bancorporation (doing business as “Amegy Bank”). The Sawtooth credit agreement has a capacity of $20.0 million. The commitments under the Sawtooth credit agreement expire on November 27, 2022. At December 31, 2019, no amounts had been borrowed under the Sawtooth credit agreement. Commitment fees are charged at a rate of 0.50% on any unused capacity.

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 $4.8 million at December 31, 2019.


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


Debt Maturity Schedule

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

 
$
—

 
$
—

 
$
161

 
$
161

2021
 
—

 
—

 
—

 
4,684

 
4,684

2022
 
1,392,000

 
—

 
—

 
—

 
1,392,000

2023
 
—

 
—

 
—

 
—

 
—

2024
 
—

 
607,323

 
—

 
—

 
607,323

Thereafter
 
—

 
839,135

 
250,000

 
—

 
1,089,135

Total
 
$
1,392,000

 
$
1,446,458

 
$
250,000

 
$
4,845

 
$
3,093,303



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 contend that the jury verdict, at least in respect of fraudulent misrepresentation, is not supportable by either controlling law or the evidentiary record. On December 5, 2019, in response to the defendants’ post-trial motion, the Court issued an Order overturning the jury’s damages award and ordering the case to be set for a damages-only trial. Both parties filed applications with the trial court asking the trial court to certify the December 5th Order for interlocutory, immediate review by the Appellate Court. On December 23, 2019, the trial court issued an Order certifying for immediate review by the appellate court the issue of whether the types of damages awarded by the jury are legally supportable since it was also determined by the Court that there was no contract between the parties. On January 7, 2020, the Supreme Court of Delaware entered an Order expanding the issues to be reviewed on appeal to include the additional issues raised by the NGL parties’ application - namely, whether the December 5th Order correctly set aside the jury’s $4.0 million quantum meruit award, whether certain jury instructions were correct and whether the evidence presented at trial supported the claims asserted by LCT. The Supreme Court consolidated the appeal proceedings for judicial efficiency; and set a briefing cycle for the parties whereby the appeal-related materials will likely be fully submitted by both parties by the Summer of 2020. 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 suit, 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 December 31, 2019, we have accrued $2.5 million related to this matter.

We are party to various other 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 December 31, 2019, we have an environmental liability, measured on an undiscounted basis, of $2.1 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

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


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. On December 18, 2019, we paid the final EPA settlement amount of $12.5 million.

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
1,125

Liabilities assumed in acquisitions
6,641

Liabilities settled
(642
)
Accretion expense
734

Balance at December 31, 2019
$
17,581



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.


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


Other Commitments

We have noncancelable agreements for product storage, railcar spurs and real estate. The following table summarizes future minimum payments under these agreements at December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
2,463

2021
6,453

2022
6,163

2023
4,502

2024
4,502

Thereafter
679

Total
$
24,762



Amounts in the table above do not include future minimum payments related to Mid-Con and Gas Blending as Mid-Con and Gas Blending have been classified as discontinued operations in our unaudited condensed consolidated statements of operations (see Note 16).

As part of the acquisition of Hillstone, discussed in Note 4, we assumed an obligation to pay a quarterly subsidy payment in the event that specified volumetric thresholds are not exceeded at a third-party facility. This agreement expires on December 31, 2022. For the three months and nine months ended December 31, 2019, we recorded $0.4 million within operating expense in our unaudited condensed consolidated statement of operations. At December 31, 2019, the range of potential payments we could be obligated to make pursuant to the subsidy agreement could be from $0.0 million to $9.7 million.

Pipeline Capacity Agreements

We have 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 assets recorded in prepaid expenses and other current assets and in other noncurrent 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). In 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.

The following table summarizes future minimum throughput payments under these agreements at December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
11,006

2021
35,314

2022
35,314

2023
35,314

2024
35,410

Thereafter
30,897

Total
$
183,255




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


Construction Commitments

At December 31, 2019, we had construction commitments of $6.5 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 December 31, 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 (three months)
 
$
49,160

 
824

 
$
8,410

 
14,526

2021
 
—

 
—

 
1,341

 
2,100

Total
 
$
49,160

 
824

 
$
9,751

 
16,626

 
 
 
 
 
 
 
 
 
Index-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2020 (three months)
 
$
684,946

 
11,730

 
$
198,694

 
421,949

2021
 
544,878

 
10,617

 
1,321

 
3,662

2022
 
394,385

 
8,264

 
—

 
—

2023
 
255,818

 
5,482

 
—

 
—

2024
 
190,259

 
4,110

 
—

 
—

Total
 
$
2,070,286

 
40,203

 
$
200,015

 
425,611


 
(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.

At December 31, 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 (three months)
 
$
45,605

 
750

 
$
99,333

 
123,418

2021
 
—

 
—

 
13,746

 
20,034

2022
 
—

 
—

 
157

 
203

Total
 
$
45,605

 
750

 
$
113,236

 
143,655

 
 
 
 
 
 
 
 
 
Index-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2020 (three months)
 
$
817,155

 
13,294

 
$
337,627

 
481,567

2021
 
23,367

 
390

 
28,365

 
46,659

Total
 
$
840,522

 
13,684

 
$
365,992

 
528,226



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).


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


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 $8.3 million of our prepaid expenses and other current assets and $5.3 million of our accrued expenses and other payables at December 31, 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. As of December 31, 2019, we owned 8.69% of our general partner.

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 nine months ended December 31, 2019, we issued 3,844 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 nine months ended December 31, 2019, and approximately $134.7 million remained available for sale under the ATM Program at December 31, 2019. The registration statement applicable to this program expired in July 2019.

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 December 31, 2019.

Our Distributions

The following table summarizes distributions declared on our common units during the last four 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

January 23, 2020
 
February 7, 2020
 
February 14, 2020
 
$
0.3900

 
$
50,056

 
$
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 December 31, 2019 as all Class A Preferred units have been redeemed,
compared to $18.6 million for the three months ended December 31, 2018 and $36.5 million and $40.4 million during the nine months ended December 31, 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).

The current distribution rate for the Class B Preferred Units is 9.00% 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 four 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

December 16, 2019
 
December 31, 2019
 
January 15, 2020
 
$
0.5625

 
$
7,079



The distribution amount paid on January 15, 2020 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at December 31, 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 three quarters:

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


 
 
 
 
 
 
 
 
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

December 16, 2019
 
December 31, 2019
 
January 15, 2020
 
$
0.6016

 
$
1,083



The distribution amount paid on January 15, 2020 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at December 31, 2019.

Class D Preferred Units

On July 2, 2019, 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).

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 private placement resulted in aggregate net proceeds to us of approximately $194.7 million (net of a closing fee of $5.3 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 ($183.6 million) and warrants ($11.1 million). Proceeds from this issuance of Class D Preferred Units were used to fund a portion of the purchase price for the Hillstone acquisition (see Note 4).

The holders of the Class D Preferred Units are 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).

The following table summarizes distributions declared on our Class D Preferred Units during the last two quarters:
 
 
 
 
 
 
 
 
Amount Paid to Class D
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Unit
 
Preferred Unitholders
 
 
 
 
 
 
 
 
(in thousands)
October 23, 2019
 
November 7, 2019
 
November 14, 2019
 
$
11.25

 
$
4,450

January 23, 2020
 
February 7, 2020
 
February 14, 2020
 
$
11.25

 
$
6,075



The distributions for the nine months ended December 31, 2019 of $10.5 million represented 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 Unit shall automatically increase by the non-cash accretion, which is approximately $10.5 million in the aggregate with respect to the distributions for the nine months ended December 31, 2019.


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


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 the 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 July 2, 2019 private placement are exercisable for, in the aggregate, 17,000,000 common units, of which 10,000,000 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 issued in the October 31, 2019 private placement are exercisable for, in the aggregate, 8,500,000 common units, of which, 5,000,000 were issued with an exercise price of $16.28 per common unit, and the remaining warrants to purchase 3,500,000 common units were issued with an exercise price of $13.56 per common unit. The warrants may be exercised from and after the first anniversary of the date of issuance. Unexercised warrants will expire on the tenth anniversary of the date of issuance. 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.

Registration Rights Agreement

In connection with the issuance of the Class D Preferred Units, we entered into a registration rights agreement (“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. The Registration Statement was filed with the SEC on December 27, 2019.


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


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 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 Class D 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 October 31, 2019, NGL Energy Holdings LLC executed the Seventh 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 nine months ended December 31, 2019:
Unvested Service Award units at March 31, 2019
 
2,308,400

Units granted
 
2,095,681

Units vested and issued
 
(2,470,756
)
Units forfeited
 
(152,425
)
Unvested Service Award units at December 31, 2019
 
1,780,900



In connection with the vesting of certain restricted units during the nine months ended December 31, 2019, we canceled 88,718 of the newly-vested common units in satisfaction of $1.2 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 December 31, 2019:
Fiscal Year Ending March 31,
 
 
2020 (three months)
 
443,725

2021
 
890,200

2022
 
446,975

Total
 
1,780,900



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.


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


During the three months ended December 31, 2019 and 2018, we recorded compensation expense related to Service Award units of $1.8 million and $3.4 million, respectively. During the nine months ended December 31, 2019 and 2018, we recorded compensation expense related to Service Award units of $6.6 million and $8.5 million, respectively.

Of the restricted units granted and vested during the nine months ended December 31, 2019, 1,886,131 units were granted for performance bonuses. 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 December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
 
2020 (three months)
 
$
1,697

2021
 
4,640

2022
 
1,579

Total
 
$
7,916



As of December 31, 2019, there are approximately 2.7 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.

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:
 
 
December 31, 2019
 
March 31, 2019
 
 
Derivative
Assets
 
Derivative
Liabilities
 
Derivative
Assets
 
Derivative
Liabilities

 
(in thousands)
Level 1 measurements
 
$
3,671

 
$
(9,877
)
 
$
3,754

 
$
(1,349
)
Level 2 measurements
 
8,819

 
(5,469
)
 
8,882

 
(5,119
)

 
12,490

 
(15,346
)
 
12,636

 
(6,468
)
 
 
 
 
 
 
 
 
 
Netting of counterparty contracts (1)
 
(3,824
)
 
3,824

 
(1,577
)
 
1,577

Net cash collateral provided (held)
 
14,460

 
6,105

 
1,740

 
(208
)
Commodity derivatives
 
$
23,126

 
$
(5,417
)
 
$
12,799

 
$
(5,099
)
 
(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.


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


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:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Prepaid expenses and other current assets
 
$
23,126

 
$
12,799

Accrued expenses and other payables
 
(5,353
)
 
(4,960
)
Other noncurrent liabilities
 
(64
)
 
(139
)
Net commodity derivative asset
 
$
17,709

 
$
7,700



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 December 31, 2019:
 
 
 
 
 
 
Crude oil fixed-price (1)
 
January 2020–December 2020
 
(4,359
)
 
$
(5,330
)
Propane fixed-price (1)
 
January 2020–March 2021
 
271

 
(1,332
)
Refined products fixed-price (1)
 
January 2020–January 2021
 
(327
)
 
(1,103
)
Other
 
January 2020–March 2022
 
 
 
4,909

 
 
 
 
 
 
(2,856
)
Net cash collateral provided
 
 
 
 
 
20,565

Net commodity derivative asset
 
 
 
 
 
$
17,709

 
 
 
 
 
 
 
At March 31, 2019:
 
 
 
 
 
 
Crude oil fixed-price (1)
 
April 2019–December 2020
 
(1,961
)
 
979

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

 
608

Refined products fixed-price (1)
 
April 2019–January 2021
 
(177
)
 
376

Other
 
April 2019–March 2022
 
 
 
4,205

 
 
 
 
 
 
6,168

Net cash collateral provided
 
 
 
 
 
1,532

Net commodity derivative asset
 
 
 
 
 
$
7,700

 
(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 December 31, 2019 and March 31, 2019 in the tables above do not include commodity derivative contract positions related to Mid-Con and Gas Blending, as these amounts have been classified as current and noncurrent assets and liabilities held for sale within our December 31, 2019 and March 31, 2019 unaudited condensed consolidated balance sheets (see Note 16). 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 nine months ended December 31, 2019, we recorded a net loss of $15.1 million and a net gain of $0.8 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 nine months ended December 31, 2018, we recorded net gains of $69.7 million and $30.0 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations. These amounts do not include net gains and losses related to Mid-

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


Con, Gas Blending, 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).

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 December 31, 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.

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 December 31, 2019, we had $1.4 billion of outstanding borrowings under the Revolving Credit Facility at a weighted average interest rate of 4.07%.

The Term Credit Agreement is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At December 31, 2019, we had $250.0 million of outstanding borrowings under the Term Credit Agreement at an interest rate of 4.74%.

Fair Value of Fixed-Rate Notes

The following table provides fair value estimates of our fixed-rate notes at December 31, 2019 (in thousands):
Senior Unsecured Notes:
 
2023 Notes
$
608,272

2025 Notes
$
366,273

2026 Notes
$
436,478



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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
Crude Oil Logistics:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Crude oil sales
 
$
646,296

 
$
718,621

 
$
1,925,039

 
$
2,300,703

Crude oil transportation and other
 
44,613

 
40,003

 
127,767

 
107,032

Non-Topic 606 revenues
 
3,585

 
2,909

 
10,825

 
9,291

Elimination of intersegment sales
 
(3,505
)
 
(10,353
)
 
(15,330
)
 
(21,962
)
Total Crude Oil Logistics revenues
 
690,989

 
751,180

 
2,048,301

 
2,395,064

Water Solutions:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Disposal service fees
 
94,218

 
55,470

 
226,635

 
167,573

Sale of recovered hydrocarbons
 
16,470

 
17,337

 
45,566

 
56,063

Freshwater revenues
 
5,634

 
651

 
9,737

 
1,939

Other service revenues
 
5,285

 
1,986

 
12,701

 
5,753

Non-Topic 606 revenues
 
—

 
14

 
—

 
39

Total Water Solutions revenues
 
121,607

 
75,458

 
294,639

 
231,367

Liquids:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Propane sales
 
309,668

 
372,224

 
564,820

 
793,605

Butane sales
 
226,730

 
222,412

 
396,776

 
481,459

Other product sales
 
145,082

 
151,246

 
376,148

 
471,547

Service revenues
 
5,181

 
7,616

 
22,230

 
17,509

Non-Topic 606 revenues
 
5,506

 
6,314

 
14,658

 
16,506

Elimination of intersegment sales
 
(6,542
)
 
(10,379
)
 
(12,851
)
 
(20,854
)
Total Liquids revenues
 
685,625

 
749,433

 
1,361,781

 
1,759,772

Refined Products and Renewables:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Refined products sales
 
627,590

 
650,780

 
1,942,146

 
1,944,959

Non-Topic 606 revenues
 
100,438

 
68,199

 
255,090

 
233,775

Total Refined Products and Renewables revenues
 
728,028

 
718,979

 
2,197,236

 
2,178,734

Corporate and Other:
 
 
 
 
 
 
 
 
Non-Topic 606 revenues
 
280

 
319

 
799

 
1,066

Total Corporate and Other revenues
 
280

 
319

 
799

 
1,066

Total revenues
 
$
2,226,529

 
$
2,295,369

 
$
5,902,756

 
$
6,566,003



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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Depreciation and Amortization:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
17,950

 
$
18,387

 
$
53,228

 
$
56,566

Water Solutions
 
48,184

 
27,561

 
114,438

 
79,212

Liquids
 
6,833

 
6,449

 
20,718

 
19,449

Refined Products and Renewables
 
197

 
233

 
578

 
699

Corporate and Other
 
3,752

 
2,975

 
9,651

 
9,340

Total depreciation and amortization
 
$
76,916

 
$
55,605

 
$
198,613

 
$
165,266

 
 
 
 
 
 
 
 
 
Operating Income (Loss):
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
28,696

 
$
32,022

 
$
101,018

 
$
(36,694
)
Water Solutions
 
(583
)
 
86,737

 
34,380

 
97,476

Liquids
 
64,084

 
21,532

 
80,965

 
34,913

Refined Products and Renewables
 
24,954

 
20,552

 
32,242

 
4,516

Corporate and Other
 
(20,756
)
 
(16,394
)
 
(74,575
)
 
(69,176
)
Total operating income
 
$
96,395

 
$
144,449

 
$
174,030

 
$
31,035



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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Crude Oil Logistics
 
$
4,953

 
$
6,169

 
$
23,817

 
$
21,701

Water Solutions
 
692,826

 
115,928

 
1,838,237

 
463,423

Liquids
 
2,641

 
357

 
13,465

 
1,738

Refined Products and Renewables
 
—

 
—

 
224

 
—

Corporate and Other
 
2,427

 
248

 
5,485

 
846

Total
 
$
702,847

 
$
122,702

 
$
1,881,228

 
$
487,708


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:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Long-lived assets, net:
 
 
 
 
Crude Oil Logistics
 
$
1,581,887

 
$
1,584,636

Water Solutions
 
3,523,877

 
1,600,836

Liquids (1)
 
616,602

 
498,767

Refined Products and Renewables
 
38,790

 
29,477

Corporate and Other
 
33,707

 
26,569

Total
 
$
5,794,863

 
$
3,740,285


 
(1)
Includes $28.9 million and $0.5 million of non-US long-lived assets at December 31, 2019 and March 31, 2019, respectively.

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



 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Total assets:
 
 
 
 
Crude Oil Logistics
 
$
2,155,695

 
$
2,237,612

Water Solutions
 
3,676,248

 
1,668,292

Liquids (1)
 
967,024

 
721,008

Refined Products and Renewables
 
264,468

 
383,026

Corporate and Other
 
84,027

 
77,019

Assets held for sale
 
95,093

 
815,536

Total
 
$
7,242,555

 
$
5,902,493

 
(1)
Includes $48.7 million and $12.0 million of non-US total assets at December 31, 2019 and March 31, 2019, respectively.

The tables above do not include amounts related to Mid-Con, Gas Blending, 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 and December 31, 2019 balance sheet for Mid-Con and Gas Blending (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 produced water 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. In December 2019, Energy Transfer LP (“ET”) acquired SemGroup. During the three months ended December 31, 2019, we reevaluated our related parties and determined that SemGroup/ET no longer meet the criteria to be disclosed as a related party. For the tables below, information disclosed in prior periods have been retained but we have not disclosed any information related to transactions for the three months ended December 31, 2019.

The following table summarizes these related party transactions for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Sales to WPX
 
$
13,888

 
$
8,779

 
$
36,716

 
$
18,550

Purchases from WPX (1)
 
$
81,578

 
$
91,391

 
$
247,745

 
$
248,718

Sales to SemGroup
 
 
 
$
257

 
$
458

 
$
926

Purchases from SemGroup
 
 
 
$
—

 
$
—

 
$
1,337

Sales to entities affiliated with management
 
$
3,642

 
$
4,691

 
$
5,362

 
$
10,336

Purchases from entities affiliated with management
 
$
953

 
$
675

 
$
3,068

 
$
2,481

Purchases from equity method investees
 
$
188

 
$
—

 
$
317

 
$
—


 
(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:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Receivables from NGL Energy Holdings LLC
 
$
8,332

 
$
7,277

Receivables from WPX
 
3,573

 
5,185

Receivables from SemGroup
 


 
71

Receivables from entities affiliated with management
 
540

 
334

Total
 
$
12,445

 
$
12,867



Accounts payable to affiliates consist of the following at the dates indicated:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Payables to WPX
 
$
28,509

 
$
27,844

Payables to entities affiliated with management
 
629

 
625

Payables to equity method investees
 
236

 
—

Total
 
$
29,374

 
$
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 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.

During the three months ended December 31, 2019, we purchased a 1.08% interest in our general partner, NGL Energy Holdings LLC, for $1.4 million in cash and accounted for this as a deduction within limited partners’ equity in our unaudited condensed consolidated balance sheet.

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

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


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 December 31, 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 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 $1.2 million of net losses related to changes in the mark-to-market value of these arrangements recorded during the nine months ended December 31, 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 December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
69,796

2021
217,453

2022
208,223

2023
202,046

2024
171,541

Thereafter
305,061

Total
$
1,174,120



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
 
December 31, 2019
 
 
(in thousands)
Accounts receivable from contracts with customers
 
$
613,827

 
$
602,350

Contract liabilities at March 31, 2019
 
$
8,461

Payment received and deferred
 
49,098

Payment recognized in revenue
 
(27,566
)
Contract liabilities at December 31, 2019
 
$
29,993


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.


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


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.

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 December 31, 2019, we had operating lease right-of-use assets of $183.1 million and current and noncurrent operating lease obligations of $57.1 million and $122.8 million, respectively, on our unaudited condensed consolidated balance sheet. At December 31, 2019, the weighted-average remaining lease term and weighted-average discount rate for our operating leases was 6.46 years and 5.81%, respectively.

The following table summarizes the components of our lease expense for the periods indicated:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2019
 
2019
 
(in thousands)
Operating lease cost
$
22,320

 
$
66,707

Variable lease cost
6,170

 
11,835

Short-term lease cost
219

 
478

Total lease cost
$
28,709

 
$
79,020



Amounts in the table above do not include lease expense related to TPSL and Gas Blending, as these amounts have been classified within discontinued operations within 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)



Rental expense relating to operating leases was $22.0 million and $69.1 million during the three months and nine months ended December 31, 2018, respectively. These amounts do not include rental expense related to Mid-Con, Gas Blending, 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).

The following table summarizes maturities of our operating lease liabilities at December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
17,154

2021
60,126

2022
41,674

2023
28,974

2024
17,139

Thereafter
59,910

Total lease payments
224,977

Less imputed interest
(45,088
)
Total operating lease liabilities
$
179,889



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
$
78,348

2021
60,417

2022
43,259

2023
29,252

2024
18,341

Thereafter
41,845

Total
$
271,462



Amounts in the table above do not include future minimum lease payments related to Mid-Con, Gas Blending and TPSL, which have 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:
 
Nine Months Ended December 31,
 
2019
 
(in thousands)
Cash paid for amounts included in the measurement of operating lease liabilities
$
81,779

Operating lease right-of-use assets obtained in exchange for operating lease obligations
$
584,538

 

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 December 31, 2019, fixed rental revenue was $4.9 million, which includes $1.3 million of sublease revenue. During the nine months ended December 31, 2019, fixed rental revenue was $15.8 million, which includes $3.7 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 December 31, 2019 (in thousands):
Fiscal Year Ending March 31,
 
2020 (three months)
$
4,814

2021
16,190

2022
6,634

2023
5,387

2024
5,057

Thereafter
16,282

Total
$
54,364



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

As discussed in Note 1, we have classified certain assets and liabilities of the Mid-Con and Gas Blending businesses as held for sale and the operations as discontinued. On January 3, 2020, we completed the sale of Mid-Con to a third-party. See Note 1 for a further discussion.

As discussed in Note 1, the assets and liabilities of TPSL have been classified 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, 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, and the operations of our Retail Propane segment have been classified as discontinued. See Note 1 for a further discussion.


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


The following table summarizes the major classes of assets and liabilities of Mid-Con, Gas Blending and TPSL classified as held for sale at the dates indicated:
 
 
December 31, 2019
 
March 31, 2019
 
 
(in thousands)
Current Assets Held for Sale
 
 
 
 
Accounts receivable-trade, net
 
$
—

 
$
164,716

Inventories
 
44,500

 
327,015

Operating lease right-of-use assets
 
19,873

 
—

Prepaid expenses and other current assets
 
28,027

 
89,254

Goodwill
 
2,693

 
—

Total current assets held for sale
 
95,093

 
580,985

Noncurrent Assets Held for Sale
 
 
 
 
Property, plant and equipment, net
 
—

 
15,553

Goodwill
 
—

 
35,405

Intangible assets, net
 
—

 
137,446

Other noncurrent assets (1)
 
—

 
46,147

Total noncurrent assets held for sale
 
—

 
234,551

Total assets held for sale
 
$
95,093

 
$
815,536

 
 
 
 
 
Current Liabilities Held for Sale
 
 
 
 
Accounts payable-trade
 
$
—

 
$
85,602

Accrued expenses and other payables
 
21,026

 
140,691

Advance payments received from customers
 
—

 
460

Operating lease obligations
 
19,873

 
—

Total current liabilities held for sale
 
40,899

 
226,753

Noncurrent Liabilities Held for Sale
 
 
 
 
Other noncurrent liabilities
 
—

 
33

Total noncurrent liabilities held for sale
 
—

 
33

Total liabilities held for sale
 
$
40,899

 
$
226,786

 
(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.


45
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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Revenues
 
$
1,938,398

 
$
4,081,451

 
$
10,493,630

 
$
12,380,744

Cost of sales
 
1,936,324

 
4,065,723

 
10,497,492

 
12,310,152

Operating expenses
 
397

 
2,587

 
5,898

 
34,572

General and administrative expense
 
—

 
20

 
53

 
2,699

Depreciation and amortization
 
—

 
153

 
749

 
9,164

Loss (gain) on disposal or impairment of assets, net (1)
 
7,791

 
(263
)
 
182,240

 
(407,646
)
Operating (loss) income from discontinued operations
 
(6,114
)
 
13,231

 
(192,802
)
 
431,803

Equity in earnings of unconsolidated entities
 
—

 
—

 
—

 
1,183

Interest expense
 
(1
)
 
—

 
(111
)
 
(126
)
Other income, net
 
—

 
105

 
133

 
773

(Loss) income from discontinued operations before taxes (2)
 
(6,115
)
 
13,336

 
(192,780
)
 
433,633

Income tax expense
 
—

 
(7
)
 
(20
)
 
(132
)
(Loss) income from discontinued operations, net of tax
 
$
(6,115
)
 
$
13,329

 
$
(192,800
)
 
$
433,501

 
(1)
Amount for the nine months ended December 31, 2019 includes a loss of $181.2 million on the sale of TPSL and a loss of $1.0 million on the sale of virtually all of our remaining Retail Propane segment to Superior on July 10, 2018. Amount for the nine months ended December 31, 2018 includes a gain of $408.9 million on the sale of virtually all of our remaining Retail Propane segment to Superior on July 10, 2018, partially offset by a loss of $1.3 million on the sale of a portion of our Retail Propane segment to DCC on March 30, 2018 related to a working capital adjustment.
(2)
Amount includes a loss attributable to redeemable noncontrolling interests of $0.4 million for the nine months ended December 31, 2018.

Continuing Involvement

As of December 31, 2019, we have commitments to purchase 1.1 million gallons of finished gasoline, valued at $1.7 million (based on the contract price), from Trajectory, the purchaser of TPSL, through January 2020. During the three months and nine months ended December 31, 2019, we received $3.6 million and $3.6 million, respectively, from Trajectory for finished gasoline sold to them during the period. During the three months and nine months ended December 31, 2019, we paid $1.8 million and $1.8 million, respectively, to Trajectory for finished gasoline purchased from them during the period.

As of December 31, 2019, we have commitments to sell up to 30.9 million gallons of propane, valued at $18.1 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 nine months ended December 31, 2019, we received a combined $3.8 million and $7.5 million, respectively, from Superior and DCC LPG for propane sold to them during the period.

Note 17—Subsequent Events

On January 3, 2020, we completed the sale of our Mid-Con business. The business was sold to a third-party whom purchased the inventory and open derivative positions and assumed the Partnership’s obligations under certain system storage agreements. The Partnership retained all of the outstanding accounts receivable and accounts payable balances associated with this business that related to transactions prior to the closing date. To facilitate the assignment of the system storage agreements, the Partnership paid $6.3 million. See Note 1 and Note 16 for a further discussion of the transaction.

On January 31, 2020, we paid Trajectory $41.7 million, which includes interest charges through the date of payment, related to the final working capital adjustment for the sale of TPSL. See Note 1 and Note 16 for a further discussion of the transaction.
 

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


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 (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.

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. 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, certain assets and liabilities related to Mid-Con and Gas Blending and 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 December 31, 2019 unaudited condensed consolidated balance sheet for Mid-Con and Gas Blending and the results of operations and cash flows related to Mid-Con, Gas Blending, 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.


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



Unaudited Condensed Consolidating Balance Sheet
(in Thousands)
 
 
December 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
 
$
182,635

 
$
—

 
$
(174,771
)
 
$
4,144

 
$
—

 
$
12,008

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

 
—

 
947,307

 
227

 
—

 
947,534

Accounts receivable-affiliates
 
—

 
—

 
12,445

 
—

 
—

 
12,445

Inventories
 
—

 
—

 
182,977

 
761

 
—

 
183,738

Prepaid expenses and other current assets
 
—

 
—

 
90,239

 
455

 
—

 
90,694

Assets held for sale
 
—

 
—

 
95,093

 
—

 
—

 
95,093

Total current assets
 
182,635

 
—

 
1,153,290

 
5,587

 
—

 
1,341,512

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
 
—

 
—

 
2,510,670

 
193,442

 
—

 
2,704,112

GOODWILL
 
—

 
—

 
1,301,880

 
5,175

 
—

 
1,307,055

INTANGIBLE ASSETS, net of accumulated amortization
 
—

 
—

 
1,530,120

 
70,435

 
—

 
1,600,555

INVESTMENTS IN UNCONSOLIDATED ENTITIES
 
—

 
—

 
22,236

 
—

 
—

 
22,236

NET INTERCOMPANY RECEIVABLES (PAYABLES)
 
1,768,795

 
—

 
(1,699,213
)
 
(69,582
)
 
—

 
—

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES
 
2,019,081

 
—

 
123,793

 
—

 
(2,142,874
)
 
—

OPERATING LEASE RIGHT-OF-USE ASSETS
 
—

 
—

 
178,607

 
4,534

 
—

 
183,141

OTHER NONCURRENT ASSETS
 
—

 
—

 
83,944

 
—

 
—

 
83,944

Total assets
 
$
3,970,511

 
$
—

 
$
5,205,327

 
$
209,591

 
$
(2,142,874
)
 
$
7,242,555

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

 
$
—

 
$
846,667

 
$
100

 
$
—

 
$
846,767

Accounts payable-affiliates
 
1

 
—

 
29,373

 
—

 
—

 
29,374

Accrued expenses and other payables
 
30,537

 
—

 
321,126

 
1,185

 
—

 
352,848

Advance payments received from customers
 
—

 
—

 
27,108

 
2,885

 
—

 
29,993

Current maturities of long-term debt
 
—

 
—

 
4,835

 
—

 
—

 
4,835

Operating lease obligations
 
—

 
—

 
56,747

 
344

 
—

 
57,091

Liabilities held for sale
 
—

 
—

 
40,899

 
—

 
—

 
40,899

Total current liabilities
 
30,538

 
—

 
1,326,755

 
4,514

 
—

 
1,361,807

LONG-TERM DEBT, net of debt issuance costs and current maturities
 
1,429,027

 
—

 
1,639,178

 
—

 
—

 
3,068,205

OPERATING LEASE OBLIGATIONS
 
—

 
—

 
118,847

 
3,951

 
—

 
122,798

OTHER NONCURRENT LIABILITIES
 
—

 
—

 
101,466

 
2,594

 
—

 
104,060

CLASS D 9.00% PREFERRED UNITS
 
531,768

 
—

 
—

 
—

 
—

 
531,768

EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity
 
1,979,178

 
—

 
2,019,081

 
198,780

 
(2,217,613
)
 
1,979,426

Accumulated other comprehensive loss
 
—

 
—

 
—

 
(248
)
 
—

 
(248
)
Noncontrolling interests
 
—

 
—

 
—

 
—

 
74,739

 
74,739

Total equity
 
1,979,178

 
—

 
2,019,081

 
198,532

 
(2,142,874
)
 
2,053,917

Total liabilities and equity
 
$
3,970,511

 
$
—

 
$
5,205,327

 
$
209,591

 
$
(2,142,874
)
 
$
7,242,555


48
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
 
—

 
—

 
135,094

 
1,034

 
—

 
136,128

Prepaid expenses and other current assets
 
—

 
—

 
65,443

 
475

 
—

 
65,918

Assets held for sale
 
—

 
—

 
580,985

 
—

 
—

 
580,985

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
 
—

 
—

 
1,105,281

 
5,175

 
—

 
1,110,456

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
 
—

 
—

 
234,551

 
—

 
—

 
234,551

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

 
—

 
80,765

 
1,497

 
—

 
107,759

Advance payments received from customers
 
—

 
—

 
7,550

 
911

 
—

 
8,461

Current maturities of long-term debt
 
—

 
—

 
648

 
—

 
—

 
648

Liabilities held for sale
 
—

 
—

 
226,753

 
—

 
—

 
226,753

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
 
—

 
—

 
60,961

 
2,581

 
—

 
63,542

NONCURRENT LIABILITIES HELD FOR SALE
 
—

 
—

 
33

 
—

 
—

 
33

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



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 December 31, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
2,223,900

 
$
5,127

 
$
(2,498
)
 
$
2,226,529

COST OF SALES
 
—

 
—

 
1,937,767

 
36

 
(2,331
)
 
1,935,472

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 
—

 
—

 
92,180

 
2,399

 
(167
)
 
94,412

General and administrative
 
—

 
—

 
28,952

 
198

 
—

 
29,150

Depreciation and amortization
 
—

 
—

 
70,396

 
3,330

 
—

 
73,726

Gain on disposal or impairment of assets, net
 
—

 
—

 
(12,626
)
 
—

 
—

 
(12,626
)
Revaluation of liabilities
 
—

 
—

 
10,000

 
—

 
—

 
10,000

Operating Income (Loss)
 
—

 
—

 
97,231

 
(836
)
 
—

 
96,395

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

 
—

 
534

 
—

 
—

 
534

Interest expense
 
(26,664
)
 
—

 
(20,241
)
 
(26
)
 
11

 
(46,920
)
Other (expense) income, net
 
—

 
—

 
(229
)
 
14

 
(11
)
 
(226
)
(Loss) Income From Continuing Operations Before Income Taxes
 
(26,664
)
 
—

 
77,295

 
(848
)
 
—

 
49,783

INCOME TAX EXPENSE
 
—

 
—

 
(677
)
 
—

 
—

 
(677
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
69,821

 
—

 
(682
)
 
—

 
(69,139
)
 
—

Income (Loss) From Continuing Operations
 
43,157

 
—

 
75,936

 
(848
)
 
(69,139
)
 
49,106

Loss From Discontinued Operations, Net of Tax
 
—

 
—

 
(6,115
)
 
—

 
—

 
(6,115
)
Net Income (Loss)
 
43,157

 
—

 
69,821

 
(848
)
 
(69,139
)
 
42,991

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
166

 
166

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
43,157

 
$
—

 
$
69,821

 
$
(848
)
 
$
(68,973
)
 
$
43,157


50
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 December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
2,292,268

 
$
4,286

 
$
(1,185
)
 
$
2,295,369

COST OF SALES
 
—

 
—

 
2,049,328

 
518

 
(1,185
)
 
2,048,661

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 
—

 
—

 
58,389

 
2,076

 
—

 
60,465

General and administrative
 
—

 
—

 
24,599

 
160

 
—

 
24,759

Depreciation and amortization
 
—

 
—

 
50,724

 
2,557

 
—

 
53,281

Gain on disposal or impairment of assets, net
 
—

 
—

 
(36,246
)
 
—

 
—

 
(36,246
)
Operating Income (Loss)
 
—

 
—

 
145,474

 
(1,025
)
 
—

 
144,449

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

 
—

 
1,777

 
—

 
—

 
1,777

Interest expense
 
(24,026
)
 
—

 
(15,124
)
 
(12
)
 
11

 
(39,151
)
Loss on early extinguishment of liabilities, net
 
(10,083
)
 
—

 
—

 
—

 
—

 
(10,083
)
Other income, net
 
—

 
—

 
1,198

 
—

 
(11
)
 
1,187

(Loss) Income From Continuing Operations Before Income Taxes
 
(34,109
)
 
—

 
133,325

 
(1,037
)
 
—

 
98,179

INCOME TAX EXPENSE
 
—

 
—

 
(980
)
 
—

 
—

 
(980
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
144,944

 
—

 
(730
)
 
—

 
(144,214
)
 
—

Income (Loss) From Continuing Operations
 
110,835

 
—

 
131,615

 
(1,037
)
 
(144,214
)
 
97,199

Income From Discontinued Operations, Net of Tax
 
—

 
—

 
13,329

 
—

 
—

 
13,329

Net Income (Loss)
 
110,835

 
—

 
144,944

 
(1,037
)
 
(144,214
)
 
110,528

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
307

 
307

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
110,835

 
$
—

 
$
144,944

 
$
(1,037
)
 
$
(143,907
)
 
$
110,835




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



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Nine Months Ended December 31, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
5,869,693

 
$
38,501

 
$
(5,438
)
 
$
5,902,756

COST OF SALES
 
—

 
—

 
5,218,841

 
535

 
(4,771
)
 
5,214,605

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 
—

 
—

 
217,662

 
13,615

 
(667
)
 
230,610

General and administrative
 
—

 
—

 
92,730

 
670

 
—

 
93,400

Depreciation and amortization
 
—

 
—

 
180,630

 
9,963

 
—

 
190,593

Gain on disposal or impairment of assets, net
 
—

 
—

 
(10,478
)
 
(4
)
 
—

 
(10,482
)
Revaluation of liabilities
 
—

 
—

 
10,000

 
—

 
—

 
10,000

Operating Income
 
—

 
—

 
160,308

 
13,722

 
—

 
174,030

OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
 
—

 
—

 
277

 
—

 
—

 
277

Interest expense
 
(79,119
)
 
—

 
(52,680
)
 
(49
)
 
34

 
(131,814
)
Other income, net
 
—

 
—

 
947

 
54

 
(34
)
 
967

(Loss) Income From Continuing Operations Before Income Taxes
 
(79,119
)
 
—

 
108,852

 
13,727

 
—

 
43,460

INCOME TAX EXPENSE
 
—

 
—

 
(996
)
 
—

 
—

 
(996
)
EQUITY IN NET (LOSS) INCOME FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
(70,654
)
 
—

 
14,290

 
—

 
56,364

 
—

(Loss) Income From Continuing Operations
 
(149,773
)
 
—

 
122,146

 
13,727

 
56,364

 
42,464

Loss From Discontinued Operations, Net of Tax
 
—

 
—

 
(192,800
)
 
—

 
—

 
(192,800
)
Net (Loss) Income
 
(149,773
)
 
—

 
(70,654
)
 
13,727

 
56,364

 
(150,336
)
LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 

 
 

 
 

 
 

 
563

 
563

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(149,773
)
 
$
—

 
$
(70,654
)
 
$
13,727

 
$
56,927

 
$
(149,773
)

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



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Nine Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$
—

 
$
—

 
$
6,558,089

 
$
10,768

 
$
(2,854
)
 
$
6,566,003

COST OF SALES
 
—

 
—

 
6,049,032

 
495

 
(2,854
)
 
6,046,673

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 
—

 
—

 
166,013

 
6,206

 
—

 
172,219

General and administrative
 
—

 
—

 
85,737

 
691

 
—

 
86,428

Depreciation and amortization
 
—

 
—

 
150,093

 
7,678

 
—

 
157,771

Loss on disposal or impairment of assets, net
 
—

 
—

 
71,077

 
—

 
—

 
71,077

Revaluation of liabilities
 
—

 
—

 
800

 
—

 
—

 
800

Operating Income (Loss)
 
—

 
—

 
35,337

 
(4,302
)
 
—

 
31,035

OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
 
—

 
—

 
2,375

 
—

 
—

 
2,375

Interest expense
 
(83,011
)
 
—

 
(43,764
)
 
(35
)
 
34

 
(126,776
)
Loss on early extinguishment of liabilities, net
 
(10,220
)
 
—

 
—

 
—

 
—

 
(10,220
)
Other expense, net
 
—

 
—

 
(31,196
)
 
—

 
(219
)
 
(31,415
)
Loss From Continuing Operations Before Income Taxes
 
(93,231
)
 
—

 
(37,248
)
 
(4,337
)
 
(185
)
 
(135,001
)
INCOME TAX EXPENSE
 
—

 
—

 
(2,322
)
 
—

 
—

 
(2,322
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
391,025

 
—

 
(3,750
)
 
—

 
(387,275
)
 
—

Income (Loss) From Continuing Operations
 
297,794

 
—

 
(43,320
)
 
(4,337
)
 
(387,460
)
 
(137,323
)
Income (Loss) From Discontinued Operations, Net of Tax
 
—

 
—

 
434,345

 
(1,029
)
 
185

 
433,501

Net Income (Loss)
 
297,794

 
—

 
391,025

 
(5,366
)
 
(387,275
)
 
296,178

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
1,170

 
1,170

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
446

 
446

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
297,794

 
$
—

 
$
391,025

 
$
(5,366
)
 
$
(385,659
)
 
$
297,794




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



Unaudited Condensed Consolidating Statements of Comprehensive Income (Loss)
(in Thousands)
 
 
Three Months Ended December 31, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
43,157

 
$
—

 
$
69,821

 
$
(848
)
 
$
(69,139
)
 
$
42,991

Other comprehensive (loss) income
 
—

 
—

 
(1
)
 
17

 
—

 
16

Comprehensive income (loss)
 
$
43,157

 
$
—

 
$
69,820

 
$
(831
)
 
$
(69,139
)
 
$
43,007


 
 
Three Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
110,835

 
$
—

 
$
144,944

 
$
(1,037
)
 
$
(144,214
)
 
$
110,528

Other comprehensive loss
 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Comprehensive income (loss)
 
$
110,835

 
$
—

 
$
144,944

 
$
(1,040
)
 
$
(144,214
)
 
$
110,525



 
 
Nine Months Ended December 31, 2019
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net (loss) income
 
$
(149,773
)
 
$
—

 
$
(70,654
)
 
$
13,727

 
$
56,364

 
$
(150,336
)
Other comprehensive income (loss)
 
—

 
—

 
17

 
(10
)
 
—

 
7

Comprehensive (loss) income
 
$
(149,773
)
 
$
—

 
$
(70,637
)
 
$
13,717

 
$
56,364

 
$
(150,329
)

 
 
Nine Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
297,794

 
$
—

 
$
391,025

 
$
(5,366
)
 
$
(387,275
)
 
$
296,178

Other comprehensive loss
 
—

 
—

 
(1
)
 
(26
)
 
—

 
(27
)
Comprehensive income (loss)
 
$
297,794

 
$
—

 
$
391,024

 
$
(5,392
)
 
$
(387,275
)
 
$
296,151






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



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Nine Months Ended December 31, 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
 
$
(74,889
)
 
$
—

 
$
308,905

 
$
39,572

 
$
273,588

Net cash provided by operating activities-discontinued operations
 
—

 
—

 
59,890

 
—

 
59,890

Net cash (used in) provided by operating activities
 
(74,889
)
 
—

 
368,795

 
39,572

 
333,478

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
—

 
—

 
(380,050
)
 
(47,203
)
 
(427,253
)
Acquisitions, net of cash acquired
 
—

 
—

 
(1,262,853
)
 
—

 
(1,262,853
)
Net settlements of commodity derivatives
 
—

 
—

 
2,735

 
—

 
2,735

Proceeds from sales of assets
 
—

 
—

 
17,052

 
4

 
17,056

Investments in unconsolidated entities
 
—

 
—

 
(21,272
)
 
—

 
(21,272
)
Distributions of capital from unconsolidated entities
 
—

 
—

 
440

 
—

 
440

Repayments on loan for natural gas liquids facility
 
—

 
—

 
3,022

 
—

 
3,022

Net cash used in investing activities-continuing operations
 
—

 
—

 
(1,640,926
)
 
(47,199
)
 
(1,688,125
)
Net cash provided by investing activities-discontinued operations
 
—

 
—

 
281,908

 
—

 
281,908

Net cash used in investing activities
 
—

 
—

 
(1,359,018
)
 
(47,199
)
 
(1,406,217
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
—

 
—

 
3,461,000

 
—

 
3,461,000

Payments on Revolving Credit Facility
 
—

 
—

 
(3,240,000
)
 
—

 
(3,240,000
)
Issuance of senior unsecured notes and term credit agreement
 
450,000

 
—

 
250,000

 
—

 
700,000

Payments on other long-term debt
 
—

 
—

 
(489
)
 
—

 
(489
)
Debt issuance costs
 
(8,034
)
 
—

 
(5,164
)
 
—

 
(13,198
)
Distributions to general and common unit partners and preferred unitholders
 
(180,021
)
 
—

 
—

 
—

 
(180,021
)
Distributions to noncontrolling interest owners
 
—

 
—

 
—

 
(570
)
 
(570
)
Proceeds from sale of preferred units, net of offering costs
 
622,965

 
—

 
—

 
—

 
622,965

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

 
—

 
—

 
(265,128
)
Common unit repurchases and cancellations
 
(1,205
)
 
—

 
—

 
—

 
(1,205
)
Payments for settlement and early extinguishment of liabilities
 
—

 
—

 
(1,953
)
 
—

 
(1,953
)
Investment in NGL Energy Holdings LLC
 
(15,226
)
 
—

 
—

 
—

 
(15,226
)
Net changes in advances with consolidated entities
 
(358,625
)
 
—

 
348,330

 
10,295

 
—

Net cash provided by financing activities
 
244,726

 
—

 
811,724

 
9,725

 
1,066,175

Net increase (decrease) in cash and cash equivalents
 
169,837

 
—

 
(178,499
)
 
2,098

 
(6,564
)
Cash and cash equivalents, beginning of period
 
12,798

 
—

 
3,728

 
2,046

 
18,572

Cash and cash equivalents, end of period
 
$
182,635

 
$
—

 
$
(174,771
)
 
$
4,144

 
$
12,008


55
NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Nine Months Ended December 31, 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
 
$
(92,619
)
 
$
—

 
$
92,240

 
$
3,759

 
$
(185
)
 
$
3,195

Net cash provided by operating activities-discontinued operations
 
—

 
—

 
109,242

 
3,221

 
—

 
112,463

Net cash (used in) provided by operating activities
 
(92,619
)
 
—

 
201,482

 
6,980

 
(185
)
 
115,658

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
—

 
—

 
(301,883
)
 
(2,106
)
 
—

 
(303,989
)
Acquisitions, net of cash acquired
 
—

 
—

 
(194,044
)
 
(3,927
)
 
—

 
(197,971
)
Net settlements of commodity derivatives
 
—

 
—

 
5,066

 
—

 
—

 
5,066

Proceeds from sales of assets
 
—

 
—

 
8,335

 
—

 
—

 
8,335

Proceeds from divestitures of businesses and investments, net
 
—

 
—

 
103,594

 
—

 
—

 
103,594

Investments in unconsolidated entities
 
—

 
—

 
(92
)
 
—

 
—

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

 
—

 
8,371

 
—

 
—

 
8,371

Loan to affiliate
 
—

 
—

 
(1,515
)
 
—

 
—

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

 
—

 
(372,168
)
 
(6,033
)
 
—

 
(378,201
)
Net cash provided by investing activities-discontinued operations
 
—

 
—

 
929,709

 
6,982

 
—

 
936,691

Net cash provided by investing activities
 
—

 
—

 
557,541

 
949

 
—

 
558,490

FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
—

 
—

 
2,956,500

 
—

 
—

 
2,956,500

Payments on Revolving Credit Facility
 
—

 
—

 
(3,037,000
)
 
—

 
—

 
(3,037,000
)
Repayment and repurchase of senior unsecured notes
 
(395,471
)
 
—

 
—

 
—

 
—

 
(395,471
)
Payments on other long-term debt
 
—

 
—

 
(488
)
 
—

 
—

 
(488
)
Debt issuance costs
 
(16
)
 
—

 
(899
)
 
—

 
—

 
(915
)
Contributions from noncontrolling interest owners, net
 
—

 
—

 
—

 
169

 
—

 
169

Distributions to general and common unit partners and preferred unitholders
 
(177,003
)
 
—

 
—

 
—

 
—

 
(177,003
)
Repurchase of warrants
 
(14,988
)
 
—

 
—

 
—

 
—

 
(14,988
)
Common unit repurchases and cancellations
 
(162
)
 
—

 
—

 
—

 
—

 
(162
)
Payments for settlement and early extinguishment of liabilities
 
—

 
—

 
(3,534
)
 
—

 
—

 
(3,534
)
Net changes in advances with consolidated entities
 
669,236

 
—

 
(661,753
)
 
(7,668
)
 
185

 
—

Net cash provided by (used in) financing activities-continuing operations
 
81,596

 
—

 
(747,174
)
 
(7,499
)
 
185

 
(672,892
)
Net cash used in financing activities-discontinued operations
 
—

 
—

 
(295
)
 
(30
)
 
—

 
(325
)
Net cash provided by (used in) financing activities
 
81,596

 
—

 
(747,469
)
 
(7,529
)
 
185

 
(673,217
)
Net (decrease) increase in cash and cash equivalents
 
(11,023
)
 
—

 
11,554

 
400

 
—

 
931

Cash and cash equivalents, beginning of period
 
16,915

 
—

 
3,329

 
1,850

 
—

 
22,094

Cash and cash equivalents, end of period
 
$
5,892

 
$
—

 
$
14,883

 
$
2,250

 
$
—

 
$
23,025



56

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 nine months ended December 31, 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 Current Report on Form 8-K (“Current Report”) filed with the Securities and Exchange Commission on November 22, 2019.

Overview

We are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At December 31, 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 produced water 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 diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, West Coast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. 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 $233.8 million, including equity consideration, inventory and net working capital (see Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report). TPSL made 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. In December 2019, the Partnership formalized a plan and received approval to divest of its gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”) and its refined products marketing business in the mid-continent region of the United States (“Mid-Con”). The Partnership had determined that these businesses were no longer core to the Partnership’s strategy. These transactions represent 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, Mid-Con and Gas Blending 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 and certain assets and liabilities, particularly inventory, derivatives and leases, related to Mid-Con and Gas Blending have been classified as held for sale in our December 31, 2019 and March 31, 2019 unaudited condensed consolidated balance sheets. On January 3, 2020, we completed the sale of Mid-Con to a third-party. See Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of these transactions.

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

57


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. 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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Total revenues
 
$
2,226,529

 
$
2,295,369

 
$
5,902,756

 
$
6,566,003

Total cost of sales
 
1,935,472

 
2,048,661

 
5,214,605

 
6,046,673

Operating expenses
 
94,412

 
60,465

 
230,610

 
172,219

General and administrative expense
 
29,150

 
24,759

 
93,400

 
86,428

Depreciation and amortization
 
73,726

 
53,281

 
190,593

 
157,771

(Gain) loss on disposal or impairment of assets, net
 
(12,626
)
 
(36,246
)
 
(10,482
)
 
71,077

Revaluation of liabilities
 
10,000

 
—

 
10,000

 
800

Operating income
 
96,395

 
144,449

 
174,030

 
31,035

Equity in earnings of unconsolidated entities
 
534

 
1,777

 
277

 
2,375

Interest expense
 
(46,920
)
 
(39,151
)
 
(131,814
)
 
(126,776
)
Loss on early extinguishment of liabilities, net
 
—

 
(10,083
)
 
—

 
(10,220
)
Other (expense) income, net
 
(226
)
 
1,187

 
967

 
(31,415
)
Income (loss) from continuing operations before income taxes
 
49,783

 
98,179

 
43,460

 
(135,001
)
Income tax expense
 
(677
)
 
(980
)
 
(996
)
 
(2,322
)
Income (loss) from continuing operations
 
49,106

 
97,199

 
42,464

 
(137,323
)
(Loss) income from discontinued operations, net of tax
 
(6,115
)
 
13,329

 
(192,800
)
 
433,501

Net income (loss)
 
42,991

 
110,528

 
(150,336
)
 
296,178

Less: Net loss attributable to noncontrolling interests
 
166

 
307

 
563

 
1,170

Less: Net loss attributable to redeemable noncontrolling interests
 
—

 
—

 
—

 
446

Net income (loss) attributable to NGL Energy Partners LP
 
$
43,157

 
$
110,835

 
$
(149,773
)
 
$
297,794


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 nine months ended December 31, 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 nine months ended December 31, 2019. These acquisitions impact the comparability of our results of operations between our current and prior fiscal years.

On October 31, 2019, we acquired all of the equity interests of Hillstone Environmental Partners, LLC (“Hillstone”) (including 19 saltwater disposal wells). The assets consist of a fully interconnected produced water pipeline transportation and

58


disposal system in the state line area of southern Eddy and Lea Counties, New Mexico and northern Loving County, Texas in the Delaware Basin. 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 nine months ended December 31, 2019, in our Water Solutions segment, we acquired the exclusive rights to use certain land for produced and treated water operations from one entity, certain membership interests in another entity and other assets as well as acquiring land and one saltwater disposal facility (including five saltwater disposal 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, the operations of which 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 $233.8 million of total consideration and recorded a loss on disposal of $181.2 million during the nine months ended December 31, 2019 (see Note 16 and Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).

Issuance of Class D Preferred Units

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 (“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 4 and 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 December 31, 2019.

 

59


Segment Operating Results for the Three Months Ended December 31, 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 December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
646,296

 
$
718,621

 
$
(72,325
)
Crude oil transportation and other
 
48,198

 
42,912

 
5,286

Total revenues (1)
 
694,494

 
761,533

 
(67,039
)
Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
623,640

 
722,653

 
(99,013
)
Cost of sales-derivative loss (gain)
 
8,308

 
(26,894
)
 
35,202

Operating expenses
 
14,439

 
13,831

 
608

General and administrative expenses
 
1,643

 
1,609

 
34

Depreciation and amortization expense
 
17,950

 
18,387

 
(437
)
Gain on disposal or impairment of assets, net
 
(182
)
 
(75
)
 
(107
)
Total expenses
 
665,798

 
729,511

 
(63,713
)
Segment operating income
 
$
28,696

 
$
32,022

 
$
(3,326
)
 
 
 
 
 
 
 
Crude oil sold (barrels)
 
11,217

 
12,333

 
(1,116
)
Crude oil transported on owned pipelines (barrels)
 
12,202

 
11,820

 
382

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,362

 
5,362

 
—

Crude oil storage capacity leased to third parties (barrels) (2)
 
2,564

 
2,062

 
502

Crude oil inventory (barrels) (2)
 
866

 
1,204

 
(338
)
Crude oil sold ($/barrel)
 
$
57.618

 
$
58.268

 
$
(0.650
)
Cost per crude oil sold ($/barrel)
 
$
56.338

 
$
56.414

 
$
(0.076
)
Crude oil product margin ($/barrel)
 
$
1.280

 
$
1.854

 
$
(0.574
)
 
(1)
Revenues include $3.5 million and $10.4 million of intersegment sales during the three months ended December 31, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2019 and December 31, 2018, respectively.

Crude Oil Sales Revenues. The decrease was due primarily to a decrease in crude oil prices and sales volumes during the three months ended December 31, 2019, compared to the three months ended December 31, 2018. The volumes decreased due to changes in the method of delivery of production to the market in the Permian region. A significant amount of production switched to long haul pipeline owned or controlled by others.

Crude Oil Transportation and Other Revenues. The increase was partially due to our Grand Mesa Pipeline, which increased revenues by $2.5 million during the three months ended December 31, 2019, compared to the three months ended December 31, 2018, primarily due to increased production growth in the DJ Basin. During the three months ended December 31, 2019, financial volumes on the Grand Mesa Pipeline averaged approximately 134,000 barrels per day (volume amounts are from both internal and external parties). Also, crude transportation increased $1.4 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 December 31, 2019, compared to the three months ended December 31, 2018.

Cost of Sales-Derivatives. Our cost of sales during the three months ended December 31, 2019 included $2.2 million of net realized losses on derivatives and $6.1 million of net unrealized losses on derivatives. Our cost of sales during the three

60


months ended December 31, 2018 included $13.7 million of net realized gains on derivatives and $13.2 million of net unrealized gains on derivatives.

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 December 31, 2019 compared to the three months ended December 31, 2018 was due to asset retirements.

Gain on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2019, we recorded a net gain of $0.2 million related to the disposal of certain assets. During the three months ended December 31, 2018, we recorded a net gain of $0.1 million related to the disposal of certain assets.

Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Produced water disposal service fees
 
$
85,971

 
$
47,651

 
$
38,320

Sale of recovered hydrocarbons
 
16,470

 
17,192

 
(722
)
Other service revenues
 
19,166

 
10,615

 
8,551

Total revenues
 
121,607

 
75,458

 
46,149

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
3,407

 
714

 
2,693

Cost of sales-derivative loss (gain)
 
10,597

 
(40,184
)
 
50,781

Operating expenses
 
57,331

 
32,571

 
24,760

General and administrative expenses
 
4,957

 
4,230

 
727

Depreciation and amortization expense
 
48,074

 
27,561

 
20,513

Gain on disposal or impairment of assets, net
 
(12,176
)
 
(36,171
)
 
23,995

Revaluation of liabilities
 
10,000

 
—

 
10,000

Total expense (income)
 
122,190

 
(11,279
)
 
133,469

Segment operating (loss) income
 
$
(583
)
 
$
86,737

 
$
(87,320
)
 
 
 
 
 
 
 
Produced water processed (barrels per day)
 
 
 
 
 
 
Northern Delaware Basin (1)
 
845,817

 
36,147

 
809,670

Permian Basin
 
325,061

 
461,722

 
(136,661
)
Eagle Ford Basin
 
242,238

 
282,070

 
(39,832
)
DJ Basin
 
162,456

 
177,412

 
(14,956
)
Other Basins
 
9,813

 
41,173

 
(31,360
)
Total
 
1,585,385

 
998,524

 
586,861

Solids processed (barrels per day)
 
6,132

 
7,284

 
(1,152
)
Skim oil sold (barrels per day)
 
3,429

 
3,609

 
(180
)
Service fees for produced water processed ($/barrel) (2)
 
$
0.62

 
$
0.52

 
$
0.10

Recovered hydrocarbons for produced water processed ($/barrel) (2)
 
$
0.12

 
$
0.19

 
$
(0.07
)
Operating expenses for produced water processed ($/barrel) (2)
 
$
0.42

 
$
0.35

 
$
0.07

 
(1)
Barrels per day of produced water processed by the assets acquired in the Hillstone transaction are calculated by the number of days in which we owned the assets during the period presented.
(2)
Total produced water barrels processed during the three months ended December 31, 2019 and 2018 were 137,572,510 and 91,864,213, respectively.


61



Produced Water 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 produced water processed at acquired and newly developed facilities, partially offset by produced water 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 produced water barrel processed, lower crude oil prices and lower skim oil volumes as a result of the sale of our Bakken and South Pecos water disposal businesses. This lower percentage was due primarily to an increase in produced water transported through pipelines (which contains less oil per barrel of produced water), and contract structures that allow producers to keep the skim oil recovered from produced water.

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 and a new short-term agreement whereby we purchased freshwater and resold to a third party. These increases were partially offset by lower water pipeline revenues and volumes due to certain operators recycling rather than disposing of the produced water and lower production activity from certain operators in addition to lower solids disposal revenues and volumes due to closure of a facility from April to October due to the working over of the well.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to a new short-term agreement whereby we purchased freshwater and resold to a third party as well as 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 produced water and selling the skim oil. Our cost of sales during the three months ended December 31, 2019 included $11.9 million of net unrealized losses on derivatives and $1.3 million of net realized gains on derivatives. Our cost of sales during the three months ended December 31, 2018 included $6.1 million of net realized gains on derivatives and $34.1 million of net unrealized gains on derivatives. In December 2018, we settled derivative contracts that had scheduled settlement dates from January 2019 through December 2020 in order to lock in the gains on those 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. Also contributing to the increase were acquisition expenses of $4.0 million related to the Hillstone acquisition during the three months ended December 31, 2019. During the three months ended December 31, 2018, we incurred acquisition expenses of $3.5 million related to the purchase of one of our ranch acquisitions.

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.

Gain on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2019, we recorded a gain of $14.5 million for the sale of certain water permits and a net loss of $4.3 million on the disposals of certain assets. During the three months ended December 31, 2018, we completed the sale of our Bakken saltwater disposal business and recorded a gain on disposal of $35.7 million. In addition, we recorded a net gain of $0.5 million on the disposals of certain other assets during the three months ended December 31, 2018.

Revaluation of Liabilities. During the three months ended December 31, 2019, the revaluation of liabilities represents the change in the valuation of our contingent consideration liability issued by us as part of a business combination. Under the agreement, we were required to make additional payments to the seller based on the volume of produced water processed by the assets acquired. During the three months ended December 31, 2019, the thresholds for the volume of produced water processed were surpassed, thus triggering our obligation to pay the seller. See Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the contingent consideration liability.


62


Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
311,216

 
$
375,415

 
$
(64,199
)
Cost of sales-excluding impact of derivatives
 
271,955

 
355,179

 
(83,224
)
Cost of sales-derivative (gain) loss
 
(2,477
)
 
8,245

 
(10,722
)
Product margin
 
41,738

 
11,991

 
29,747

 
 
 
 
 
 
 
Butane sales:
 


 


 
 
Revenues (1)
 
227,620

 
226,642

 
978

Cost of sales-excluding impact of derivatives
 
191,233

 
212,117

 
(20,884
)
Cost of sales-derivative loss (gain)
 
1,202

 
(7,239
)
 
8,441

Product margin
 
35,185

 
21,764

 
13,421

 
 
 

 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
145,592

 
151,742

 
(6,150
)
Cost of sales-excluding impact of derivatives
 
136,524

 
144,957

 
(8,433
)
Cost of sales-derivative (gain) loss
 
(154
)
 
3,331

 
(3,485
)
Product margin
 
9,222

 
3,454

 
5,768

 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
7,739

 
6,013

 
1,726

Cost of sales
 
599

 
976

 
(377
)
Product margin
 
7,140

 
5,037

 
2,103

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
21,039

 
12,763

 
8,276

General and administrative expenses
 
1,377

 
1,539

 
(162
)
Depreciation and amortization expense
 
6,811

 
6,412

 
399

Gain on disposal or impairment of assets, net
 
(26
)
 
—

 
(26
)
Total expenses
 
29,201

 
20,714

 
8,487

Segment operating income
 
$
64,084

 
$
21,532

 
$
42,552

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

 
399,757

 
(2,414
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
468,332

 
428,961

 
39,371

Propane sold ($/gallon)
 
$
0.665

 
$
0.875

 
$
(0.210
)
Cost per propane sold ($/gallon)
 
$
0.575

 
$
0.847

 
$
(0.272
)
Propane product margin ($/gallon)
 
$
0.090

 
$
0.028

 
$
0.062

Propane inventory (gallons) (2)
 
123,265

 
120,239

 
3,026

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

 
30,440

 
14,996

 
 
 
 
 
 
 
Butane sold (gallons)
 
276,046

 
201,891

 
74,155

Butane sold ($/gallon)
 
$
0.825

 
$
1.123

 
$
(0.298
)
Cost per butane sold ($/gallon)
 
$
0.697

 
$
1.015

 
$
(0.318
)
Butane product margin ($/gallon)
 
$
0.128

 
$
0.108

 
$
0.020

Butane inventory (gallons) (2)
 
50,867

 
34,488

 
16,379

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

 
59,220

 
(25,326
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
133,392

 
130,362

 
3,030

Other products sold ($/gallon)
 
$
1.091

 
$
1.164

 
$
(0.073
)
Cost per other products sold ($/gallon)
 
$
1.022

 
$
1.138

 
$
(0.116
)
Other products product margin ($/gallon)
 
$
0.069

 
$
0.026

 
$
0.043

Other products inventory (gallons) (2)
 
15,858

 
8,367

 
7,491


63


 
(1)
Revenues include $6.5 million and $10.4 million of intersegment sales during the three months ended December 31, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2019 and December 31, 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, partially offset by increased volumes.

Cost of Sales-Derivatives. Our cost of wholesale propane sales included $5.8 million of net unrealized gains on derivatives and $3.3 million of net realized losses on derivatives during the three months ended December 31, 2019. During the three months ended December 31, 2018, our cost of wholesale propane sales included $5.9 million of net unrealized losses on derivatives and $2.3 million of net realized losses on derivatives.

Propane product margins, excluding the impact of derivatives, increased as inventory values aligned with reduced commodity prices.

Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increase in revenues and decrease in 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 December 31, 2019 included $4.7 million of net unrealized losses on derivatives and $3.5 million of net realized gains on derivatives. Our cost of butane sales included $8.3 million of net unrealized gains on derivatives and $1.1 million of net realized losses on derivatives during the three months ended December 31, 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 $0.2 million of net unrealized gains on derivatives and less than $0.1 million of net realized losses on derivatives during the three months ended December 31, 2019. Our cost of sales of other products during the three months ended December 31, 2018 included $1.5 million of net realized losses on derivatives and $1.8 million of net unrealized losses on derivatives.

Other product sales product margins during the three months ended December 31, 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 acquired in March 2019.

Gain on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2019 and 2018, we recorded a gain of less than $0.1 million related to the sale/retirement of assets.


64


Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated. As discussed above, the operating results related to Mid-Con, Gas Blending and TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted.
 
 
Three Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
$
630,063

 
$
651,507

 
$
(21,444
)
Cost of sales-excluding impact of derivatives
 
618,911

 
634,341

 
(15,430
)
Derivative loss (gain)
 
914

 
(3,372
)
 
4,286

Product margin
 
10,238

 
20,538

 
(10,300
)
 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
93,582

 
65,847

 
27,735

Cost of sales-excluding impact of derivatives
 
80,083

 
66,649

 
13,434

Derivative gain
 
(3,301
)
 
(3,587
)
 
286

Product margin
 
16,800

 
2,785

 
14,015

 
 
 
 
 
 
 
Service fees and other revenues
 
742

 
623

 
119

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
1,589

 
980

 
609

General and administrative expenses
 
1,105

 
2,246

 
(1,141
)
Depreciation and amortization expense
 
132

 
168

 
(36
)
Total expenses
 
2,826

 
3,394

 
(568
)
Segment operating income
 
$
24,954

 
$
20,552

 
$
4,402

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
2,994

 
3,031

 
(37
)
Diesel sold (barrels)
 
4,790

 
4,818

 
(28
)
Ethanol sold (barrels)
 
640

 
592

 
48

Biodiesel sold (barrels)
 
210

 
237

 
(27
)
Refined products and renewables storage capacity - leased (barrels) (1)
 
189

 
73

 
116

Diesel inventory (barrels) (1)
 
124

 
162

 
(38
)
Ethanol inventory (barrels) (1)
 
40

 
592

 
(552
)
Biodiesel inventory (barrels) (1)
 
134

 
100

 
34

Refined products sold ($/barrel)
 
$
80.943

 
$
83.005

 
$
(2.062
)
Cost per refined products sold ($/barrel)
 
$
79.628

 
$
80.388

 
$
(0.760
)
Refined products product margin ($/barrel)
 
$
1.315

 
$
2.617

 
$
(1.302
)
Renewable products sold ($/barrel)
 
$
110.096

 
$
79.429

 
$
30.667

Cost per renewable products sold ($/barrel)
 
$
90.332

 
$
76.070

 
$
14.262

Renewable products product margin ($/barrel)
 
$
19.764

 
$
3.359

 
$
16.405

 
(1)
Information is presented as of December 31, 2019 and December 31, 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. The decrease in prices was due primarily to supply and demand for refined fuels at our wholesale locations. During the three months ended December 31, 2019, Gulf Coast prices decreased compared to the three months ended December 31, 2018, which negatively affected our margins-excluding impact of derivatives.

65



Refined Products-Derivative Loss (Gain). Our margin during the three months ended December 31, 2019 included a loss of $0.9 million from our risk management activities due primarily to unrealized losses on our open forward physical positions and increases in NYMEX futures prices on our short future positions. Our margin during the three months ended December 31, 2018 included a gain of $3.4 million from our risk management activities due primarily to decreases in NYMEX futures prices 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 and increased volumes. The increase in prices was due primarily to more sales of ethanol renewable identification numbers during the three months ended December 31, 2019, compared to more sales of biodiesel and ethanol during the three months ended December 31, 2018. In addition, the margin for the three months ended December 31, 2019 included the impact of the biodiesel tax credit being reinstated in December 2019 for calendar years 2018 and 2019. The total amount of the biodiesel tax credit we recorded as a credit to costs of sales in continuing operations was $13.8 million. The biodiesel tax credit that was reinstated in December 2019 is effective from January 1, 2018 to December 31, 2022.

Renewables-Derivative Gain. Our margin during the three months ended December 31, 2019 included a gain of $3.3 million from our risk management activities due primarily to unrealized gains on our open forward physical positions. Our margin during the three months ended December 31, 2018 included a gain of $3.6 million from our risk management activities due primarily to decreases in NYMEX futures prices 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 decrease was due primarily to lower corporate overhead allocations due to the sale of TPSL on September 30, 2019, partially offset by higher incentive compensation.

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 December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
280

 
$
319

 
$
(39
)
Cost of sales
 
437

 
494

 
(57
)
Loss
 
(157
)
 
(175
)
 
18

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
14

 
331

 
(317
)
General and administrative expenses
 
20,068

 
15,135

 
4,933

Depreciation and amortization expense
 
759

 
753

 
6

Gain on disposal or impairment of assets, net
 
(242
)
 
—

 
(242
)
Total expenses
 
20,599

 
16,219

 
4,380

Operating loss
 
$
(20,756
)
 
$
(16,394
)
 
$
(4,362
)

General and Administrative Expenses. The increase during the three months ended December 31, 2019 was due primarily to an increase in acquisition expense. During the three months ended December 31, 2019, acquisition expense was $7.5 million, of which approximately $7.3 million were incurred in connection with our acquisition of Hillstone, compared to $1.7 million during the three months ended December 31, 2018. In addition, during the three months ended December 31, 2019, compensation expense was $8.4 million, compared to $6.4 million during the three months ended December 31, 2018. The increase was primarily due to an increase in group health insurance costs of approximately $2.2 million. These increases

66


were partially offset by a decrease in expense of approximately $3.1 million related to the cancellation of our performance awards during the year ended March 31, 2019.

 
Equity in Earnings of Unconsolidated Entities

The decrease of $1.2 million during the three months ended December 31, 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 a water treatment and disposal facility on February 28, 2019 and a loss from our 50% interest in an aircraft company during the three months ended December 31, 2019, partially offset by the acquisition of certain membership interests in November 2019 related to specific land and water services operations.

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 $7.8 million during the three months ended December 31, 2019 was primarily due to the issuance of our 2026 Notes (as defined herein), our entering in the Term Credit Agreement, in connection with the Mesquite acquisition, 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 during our prior fiscal year.

Loss on Early Extinguishment of Liabilities, Net

During the three months ended December 31, 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 and the redemption of the remaining outstanding 6.875% Senior Unsecured Notes due 2021 (“2021 Notes”).

Other (Expense) Income, Net

The following table summarizes the components of other (expense) income, net for the periods indicated:
 
Three Months Ended December 31,
 
2019
 
2018
 
(in thousands)
Interest income (1)
$
195

 
$
1,196

Other
(421
)
 
(9
)
Other (expense) income, net
$
(226
)
 
$
1,187

 
(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 $0.7 million during the three months ended December 31, 2019, compared to income tax expense of $1.0 million during the three months ended December 31, 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 $0.1 million during the three months ended December 31, 2019 was due primarily to a loss from operations of the Sawtooth joint venture and a loss from operations of Mesquite that we acquired in July 2019.

 

67


Segment Operating Results for the Nine Months Ended December 31, 2019 and 2018

Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
1,925,039

 
$
2,300,703

 
$
(375,664
)
Crude oil transportation and other
 
138,592

 
116,323

 
22,269

Total revenues (1)
 
2,063,631

 
2,417,026

 
(353,395
)
Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
1,864,467

 
2,263,540

 
(399,073
)
Cost of sales-derivative gain
 
(1,755
)
 
(15,214
)
 
13,459

Operating expenses
 
43,054

 
38,870

 
4,184

General and administrative expenses
 
5,047

 
4,852

 
195

Depreciation and amortization expense
 
53,228

 
56,486

 
(3,258
)
(Gain) loss on disposal or impairment of assets, net
 
(1,428
)
 
105,186

 
(106,614
)
Total expenses
 
1,962,613

 
2,453,720

 
(491,107
)
Segment operating income (loss)
 
$
101,018

 
$
(36,694
)
 
$
137,712

 
 
 
 
 
 
 
Crude oil sold (barrels)
 
32,929

 
35,449

 
(2,520
)
Crude oil transported on owned pipelines (barrels)
 
34,913

 
31,385

 
3,528

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,362

 
5,362

 
—

Crude oil storage capacity leased to third parties (barrels) (2)
 
2,564

 
2,062

 
502

Crude oil inventory (barrels) (2)
 
866

 
1,204

 
(338
)
Crude oil sold ($/barrel)
 
$
58.460

 
$
64.902

 
$
(6.442
)
Cost per crude oil sold ($/barrel)
 
$
56.568

 
$
63.424

 
$
(6.856
)
Crude oil product margin ($/barrel)
 
$
1.892

 
$
1.478

 
$
0.414

 
(1)
Revenues include $15.3 million and $22.0 million of intersegment sales during the nine months ended December 31, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2019 and December 31, 2018, respectively.

Crude Oil Sales Revenues. The decrease was due primarily to a decrease in crude oil prices and sales volumes during the nine months ended December 31, 2019, compared to the nine months ended December 31, 2018. The volumes decreased due to changes in the method of delivery of production to the market in the Permian region. A significant amount of production switched to long haul pipeline owned or controlled by others.

Crude Oil Transportation and Other Revenues. The increase was partially due to our Grand Mesa Pipeline, which increased revenues by $8.3 million during the nine months ended December 31, 2019, compared to the nine months ended December 31, 2018, primarily due to increased production growth in the DJ Basin. During the nine months ended December 31, 2019, 34.9 million barrels of crude were transported on the Grand Mesa Pipeline averaged approximately 131,000 financial barrels per day (volume amounts are from both internal and external parties). In addition, during the nine months ended December 31, 2019, a new crude marketing contract increased revenues by $7.2 million. Also, crude transportation increased $2.1 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 nine months ended December 31, 2019, compared to the nine months ended December 31, 2018.

Cost of Sales-Derivatives. Our cost of sales during the nine months ended December 31, 2019 included $1.8 million of net realized gains on derivatives and $0.1 million of net unrealized losses on derivatives. Our cost of sales during the nine

68


months ended December 31, 2018 included $3.3 million of net realized gains on derivatives and $11.9 million of net unrealized gains on derivatives.

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 nine months ended December 31, 2018.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2019, we recorded a net gain of $1.4 million related to the disposal of certain assets. During the nine months ended December 31, 2018 we recorded a net loss of $105.2 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 $2.0 million of additional costs related to this transaction. 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:
 
 
Nine Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Produced water disposal service fees
 
$
206,233

 
$
147,125

 
$
59,108

Sale of recovered hydrocarbons
 
45,566

 
55,681

 
(10,115
)
Other service revenues
 
42,840

 
28,561

 
14,279

Total revenues
 
294,639

 
231,367

 
63,272

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
4,694

 
2,083

 
2,611

Cost of sales-derivative loss (gain)
 
7

 
(19,392
)
 
19,399

Operating expenses
 
133,647

 
98,324

 
35,323

General and administrative expenses
 
6,866

 
5,830

 
1,036

Depreciation and amortization expense
 
114,066

 
79,212

 
34,854

Gain on disposal or impairment of assets, net
 
(9,021
)
 
(32,966
)
 
23,945

Revaluation of liabilities
 
10,000

 
800

 
9,200

Total expenses
 
260,259

 
133,891

 
126,368

Segment operating income
 
$
34,380

 
$
97,476

 
$
(63,096
)
 
 
 
 
 
 
 
Produced water processed (barrels per day)
 
 
 
 
 
 
Northern Delaware Basin (1)
 
788,630

 
14,719

 
773,911

Permian Basin
 
323,217

 
455,211

 
(131,994
)
Eagle Ford Basin
 
263,064

 
277,431

 
(14,367
)
DJ Basin
 
167,178

 
159,980

 
7,198

Other Basins
 
10,976

 
68,209

 
(57,233
)
Total
 
1,553,065

 
975,550

 
577,515

Solids processed (barrels per day)
 
5,779

 
6,728

 
(949
)
Skim oil sold (barrels per day)
 
3,124

 
3,516

 
(392
)
Service fees for produced water processed ($/barrel) (2)
 
$
0.62

 
$
0.55

 
$
0.07

Recovered hydrocarbons for produced water processed ($/barrel) (2)
 
$
0.14

 
$
0.21

 
$
(0.07
)
Operating expenses for produced water processed ($/barrel) (2)
 
$
0.40

 
$
0.37

 
$
0.03


69


 
(1)
Barrels per day of produced water processed by the assets acquired in the Mesquite and Hillstone transactions are calculated by the number of days in which we owned the assets during the period presented.
(2)
Total produced water barrels processed during the nine months ended December 31, 2019 and 2018 were 330,589,724 and 268,276,373, respectively.

Produced Water 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 produced water processed at acquired and newly developed facilities, partially offset by produced water 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 produced water barrel processed, lower crude oil prices and lower skim oil volumes as a result of the sale of our Bakken and South Pecos water disposal businesses. This lower percentage was due primarily to an increase in produced water transported through pipelines (which contains less oil per barrel of produced water), and contract structures that allow producers to keep the skim oil recovered from produced water.

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 and a new short-term agreement whereby we purchased freshwater and resold to a third party. These increases were partially offset by lower water pipeline revenues and volumes due to certain operators recycling rather than disposing of the produced water and lower production activity from certain operators in addition to lower solids disposal revenues and volumes due to closure of a facility from April to October due to the working over of the well and reduced operations at another facility.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to a new short-term agreement whereby we purchased freshwater and resold to a third party as well as 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 produced water and selling the skim oil. Our cost of sales during the nine months ended December 31, 2019 included $5.9 million of net unrealized losses on derivatives and $5.9 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 nine months ended December 31, 2018 included $3.8 million of net realized losses on derivatives and $23.2 million of net unrealized gains on derivatives. In December 2018, we settled derivative contracts that had scheduled settlement dates from January 2019 through December 2020 in order to lock in the gains on those 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. Also contributing to the increase were acquisition expenses of $4.0 million related to the Hillstone acquisition during the nine months ended December 31, 2019. During the nine months ended December 31, 2018, we incurred acquisition expenses of $3.5 million related to the purchase of one of our ranch acquisitions.

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.

Gain on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2019, we recorded a gain of $14.5 million for the sale of certain water permits and a gain of $1.0 million for cash received related to a previous loan receivable. In addition, during the nine months ended December 31, 2019, we recorded a net loss of $8.1 million on the disposals of certain assets. During the nine months ended December 31, 2018, we completed the sale of our Bakken saltwater disposal business and recorded a gain on disposal of $35.7 million. In addition, we recorded a net loss of $2.7 million on the disposals of certain other assets during the nine months ended December 31, 2018.

Revaluation of Liabilities. During the nine months ended December 31, 2019, the revaluation of liabilities represents the change in the valuation of our contingent consideration liability issued by us as part of a business combination. Under the agreement, we were required to make additional payments to the seller based on the volume of produced water processed by the

70


assets acquired. During the nine months ended December 31, 2019, the thresholds for the volume of produced water processed were surpassed, thus triggering our obligation to pay the seller. See Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the contingent consideration liability. During the nine months ended December 31, 2018, 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, which expense was due primarily to higher actual and expected production from new customers, resulting in an increase to the expected future royalty payment.


71


Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
567,824

 
$
800,125

 
$
(232,301
)
Cost of sales-excluding impact of derivatives
 
515,510

 
758,079

 
(242,569
)
Cost of sales-derivative loss
 
5,009

 
7,023

 
(2,014
)
Product margin
 
47,305

 
35,023

 
12,282

 
 
 
 
 
 
 
Butane sales:
 
 
 
 
 
 
Revenues (1)
 
397,915

 
487,816

 
(89,901
)
Cost of sales-excluding impact of derivatives
 
341,607

 
466,522

 
(124,915
)
Cost of sales-derivative gain
 
(6,287
)
 
(581
)
 
(5,706
)
Product margin
 
62,595

 
21,875

 
40,720

 
 
 
 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
379,405

 
476,159

 
(96,754
)
Cost of sales-excluding impact of derivatives
 
354,389

 
454,606

 
(100,217
)
Cost of sales-derivative loss
 
49

 
1,596

 
(1,547
)
Product margin
 
24,967

 
19,957

 
5,010

 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
29,488

 
16,526

 
12,962

Cost of sales
 
8,512

 
2,255

 
6,257

Product margin
 
20,976

 
14,271

 
6,705

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
49,901

 
31,478

 
18,423

General and administrative expenses
 
4,359

 
4,402

 
(43
)
Depreciation and amortization expense
 
20,651

 
19,339

 
1,312

(Gain) loss on disposal or impairment of assets, net
 
(33
)
 
994

 
(1,027
)
Total expenses
 
74,878

 
56,213

 
18,665

Segment operating income
 
$
80,965

 
$
34,913

 
$
46,052

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

 
399,757

 
(2,414
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
975,782

 
929,401

 
46,381

Propane sold ($/gallon)
 
$
0.582

 
$
0.861

 
$
(0.279
)
Cost per propane sold ($/gallon)
 
$
0.533

 
$
0.823

 
$
(0.290
)
Propane product margin ($/gallon)
 
$
0.049

 
$
0.038

 
$
0.011

Propane inventory (gallons) (2)
 
123,265

 
120,239

 
3,026

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

 
30,440

 
14,996

 
 
 
 
 
 
 
Butane sold (gallons)
 
588,694

 
446,340

 
142,354

Butane sold ($/gallon)
 
$
0.676

 
$
1.093

 
$
(0.417
)
Cost per butane sold ($/gallon)
 
$
0.570

 
$
1.044

 
$
(0.474
)
Butane product margin ($/gallon)
 
$
0.106

 
$
0.049

 
$
0.057

Butane inventory (gallons) (2)
 
50,867

 
34,488

 
16,379

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

 
59,220

 
(25,326
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
377,264

 
372,282

 
4,982

Other products sold ($/gallon)
 
$
1.006

 
$
1.279

 
$
(0.273
)
Cost per other products sold ($/gallon)
 
$
0.939

 
$
1.225

 
$
(0.286
)
Other products product margin ($/gallon)
 
$
0.067

 
$
0.054

 
$
0.013

Other products inventory (gallons) (2)
 
15,858

 
8,367

 
7,491


72


 
(1)
Revenues include $12.9 million and $20.9 million of intersegment sales during the nine months ended December 31, 2019 and 2018, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2019 and December 31, 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 which was partially offset by an increase in volumes sold.

Cost of Sales-Derivatives. Our wholesale propane cost of sales included $2.2 million of net unrealized losses on derivatives and $2.8 million of net realized losses on derivatives during the nine months ended December 31, 2019. During the nine months ended December 31, 2018, our cost of wholesale propane sales included $3.9 million of net unrealized losses on derivatives and $3.1 million of net realized losses on derivatives.

Propane product margins per gallon of propane sold were higher during the nine months ended December 31, 2019 than during the nine months ended December 31, 2018. Propane product margins increased due to inventory values aligning with reduced commodity prices at index markets. Meanwhile, regional spot prices saw significant increases over the last couple of months due to supply constraints and strong crop drying demand.

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. Volumes increased due to strong demand from domestic and international markets.

Cost of Sales-Derivatives. Our cost of butane sales during the nine months ended December 31, 2019 included $0.3 million of net unrealized gains on derivatives and $5.9 million of net realized gains on derivatives. Our cost of butane sales included $0.9 million of net unrealized gains on derivatives and $0.3 million of net realized losses on derivatives during the nine months ended December 31, 2018.

Butane product margins per gallon of butane sold were higher during the nine months ended December 31, 2019 than during the nine months ended December 31, 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 $0.1 million of net unrealized losses on derivatives and less than $0.1 million of net realized gains on derivatives during the nine months ended December 31, 2019. Our cost of sales of other products during the nine months ended December 31, 2018 included $1.2 million of net unrealized losses on derivatives and $0.4 million of net realized losses on derivatives.

Other product sales product margins during the nine months ended December 31, 2019 were consistent with the prior year.

Service Revenues. This revenue includes storage, terminaling and transportation services income. The increase during the nine months ended December 31, 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 acquired in March 2019.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2019, we recorded a net gain of less than $0.1 million and during the nine months ended December 31, 2018 we recorded a loss of $1.0 million related to the retirement of assets.


73


Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated. As discussed above, the operating results related to Mid-Con, Gas Blending and TPSL have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted.
 
 
Nine Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
$
1,936,373

 
$
1,978,698

 
$
(42,325
)
Cost of sales-excluding impact of derivatives
 
1,910,635

 
1,969,522

 
(58,887
)
Derivative loss (gain)
 
409

 
(946
)
 
1,355

Product margin
 
25,329

 
10,122

 
15,207

 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
259,974

 
197,317

 
62,657

Cost of sales-excluding impact of derivatives
 
243,569

 
200,398

 
43,171

Derivative loss (gain)
 
1,795

 
(2,518
)
 
4,313

Product margin (loss)
 
14,610

 
(563
)
 
15,173

 
 
 
 
 
 
 
Service fees and other revenues
 
2,050

 
1,717

 
333

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
3,690

 
2,546

 
1,144

General and administrative expenses
 
5,674

 
6,736

 
(1,062
)
Depreciation and amortization expense
 
383

 
504

 
(121
)
Gain on disposal or impairment of assets, net
 
—

 
(3,026
)
 
3,026

Total expenses
 
9,747

 
6,760

 
2,987

Segment operating income
 
$
32,242

 
$
4,516

 
$
27,726

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
8,978

 
8,129

 
849

Diesel sold (barrels)
 
14,365

 
14,045

 
320

Ethanol sold (barrels)
 
1,773

 
1,757

 
16

Biodiesel sold (barrels)
 
568

 
815

 
(247
)
Refined products and renewables storage capacity - leased (barrels) (1)
 
189

 
73

 
116

Diesel inventory (barrels) (1)
 
124

 
162

 
(38
)
Ethanol inventory (barrels) (1)
 
40

 
592

 
(552
)
Biodiesel inventory (barrels) (1)
 
134

 
100

 
34

Refined products sold ($/barrel)
 
$
82.953

 
$
89.235

 
$
(6.282
)
Cost per refined products sold ($/barrel)
 
$
81.868

 
$
88.779

 
$
(6.911
)
Refined products product margin ($/barrel)
 
$
1.085

 
$
0.456

 
$
0.629

Renewable products sold ($/barrel)
 
$
111.053

 
$
76.717

 
$
34.336

Cost per renewable products sold ($/barrel)
 
$
104.812

 
$
76.936

 
$
27.876

Renewable products product margin (loss) ($/barrel)
 
$
6.241

 
$
(0.219
)
 
$
6.460

 
(1)
Information is presented as of December 31, 2019 and December 31, 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 products prices, partially offset by increased volumes. The decrease in prices was due primarily to supply and

74


demand for refined fuels at our wholesale locations. The increased volumes were due primarily to the continued demand for motor fuels.

Refined Products-Derivative Loss (Gain). Our margin during the nine months ended December 31, 2019 included a loss of $0.4 million from our risk management activities due primarily to unrealized losses on our open forward physical positions and increases in NYMEX futures prices on our short future positions. Our margin during the nine months ended December 31, 2018 included a gain of $0.9 million from our risk management activities due primarily to decreases in NYMEX futures prices 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 nine months ended December 31, 2019, compared to the nine months ended December 31, 2018. In addition, the margin for the nine months ended December 31, 2019 included the impact of the biodiesel tax credit being reinstated in December 2019 for calendar years 2018 and 2019. The total amount of the biodiesel tax credit we recorded as a credit to costs of sales in continuing operations was $13.8 million. The biodiesel tax credit that was reinstated in December 2019 is effective from January 1, 2018 to December 31, 2022.

Renewables-Derivative Loss (Gain). Our margin during the nine months ended December 31, 2019 included a loss of $1.8 million from our risk management activities due primarily to unrealized losses on our open forward physical positions. Our margin during the nine months ended December 31, 2018 included a gain of $2.5 million from our risk management activities due primarily to NYMEX futures prices decreasing on our short future positions and unrealized gains on our open forward 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 nine months ended December 31, 2018 as a result of an insurance recovery we received related to a historical environmental indemnification agreement and higher incentive compensation during the nine months ended December 31, 2019, partially offset by lower corporate overhead allocations due to the sale of TPSL on September 30, 2019.

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 nine months ended December 31, 2018, we recorded a gain of $3.0 million on the sale of our previously held 20% interest in E Energy Adams, LLC.


75


Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
799

 
$
1,066

 
$
(267
)
Cost of sales
 
1,337

 
1,481

 
(144
)
Loss
 
(538
)
 
(415
)
 
(123
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
318

 
1,034

 
(716
)
General and administrative expenses
 
71,454

 
64,608

 
6,846

Depreciation and amortization expense
 
2,265

 
2,230

 
35

Loss on disposal or impairment of assets, net
 
—

 
889

 
(889
)
Total expenses
 
74,037

 
68,761

 
5,276

Operating loss
 
$
(74,575
)
 
$
(69,176
)
 
$
(5,399
)

General and Administrative Expenses. The increase during the nine months ended December 31, 2019 was due primarily to higher acquisition expense. During the nine months ended December 31, 2019, acquisition expense was $14.6 million, compared to $5.7 million during the nine months ended December 31, 2018. The increase is primarily due to expenses incurred in connection with our acquisitions of both Mesquite ($5.9 million) and Hillstone ($8.1 million). In addition, during the nine months ended December 31, 2019, compensation expense was $26.9 million, compared to $22.9 million during the nine months ended December 31, 2018. The increase was primarily due to an increase in group health insurance costs of approximately $3.1 million. These increases are partially offset by a decrease in expense of approximately $5.0 million related to the cancellation of our performance awards during the year ended March 31, 2019.

 
Equity in Earnings of Unconsolidated Entities

The decrease of $2.1 million during the nine months ended December 31, 2019 was due primarily to lower earnings from our 50% interest in a water services company that we acquired in August 2018, a loss from our 50% interest in an aircraft company during the nine months ended December 31, 2019 and the sale of our investment in E Energy Adams, LLC on May 3, 2018, partially offset by the acquisition of certain membership interests in November 2019 related to specific land and water services operations.

Interest Expense

The increase of $5.0 million during the nine months ended December 31, 2019 was due to our entering into the Term Credit Agreement (as defined herein) in connection with the Mesquite acquisition, the issuance of our 2026 Notes (as defined herein) and higher average outstanding balances on our Revolving Credit Facility. These increases were offset by the redemption of our senior unsecured noes that were scheduled to mature in 2019 and 2021 during our prior fiscal year.

Loss on Early Extinguishment of Liabilities, Net

During the nine months ended December 31, 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 and the redemption of the remaining outstanding 2021 Notes.


76


Other Income (Expense), Net

The following table summarizes the components of other income (expense), net for the periods indicated:
 
Nine Months Ended December 31,
 
2019
 
2018
 
(in thousands)
Interest income (1)
$
1,399

 
$
3,664

Gavilon legal matter settlement (2)
—

 
(34,788
)
Other
(432
)
 
(291
)
Other income (expense), net
$
967

 
$
(31,415
)
 
(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 $1.0 million during the nine months ended December 31, 2019, compared to income tax expense of $2.3 million during the nine months ended December 31, 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 $1.1 million during the nine months ended December 31, 2019 was due primarily to a loss from operations of Atlantic Propane, LLC in the prior year quarter that we sold in July 2018, a loss from operations of the Sawtooth joint venture and a loss from operations of Mesquite that we acquired in July 2019.

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 income (loss), 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

77


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.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net income (loss)
 
$
42,991

 
$
110,528

 
$
(150,336
)
 
$
296,178

Less: Net loss attributable to noncontrolling interests
 
166

 
307

 
563

 
1,170

Less: Net loss attributable to redeemable noncontrolling interests
 
—

 
—

 
—

 
446

Net income (loss) attributable to NGL Energy Partners LP
 
43,157

 
110,835

 
(149,773
)
 
297,794

Interest expense
 
46,946

 
39,151

 
131,969

 
126,930

Income tax expense
 
676

 
988

 
1,015

 
2,454

Depreciation and amortization
 
72,939

 
54,153

 
191,049

 
169,235

EBITDA
 
163,718

 
205,127

 
174,260

 
596,413

Net unrealized losses (gains) on derivatives
 
16,787

 
(47,909
)
 
7,851

 
(30,849
)
Inventory valuation adjustment (1)
 
(370
)
 
(61,665
)
 
(25,555
)
 
(60,497
)
Lower of cost or market adjustments
 
(646
)
 
48,198

 
(2,465
)
 
47,785

(Gain) loss on disposal or impairment of assets, net
 
(4,837
)
 
(36,507
)
 
171,757

 
(337,925
)
Loss on early extinguishment of liabilities, net
 
—

 
10,083

 
—

 
10,220

Equity-based compensation expense (2)
 
2,213

 
7,845

 
27,209

 
32,575

Acquisition expense (3)
 
11,419

 
5,155

 
18,595

 
9,270

Revaluation of liabilities (4)
 
10,000

 
—

 
10,000

 
800

Gavilon legal matter settlement (5)
 
—

 
(212
)
 
—

 
34,788

Other (6)
 
4,026

 
2,475

 
10,681

 
5,694

Adjusted EBITDA
 
$
202,310

 
$
132,590

 
$
392,333

 
$
308,274

Adjusted EBITDA - Discontinued Operations
 
$
1,799

 
$
1,265

 
$
(35,362
)
 
$
3,839

Adjusted EBITDA - Continuing Operations
 
$
200,511

 
$
131,325

 
$
427,695

 
$
304,435

 
(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 Mesquite and Hillstone, along with 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 for the three months and nine months ended December 31, 2019 represent the non-cash valuation adjustment of our contingent consideration liability issued by us as part of our acquisition of Mesquite (see Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). Amount for the nine months ended December 31, 2018 represents 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.


78


(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 nine months ended December 31, 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.

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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of operations:
 
 
 
 
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
72,939

 
$
54,153

 
$
191,049

 
$
169,235

Intangible asset amortization recorded to cost of sales
 
(86
)
 
(101
)
 
(262
)
 
(385
)
Depreciation and amortization of unconsolidated entities
 
(111
)
 
(67
)
 
(193
)
 
(301
)
Depreciation and amortization attributable to noncontrolling interests
 
985

 
733

 
2,459

 
2,189

Depreciation and amortization attributable to discontinued operations
 
(1
)
 
(1,437
)
 
(2,460
)
 
(12,967
)
Depreciation and amortization per unaudited condensed consolidated statements of operations
 
$
73,726

 
$
53,281

 
$
190,593

 
$
157,771

 
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of cash flows:
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
191,049

 
$
169,235

Amortization of debt issuance costs recorded to interest expense
 
7,386

 
7,110

Amortization of royalty expense recorded to operating expense
 
372

 
—

Depreciation and amortization of unconsolidated entities
 
(193
)
 
(301
)
Depreciation and amortization attributable to noncontrolling interests
 
2,459

 
2,189

Depreciation and amortization attributable to discontinued operations
 
(2,460
)
 
(12,967
)
Depreciation and amortization per unaudited condensed consolidated statements of cash flows
 
$
198,613

 
$
165,266


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 December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Interest expense per EBITDA table
 
$
46,946

 
$
39,151

 
$
131,969

 
$
126,930

Interest expense attributable to unconsolidated entities
 
(26
)
 
—

 
(44
)
 
(14
)
Interest expense attributable to discontinued operations
 
—

 
—

 
(111
)
 
(140
)
Interest expense per unaudited condensed consolidated statements of operations
 
$
46,920

 
$
39,151

 
$
131,814

 
$
126,776



79


The following table summarizes additional amounts attributable to discontinued operations in the EBITDA table above for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Income tax expense
 
$
—

 
$
7

 
$
20

 
$
132

Net unrealized losses on derivatives
 
$
—

 
$
—

 
$
—

 
$
78

Inventory valuation adjustment
 
$
1,729

 
$
(58,784
)
 
$
(25,291
)
 
$
(57,905
)
Lower of cost or market adjustments
 
$
(628
)
 
$
35,180

 
$
(976
)
 
$
35,260

Loss (gain) on disposal or impairment of assets, net
 
$
7,791

 
$
(262
)
 
$
182,240

 
$
(409,002
)

The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated.
 
Three Months Ended December 31, 2019
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
Discontinued Operations (TPSL, Mid-Con, Gas Blending)
 
Consolidated
 
(in thousands)
Operating income (loss)
$
28,696

 
$
(583
)
 
$
64,084

 
$
24,954

 
$
(20,756
)
 
$
96,395

 
$
—

 
$
96,395

Depreciation and amortization
17,950

 
48,074

 
6,811

 
132

 
759

 
73,726

 
—

 
73,726

Amortization recorded to cost of sales
—

 
—

 
21

 
65

 
—

 
86

 
—

 
86

Net unrealized losses (gains) on derivatives
6,060

 
11,924

 
(1,197
)
 
—

 
—

 
16,787

 
—

 
16,787

Inventory valuation adjustment
—

 
—

 
—

 
(2,099
)
 
—

 
(2,099
)
 
—

 
(2,099
)
Lower of cost or market adjustments
—

 
—

 
—

 
(18
)
 
—

 
(18
)
 
—

 
(18
)
Gain on disposal or impairment of assets, net
(182
)
 
(12,176
)
 
(26
)
 
—

 
(242
)
 
(12,626
)
 
—

 
(12,626
)
Equity-based compensation expense
—

 
—

 
—

 
—

 
2,213

 
2,213

 
—

 
2,213

Acquisition expense
—

 
3,967

 
—

 
—

 
7,452

 
11,419

 
—

 
11,419

Other income (expense), net
64

 
(450
)
 
17

 
24

 
119

 
(226
)
 
—

 
(226
)
Adjusted EBITDA attributable to unconsolidated entities
—

 
685

 
17

 
—

 
(34
)
 
668

 
—

 
668

Adjusted EBITDA attributable to noncontrolling interest
—

 
(203
)
 
(616
)
 
—

 
—

 
(819
)
 
—

 
(819
)
Revaluation of liabilities
—

 
10,000

 
—

 
—

 
—

 
10,000

 
—

 
10,000

Intersegment transactions (1)
—

 
—

 
—

 
979

 
—

 
979

 
—

 
979

Other
2,987

 
976

 
18

 
45

 
—

 
4,026

 
—

 
4,026

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
1,799

 
1,799

Adjusted EBITDA
$
55,575

 
$
62,214

 
$
69,129

 
$
24,082

 
$
(10,489
)
 
$
200,511

 
$
1,799

 
$
202,310


80


 
Three Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
 
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
TPSL, Mid-Con, Gas Blending
 
Retail Propane
 
Consolidated
 
(in thousands)
Operating income (loss)
$
32,022

 
$
86,737

 
$
21,532

 
$
20,552

 
$
(16,394
)
 
$
144,449

 
$
—

 
$
—

 
$
144,449

Depreciation and amortization
18,387

 
27,561

 
6,412

 
168

 
753

 
53,281

 
—

 
—

 
53,281

Amortization recorded to cost of sales
—

 
—

 
37

 
64

 
—

 
101

 
—

 
—

 
101

Net unrealized gains on derivatives
(13,165
)
 
(34,114
)
 
(630
)
 
—

 
—

 
(47,909
)
 
—

 
—

 
(47,909
)
Inventory valuation adjustment
—

 
—

 
—

 
(2,881
)
 
—

 
(2,881
)
 
—

 
—

 
(2,881
)
Lower of cost or market adjustments
11,446

 
—

 
—

 
1,572

 
—

 
13,018

 
—

 
—

 
13,018

Gain on disposal or impairment of assets, net
(75
)
 
(36,171
)
 
—

 
—

 
—

 
(36,246
)
 
—

 
—

 
(36,246
)
Equity-based compensation expense
—

 
—

 
—

 
—

 
7,845

 
7,845

 
—

 
—

 
7,845

Acquisition expense
—

 
3,459

 
—

 
—

 
1,696

 
5,155

 
—

 
—

 
5,155

Other income (expense), net
3

 
(1,134
)
 
19

 
(285
)
 
2,584

 
1,187

 
—

 
—

 
1,187

Adjusted EBITDA attributable to unconsolidated entities
—

 
1,845

 
—

 
—

 
—

 
1,845

 
—

 
—

 
1,845

Adjusted EBITDA attributable to noncontrolling interest
—

 
(33
)
 
(394
)
 
—

 
—

 
(427
)
 
—

 
—

 
(427
)
Gavilon legal matter settlement
—

 
—

 
—

 
—

 
(212
)
 
(212
)
 
—

 
—

 
(212
)
Intersegment transactions (1)
—

 
—

 
—

 
(10,359
)
 
—

 
(10,359
)
 
—

 
—

 
(10,359
)
Other
2,075

 
100

 
16

 
287

 
—

 
2,478

 
—

 
—

 
2,478

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
1,423

 
(158
)
 
1,265

Adjusted EBITDA
$
50,693

 
$
48,250

 
$
26,992

 
$
9,118

 
$
(3,728
)
 
$
131,325

 
$
1,423

 
$
(158
)
 
$
132,590



81


 
Nine Months Ended December 31, 2019
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
Discontinued Operations (TPSL, Mid-Con, Gas Blending)
 
Consolidated
 
(in thousands)
Operating income (loss)
$
101,018

 
$
34,380

 
$
80,965

 
$
32,242

 
$
(74,575
)
 
$
174,030

 
$
—

 
$
174,030

Depreciation and amortization
53,228

 
114,066

 
20,651

 
383

 
2,265

 
190,593

 
—

 
190,593

Amortization recorded to cost of sales
—

 
—

 
67

 
195

 
—

 
262

 
—

 
262

Net unrealized losses on derivatives
76

 
5,887

 
1,888

 
—

 
—

 
7,851

 
—

 
7,851

Inventory valuation adjustment
—

 
—

 
—

 
(264
)
 
—

 
(264
)
 
—

 
(264
)
Lower of cost or market adjustments
—

 
—

 
(1,508
)
 
19

 
—

 
(1,489
)
 
—

 
(1,489
)
Gain on disposal or impairment of assets, net
(1,428
)
 
(9,021
)
 
(33
)
 
—

 
—

 
(10,482
)
 
—

 
(10,482
)
Equity-based compensation expense
—

 
—

 
—

 
—

 
27,209

 
27,209

 
—

 
27,209

Acquisition expense
—

 
3,987

 
—

 
—

 
14,608

 
18,595

 
—

 
18,595

Other income (expense), net
103

 
(452
)
 
61

 
(20
)
 
1,275

 
967

 
—

 
967

Adjusted EBITDA attributable to unconsolidated entities
—

 
685

 
(5
)
 
—

 
(170
)
 
510

 
—

 
510

Adjusted EBITDA attributable to noncontrolling interest
—

 
(597
)
 
(1,296
)
 
—

 
—

 
(1,893
)
 
—

 
(1,893
)
Revaluation of liabilities
—

 
10,000

 
—

 
—

 
—

 
10,000

 
—

 
10,000

Intersegment transactions (1)
—

 
—

 
—

 
1,125

 
—

 
1,125

 
—

 
1,125

Other
9,284

 
1,247

 
53

 
97

 
—

 
10,681

 
—

 
10,681

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
(35,362
)
 
(35,362
)
Adjusted EBITDA
$
162,281

 
$
160,182

 
$
100,843

 
$
33,777

 
$
(29,388
)
 
$
427,695

 
$
(35,362
)
 
$
392,333


82


 
Nine Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
 
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Continuing Operations
 
TPSL, Mid-Con, Gas Blending
 
Retail Propane
 
Consolidated
 
(in thousands)
Operating (loss) income
$
(36,694
)
 
$
97,476

 
$
34,913

 
$
4,516

 
$
(69,176
)
 
$
31,035

 
$
—

 
$
—

 
$
31,035

Depreciation and amortization
56,486

 
79,212

 
19,339

 
504

 
2,230

 
157,771

 
—

 
—

 
157,771

Amortization recorded to cost of sales
80

 
—

 
110

 
195

 
—

 
385

 
—

 
—

 
385

Net unrealized (gains) losses on derivatives
(11,895
)
 
(23,216
)
 
4,183

 
—

 
—

 
(30,928
)
 
—

 
—

 
(30,928
)
Inventory valuation adjustment
—

 
—

 
—

 
(2,592
)
 
—

 
(2,592
)
 
—

 
—

 
(2,592
)
Lower of cost or market adjustments
11,446

 
—

 
(504
)
 
1,583

 
—

 
12,525

 
—

 
—

 
12,525

Loss (gain) on disposal or impairment of assets, net
105,186

 
(32,966
)
 
994

 
(3,026
)
 
889

 
71,077

 
—

 
—

 
71,077

Equity-based compensation expense
—

 
—

 
—

 
—

 
32,575

 
32,575

 
—

 
—

 
32,575

Acquisition expense
—

 
3,459

 
161

 
—

 
5,696

 
9,316

 
—

 
—

 
9,316

Other income (expense), net
26

 
(1,504
)
 
63

 
(343
)
 
(29,657
)
 
(31,415
)
 
—

 
—

 
(31,415
)
Adjusted EBITDA attributable to unconsolidated entities
—

 
2,214

 
—

 
476

 
—

 
2,690

 
—

 
—

 
2,690

Adjusted EBITDA attributable to noncontrolling interest
—

 
(119
)
 
(945
)
 
—

 
—

 
(1,064
)
 
—

 
—

 
(1,064
)
Revaluation of liabilities
—

 
800

 
—

 
—

 
—

 
800

 
—

 
—

 
800

Gavilon legal matter settlement
—

 
—

 
—

 
—

 
34,788

 
34,788

 
—

 
—

 
34,788

Intersegment transactions (1)
—

 
—

 
—

 
11,778

 
—

 
11,778

 
—

 
—

 
11,778

Other
4,976

 
304

 
49

 
365

 
—

 
5,694

 
—

 
—

 
5,694

Discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
(1,028
)
 
4,867

 
3,839

Adjusted EBITDA
$
129,611

 
$
125,660

 
$
58,363

 
$
13,456

 
$
(22,655
)
 
$
304,435

 
$
(1,028
)
 
$
4,867

 
$
308,274

 
(1)
Amount reflects the intersegment transactions between the continuing businesses within the Refined Products and Renewables segment and TPSL, Mid-Con and Gas Blending that are eliminated in consolidation.


83


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 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. 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.

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 December 31, 2019 are discussed below.

Issuance of Class D Preferred Units

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 4 and 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 December 31, 2019.

Long-Term Debt

Credit Agreement

During the quarter, we utilized a portion of the accordion feature under our credit agreement (“Credit Agreement”) whereby two new lenders and one existing lender committed to provide an additional $150.0 million of commitments in total. The Credit Agreement provides up to $1.915 billion in aggregate commitments and consists of a revolving credit facility to fund working capital needs, which had a capacity of $641.5 million 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 $1.273 billion (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”) at December 31, 2019. We had letters of credit of $117.2 million on the Working Capital Facility at December 31, 2019. The

84


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.

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, amend the covenant package to include the senior secured leverage ratio, interest coverage ratio and total leverage indebtedness ratio financial covenants (each as defined in the Credit Agreement).

We were in compliance with the covenants under the Credit Agreement at December 31, 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. We filed a registration statement for the 2026 Notes with the SEC which became effective on January 22, 2020. Our exchange offer launched on January 23, 2020 and is set to expire on February 21, 2020, unless we decide to extend it.

At December 31, 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.

Sawtooth Credit Agreement

On November 27, 2019, Sawtooth Caverns LLC (“Sawtooth”), a joint venture in which we own a 71.48% interest, entered into a credit agreement with Zions Bancorporation (doing business as “Amergy Bank”). The Sawtooth credit agreement has a capacity of $20.0 million. The commitments under the Sawtooth credit agreement expire on November 27, 2022.

For a further discussion of the Revolving Credit Facility, Senior Unsecured Notes, Term Credit Agreement and the Sawtooth credit agreement, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

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)
Nine Months Ended December 31, 2019
 
 
 
 
 
 
Expansion capital borrowings
 
$
477,993

 
$
—

 
$
1,178,000

Working capital borrowings
 
$
684,040

 
$
250,000

 
$
981,000

 
 
 
 
 
 
 
Nine Months Ended December 31, 2018
 
 
 
 
 
 
Expansion capital borrowings
 
$
69,711

 
$
—

 
$
296,500

Working capital borrowings
 
$
818,638

 
$
439,000

 
$
1,095,500


85



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. There are no capital expenditures and acquisitions related to Mid-Con and Gas Blending.
 
 
Capital Expenditures
 
 
 
Other
 
 
Expansion (1)
 
Maintenance (2)
 
Acquisitions (3)
 
Investments (4)
 
 
(in thousands)
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2019
 
$
143,655

 
$
16,964

 
$
615,805

 
$
20,257

2018
 
$
113,182

 
$
9,521

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
Nine Months Ended December 31,
 
 
 
 
 
 
 
 
2019
 
$
405,610

 
$
50,354

 
$
1,262,853

 
$
21,272

2018
 
$
303,947

 
$
37,210

 
$
229,871

 
$
92

 
(1)
Amounts for the three months and nine months ended December 31, 2019 include $36.1 million and $49.1 million, respectively, of transactions classified as acquisitions of assets. See Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly report for a further discussion of the transactions classified as acquisitions of assets completed during the nine months ended December 31, 2019. Amounts for the three months and nine months ended December 31, 2018 include $15.0 million and $52.5 million, respectively, of transactions classified as acquisitions of assets. The amount for the nine months ended December 31, 2018 includes $0.4 million related to our former Retail Propane segment. There were no amounts for the three months and nine months ended December 31, 2019 and 2018 related to TPSL.
(2)
There was no amount for the three months ended December 31, 2018 and the amount for the nine months ended December 31, 2018 includes $3.8 million related to our former Retail Propane segment. There were no amounts for the three months and nine months ended December 31, 2019 and 2018 related to TPSL.
(3)
There was no amount for the three months ended December 31, 2018 and the amount for the nine months ended December 31, 2018 includes $31.9 million related to our former Retail Propane segment. There were no amounts for the three months and nine months ended December 31, 2019 and 2018 related to TPSL.
(4)
Amounts for the three months and nine months ended December 31, 2019 and 2018 primarily related to contributions made to unconsolidated entities and the purchase of membership interests in a water services and land company as described in Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report. There were no amounts for the three months and nine months ended December 31, 2019 and 2018 related to TPSL. There were no amounts for the three months and nine months ended December 31, 2018 related to our former Retail Propane segment.

Cash Flows

The following table summarizes the sources (uses) of our cash flows from continuing operations for the periods indicated:
 
 
Nine Months Ended December 31,
Cash Flows Provided by (Used in):
 
2019
 
2018
 
 
(in thousands)
Operating activities, before changes in operating assets and liabilities
 
$
269,393

 
$
124,431

Changes in operating assets and liabilities
 
4,195

 
(121,236
)
Operating activities-continuing operations
 
$
273,588

 
$
3,195

Investing activities-continuing operations
 
$
(1,688,125
)
 
$
(378,201
)
Financing activities-continuing operations
 
$
1,066,175

 
$
(672,892
)

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

86


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. 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 increase in net cash provided by operating activities during the nine months ended December 31, 2019 was due primarily to fluctuations in the value of accounts receivable during the nine months ended December 31, 2019.

Investing Activities-Continuing Operations. Net cash used in investing activities was $1.7 billion during the nine months ended December 31, 2019, compared to net cash used in investing activities of $378.2 million during the nine months ended December 31, 2018. The increase in net cash used in investing activities was due primarily to:

•
a $1.1 billion increase in cash paid for acquisitions and investments in unconsolidated entities during the nine months ended December 31, 2019;
•
an increase in capital expenditures from $304.0 million during the nine months ended December 31, 2018 to $427.3 million during the nine months ended December 31, 2019 due primarily to expansion projects in our Water Solutions segment; and
•
$103.6 million in proceeds from the sale of our Bakken saltwater disposal business and our previously held 20% interest in E Energy Adams, LLC during the nine months ended December 31, 2018.

Financing Activities-Continuing Operations. Net cash provided by financing activities was $1.1 billion during the nine months ended December 31, 2019, compared to net cash used in financing activities of $672.9 million during the nine months ended December 31, 2018. The increase in net cash provided by financing activities was due primarily to:

•
$623.0 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 nine months ended December 31, 2019;
•
$450.0 million in proceeds from the issuance of the 2026 Notes during the nine months ended December 31, 2019;
•
repurchases of $395.5 million of our senior unsecured notes during the nine months ended December 31, 2018;
•
an increase of $301.5 million in borrowings on the Revolving Credit Facility (net of repayments) during the nine months ended December 31, 2019; and
•
$250.0 million in proceeds from the Term Loan Agreement during the nine months ended December 31, 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 nine months ended December 31, 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 December 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 December 31, 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 January 15, 2020.

On January 23, 2020, the board of directors of our general partner declared a distribution on the common units and the Class D Preferred Units of $50.1 million and $6.1 million, respectively, for the holders of record on February 7, 2020. The distributions are to be paid on February 14, 2020.

For a further discussion of our distributions, see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

87



Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2019 for our fiscal years ending thereafter:
 
 
 
 
Three 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
 
$
945,000

 
$
—

 
$
—

 
$
945,000

 
$
—

 
$
—

 
$
—

Working capital borrowings
 
447,000

 
—

 
—

 
447,000

 
—

 
—

 
—

Senior unsecured notes
 
1,446,458

 
—

 
—

 
—

 
—

 
607,323

 
839,135

Term credit agreement
 
250,000

 
—

 
—

 
—

 
—

 
—

 
250,000

Other long-term debt
 
4,845

 
161

 
4,684

 
—

 
—

 
—

 
—

Interest payments on long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility (1)
 
114,316

 
15,375

 
61,838

 
37,103

 
—

 
—

 
—

Senior unsecured notes
 
532,662

 
11,917

 
103,134

 
103,134

 
103,134

 
103,134

 
108,209

Term credit agreement
 
53,365

 
2,946

 
11,850

 
11,850

 
11,850

 
11,850

 
3,019

Sawtooth credit agreement
 
291

 
25

 
100

 
100

 
66

 
—

 
—

Other long-term debt
 
159

 
50

 
109

 
—

 
—

 
—

 
—

Letters of credit
 
117,151

 
—

 
—

 
117,151

 
—

 
—

 
—

Future minimum commitment payments under noncancelable agreements (2)
 
208,017

 
13,469

 
41,767

 
41,477

 
39,816

 
39,912

 
31,576

Future minimum lease payments under noncancelable operating leases
 
224,977

 
17,154

 
60,126

 
41,674

 
28,974

 
17,139

 
59,910

Construction commitments (3)
 
6,476

 
505

 
5,971

 
—

 
—

 
—

 
—

Fixed-price commodity purchase commitments:
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil
 
49,160

 
49,160

 
—

 
—

 
—

 
—

 
—

Natural gas liquids
 
9,751

 
8,410

 
1,341

 
—

 
—

 
—

 
—

Index-price commodity purchase commitments (4):
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil (5)
 
2,070,286

 
684,946

 
544,878

 
394,385

 
255,818

 
190,259

 
—

Natural gas liquids
 
200,015

 
198,694

 
1,321

 
—

 
—

 
—

 
—

Total contractual obligations
 
$
6,679,929

 
$
1,002,812

 
$
837,119

 
$
2,138,874

 
$
439,658

 
$
969,617

 
$
1,291,849

 
(1)
The estimated interest payments on the Revolving Credit Facility are based on principal and letters of credit outstanding at December 31, 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 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 have extended these agreements and have an additional 5.5 years to recapture the minimum shipping deficiency fees. We also have 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 December 31, 2019, the construction commitments relate to two new barges currently being built.
(4)
Index prices are based on a forward price curve at December 31, 2019. A theoretical change of $0.10 per gallon of natural gas liquids in the underlying commodity price at December 31, 2019 would result in a change of $42.6 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 December 31, 2019 would result in a change of $40.2 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.

88


(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, 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.


89


 
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 December 31, 2019, we had $1.4 billion of outstanding borrowings under the Revolving Credit Facility at a weighted average interest rate of 4.07%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $1.7 million, based on borrowings outstanding at December 31, 2019.

The Term Credit Agreement is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At December 31, 2019, we had $250.0 million of outstanding borrowings under the Term Credit Agreement at an interest rate of 4.74%. 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 December 31, 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 December 31, 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.


90


The following table summarizes the hypothetical impact on the December 31, 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)
$
(24,525
)
Propane (Liquids segment)
$
663

Butane (Liquids segment and Refined Products and Renewables segment)
$
(36
)
Gasoline (Refined Products and Renewables segment)
$
(147
)
Diesel (Refined Products and Renewables segment)
$
(2,267
)
Ethanol (Refined Products and Renewables segment)
$
(211
)
Biodiesel (Refined Products and Renewables segment)
$
1,345

Canadian dollars (Liquids segment)
$
352


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 December 31, 2019. Based on this evaluation, the principal executive officer and principal financial officer of our general partner have concluded that as of December 31, 2019, such disclosure controls and procedures were effective to provide the reasonable assurance described above.

Other than changes that have resulted or may result from our business combinations during the nine months ended December 31, 2019, as discussed below, 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 December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

We closed several business combinations during the nine months ended December 31, 2019, as described in Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report. At this time, we continue to evaluate the business and internal controls and processes of these acquired businesses and are making various changes to their operating and organizational structure based on our business plan. We are in the process of implementing our internal control structure over these acquired businesses. We expect that our evaluation and integration efforts related to those combined operations will continue into future fiscal quarters.



91


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 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 December 31, 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
October 1-31, 2019
 
—

 
$
—

 
—

 
$
150,000,000

November 1-30, 2019
 
10,489

 
$
10.255

 
—

 
$
150,000,000

December 1-31, 2019
 
—

 
$
—

 
—

 
$
150,000,000

Total
 
10,489

 
 
 
—

 
$
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.


92


Item 6.    Exhibits
Exhibit Number
 
Exhibit
2.1
 
2.2
 
3.1
 
4.1
 
4.2
 
4.3
 
4.4
 
4.5*
 
4.6*
 
4.7*
 
10.1
 
10.2
 
10.3
 
10.4
 
10.5
 
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

93


Exhibit Number
 
Exhibit
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 December 31, 2019 and March 31, 2019, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended December 31, 2019 and 2018, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended December 31, 2019 and 2018, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months and nine months ended December 31, 2019 and 2018, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

94


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: February 6, 2020
 
By:
/s/ H. Michael Krimbill
 
 
 
H. Michael Krimbill
 
 
 
Chief Executive Officer
 
 
 
Date: February 6, 2020
 
By:
/s/ Robert W. Karlovich III
 
 
 
Robert W. Karlovich III
 
 
 
Chief Financial Officer


95


Exhibit 4.5

FIFTH SUPPLEMENTAL INDENTURE
FIFTH SUPPLEMENTAL INDENTURE, dated as of December 27, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (the “Company”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with the Company, the “Issuers”), each of the Persons listed on Exhibit A to this Supplemental Indenture (each a “Guaranteeing Subsidiary” and collectively, the “Guaranteeing Subsidiaries”), 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 the Company 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 the Company 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 the Company became Guarantors;
WHEREAS, the Issuers and certain Subsidiaries of the Company 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 the Company became Guarantors;
WHEREAS, the Issuers and certain Subsidiaries of the Company 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 the Company became Guarantors;
WHEREAS, the Issuers and certain Subsidiaries of the Company have heretofore executed and delivered to the Trustee the Fourth Supplemental Indenture, dated as of October 31, 2019 (the “Fourth Supplemental Indenture”), pursuant to which certain Subsidiaries of the Company became Guarantors;
WHEREAS, the Original Indenture as amended and supplemented by the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture and the Fourth Supplemental Indenture is referred to herein as the “Indenture”;
WHEREAS, the Indenture provides that under certain circumstances, each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which such 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, each 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. Each 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. Each 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 a Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or such 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. The exchange of signed copies of this Supplemental Indenture by facsimile transmission or emailed portable document format (pdf) shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and such copies may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or portable document format (pdf) shall be deemed to be their original signatures for all purposes other than authentication of Notes by the Trustee.

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 each 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 SUBSIDIARIES:

AWR DISPOSAL, LLC
DACO PERMIAN 76, LLC
GGCOF HEP BLOCKER II, LLC
GGCOF HEP BLOCKER, LLC
HEP INTERMEDIATE HOLDCO SUB, LLC
HEP INTERMEDIATE HOLDCO, LLC
HEP OPERATIONS HOLDINGS, LLC
HEP OPERATIONS, LLC
HEP SHALEWATER SOLUTIONS, LLC
HILLSTONE DACO 76, LLC
HILLSTONE DACO PERMIAN, LLC
HILLSTONE ENVIRONMENTAL PARTNERS, LLC
HILLSTONE PERMIAN ADAMS, LLC
HILLSTONE PERMIAN ARTHUR, LLC
HILLSTONE PERMIAN CLEVELAND, LLC
HILLSTONE PERMIAN FORTRESS, LLC
HILLSTONE PERMIAN GARFIELD, LLC
HILLSTONE PERMIAN HAMILTON, LLC
HILLSTONE PERMIAN HARRISON, LLC
HILLSTONE PERMIAN HAYES, LLC,
HILLSTONE PERMIAN KNOX, LLC
HILLSTONE PERMIAN MADISON, LLC
HILLSTONE PERMIAN MCKINLEY, LLC
HILLSTONE PERMIAN MONROE, LLC
HILLSTONE PERMIAN PIPELINE LOVING BR, LLC
HILLSTONE PERMIAN PIPELINE, LLC
HILLSTONE PERMIAN POKER LAKE, LLC
HILLSTONE PERMIAN RATTLESNAKE, LLC
HILLSTONE PERMIAN REAGAN, LLC
HILLSTONE PERMIAN ROOSEVELT, LLC
HILLSTONE PERMIAN SHULTZ, LLC
HILLSTONE PERMIAN ST. LUCIA, LLC
HILLSTONE PERMIAN TAFT, LLC
HILLSTONE PERMIAN WILSON, LLC
LOVING FORTRESS, LLC
RED ROCK MIDSTREAM, LLC
SAND LAKE MIDSTREAM, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer



(Signature Page to Fifth Supplemental Indenture)



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 Fifth Supplemental Indenture)



EXISTING GUARANTORS:

ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
CHOYA OPERATING, LLC
GRAND MESA PIPELINE, LLC
NGL CRUDE CUSHING, LLC
NGL CRUDE LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL DELAWARE BASIN HOLDINGS, LLC
NGL ENERGY EQUIPMENT LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL MARINE, LLC
NGL MILAN INVESTMENTS, LLC
NGL SOUTH RANCH, INC.
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL WATER PIPELINES, LLC
NGL WATER SOLUTIONS - ORLA SWD, LLC
NGL WATER SOLUTIONS DJ, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL WATER SOLUTIONS, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Fifth Supplemental Indenture)



TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee



By:
/s/ Brian T. Jensen
Name:
Brian T. Jensen
Title:
Vice President


(Signature Page to Fifth Supplemental Indenture)

Exhibit A


Guaranteeing Subsidiaries

Name
Jurisdiction and Form of Organization
AWR Disposal, LLC
Delaware limited liability company
Daco Permian 76, LLC
Texas limited liability company
GGCOF HEP Blocker II, LLC
Delaware limited liability company
GGCOF HEP Blocker, LLC
Delaware limited liability company
HEP Intermediate Holdco Sub, LLC
Delaware limited liability company
HEP Intermediate Holdco, LLC
Delaware limited liability company
HEP Operations Holdings, LLC
Delaware limited liability company
HEP Operations, LLC
Delaware limited liability company
HEP Shalewater Solutions, LLC
Delaware limited liability company
Hillstone Daco 76, LLC
Delaware limited liability company
Hillstone Daco Permian, LLC
Delaware limited liability company
Hillstone Environmental Partners, LLC
Delaware limited liability company
Hillstone Permian Adams, LLC
Delaware limited liability company
Hillstone Permian Arthur, LLC
Delaware limited liability company
Hillstone Permian Cleveland, LLC
Delaware limited liability company
Hillstone Permian Fortress, LLC
Texas limited liability company
Hillstone Permian Garfield, LLC
Delaware limited liability company
Hillstone Permian Hamilton, LLC
Delaware limited liability company
Hillstone Permian Harrison, LLC
Delaware limited liability company
Hillstone Permian Hayes, LLC
Delaware limited liability company
Hillstone Permian Knox, LLC
Delaware limited liability company
Hillstone Permian Madison, LLC
Delaware limited liability company
Hillstone Permian McKinley, LLC
Delaware limited liability company
Hillstone Permian Monroe, LLC
Delaware limited liability company
Hillstone Permian Pipeline Loving BR, LLC
Delaware limited liability company
Hillstone Permian Pipeline, LLC
Delaware limited liability company
Hillstone Permian Poker Lake, LLC
Delaware limited liability company
Hillstone Permian Rattlesnake, LLC
Delaware limited liability company
Hillstone Permian Reagan, LLC
Delaware limited liability company
Hillstone Permian Roosevelt, LLC
Delaware limited liability company
Hillstone Permian Shultz, LLC
Delaware limited liability company
Hillstone Permian St. Lucia, LLC
Delaware limited liability company
Hillstone Permian Taft, LLC
Delaware limited liability company
Hillstone Permian Wilson, LLC
Delaware limited liability company
Loving Fortress, LLC
Texas limited liability company
Red Rock Midstream, LLC
Delaware limited liability company
Sand Lake Midstream, LLC
Delaware limited liability company




Exhibit 4.6

FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE, dated as of December 27, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (the “Company”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with the Company, the “Issuers”), each of the Persons listed on Exhibit A to this Supplemental Indenture (each a “Guaranteeing Subsidiary” and collectively, the “Guaranteeing Subsidiaries”), 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 the Company 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 the Company 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 the Company became Guarantors;
WHEREAS, the Issuers and certain Subsidiaries of the Company 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 the Company became Guarantors;
WHEREAS, the Issuers and certain Subsidiaries of the Company have heretofore executed and delivered to the Trustee the Third Supplemental Indenture, dated as of October 31, 2019 (the “Third Supplemental Indenture”), pursuant to which certain Subsidiaries of the Company 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, each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which such 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, each 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. Each 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. Each 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 a Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or such 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. The exchange of signed copies of this Supplemental Indenture by facsimile transmission or emailed portable document format (pdf) shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and such copies may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or portable document format (pdf) shall be deemed to be their original signatures for all purposes other than authentication of Notes by the Trustee.

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 each 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 SUBSIDIARIES:

AWR DISPOSAL, LLC
DACO PERMIAN 76, LLC
GGCOF HEP BLOCKER II, LLC
GGCOF HEP BLOCKER, LLC
HEP INTERMEDIATE HOLDCO SUB, LLC
HEP INTERMEDIATE HOLDCO, LLC
HEP OPERATIONS HOLDINGS, LLC
HEP OPERATIONS, LLC
HEP SHALEWATER SOLUTIONS, LLC
HILLSTONE DACO 76, LLC
HILLSTONE DACO PERMIAN, LLC
HILLSTONE ENVIRONMENTAL PARTNERS, LLC
HILLSTONE PERMIAN ADAMS, LLC
HILLSTONE PERMIAN ARTHUR, LLC
HILLSTONE PERMIAN CLEVELAND, LLC
HILLSTONE PERMIAN FORTRESS, LLC
HILLSTONE PERMIAN GARFIELD, LLC
HILLSTONE PERMIAN HAMILTON, LLC
HILLSTONE PERMIAN HARRISON, LLC
HILLSTONE PERMIAN HAYES, LLC,
HILLSTONE PERMIAN KNOX, LLC
HILLSTONE PERMIAN MADISON, LLC
HILLSTONE PERMIAN MCKINLEY, LLC
HILLSTONE PERMIAN MONROE, LLC
HILLSTONE PERMIAN PIPELINE LOVING BR, LLC
HILLSTONE PERMIAN PIPELINE, LLC
HILLSTONE PERMIAN POKER LAKE, LLC
HILLSTONE PERMIAN RATTLESNAKE, LLC
HILLSTONE PERMIAN REAGAN, LLC
HILLSTONE PERMIAN ROOSEVELT, LLC
HILLSTONE PERMIAN SHULTZ, LLC
HILLSTONE PERMIAN ST. LUCIA, LLC
HILLSTONE PERMIAN TAFT, LLC
HILLSTONE PERMIAN WILSON, LLC
LOVING FORTRESS, LLC
RED ROCK MIDSTREAM, LLC
SAND LAKE MIDSTREAM, 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)



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:

ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
CHOYA OPERATING, LLC
GRAND MESA PIPELINE, LLC
NGL CRUDE CUSHING, LLC
NGL CRUDE LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL DELAWARE BASIN HOLDINGS, LLC
NGL ENERGY EQUIPMENT LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL MARINE, LLC
NGL MILAN INVESTMENTS, LLC
NGL SOUTH RANCH, INC.
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL WATER PIPELINES, LLC
NGL WATER SOLUTIONS - ORLA SWD, LLC
NGL WATER SOLUTIONS DJ, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL WATER SOLUTIONS, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES 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/ Brian T. Jensen
Name:
Brian T. Jensen
Title:
Vice President


(Signature Page to Fourth Supplemental Indenture)

Exhibit A


Guaranteeing Subsidiaries

Name
Jurisdiction and Form of Organization
AWR Disposal, LLC
Delaware limited liability company
Daco Permian 76, LLC
Texas limited liability company
GGCOF HEP Blocker II, LLC
Delaware limited liability company
GGCOF HEP Blocker, LLC
Delaware limited liability company
HEP Intermediate Holdco Sub, LLC
Delaware limited liability company
HEP Intermediate Holdco, LLC
Delaware limited liability company
HEP Operations Holdings, LLC
Delaware limited liability company
HEP Operations, LLC
Delaware limited liability company
HEP Shalewater Solutions, LLC
Delaware limited liability company
Hillstone Daco 76, LLC
Delaware limited liability company
Hillstone Daco Permian, LLC
Delaware limited liability company
Hillstone Environmental Partners, LLC
Delaware limited liability company
Hillstone Permian Adams, LLC
Delaware limited liability company
Hillstone Permian Arthur, LLC
Delaware limited liability company
Hillstone Permian Cleveland, LLC
Delaware limited liability company
Hillstone Permian Fortress, LLC
Texas limited liability company
Hillstone Permian Garfield, LLC
Delaware limited liability company
Hillstone Permian Hamilton, LLC
Delaware limited liability company
Hillstone Permian Harrison, LLC
Delaware limited liability company
Hillstone Permian Hayes, LLC
Delaware limited liability company
Hillstone Permian Knox, LLC
Delaware limited liability company
Hillstone Permian Madison, LLC
Delaware limited liability company
Hillstone Permian McKinley, LLC
Delaware limited liability company
Hillstone Permian Monroe, LLC
Delaware limited liability company
Hillstone Permian Pipeline Loving BR, LLC
Delaware limited liability company
Hillstone Permian Pipeline, LLC
Delaware limited liability company
Hillstone Permian Poker Lake, LLC
Delaware limited liability company
Hillstone Permian Rattlesnake, LLC
Delaware limited liability company
Hillstone Permian Reagan, LLC
Delaware limited liability company
Hillstone Permian Roosevelt, LLC
Delaware limited liability company
Hillstone Permian Shultz, LLC
Delaware limited liability company
Hillstone Permian St. Lucia, LLC
Delaware limited liability company
Hillstone Permian Taft, LLC
Delaware limited liability company
Hillstone Permian Wilson, LLC
Delaware limited liability company
Loving Fortress, LLC
Texas limited liability company
Red Rock Midstream, LLC
Delaware limited liability company
Sand Lake Midstream, LLC
Delaware limited liability company





Exhibit 4.7

SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of December 27, 2019 (this “Supplemental Indenture”), among NGL Energy Partners LP, a Delaware limited partnership (the “Company”), NGL Energy Finance Corp., a Delaware corporation (“Finance Corp.,” and, together with the Company, the “Issuers”), each of the Persons listed on Exhibit A to this Supplemental Indenture (each a “Guaranteeing Subsidiary” and collectively, the “Guaranteeing Subsidiaries”), 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 the Company 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 Issuers and certain Subsidiaries of the Company have heretofore executed and delivered to the Trustee the First Supplemental Indenture, dated as of October 31, 2019 (the “First Supplemental Indenture”), pursuant to which certain Subsidiaries of the Company became Guarantors;
WHEREAS, the Original Indenture as amended and supplemented by the First Supplemental Indenture is referred to herein as the “Indenture”;
WHEREAS, the Indenture provides that under certain circumstances, each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which such 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, each 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. Each 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. Each 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 a Guaranteeing Subsidiary or agent thereof, as such, shall have any liability for any obligations of the Issuers, the Guarantors, or such 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. The exchange of signed copies of this Supplemental Indenture by facsimile transmission or emailed portable document format (pdf) shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and such copies may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or portable document format (pdf) shall be deemed to be their original signatures for all purposes other than authentication of Notes by the Trustee.

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 each 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 SUBSIDIARIES:

AWR DISPOSAL, LLC
DACO PERMIAN 76, LLC
GGCOF HEP BLOCKER II, LLC
GGCOF HEP BLOCKER, LLC
HEP INTERMEDIATE HOLDCO SUB, LLC
HEP INTERMEDIATE HOLDCO, LLC
HEP OPERATIONS HOLDINGS, LLC
HEP OPERATIONS, LLC
HEP SHALEWATER SOLUTIONS, LLC
HILLSTONE DACO 76, LLC
HILLSTONE DACO PERMIAN, LLC
HILLSTONE ENVIRONMENTAL PARTNERS, LLC
HILLSTONE PERMIAN ADAMS, LLC
HILLSTONE PERMIAN ARTHUR, LLC
HILLSTONE PERMIAN CLEVELAND, LLC
HILLSTONE PERMIAN FORTRESS, LLC
HILLSTONE PERMIAN GARFIELD, LLC
HILLSTONE PERMIAN HAMILTON, LLC
HILLSTONE PERMIAN HARRISON, LLC
HILLSTONE PERMIAN HAYES, LLC,
HILLSTONE PERMIAN KNOX, LLC
HILLSTONE PERMIAN MADISON, LLC
HILLSTONE PERMIAN MCKINLEY, LLC
HILLSTONE PERMIAN MONROE, LLC
HILLSTONE PERMIAN PIPELINE LOVING BR, LLC
HILLSTONE PERMIAN PIPELINE, LLC
HILLSTONE PERMIAN POKER LAKE, LLC
HILLSTONE PERMIAN RATTLESNAKE, LLC
HILLSTONE PERMIAN REAGAN, LLC
HILLSTONE PERMIAN ROOSEVELT, LLC
HILLSTONE PERMIAN SHULTZ, LLC
HILLSTONE PERMIAN ST. LUCIA, LLC
HILLSTONE PERMIAN TAFT, LLC
HILLSTONE PERMIAN WILSON, LLC
LOVING FORTRESS, LLC
RED ROCK MIDSTREAM, LLC
SAND LAKE MIDSTREAM, LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer



(Signature Page to Second Supplemental Indenture)



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 Second Supplemental Indenture)



EXISTING GUARANTORS:

ANTICLINE DISPOSAL, LLC
CENTENNIAL ENERGY, LLC
CENTENNIAL GAS LIQUIDS ULC
CHOYA OPERATING, LLC
GRAND MESA PIPELINE, LLC
NGL CRUDE CUSHING, LLC
NGL CRUDE LOGISTICS, LLC
NGL CRUDE TERMINALS, LLC
NGL CRUDE TRANSPORTATION, LLC
NGL DELAWARE BASIN HOLDINGS, LLC
NGL ENERGY EQUIPMENT LLC
NGL ENERGY HOLDINGS II, LLC
NGL ENERGY LOGISTICS, LLC
NGL ENERGY OPERATING LLC
NGL LIQUIDS, LLC
NGL MARINE, LLC
NGL MILAN INVESTMENTS, LLC
NGL SOUTH RANCH, INC.
NGL SUPPLY TERMINAL COMPANY, LLC
NGL SUPPLY WHOLESALE, LLC
NGL WATER PIPELINES, LLC
NGL WATER SOLUTIONS - ORLA SWD, LLC
NGL WATER SOLUTIONS DJ, LLC
NGL WATER SOLUTIONS EAGLE FORD, LLC
NGL WATER SOLUTIONS PERMIAN, LLC
NGL WATER SOLUTIONS, LLC
TRANSMONTAIGNE LLC
TRANSMONTAIGNE SERVICES LLC


By:
/s/ Robert W. Karlovich III
Name:
Robert W. Karlovich III
Title:
Executive Vice President and Chief Financial Officer

(Signature Page to Second Supplemental Indenture)



TRUSTEE:

U.S. BANK NATIONAL ASSOCIATION, as Trustee



By:
/s/ Brian T. Jensen
Name:
Brian T. Jensen
Title:
Vice President


(Signature Page to Second Supplemental Indenture)

Exhibit A


Guaranteeing Subsidiaries

Name
Jurisdiction and Form of Organization
AWR Disposal, LLC
Delaware limited liability company
Daco Permian 76, LLC
Texas limited liability company
GGCOF HEP Blocker II, LLC
Delaware limited liability company
GGCOF HEP Blocker, LLC
Delaware limited liability company
HEP Intermediate Holdco Sub, LLC
Delaware limited liability company
HEP Intermediate Holdco, LLC
Delaware limited liability company
HEP Operations Holdings, LLC
Delaware limited liability company
HEP Operations, LLC
Delaware limited liability company
HEP Shalewater Solutions, LLC
Delaware limited liability company
Hillstone Daco 76, LLC
Delaware limited liability company
Hillstone Daco Permian, LLC
Delaware limited liability company
Hillstone Environmental Partners, LLC
Delaware limited liability company
Hillstone Permian Adams, LLC
Delaware limited liability company
Hillstone Permian Arthur, LLC
Delaware limited liability company
Hillstone Permian Cleveland, LLC
Delaware limited liability company
Hillstone Permian Fortress, LLC
Texas limited liability company
Hillstone Permian Garfield, LLC
Delaware limited liability company
Hillstone Permian Hamilton, LLC
Delaware limited liability company
Hillstone Permian Harrison, LLC
Delaware limited liability company
Hillstone Permian Hayes, LLC
Delaware limited liability company
Hillstone Permian Knox, LLC
Delaware limited liability company
Hillstone Permian Madison, LLC
Delaware limited liability company
Hillstone Permian McKinley, LLC
Delaware limited liability company
Hillstone Permian Monroe, LLC
Delaware limited liability company
Hillstone Permian Pipeline Loving BR, LLC
Delaware limited liability company
Hillstone Permian Pipeline, LLC
Delaware limited liability company
Hillstone Permian Poker Lake, LLC
Delaware limited liability company
Hillstone Permian Rattlesnake, LLC
Delaware limited liability company
Hillstone Permian Reagan, LLC
Delaware limited liability company
Hillstone Permian Roosevelt, LLC
Delaware limited liability company
Hillstone Permian Shultz, LLC
Delaware limited liability company
Hillstone Permian St. Lucia, LLC
Delaware limited liability company
Hillstone Permian Taft, LLC
Delaware limited liability company
Hillstone Permian Wilson, LLC
Delaware limited liability company
Loving Fortress, LLC
Texas limited liability company
Red Rock Midstream, LLC
Delaware limited liability company
Sand Lake Midstream, LLC
Delaware limited liability company





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: February 6, 2020
/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: February 6, 2020
/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 December 31, 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: February 6, 2020
/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 December 31, 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: February 6, 2020
/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.