Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 3.00M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 31K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 28K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 28K
11: R1 Document and Entity Information HTML 87K
12: R2 Unaudited Condensed Consolidated Balance Sheets HTML 179K
13: R3 Unaudited Condensed Consolidated Statements of HTML 119K
Operations
14: R4 Unaudited Condensed Consolidated Statements of HTML 47K
Comprehensive Income (Loss)
15: R5 Unaudited Condensed Consolidated Statements of HTML 68K
Changes in Equity
16: R6 Unaudited Condensed Consolidated Statements of HTML 134K
Cash Flows
17: R7 Organization and Operations HTML 32K
18: R8 Significant Accounting Policies HTML 87K
19: R9 Loss Per Common Unit HTML 66K
20: R10 Property, Plant and Equipment HTML 74K
21: R11 Intangible Assets HTML 91K
22: R12 Long-Term Debt HTML 111K
23: R13 Commitments and Contingencies HTML 113K
24: R14 Equity HTML 43K
25: R15 Fair Value of Financial Instruments HTML 86K
26: R16 Segments HTML 140K
27: R17 Transactions with Affiliates HTML 52K
28: R18 Revenue from Contracts with Customers HTML 47K
29: R19 Leases HTML 78K
30: R20 Allowance for Current Expected Credit Loss HTML 37K
31: R21 Other Matters HTML 29K
32: R22 Subsequent Events HTML 28K
33: R23 Significant Accounting Policies (Policies) HTML 55K
34: R24 Commitment and Contingencies (Policies) HTML 29K
35: R25 Equity (Policies) HTML 28K
36: R26 Revenue from Contracts with Customers (Policies) HTML 28K
37: R27 Allowance for Current Expected Credit Loss HTML 35K
(Policies)
38: R28 Significant Accounting Policies (Tables) HTML 81K
39: R29 Loss Per Common Unit (Tables) HTML 68K
40: R30 Property, Plant and Equipment (Tables) HTML 77K
41: R31 Intangible Assets (Tables) HTML 141K
42: R32 Long-Term Debt (Tables) HTML 111K
43: R33 Commitments and Contingencies (Tables) HTML 107K
44: R34 Equity (Tables) HTML 32K
45: R35 Fair Value of Financial Instruments (Tables) HTML 91K
46: R36 Segments (Tables) HTML 139K
47: R37 Transactions with Affiliates (Tables) HTML 49K
48: R38 Revenue from Contracts with Customers (Tables) HTML 44K
49: R39 Leases (Tables) HTML 83K
50: R40 Allowance for Current Expected Credit Loss HTML 35K
(Tables)
51: R41 Organization and Operations (Details) HTML 33K
52: R42 Significant Accounting Policies - Income Taxes HTML 36K
(Details)
53: R43 Significant Accounting Policies - Inventories HTML 48K
(Details)
54: R44 Significant Accounting Policies - Investments in HTML 51K
Unconsolidated Entities (Details)
55: R45 Significant Accounting Policies - Other Noncurrent HTML 53K
Assets (Details)
56: R46 Significant Accounting Policies - Accrued Expenses HTML 42K
and Other Payables (Details)
57: R47 Loss Per Common Unit (Details) HTML 73K
58: R48 Property, Plant and Equipment (Details) HTML 113K
59: R49 Intangible Assets (Details) HTML 70K
60: R50 Intangible Assets - Amortization (Details) HTML 60K
61: R51 Long-Term Debt (Details) HTML 64K
62: R52 Long-Term Debt - 2026 Senior Secured Notes HTML 31K
(Details)
63: R53 Long-Term Debt - Asset-Based Credit Facility HTML 55K
(Details)
64: R54 Long-Term Debt - Senior Unsecured Notes (Details) HTML 42K
65: R55 Long-Term Debt - Other Long-Term Debt (Details) HTML 32K
66: R56 Long-Term Debt - Debt Maturity Schedule (Details) HTML 61K
67: R57 Long-Term Debt - Amortization of Debt Issuance HTML 44K
Costs (Details)
68: R58 Commitments and Contingencies - Legal HTML 34K
Contingencies (Details)
69: R59 Commitments and Contingencies - Environmental HTML 28K
Matters (Details)
70: R60 Commitments and Contingencies - Asset Retirement HTML 39K
Obligations (Details)
71: R61 Commitments and Contingencies - Pipeline Capacity HTML 38K
Agreements (Details)
72: R62 Commitments and Contingencies - Purchase HTML 65K
Commitments (Details)
73: R63 Commitments and Contingencies - Sale Commitments HTML 71K
(Details)
74: R64 Commitments and Contingencies - Other Commitments HTML 52K
(Details)
75: R65 Equity - Partnership Equity (Details) HTML 38K
76: R66 Equity - Class B Preferred Units (Details) HTML 39K
77: R67 Equity - Class C Preferred Units (Details) HTML 39K
78: R68 Equity - Class D Preferred Units (Details) HTML 42K
79: R69 Equity - Equity-Based Incentive Compensation - HTML 62K
Service Awards (Details)
80: R70 Fair Value of Financial Instruments - Fair Value HTML 69K
of Commodity Derivative Assets and Liabilities
(Details)
81: R71 Fair Value of Financial Instruments - Derivative HTML 54K
Contract Positions (Details)
82: R72 Fair Value of Financial Instruments - (Losses) HTML 29K
Gains From Commodity Derivatives (Details)
83: R73 Fair Value of Financial Instruments - Interest HTML 44K
Rate Risk (Details)
84: R74 Fair Value of Financial Instruments - Fair Value HTML 36K
of Fixed-Rate Notes (Details)
85: R75 Segments (Details) HTML 115K
86: R76 Transactions with Affiliates - Related Party HTML 47K
Transactions (Details)
87: R77 Transactions with Affiliates - Other Related Party HTML 36K
Transactions (Details)
88: R78 Revenue from Contracts with Customers - Revenue HTML 29K
Agreements (Details)
89: R79 Revenue from Contracts with Customers - HTML 53K
Performance Obligations (Details)
90: R80 Revenue from Contracts with Customers - Contract HTML 38K
Assets and Liabilities (Details)
91: R81 Leases - Lease Cost (Details) HTML 41K
92: R82 Leases - Lessee Maturities of Lease Obligations HTML 73K
(Details)
93: R83 Leases - Lessee Supplemental Cash Flow Information HTML 38K
(Details)
94: R84 Leases - Lessor Future Minimum Lease Payments HTML 47K
Receivable (Details)
95: R85 Allowance for Current Expected Credit Loss HTML 43K
(Details)
96: R86 Other Matters - Third-party Loan Receivable HTML 30K
(Details)
97: R87 Subsequent Events (Details) HTML 32K
100: XML IDEA XML File -- Filing Summary XML 193K
98: XML XBRL Instance -- ngl-20220930_htm XML 3.32M
99: EXCEL IDEA Workbook of Financial Reports XLSX 191K
7: EX-101.CAL XBRL Calculations -- ngl-20220930_cal XML 263K
8: EX-101.DEF XBRL Definitions -- ngl-20220930_def XML 948K
9: EX-101.LAB XBRL Labels -- ngl-20220930_lab XML 2.13M
10: EX-101.PRE XBRL Presentations -- ngl-20220930_pre XML 1.31M
6: EX-101.SCH XBRL Schema -- ngl-20220930 XSD 222K
101: JSON XBRL Instance as JSON Data -- MetaLinks 503± 778K
102: ZIP XBRL Zipped Folder -- 0001504461-22-000020-xbrl Zip 572K
(Exact Name of Registrant as Specified in Its Charter)
iDelaware
i27-3427920
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i6120 South Yale Avenue, Suite 805
iTulsa,
iOklahoma
i74136
(Address
of Principal Executive Offices)
(Zip Code)
i(918)i481-1119
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of Each Class
Trading Symbols
Name of Each Exchange on Which Registered
iCommon units representing Limited Partner Interests
iNGL
iNew
York Stock Exchange
iFixed-to-floating rate cumulative redeemable perpetual preferred units
iNGL-PB
iNew
York Stock Exchange
iFixed-to-floating rate cumulative redeemable perpetual preferred units
iNGL-PC
iNew
York Stock Exchange
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. iYes☒ 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). iYes☒ 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
o
iAccelerated
filer
x
Non-accelerated filer
o
Smaller reporting company
i☐
Emerging growth company
i☐
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 i☐ No
☒
At November 4, 2022, there were i130,695,970 common units issued and outstanding.
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by and information currently available to us. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Certain words in this Quarterly Report such as “anticipate,”“believe,”“could,”“estimate,”“expect,”“forecast,”“goal,”“intend,”“may,”“plan,”“project,”“will,” and similar expressions and statements regarding our plans and objectives for future operations, identify forward-looking statements. Although
we and our general partner believe such forward-looking statements are reasonable, neither we nor our general partner can assure they will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected. Among the key risk factors that may affect our consolidated financial position and results of operations are:
•the prices of crude oil, natural gas liquids, gasoline, diesel, biodiesel and energy prices generally;
•the general level of demand, and the availability of supply, for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;
•the
level of crude oil and natural gas drilling and production in areas where we have operations and facilities;
•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;
•the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;
•the effect of natural disasters, earthquakes, hurricanes, tornados, lightning strikes, or other significant weather events;
•the availability of local, intrastate, and interstate transportation infrastructure with respect to our transportation services;
•the
availability, price, and marketing of competing fuels;
•the effect of energy conservation efforts on product demand;
•energy efficiencies and technological trends;
•issuance of executive orders, changes in applicable laws, regulations and policies, including tax, environmental, transportation, and employment regulations, or new interpretations by regulatory agencies concerning such laws and regulations and the effect of such laws, regulations and policies (now existing or in the future) on our business operations;
•the effect of executive orders and legislative and regulatory actions on hydraulic fracturing, 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 services;
•the ability to renew leases for our leased equipment and storage facilities;
•inflation,
interest rates, and general economic conditions (including recessions and other future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);
•the nonpayment, nonperformance or bankruptcy 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 organic growth projects, and integrate acquired assets and businesses;
•the costs and effects of legal and administrative proceedings;
•changes in general economic conditions, including market and macroeconomic disruptions resulting from pandemics, including the current COVID-19 pandemic, and related governmental responses; and
•political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and sale of crude oil, refined products, natural gas, natural gas liquids, gasoline, diesel or biodiesel.
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, 2022.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1—iOrganization
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 (“GP”). At September 30, 2022, our operations included ithree segments:
•Our Water Solutions segment transports, treats, recycles and disposes
of produced and flowback water generated from crude oil and natural gas production. We also sell produced water for reuse and recycle and brackish non-potable water to our producer customers to be used in their crude oil exploration and production activities. As part of processing water, we aggregate and sell recovered crude oil, also known as skim oil. We also dispose of solids such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services such as truck and frac tank washouts. Our activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments with leading oil and gas companies including large, investment grade producer customers.
•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, and transportation services through its owned assets. Our activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on our owned and leased pipelines.
•Our Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through our i24
owned terminals, third-party storage and terminal facilities, inine common carrier pipelines and a fleet of leased railcars. We also provide services for marine exports of butane through our facility located in Chesapeake, Virginia. Our propane pipeline in Michigan was completed on August 8, 2022.
Note 2—iSignificant
Accounting Policies
i
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, 2022 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2022 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on June 6, 2022.
These interim unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report. Due
to the seasonal nature of certain of our operations and other factors, the results of operations for interim periods are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2023.
i
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.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Critical accounting estimates we make in the preparation of our unaudited condensed consolidated financial statements include, among others, determining the impairment of goodwill and long-lived assets, useful lives and recoverability of property, plant and equipment and amortizable intangible
assets, the fair value of derivative instruments, estimating certain revenues, the fair value of asset retirement obligations, the fair value of assets and liabilities acquired in acquisitions, the recoverability of inventories, the collectibility of accounts and notes receivable and accruals for environmental matters. Although we believe these estimates are reasonable, actual results could differ from those estimates.
Significant Accounting Policies
Our significant accounting policies are consistent with those disclosed in Note 2 of our audited consolidated financial statements included in our Annual Report.
i
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 a deferred tax liability of $i42.8
million and $i43.5 million at September 30, 2022 and March 31, 2022, respectively, 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 sheets. 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 six months ended September 30, 2022 was $i0.8 million with an effective tax rate of i27.4%.
The deferred tax benefit recorded during the six months ended September 30, 2021 was $i1.6 million with an effective tax rate of i23.1%.
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 iino/
uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at September 30, 2022 or March 31, 2022.
/
iInventories
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.
i
Inventories consist of the following at the dates indicated:
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
i
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.
i
Our investments in unconsolidated entities consist of the following at the dates indicated:
(1) Represents
minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At September 30, 2022 and March 31, 2022, linefill consisted of i717,686 and i423,978
barrels of crude oil, respectively. The increase was due primarily to capitalizing additional crude oil barrels as a result of increased requirements by third-party owned pipelines. Linefill held in pipelines we own is included within property, plant and equipment (see Note 4).
(2) Represents the noncurrent portion of minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for a contract with a crude oil pipeline operator. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 7). At September 30, 2022, the deficiency credit was $i11.0
million, of which $i4.2 million is recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet.
(3) Represents the noncurrent portion of a loan receivable, net of an allowance for an expected credit loss, with a former related party. During the six months ended September 30, 2022, we received payments totaling $i3.1
million to extinguish this loan receivable and we recorded a loss of $i0.2 million within loss on disposal or impairment of assets, net to write off the remaining balance.
/
Accrued Expenses and Other Payables
i
Accrued
expenses and other payables consist of the following at the dates indicated:
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
i
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt - Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU (i) simplifies an issuer’s accounting for convertible instruments by eliminating two of the three models in Accounting Standards Codification (“ASC”) 470-20 that require separate accounting for embedded conversion features, (ii) amends diluted earnings per share calculations for convertible instruments by requiring the use of the if-converted method and (iii) simplifies the settlement assessment entities are required to perform on contracts that can potentially settle in an entity’s own equity by removing
certain requirements. We adopted this guidance on April 1, 2022, using the modified retrospective method. Under our Class D Preferred Unit (as defined in Note 8) agreement, we are permitted to issue common units to redeem a portion of the outstanding Class D Preferred Units. Using the if-converted method, we expect our calculation of earnings per unit to be impacted by both an increase in the number of diluted weighted average common units outstanding and a decrease in the amount of Class D Preferred Unit distributions, when they are determined to be dilutive. Other than the potential impact to our future earnings per unit calculations, the adoption of this guidance did not impact our financial position, results of operations or cash flows related to any debt or preferred units issued prior to adoption.
In March 2020, the FASB issued
ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) interest rate or another reference rate expected to be discontinued because of reference rate reform. This guidance is effective prospectively upon issuance through December 31, 2022 and may be applied from the beginning of an interim period that includes the issuance date of this ASU. On April 13, 2022, the ABL Facility (as defined herein) was amended to replace the LIBOR benchmark with the SOFR (as defined herein) benchmark (as discussed further in Note 6).
We are continuing to evaluate the effect that this guidance will have on our financial position, results of operations and cash flows.
Note 3—iLoss Per Common Unit
i
The
following table presents our calculation of basic and diluted weighted average common units outstanding for the periods indicated:
Weighted
average common units outstanding during the period:
Common units - Basic
i130,695,970
i129,593,939
i130,695,970
i129,593,939
Common
units - Diluted
i130,695,970
i129,593,939
i130,695,970
i129,593,939
/
For
the three months and six months ended September 30, 2022 and 2021, all potential common units or convertible securities were considered antidilutive.
i
Our loss per common unit is as follows for the periods indicated:
Less:
Net income attributable to noncontrolling interests
(i97)
(i330)
(i342)
(i768)
Net
income (loss) attributable to NGL Energy Partners LP
i3,510
(i1,537)
i26,371
(i136,477)
Less:
Distributions to preferred unitholders (1)
(i30,436)
(i25,726)
(i57,981)
(i50,837)
Less:
Net loss allocated to GP (2)
i27
i27
i32
i186
Net
loss allocated to common unitholders
$
(i26,899)
$
(i27,236)
$
(i31,578)
$
(i187,128)
Basic
loss per common unit
$
(i0.21)
$
(i0.21)
$
(i0.24)
$
(i1.44)
Diluted
loss per common unit
$
(i0.21)
$
(i0.21)
$
(i0.24)
$
(i1.44)
Basic
weighted average common units outstanding
i130,695,970
i129,593,939
i130,695,970
i129,593,939
Diluted
weighted average common units outstanding
i130,695,970
i129,593,939
i130,695,970
i129,593,939
(1) Includes
cumulative distributions for the three months and six months ended September 30, 2022 and 2021 which were earned but not declared or paid (see Note 8 for a further discussion of the suspension of common unit and preferred unit distributions).
(1) Includes
a finance lease right-of-use asset of $i0.1 million.
(2) 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. Linefill, 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.
/
i
The
following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
We
record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. The following table summarizes (gains) losses on the disposal or impairment of property, plant and equipment by segment for the periods indicated:
(1) Includes
debt issuance costs related to the ABL Facility (as defined herein). Debt issuance costs related to the fixed-rate notes are reported as a reduction of the carrying amount of long-term debt.
//
i
Amortization
expense is as follows for the periods indicated:
Three Months Ended September 30,
Six Months Ended September 30,
Recorded In
2022
2021
2022
2021
(in thousands)
Depreciation
and amortization
$
i19,312
$
i21,718
$
i38,921
$
i45,214
Cost
of sales
i69
i71
i137
i144
Interest
expense
i1,198
i1,693
i2,361
i2,375
Operating
expenses
i61
i61
i123
i123
Total
$
i20,640
$
i23,543
$
i41,542
$
i47,856
/
i
The
following table summarizes expected amortization of our intangible assets at September 30, 2022 (in thousands):
(1) Debt
issuance costs related to the ABL Facility are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt.
/
2026 Senior Secured Notes
The 2026 Senior Secured Notes bear interest at i7.5%, which is payable on February 1 and August 1 of each year, beginning
on August 1, 2021. The 2026 Senior Secured Notes mature on February 1, 2026. The 2026 Senior Secured Notes were issued pursuant to an indenture dated February 4, 2021 (the “Indenture”).
The 2026 Senior Secured Notes are secured by first priority liens on substantially all of our assets other than our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and second priority liens on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable
energy tax credits and related assets.
The Indenture contains covenants that, among other things, limit our ability to: pay distributions or make other restricted payments or repurchase stock; incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock; make certain investments; create or incur liens; sell assets; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, make loans or advances or transfer assets to the guarantors (including the Partnership); enter into certain transactions with our affiliates; designate restricted subsidiaries
as unrestricted subsidiaries; and merge, consolidate or transfer or sell all or substantially all of our assets. The Indenture specifically restricts our ability to pay distributions until our total leverage ratio (as defined in the Indenture) for the most recently ended four full fiscal quarters at the time of the distribution is not greater than i4.75 to 1.00.
These covenants are subject to a number of important exceptions and qualifications.
The ABL Facility is subject to a borrowing base, which includes a sub-limit for letters of credit. The initial commitments under the ABL Facility were $i500.0
million. On April 13, 2022, we amended the ABL Facility to increase the commitments to $i600.0 million under the accordion feature within the ABL Facility. As part of the amendment, we agreed to reduce the commitments back to $i500.0
million on or before March 31, 2023. In addition, the sub-limit for letters of credit was increased to $i250.0 million and the LIBOR benchmark was replaced with an adjusted forward-looking term rate based on the secured overnight financing rate (“SOFR”) as the interest rate benchmark. The ABL Facility is secured by a lien on
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
substantially all of our assets, including among other things, a first priority lien on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and a second priority lien on all of our other assets. At September 30, 2022, $i287.0
million had been borrowed under the ABL Facility and we had letters of credit outstanding of approximately $i142.8 million. iThe ABL Facility is scheduled to mature at the earliest of (a) February 4, 2026 or (b) 91 days
prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions.
At September 30, 2022, the borrowings under the ABL Facility had a weighted average interest rate of i6.63% calculated as the prime rate of i6.25%
plus a margin of i2.00% on the alternate base borrowings and the weighted average SOFR of i2.74% plus a margin of i3.00%
for the SOFR borrowings. On September 30, 2022, the interest rate in effect on letters of credit was i3.00%.
The ABL Facility contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, distributions and other restricted payments, investments (including acquisitions) and transactions with affiliates.
The ABL Facility contains, as the only financial covenant, a fixed charge coverage ratio that is tested based on the financial statements for the most recently ended fiscal quarter upon the occurrence and during the continuation of a Cash Dominion Event (as defined in the ABL Facility). At September 30, 2022, no Cash Dominion Event had occurred.
Compliance
At September 30, 2022, we were in compliance with the covenants under the ABL Facility.
Senior Unsecured Notes
The senior unsecured notes include the 2023 Notes, which mature on November
1, 2023, the 2025 Notes, which mature on March 1, 2025 and the 2026 Notes, which mature on April 15, 2026 (collectively, the “Senior Unsecured Notes”).
Repurchases
i
The following table summarizes repurchases of Senior Unsecured Notes for the periods indicated:
Cash
paid (excluding payments of accrued interest)
$
i50,834
$
i72,351
Gain
on early extinguishment of debt (1)
$
i2,115
$
i3,777
2026
Notes
Notes repurchased
$
i1,500
$
i1,500
Cash
paid (excluding payments of accrued interest)
$
i1,121
$
i1,121
Gain
on early extinguishment of debt (2)
$
i364
$
i364
(1) Gain
on early extinguishment of debt for the three months and six months ended September 30, 2022 is inclusive of the write-off of debt issuance costs of $i0.1 million and $i0.2
million, respectively. The gain is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statements of operations.
(2) Gain on early extinguishment of debt for the three months and six months ended September 30, 2022 is inclusive of the write-off of debt issuance costs of less than $i0.1 million and less than $i0.1
million, respectively. The gain is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statements of operations.
/
Compliance
At September 30, 2022, we were in compliance with the covenants under all of the Senior Unsecured Notes indentures.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Other Long-term Debt
On October 29, 2020, we entered into an equipment loan for $i45.0 million which bears interest at a rate of i8.6%
and is secured by certain of our barges and towboats. We have an aggregate principal balance of $i40.4 million at September 30, 2022. The loan matures on November 1, 2027.
Debt Maturity Schedule
i
The
scheduled maturities of our long-term debt are as follows at September 30, 2022:
Amortization expense for debt issuance costs related to long-term debt was $i3.0 million and $i3.1 million
during the three months ended September 30, 2022 and 2021, respectively, and $i6.0 million and $i6.1
million during the six months ended September 30, 2022 and 2021, respectively.
i
The following table summarizes expected amortization of debt issuance costs at September 30, 2022 (in thousands):
In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against 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 $i4.0
million for quantum meruit and $i29.0 million for fraudulent misrepresentation,subject to statutory interest. 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 (the “December 5th Order”). 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 January 7, 2020, the Supreme Court of Delaware (“Supreme Court”) entered an Order accepting an interlocutory appeal of various issues relating to both the quantum meruit and fraudulent misrepresentation verdicts. The Supreme Court heard oral arguments of the parties on November 4, 2020, took the matters presented under advisement and on January 28, 2021, issued a ruling that (a) LCT is not entitled to “benefit-of-the-bargain” damages on its fraud claim; (b) LCT is not entitled to receive fraudulent misrepresentation damages separate from its quantum meruit damages; (c) the trial court abused its discretion when it ordered
a new trial on damages relating to LCT’s claim of fraudulent misrepresentation; and (d) the trial court properly ordered a new trial on LCT’s
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
claim of quantum meruit damages. The date for a new trial, to be limited to the quantum meruit claim, has been set by the trial court for February 6, 2023. Any allocation of the ultimate verdict award,
if any, between the GP and the Partnership will be made by the board of directors of our GP once all information is available to it and after the new trial, any post-trial and/or any appellate process has concluded and the verdict is final as a matter of law. As of September 30, 2022, we have accrued $i2.5 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 September 30, 2022, we have an environmental liability, measured on an undiscounted basis, of $i1.7
million, which is recorded within accrued expenses and other payables in our unaudited condensed consolidated balance sheet. Our operations are subject to extensive federal, state, and local environmental laws and regulations. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our business, and there can be no assurance that we will not incur significant costs. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, could result in substantial costs. Accordingly, we have adopted policies, practices, and procedures in the areas of pollution control, product safety, occupational health, and the handling, storage, use, and disposal of hazardous materials designed to prevent material
environmental or other damage, and to limit the financial liability that could result from such events. However, some risk of environmental or other damage is inherent in our business.
iAsset 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.
i
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):
(1) Relates
to the sale of ithree saltwater disposal wells and other long-lived assets within our Water Solutions business.
/
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.
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 isix months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We currently have an asset recorded in prepaid
Notes
to Unaudited Condensed Consolidated Financial Statements (Continued)
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).
i
The following table summarizes future minimum throughput payments under
these agreements at September 30, 2022 (in thousands):
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.
i
At September 30, 2022,
we had the following commodity purchase commitments:
Crude Oil (1)
Natural Gas Liquids
Value
Volume (in
barrels)
Value
Volume (in gallons)
(in thousands)
Fixed-Price Commodity Purchase Commitments:
2023 (six months)
$
i167,753
i2,023
$
i12,313
i13,458
2024
i—
i—
i7,367
i8,904
2025
i—
i—
i2,829
i3,486
2026
i—
i—
i1,982
i2,730
2027
i—
i—
i1,808
i2,520
Total
$
i167,753
i2,023
$
i26,299
i31,098
Index-Price
Commodity Purchase Commitments:
2023 (six months)
$
i2,292,486
i30,384
$
i655,856
i633,211
2024
i1,971,489
i29,508
i102,413
i126,578
2025
i1,428,772
i22,775
i5,257
i10,501
2026
i598,823
i10,410
i—
i—
Total
$
i6,291,570
i93,077
$
i763,526
i770,290
(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.
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 9) or inventory positions (described in Note 2).
Certain other forward purchase and sale contracts
do not qualify for the normal purchase and normal sale election. These contracts are recorded at fair value in our unaudited condensed consolidated balance sheet and are not included in the tables above. These contracts are included in the derivative disclosures in Note 9 and represent $i42.2 million of our prepaid expenses and other current assets and $i25.9
million of our accrued expenses and other payables at September 30, 2022.
Other Commitments
We have noncancelable agreements for product storage, railcar spurs and real estate. iThe following table summarizes future minimum payments under these agreements at September 30, 2022 (in thousands):
As
part of the acquisition of Hillstone Environmental Partners, LLC, 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 six months ended September 30, 2022, we recorded $i0.4 million and $i0.8
million, respectively, and for the three months and six months ended September 30, 2021, we recorded $i0.6 million and $i1.2 million, respectively, within operating expense in our unaudited
condensed consolidated statements of operations. At September 30, 2022, the range of potential payments we could be obligated to make pursuant to the subsidy agreement could be from $i0.0 million to $i0.8
million.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Note 8—iEquity
Partnership
Equity
The Partnership’s equity consists of a i0.1% GP interest and a i99.9%
limited partner interest, which consists of common units. Our GP has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its i0.1% GP interest. Our GP is not required to guarantee or pay any of our debts and obligations. At September 30, 2022, we owned i8.69%
of our GP.
Suspension of Common Unit and Preferred Unit Distributions
The board of directors of our GP temporarily suspended all distributions (common unit distributions which began with the quarter ended December 31, 2020 and preferred unit distributions which began with the quarter ended March 31, 2021) in order to deleverage our balance sheet and meet the financial performance ratios set within the Indenture of the 2026 Senior Secured Notes, as discussed further in Note 6.
Class B Preferred Units
As
of September 30, 2022, there were i12,585,642 of our Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) outstanding.
iOn
July 1, 2022, the Class B Preferred Units distribution rate changed from a fixed rate of 9.00% to a floating rate of the three-month LIBOR interest rate (2.29% for the quarter ended September 30, 2022) plus a spread of 7.21%. For the quarter ended September 30, 2022, we did not declare or pay distributions to the holders of the Class B Preferred Units, thus the quarterly distribution for September 30, 2022 is $i0.5936
and the cumulative distribution since suspension for each Class B Preferred Unit is $i3.9686. In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2022 is $i53.2
million.
Class C Preferred Units
As of September 30, 2022, there were i1,800,000 of our Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) outstanding.
iThe
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). For the quarter ended September 30, 2022, we did not declare or pay distributions to the holders of the Class C Preferred Units, thus the quarterly distribution for September 30, 2022 is $i0.6016 and the cumulative distribution since suspension for each Class C
Preferred Unit is $i4.2109. In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2022 is $i8.1
million.
Class D Preferred Units
As of September 30, 2022, there were i600,000 preferred units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of i25,500,000
common units outstanding.
iThe current distribution rate for the Class D Preferred Units increased on July 1, 2022 from 9.00% to 10.00% per year per unit (equal to $100.00 per every $1,000 in unit value per year), and includes an additional 1.50% rate increase due to us exceeding the adjusted total leverage ratio and due to a Class D distribution payment default, as defined within the amended and restated limited partnership agreement. For the quarter ended September 30, 2022,
we did not declare or pay distributions to the holders of the Class D Preferred Units, thus the average quarterly distribution at September 30, 2022 is $i29.92 and the average cumulative distribution since suspension for each Class D Preferred unit is $i192.50.
In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of September 30, 2022 is $i124.6 million.
Equity-Based Incentive Compensation
Our GP adopted a long-term incentive plan (“LTIP”),
which allowed for the issuance of equity-based compensation. Our GP granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
the recipients through the vesting date (the “Service Awards”). The Service Awards may also vest upon a change of control, at the discretion of the board of directors of our GP. iNo
distributions accrue to or are paid on the Service Awards during the vesting period. The LTIP expired on May 10, 2021.
i
The following table summarizes the Service Award activity during the six months ended September 30, 2022:
As
the LTIP expired on May 10, 2021, we had ino common units available for grant for the six months ended September 30, 2022.
As of September 30, 2022, there are i1,393,075
unvested Service Award units which are expected to vest during the fiscal year ending March 31, 2023 and i696,725 unvested Service Award units which are expected to vest during the fiscal year ending March 31, 2024. Also, any current unvested Service Awards that are forfeited or canceled will not be available for future grants.
iService
Awards are valued at the average of the high/low sales price as of the grant date less the present value of the expected distribution stream over the vesting period using a risk-free interest rate. We record the expense for each Service Award on a straight-line basis over the requisite period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant date value of the award that is vested at that date.
During the three months ended September 30, 2022 and 2021, we recorded compensation expense related to Service Award units of $i0.5
million and $i1.0 million, respectively. During the six months ended September 30, 2022 and 2021, we recorded compensation expense related to Service Award units of $i1.0
million and $i2.0 million, respectively.
For the unvested Service Award units at September 30, 2022, we had estimated future expense of $i2.0
million which we expect to record during the fiscal year ending March 31, 2023 and $i1.2 million which we expect to record during the fiscal year ending March 31, 2024.
Note 9—iFair
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.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Commodity Derivatives
i
The
following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our unaudited condensed consolidated balance sheets at the dates indicated:
(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.
/
i
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:
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
i
The following table summarizes our open commodity derivative contract positions at the dates indicated. We do not account for these derivatives as hedges.
(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.
/
During the three months ended September 30, 2022 and 2021, we recorded net gains of $i28.0
million and $i16.0 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations. During the six months ended September 30, 2022 and 2021, we recorded net losses of $i13.1
million and $i40.7 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations.
Credit Risk
We have credit policies that we believe minimize our overall credit risk, including an evaluation of potential counterparties’ financial condition
(including credit ratings), collateral requirements under certain circumstances, and the use of industry standard master netting agreements, which allow for offsetting counterparty receivable and payable balances for certain transactions. At September 30, 2022, 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 ABL Facility is variable-rate debt with interest rates that are generally indexed to the Wall Street Journal prime rate or SOFR, an adjusted forward-looking term rate based on the secured overnight financing rate. At September 30, 2022, we had $i287.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of i6.63%.
iOn
July 1, 2022, the Class B Preferred Units distribution rate changed from a fixed rate of 9.00% to a floating rate of the three-month LIBOR interest rate (2.29% for the quarter ended September 30, 2022) plus a spread of 7.21%.
Notes
to Unaudited Condensed Consolidated Financial Statements (Continued)
For our Class C Preferred Units, distributions on and after April 15, 2024 will accumulate at a percentage of the $25.00 liquidation preference equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in the partnership agreement) plus a spread of 7.384%. iOn or after July 1, 2024, the holders of our Class D Preferred Units can elect, from time to time, for the distributions
to be calculated based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in the partnership agreement) plus a spread of 7.00% (“Class D Variable Rate”, as defined in the partnership agreement). Each Class D Variable Rate election shall be effective for at least four quarters following such election.
Fair Value of Fixed-Rate Notes
i
The
following table provides fair value estimates of our fixed-rate notes at September 30, 2022 (in thousands):
Senior Secured Notes:
2026 Senior Secured Notes
$
i1,818,521
Senior
Unsecured Notes:
2023 Notes
$
i385,365
2025 Notes
$
i305,758
2026
Notes
$
i247,901
/
For the 2026 Senior Secured Notes and Senior Unsecured Notes, the fair value estimates were developed based on publicly traded quotes and would be classified as Level 2 in the fair value
hierarchy.
Note 10—iSegments
Our operations are organized into ithree
reportable segments: (i) Water Solutions, (ii) Crude Oil Logistics and (iii) Liquids Logistics, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Our Liquids Logistics reportable segment includes operating segments that have been aggregated based on the nature of the products and services provided. Operating income of these segments is reviewed by the chief operating decision maker to evaluate performance and make business decisions. Intersegment transactions are recorded based on prices negotiated between the segments and are eliminated upon consolidation.
See Note 1 for a discussion of the products and services of our reportable segments. The remainder of our business
operations is presented as “Corporate and Other” and consists of certain corporate expenses that are not allocated to the reportable segments. iThe following table summarizes revenues related to our segments for the periods indicated:
The
following tables summarize depreciation and amortization expense (including amortization expense recorded within interest expense, cost of sales and operating expenses in Note 5 and Note 6) and operating income (loss) by segment for the periods indicated.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
i
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
following tables summarize long-lived assets, net (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:
Guarantee of Outstanding Loan for KAIR2014 LLC (“KAIR2014”)
In connection with the purchase of our i50% interest in an aircraft company, KAIR2014, we executed a joint and several guarantee for the benefit of the lender for KAIR2014’s outstanding loan. The other owner of KAIR2014, our Chief Executive Officer, H. Michael Krimbill,
is a party to a similar guarantee. This guarantee obligates us for the payment and performance of KAIR2014 with respect to the repayment of the loan. As of September 30, 2022, the outstanding balance of the loan is approximately $i2.4 million. Payments are made monthly, reducing the outstanding balance, and the loan matures in September 2023. As the guarantee is joint and several, we could be liable for the entire outstanding balance of the loan. The loan is collateralized by the airplane owned by KAIR2014 and
in the event of a default, the lender could seek payment in full from us. As of September 30, 2022, ino accrual has been recorded related to this guarantee.
iWe 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. Our revenue contracts
in the scope of ASC 606 primarily have a single performance obligation and we do not receive material amounts of non-cash consideration. Our costs to obtain or fulfill our revenue contracts were not material as of September 30, 2022.
The majority of our revenue agreements are in the scope of 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 in the scope of Topics 845 and 842, respectively. See Note 10 for a detail of disaggregated revenue. Revenue from contracts
accounted for as derivatives under ASC 815 within our Liquids Logistics segment includes $i13.5 million of net losses related to changes in the mark-to-market value of these contracts recorded during the six months ended September 30, 2022.
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 utilized 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. iThe
following table summarizes the amount and timing of revenue recognition for such contracts at September 30, 2022 (in thousands):
(1) Included
in operating expenses in our unaudited condensed consolidated statements of operations.
(2) Included in depreciation and amortization expense in our unaudited condensed consolidated statements of operations.
(3) Included in interest expense in our unaudited condensed consolidated statements of operations.
/
i
The
following table summarizes maturities of our lease obligations at September 30, 2022 (in thousands):
Operating
Finance
Fiscal Year Ending March 31,
Leases
Lease (1)
2023
(six months)
$
i21,882
$
i14
2024
i32,505
i28
2025
i19,751
i28
2026
i8,703
i28
2027
i4,643
i28
2028
i4,405
i10
Thereafter
i34,436
i—
Total
lease payments
i126,325
i136
Less
imputed interest
(i28,976)
(i37)
Total
lease obligations
$
i97,349
$
i99
(1) At
September 30, 2022, the finance lease liability of less than $i0.1 million for the short-term finance lease obligation is included in accrued expenses and other payables and the long-term finance lease obligation of $i0.1 million
is included in other noncurrent liabilities.
Cash paid for amounts included in the measurement of lease obligations
Operating cash outflows from operating leases
$
i27,074
$
i30,267
Operating
cash outflows from finance lease
$
i2
$
i—
Financing
cash outflows from finance lease
$
i2
$
i—
Right-of-use
assets obtained in exchange for lease obligations
Operating leases
$
i7,846
$
i10,386
Finance
lease
$
i102
$
i—
/
Lessor
Accounting and Subleases
Our lessor arrangements include storage and railcar contracts. We also, from time to time, sublease certain of our storage capacity and railcars to third-parties. Fixed rental revenue is recognized on a straight-line basis over the lease term. During the three months ended September 30, 2022 and 2021, fixed rental revenue was $i3.3
million, which includes $i0.9 million of sublease revenue, and $i3.2 million, which includes $i0.3
million of sublease revenue, respectively. During the six months ended September 30, 2022 and 2021, fixed rental revenue was $i6.8 million, which includes $i1.1
million of sublease revenue and $i6.5 million, which includes $i0.7 million of sublease revenue, respectively.
i
The
following table summarizes future minimum lease payments to be received under various noncancelable operating lease agreements at September 30, 2022 (in thousands):
Note
14—iAllowance for Current Expected Credit Loss (CECL)
i
ASU 2016-13 requires that an allowance for expected credit losses be recognized for certain
financial assets that reflects the current expected credit loss over the financial asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts.
We are exposed to credit losses primarily through sale of products and services and notes receivable from third-parties. A counterparty’s ability to pay is assessed through a credit process that considers the payment terms, the counterparty’s established credit rating or our assessment of the counterparty’s credit worthiness and other risks. We can require prepayment or collateral to mitigate credit risks.
We group our financial assets into pools of counterparties with similar risk characteristics for the purpose of determining the allowance for expected credit
losses. Each reporting period, we assess whether a significant change in the risk of expected credit loss has occurred. Among the quantitative and qualitative factors considered in calculating our allowance for expected credit losses are historical financial data, including write-offs and allowances, current conditions, industry risk and current credit ratings. Financial assets will be written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recorded as an increase to the allowance for expected credit losses. We manage receivable pools using past due balances as a key credit quality indicator.
As previously disclosed, we had an outstanding loan receivable, including accrued interest, associated with our interest in a facility that was utilized by a third-party. Due to the bankruptcy of the third-party, we wrote down the remaining outstanding balance to what we expected to collect as an unsecured claim. At March 31, 2022, the outstanding balance of our unsecured claim was $i0.6
million, net of an allowance for an expected credit loss, which was recorded within prepaid expenses and other current assets in our consolidated balance sheet. During the three months ended June 30, 2022, we received $i1.0 million to settle our unsecured claim and we reversed the allowance for the expected credit loss.
Note 16—iSubsequent
Events
During November 2022, we repurchased $i12.0 million of the 2023 Notes.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of NGL
Energy Partners LP’s (“we,”“us,”“our,” or the “Partnership”) financial condition and results of operations as of and for the three months and six months ended September 30, 2022. 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 Part II, Item 7–“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on June 6, 2022.
Overview
We
are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner (“GP”). At September 30, 2022, our operations included three segments: Water Solutions, Crude Oil Logistics and Liquids Logistics. See Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of these businesses.
Global Pandemic and Ukraine War
The COVID-19 pandemic, including the outbreak of several variants, has caused continued volatility in commodity prices due to, among other things, reduced industrial activity and travel demand, varying worldwide restrictions and the timing of closing and re-opening of economies throughout the last two years. The unprecedented restrictions on travel and economic activity
during the early stages of the COVID-19 pandemic significantly reduced demand for refined products. The lingering impact of the COVID-19 pandemic continues to ripple through the United States economy, most notably in the form of rising inflation and supply chain issues. Additionally, the Russian invasion of Ukraine beginning in February 2022 and the ongoing war has caused additional volatility in commodity prices on worldwide supply constraints and has seemed to have only amplified inflation and supply chain constraints in the United States.
While we have seen continued recovery in commodity prices since the beginning of the pandemic, primarily due to economies re-opening over time and the reduction in oil and natural gas supply resulting from the war in Ukraine, there is still an element of volatility that we expect to continue due to the uncertainty of the COVID-19 pandemic and the war in Ukraine.
This volatility could negatively impact commodity prices or rising inflation could impact demand for refined products. Given
the uncertain timing of a return of refined product demand to historical levels, the extent these events will have an impact on our results of operations is unclear.
Seismic Activity
The subsurface injection of produced water for disposal has been associated with recent induced seismic events in Texas and New Mexico. While these events have been relatively low
magnitude, industry and relevant state regulators are, nevertheless, taking proactive measures to attempt to prevent similar induced seismic events. More specifically, we are engaged in various collaborative industry efforts with other disposal operators and relevant state regulatory agencies, working to collect and review data, enhance understanding of regional fault systems, and ultimately develop and implement appropriate longer-term mitigation strategies. As part of this effort, we have implemented reductions in injected volumes at certain facilities, and where appropriate have temporarily shut-in facilities. To date, due to the capacity of our integrated system in the affected areas, the diverse locations of our disposal facilities, and the connectivity of our system, our ability to dispose of produced water has not been materially impacted by these actions.
Consolidated
Results of Operations
The following table summarizes our unaudited condensed consolidated statements of operations for the periods indicated:
Less: Net income attributable to noncontrolling interests
(97)
(330)
(342)
(768)
Net
income (loss) attributable to NGL Energy Partners LP
$
3,510
$
(1,537)
$
26,371
$
(136,477)
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 acquisitions, dispositions and other transactions. Our results of operations for the three months and six months ended September 30, 2022 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2023.
Recent Developments
Repurchases of Senior Unsecured Notes
During the three months ended September 30, 2022, we repurchased $53.1 million of the 7.5% senior unsecured notes due 2023 (“2023 Notes”) and $1.5 million of the
7.5% senior unsecured notes due 2026 (“2026 Notes”).
Acquisitions and Dispositions
The following transaction impacted the comparability of our results of operations between our current and prior fiscal years.
•On June 18, 2021, we sold our approximately
71.5% interest in Sawtooth Caverns, LLC (“Sawtooth”) to a group of buyers.
Subsequent Events
See Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of transactions that occurred subsequent to September 30, 2022.
(in thousands,
except per barrel and per day amounts)
Revenues:
Water disposal service fees
$
126,295
$
98,457
$
27,838
Sale of recovered crude oil
27,472
17,182
10,290
Recycled
water
2,962
3,136
(174)
Other revenues
8,181
17,435
(9,254)
Total revenues
164,910
136,210
28,700
Expenses:
Cost
of sales-excluding impact of derivatives
1,964
6,983
(5,019)
Derivative gain
(1,044)
(560)
(484)
Operating expenses
55,539
42,465
13,074
General
and administrative expenses
961
1,918
(957)
Depreciation and amortization expense
51,327
50,670
657
Loss on disposal or impairment of assets, net
9,035
1,962
7,073
Total
expenses
117,782
103,438
14,344
Segment operating income
$
47,128
$
32,772
$
14,356
Produced
water processed (barrels per day)
Delaware Basin
1,986,585
1,485,087
501,498
Eagle Ford Basin
112,337
95,728
16,609
DJ
Basin
153,766
149,426
4,340
Other Basins
13,150
30,142
(16,992)
Total
2,265,838
1,760,383
505,455
Recycled
water (barrels per day)
93,898
67,027
26,871
Total (barrels per day)
2,359,736
1,827,410
532,326
Skim oil sold (barrels per day)
3,216
2,821
395
Service
fees for produced water processed ($/barrel) (1)
$
0.61
$
0.61
$
—
Recovered crude oil for produced water processed ($/barrel) (1)
$
0.13
$
0.11
$
0.02
Operating
expenses for produced water processed ($/barrel) (1)
$
0.27
$
0.26
$
0.01
(1) Total produced water barrels processed during the three months ended September 30, 2022 and 2021 were 208,457,135 and 161,955,202, respectively.
Water
Disposal Service Fee Revenues. The increase was due to an increase in produced water volumes processed as a result of increased crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin, as well as an increase in payments made by certain producers for committed volumes not delivered. Service fees for produced water processed ($/barrel) also benefited from these deficiency payments.
Recovered Crude Oil Revenues. The increase was due primarily to higher volumes of skim oil sold due to increased
produced water processed as well as higher crude oil prices realized. This was offset by lower skim oil volumes per barrel of produced water processed.
Recycled Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The decrease was due primarily to lower pricing for recycled water driven by an increase in supply of produced water available for recycling. This was offset by increasing demand for water to be used in completions, driven by an increase in drilling and completion activity primarily in the Delaware Basin, and our customers transition from brackish non-potable water to recycled water.
Other Revenues. Other revenues primarily include brackish non-potable
water revenues, water pipeline revenues, land surface use revenues and solids disposal revenues. The decrease was due primarily to lower sales of brackish non-potable water related to the termination of a joint marketing agreement as well as our customers transitioning from brackish non-potable water to recycled water.
Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to lower purchases of brackish non-potable water from third-parties to meet customer needs due to the termination of a joint marketing agreement.
Derivative Gain. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the crude oil we expect to recover when processing produced water and selling recovered skim
oil. During the three months ended September 30, 2022, we had $4.3 million of net unrealized gains on derivatives and $3.3 million of net realized losses on derivatives. During the three months ended September 30, 2021, we had $2.1 million of net realized gains on derivatives and $1.5 million of net unrealized losses on derivatives.
Operating and General and Administrative Expenses. The increase was due primarily to higher utility, royalty and chemical expenses as a result of the increase in produced water volumes processed. Utility, royalty and chemical expenses, which are three of our largest variable expenses, were not impacted by the rise in inflation due to negotiated long-term utility contracts
with fixed rates, royalty contracts with no escalation clauses and a fixed chemical expense per barrel with our chemical provider. The increase was also due to higher repairs and maintenance expense due to timing of repairs and the operation of temporary booster stations, higher incentive compensation expense and higher severance taxes due to the increase in revenue from recovered crude oil.
Depreciation and Amortization Expense. The increase was due primarily to depreciation of newly developed facilities and infrastructure. This increase was partially offset by certain long-term assets being fully amortized or impaired during the fiscal year ended March 31, 2022 and six months ended September 30,
2022.
Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2022, we recorded an impairment charge of $8.0 million to write down the value of an inactive saltwater disposal facility and equipment at another saltwater disposal facility. We also recorded a net loss of $1.1 million primarily related to the abandonment of certain capital projects and the sale and retirement of certain other miscellaneous assets. During the three months ended September 30, 2021, we recorded a net loss of $2.0 million primarily related to abandonment of certain capital projects and the sale of certain other miscellaneous assets.
Crude
oil transported on owned pipelines (barrels)
6,600
7,337
(737)
Crude oil storage capacity - owned and leased (barrels) (2)
5,232
5,232
—
Crude oil storage capacity leased to third-parties (barrels) (2)
1,501
1,501
—
Crude
oil inventory (barrels) (2)
660
1,249
(589)
Crude oil sold ($/barrel)
$
94.433
$
71.304
$
23.129
Cost per crude oil sold ($/barrel) (3)
$
93.040
$
66.395
$
26.645
Crude
oil product margin ($/barrel) (3)
$
1.393
$
4.909
$
(3.516)
(1) Revenues include $1.3 million and $2.2 million of intersegment sales during the three months ended September 30, 2022 and 2021, respectively, that are eliminated in our unaudited condensed consolidated
statements of operations.
(2) Information is presented as of September 30, 2022 and September 30, 2021, respectively. The decrease in crude oil inventory was due primarily to capitalizing additional crude oil barrels as linefill as a result of increased requirements.
(3) Cost and product margin per barrel excludes the impact of derivatives.
Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. This was offset by a reduction in sales
volumes primarily due to lower production in the DJ Basin and increased buy/sell transactions during the quarter ended September 30, 2022. Buy/sell transactions are transactions in which we purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are netted for these transactions.
Crude Oil Transportation and Other Revenues. The increase was primarily due to an increase in charter days and day rates within our marine transportation business due to increased demand.
During the three months ended September 30, 2022, physical volumes on the Grand
Mesa Pipeline averaged approximately 72,000 barrels per day, compared to approximately 80,000 barrels per day for the three months ended September 30, 2021 (volume amounts are from both internal and external parties). Both contracted and non-contracted volumes decreased as overall production in the DJ Basin declined in part due to producer permitting issues.
Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Derivative (Gain) Loss. Our cost of
sales during the three months ended September 30, 2022 included $23.2 million of net realized gains on derivatives, driven by decreasing crude oil prices, and $4.6 million of net unrealized gains on derivatives. The amount for the three months ended September 30, 2022 includes net realized gains of $8.8 million and net unrealized gains
of $6.5 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below under “Non-GAAP Financial Measures.” Our cost of sales during the
three months ended September 30, 2021 included $8.3 million of net realized losses on derivatives, driven by the increase in crude oil prices, and $7.2 million of net unrealized gains on derivatives. The amount for the three months ended September 30, 2021 includes net realized losses of $14.6 million and net unrealized gains of $14.5 million associated with derivative instruments related to our hedge of the CMA Differential Roll.
Crude Oil Product Margin. The decrease in product margin was primarily due to the sale of higher priced inventory into a market in which prices are declining. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin. This decrease was offset by higher contracted rates
with certain producers as well as increased differentials on certain other sales contracts.
Operating and General and Administrative Expenses. The increase was primarily related to higher incentive compensation costs and higher ad valorem tax expense, which were offset by the sale of the trucking business during the three months ended March 31, 2022.
Depreciation and Amortization Expense. The decrease was due primarily to the sale of our trucking assets during the three months ended March 31, 2022.
Gain
on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2022, we recorded a net gain of $0.3 million primarily due to disposals and retirements of certain assets. During the three months ended September 30, 2021, we recorded a net gain of less than $0.1 million due to the disposal of certain assets.
Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2)
167,559
169,087
(1,528)
Refined products sold (gallons)
186,031
196,932
(10,901)
Refined
products sold ($/gallon)
$
3.417
$
2.256
$
1.161
Cost per refined products sold ($/gallon) (3)
$
3.382
$
2.243
$
1.139
Refined
products product margin ($/gallon) (3)
$
0.035
$
0.013
$
0.022
Refined products inventory (gallons) (2)
1,990
2,576
(586)
Propane
sold (gallons)
169,775
180,322
(10,547)
Propane sold ($/gallon)
$
1.175
$
1.220
$
(0.045)
Cost per propane sold ($/gallon) (3)
$
1.167
$
1.169
$
(0.002)
Propane
product margin ($/gallon) (3)
$
0.008
$
0.051
$
(0.043)
Propane inventory (gallons) (2)
101,880
98,429
3,451
Butane
sold (gallons)
111,551
124,881
(13,330)
Butane sold ($/gallon)
$
1.365
$
1.343
$
0.022
Cost per butane sold ($/gallon) (3)
$
1.430
$
1.231
$
0.199
Butane
product (loss) margin ($/gallon) (3)
$
(0.065)
$
0.112
$
(0.177)
Butane inventory (gallons) (2)
84,928
75,500
9,428
Other
products sold (gallons)
104,979
97,310
7,669
Other products sold ($/gallon)
$
2.722
$
2.133
$
0.589
Cost per other products sold ($/gallon)
(3)
$
2.567
$
2.182
$
0.385
Other products product margin (loss) ($/gallon) (3)
$
0.155
$
(0.049)
$
0.204
Other
products inventory (gallons) (2)
33,653
17,465
16,188
(1) Revenue includes less than $0.1 million of intersegment sales during the three months ended September 30, 2021 that is eliminated in our unaudited condensed consolidated statement of operations.
(3) Cost and product margin per gallon excludes the impact of derivatives.
Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increase in refined products prices. This was offset by a decrease in volumes primarily related to tighter supply in certain markets.
Refined Products Derivative (Gain) Loss. Our refined products margin during the three months ended September 30, 2022 included a realized gain of $0.5 million and the three months ended September 30,
2021 included a realized loss of $0.4 million.
Refined Products product margins increased during the three months ended September 30, 2022 due to higher demand in several markets that were experiencing tighter supply as well as being positioned from a supply and inventory perspective during the continued period of extreme volatility in commodity prices.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales were due to steadily falling propane market prices during the three months ended September 30, 2022, compared to rising prices during the three months ended September 30, 2021.
Propane prices have declined along with the decline in global energy prices as a result of the increase in interest rates to curb inflation and the overall concerns in the economy about a potential recession, as well as due to an increase in days of domestic supply available, combined with lower forecasted demand. Sales volumes decreased due to the decommissioning of a critical underground storage facility in the Midwest in April 2022. We expect the volume previously sold at this facility will be partially replaced by redirecting customers to other facilities and by transloading product from railcars to trucks. Additionally, sales volumes also decreased as we tapered our summer product purchases to more closely align with expected future inventory and sales needs, resulting in decreased excess summer volumes purchased and sold during the current year compared to prior year.
Propane
Derivative Loss (Gain). Our wholesale cost of propane sales during the three months ended September 30, 2022 included net unrealized losses of $11.9 million on derivatives and $0.8 million of net realized losses on derivatives.
During the three months ended September 30, 2021, our wholesale cost of propane sales included $21.8 million of net unrealized gains on derivatives and $7.1 million of net realized losses on derivatives.
Propane
product margins, excluding the impact of derivatives, decreased as a result of decreasing market prices as the cost of sales applied to lower priced spot volumes sold were based on inventory purchased in a higher price environment. As we replace our current inventory with inventory purchased in a lower price environment, we expect margin to increase as we realize the margin associated with our forward fixed-priced sales contracts.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decrease in revenues was due to lower prices and weaker demand for the product, especially exports. Export economics began to soften during the three months ended June 30, 2022, which led to lower domestic prices as less product
was being moved abroad and overall concerns about the economy and inflation weighing on the domestic market. The decline in volumes was primarily due to the export market as we were able to supply more product in the prior year to export companies. The increase in cost of sales was primarily the result of a lower of cost or net realizable value charge of $11.5 million recorded during the three months ended September 30, 2022 due to the declining prices.
Butane Derivative (Gain) Loss. Our cost of butane sales during the three months ended September 30, 2022 included $8.7 millionof net unrealized gains on derivatives and $2.0 million of net realized gains on derivatives. Our cost of butane sales included $9.0 million
of net unrealized losses on derivatives and $4.8 million of net realized losses on derivatives during the three months ended September 30, 2021.
Butane product margins, excluding the impact of derivatives, decreased during the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, due to the declining prices, lower export demand, a reduction in the value of our inventory due to recording a lower of cost or net realizable value charge and increased freight charges due to higher fuel surcharges.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues
and cost of sales, excluding the impact of derivatives, were due to our increased supply of biodiesel to sell during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due to favorable supply contracts entered into in the prior year. In addition, our asphalt volumes increased as supply chain issues resulted in greater demand in certain markets.
Other Products Derivative Gain. Our derivatives of other products included $0.9 million of net unrealized losses and $1.5 million of net realized gains on derivatives during the three months ended September 30, 2022. Our derivatives of
other products during the three months ended September 30, 2021 included $0.1 million of net unrealized gains and $16.0 million of net realized gains on derivatives.
Other product sales product margins during the three months ended September 30, 2022 increased from the prior year primarily due to the increase in biodiesel and asphalt volumes, as discussed above.
Service Revenues. This revenue includes storage, terminaling and transportation services income. Revenues during the three months ended September 30, 2022 were consistent with the three months ended September 30, 2021.
Operating
and General and Administrative Expenses. The increase was primarily related to higher incentive compensation costs and an increase in bad debt expense due to certain customer balances becoming uncollectible.
Depreciation and Amortization Expense. The decrease was primarily due to lower amortization expense due to certain intangible assets being fully amortized as of September 30, 2021.
Loss on Disposal or Impairment of Assets, Net. During the three months ended September 30, 2022, we recorded a net loss of$0.1 million primarily due to disposals of certain assets. During the three months
ended September 30, 2021, we recorded a net loss of $11.7 million related to the sale of one of our terminals.
General
and Administrative Expenses. The expenses during the three months ended September 30, 2022 were higher than the three months ended September 30, 2021 due to increased incentive compensation payments and the timing of those payments compared to the prior year. Equity-based compensation also increased primarily due to a reversal of an incentive compensation accrual during the three months ended September 30, 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense during the three months ended September 30, 2022 was consistent with the three months ended September 30, 2021.
Gain
on Disposal or Impairment of Assets, Net.During the three months ended September 30, 2022, we sold an airplane for a gain of $1.3 million, which was partially offset by a loss recorded on the prepayment of a loan receivable due July 31, 2023 (as discussed further in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
Equity in Earnings of Unconsolidated Entities
Equity
in earnings of unconsolidated entities was $1.2 million during the three months ended September 30, 2022, compared to $0.4 million during the three months ended September 30, 2021. The increase of $0.8 million during the three months ended September 30, 2022 was due primarily to higher earnings from certain membership interests related to specific land and water services operations and a lower loss from our interest in an aircraft company.
Interest Expense
The following table summarizes the components of our consolidated interest expense for the periods indicated:
The
debt interest expense increased $0.4 million during the three months ended September 30, 2022 primarily due to an increase of the revolving credit facility balance as well as increased floating interest rates, offset by lower interest expense resulting from repurchases of a portion of our Senior Unsecured Notes.
Gain on Early Extinguishment of Liabilities, Net
Gain on early extinguishment of liabilities, net was $2.5 million during the three months ended September 30, 2022, compared to $1.1 million during the three months ended September 30, 2021. During the
three months ended September 30, 2022 and 2021, the net gain (inclusive of debt issuance costs written off) relates to the early extinguishment of a portion of the
outstanding Senior Unsecured Notes (as defined herein). See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Other
(Expense) Income, Net
Other expense, net of less than $0.1 million for the three months ended September 30, 2022 consisted primarily of a loss on the settlement of an asset acquired in an acquisition in fiscal year 2020, partially offset by a gain related to a bankruptcy settlement. Other income, net of $0.7 million for the three months ended September 30, 2021 consisted primarily of a gain related to a bankruptcy settlement, profits from a retained contract and a tax refund.
Income Tax (Expense) Benefit
Income
tax expense was $0.5 million during the three months ended September 30, 2022, compared to an income tax benefit of $0.2 million during the three months ended September 30, 2021. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Noncontrolling Interests
Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third-parties. Noncontrolling interest income was $0.1 million during the three months
ended September 30, 2022, compared to $0.3 million during the three months ended September 30, 2021. The decrease during the three months ended September 30, 2022 was due primarily to lower income from certain recycling operations and water solutions operations during the three months ended September 30, 2022.
(in thousands, except per barrel and per day amounts)
Revenues:
Water disposal service fees
$
240,178
$
193,185
$
46,993
Sale
of recovered crude oil
65,921
30,983
34,938
Recycled water
7,372
6,338
1,034
Other revenues
17,518
35,930
(18,412)
Total
revenues
330,989
266,436
64,553
Expenses:
Cost of sales-excluding impact of derivatives
6,782
15,948
(9,166)
Derivative
loss
4,363
813
3,550
Operating expenses
103,736
82,490
21,246
General and administrative expenses
4,224
3,726
498
Depreciation
and amortization expense
101,175
113,651
(12,476)
Loss on disposal or impairment of assets, net
9,976
9,453
523
Total
expenses
230,256
226,081
4,175
Segment operating income
$
100,733
$
40,355
$
60,378
Produced
water processed (barrels per day)
Delaware Basin
1,937,179
1,456,810
480,369
Eagle Ford Basin
105,463
93,796
11,667
DJ
Basin
152,057
134,197
17,860
Other Basins
15,505
29,118
(13,613)
Total
2,210,204
1,713,921
496,283
Recycled
water (barrels per day)
115,294
88,116
27,178
Total (barrels per day)
2,325,498
1,802,037
523,461
Skim oil sold (barrels per day)
3,584
2,662
922
Service
fees for produced water processed ($/barrel) (1)
$
0.59
$
0.62
$
(0.03)
Recovered crude oil for produced water processed ($/barrel) (1)
$
0.16
$
0.10
$
0.06
Operating
expenses for produced water processed ($/barrel) (1)
$
0.26
$
0.26
$
—
(1) Total producedwater barrels processed during the six months ended September 30, 2022 and 2021 were 404,467,330 and 313,647,489, respectively.
Water
Disposal Service Fee Revenues. The increase was due to an increase in produced water volumes processed as a result of increased crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin. This was partially offset by lower service fees received per barrel due to increased volumes from customers with long-term acreage dedications or minimum volume commitments with lower contracted fees.
Recovered Crude Oil Revenues. The increase was due primarily to higher volumes of skim oil sold due to increased produced water processed as well as higher crude oil prices realized. Additionally, an increase in the number of wells completed in our area of operations during the period with increased flowback activity resulted in higher skim oil volumes per barrel of produced water processed.
Recycled
Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The increase was due primarily to increasing demand for water to be used in completions, driven by an increase in drilling and completion activity primarily in the Delaware Basin, and our customers’ transition from brackish non-potable water to recycled water. The increase was offset by lower pricing for recycled water driven by an increase in supply of produced water available for recycling.
Other Revenues. The
decrease was due primarily to lower sales of brackish non-potable water related to the termination of a joint marketing agreement as well as our customers transitioning from brackish non-potable water to recycled water.
Cost of Sales-Excluding Impact of Derivatives. The decrease was due primarily to lower purchases of brackish non-potable water from third-parties to meet customer needs due to the termination of a joint marketing agreement.
Derivative Loss. During the six months ended September 30, 2022, we had $4.5 million of net unrealized gains on derivatives and $8.8 million of net realized losses on derivatives. During the six months ended September 30, 2021,
we had $4.3 million of net realized gains on derivatives and $5.1 million of net unrealized losses on derivatives.
Operating and General and Administrative Expenses. The increase was due primarily to higher utility, royalty and chemical expenses as a result of the increase in produced water volumes processed. Utility, royalty and chemical expenses, which are three of our largest variable expenses, were not impacted by the rise in inflation due to negotiated long-term utility contracts with fixed rates, royalty contracts with no escalation clauses and a fixed chemical expense per barrel with our chemical provider. The increase was also due to higher repairs and maintenance expense
due to timing of repairs and the operation of temporary booster stations, higher incentive compensation expense and higher severance taxes due to the increase in revenue from recovered crude oil.
Depreciation and Amortization Expense. The decrease was due primarily to certain long-term assets being fully amortized or impaired during the fiscal year ended March 31, 2022 and six months ended September 30, 2022. This decrease was partially offset by the depreciation of newly developed facilities and infrastructure.
Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2022, we recorded
an impairment charge of $8.0 million to write down the value of an inactive saltwater disposal facility and equipment at another saltwater disposal facility. We also recorded a net loss of $1.6 million primarily related to the abandonment of certain capital projects and the sale and retirement of certain other miscellaneous assets and a loss of $0.5 million related to the termination of a joint marketing agreement. During the six months ended September 30, 2021, we recorded a net loss of $9.5 million primarily related to facilities damaged by lightning strikes, abandonment of certain capital projects and the sale of certain other miscellaneous assets.
Crude
oil transported on owned pipelines (barrels)
13,770
14,371
(601)
Crude oil storage capacity - owned and leased (barrels) (2)
5,232
5,232
—
Crude oil storage capacity leased to third-parties (barrels) (2)
1,501
1,501
—
Crude
oil inventory (barrels) (2)
660
1,249
(589)
Crude oil sold ($/barrel)
$
103.850
$
69.075
$
34.775
Cost per crude oil sold ($/barrel) (3)
$
99.801
$
64.506
$
35.295
Crude
oil product margin ($/barrel) (3)
$
4.049
$
4.569
$
(0.520)
(1) Revenues include $6.1 million and $4.7 million of intersegment sales during the six months ended September 30, 2022 and 2021, respectively, that are eliminated in our unaudited condensed consolidated
statements of operations.
(2) Information is presented as of September 30, 2022 and September 30, 2021, respectively. The decrease in crude oil inventory was due primarily to capitalizing additional crude oil barrels as linefill as a result of increased requirements.
(3) Cost and product margin per barrel excludes the impact of derivatives.
Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices during the six months ended September 30, 2022, compared to the six months ended September 30, 2021. This was offset by a reduction in sales volumes
primarily due to lower production in the DJ Basin and increased buy/sell transactions during the six months ended September 30, 2022.
Crude Oil Transportation and Other Revenues. The increase was primarily due to an increase in charter days and day rates within our marine transportation business due to increased demand.
During the six months ended September 30, 2022, physical volumes on the Grand Mesa Pipeline averaged approximately 75,000 barrels per day, compared to approximately 79,000 barrels per day for the six months ended September 30, 2021 (volume amounts are from both internal and external parties). Both contracted and non-contracted
volumes decreased as overall production in the DJ Basin declined in part due to producer permitting issues.
Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the six months ended September 30, 2022, compared to the six months ended September 30, 2021.
Derivative (Gain) Loss. Our cost of sales during the six months ended September 30, 2022 included $53.6 million of net realized losses on derivatives, driven by increasing crude oil prices, and $55.6 million of net unrealized gains on derivatives. The amount for the six months ended September 30,
2022 includes net realized losses of $37.5 million and net unrealized gains of $36.0 million associated with derivative instruments related to our hedge of the CMA Differential Roll defined and discussed below under “Non-GAAP Financial Measures.” Our cost of sales during the six months ended September 30, 2021 included
$61.0 million of net realized losses on derivatives driven by the increase in crude oil prices, and $21.6 million of net unrealized gains on derivatives. The amount for the six months ended September 30, 2021 includes
net realized losses of $40.2 million and net unrealized gains of $27.9 million associated with derivative instruments related to our hedge of the CMA Differential Roll.
Crude Oil Product Margin. The decrease in product margin was primarily due to the sale of higher priced inventory into a market in which prices are declining during the second half of the current period. In the prior year, lower priced inventory was sold into a market in which prices were rising during the second half of the prior year period. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin. In addition, we incurred increased freight costs during the current period. This decrease in product margin was offset by higher contracted rates with certain producers as well as increased differentials on certain other
sales contracts.
Operating and General and Administrative Expenses. The decrease was primarily related to the sale of the trucking business during the three months ended March 31, 2022 which was partially offset by higher incentive compensation costs and higher ad valorem tax expense.
Depreciation and Amortization Expense. The decrease was due primarily to the sale of our trucking assets during the three months ended March 31, 2022.
Gain on Disposal or Impairment of Assets, Net.
During the six months ended September 30, 2022, we recorded a net gain of $1.6 million primarily due to disposals and retirements of certain assets. During the six months ended September 30, 2021, we recorded a net gain of $0.1 million related to the retirement of certain assets.
Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2)
167,559
169,087
(1,528)
Refined products sold (gallons)
374,657
382,238
(7,581)
Refined
products sold ($/gallon)
$
3.695
$
2.191
$
1.504
Cost per refined products sold ($/gallon) (3)
$
3.649
$
2.175
$
1.474
Refined
products product margin ($/gallon) (3)
$
0.046
$
0.016
$
0.030
Refined products inventory (gallons) (2)
1,990
2,576
(586)
Propane
sold (gallons)
334,619
350,601
(15,982)
Propane sold ($/gallon)
$
1.261
$
1.087
$
0.174
Cost per propane sold ($/gallon) (3)
$
1.226
$
1.048
$
0.178
Propane
product margin ($/gallon) (3)
$
0.035
$
0.039
$
(0.004)
Propane inventory (gallons) (2)
101,880
98,429
3,451
Butane
sold (gallons)
232,076
247,455
(15,379)
Butane sold ($/gallon)
$
1.520
$
1.157
$
0.363
Cost per butane sold ($/gallon) (3)
$
1.550
$
1.084
$
0.466
Butane
product (loss) margin ($/gallon) (3)
$
(0.030)
$
0.073
$
(0.103)
Butane inventory (gallons) (2)
84,928
75,500
9,428
Other
products sold (gallons)
198,616
190,163
8,453
Other products sold ($/gallon)
$
2.924
$
1.800
$
1.124
Cost per other products sold ($/gallon)
(3)
$
2.700
$
1.691
$
1.009
Other products product margin ($/gallon) (3)
$
0.224
$
0.109
$
0.115
Other
products inventory (gallons) (2)
33,653
17,465
16,188
(1) Revenue includes $1.3 million of intersegment sales during the six months ended September 30, 2021 that is eliminated in our unaudited condensed consolidated statement of operations.
(3) Cost and product margin per gallon excludes the impact of derivatives.
Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increase in refined products price. This was offset by a decrease in volumes primarily related to tighter supply in certain markets.
Refined Products Derivative Loss. Our refined products margin during the six months ended September 30, 2022 included a realized loss of $0.6 million and the six months ended September 30, 2021 included a realized
loss of $1.1 million.
Refined Products product margins for the six months ended September 30, 2022 increased from the six months ended September 30, 2021 due to higher demand in several markets that were experiencing tighter supply as well as being well positioned from a supply and inventory perspective during the continued period of extreme volatility in commodity prices.
Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due to higher commodity prices, offset by lower volumes. During the second half of the current period, prices began to steadily decline along with the decline in global energy prices as a result of
the increase in interest rates to curb inflation and the overall concerns in the economy about a potential recession, as well as due to an increase in days of domestic supply available, combined with lower forecasted demand. Sales volumes decreased due to the decommissioning of a critical underground storage facility in the Midwest in April 2022. We expect the volume previously sold at this facility will be partially replaced by redirecting customers to other facilities and by transloading product from railcars to trucks. We also tapered our summer product purchases to more closely align with expected future inventory and sales needs, resulting in decreased excess summer volumes purchased and sold during the current year compared to prior year.
Propane Derivative Loss (Gain). Our wholesale propane cost of sales included
$11.9 millionof net unrealized losses on derivatives and $1.1 million of net realized gains on derivatives during the six months ended September 30, 2022. During
the six months ended September 30, 2021, our cost of wholesale propane sales included $33.7 million of net unrealized gains on derivatives and $8.8 million of net realized losses on derivatives.
Propane product margins, excluding the impact of derivatives, decreased
as a result of decreasing market prices as the cost of sales applied to lower priced spot volumes sold were based on inventory purchased in a higher price environment. As we replace our current inventory with inventory purchased in a lower price environment, we expect margin to increase as we realize the margin associated with our forward fixed-priced sales contracts. This decrease was offset by a reduction to the value of our inventory of $10.5 million to its lower of cost or net realizable value as of March 31, 2022.
Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due primarily to higher commodity prices which were offset by lower volumes due to export economics
beginning to soften during the three months ended June 30, 2022, which led to lower domestic prices as less product was being moved abroad. Prices also declined during the three months ended September 30, 2022 due to overall concerns about the economy and inflation weighing on the domestic market. Our cost of sales also included a lower of cost or net realizable value charge of $11.5 million recorded during the three months ended September 30, 2022 due to the declining prices.
Butane Derivative (Gain) Loss. Our cost of butane sales during the six months ended September 30, 2022 included $14.8 millionof net unrealized
gains on derivatives and $4.1 million of net realized gains on derivatives. Our cost of butane sales included $15.5 million of net unrealized losses on derivatives and $6.0 million of net realized losses on derivatives during the six months ended September 30, 2021.
Butane product margins, excluding the impact of derivatives, were lower during the six months ended September 30, 2022 than during the six months ended September 30, 2021 due to the declining prices, lower export demand, a reduction in the value of our inventory due to recording a lower of cost or net realizable value charge and increased freight charges due to higher fuel surcharges. In addition, we were also negatively impacted by lower location differentials as the product
we contracted to purchase in the beginning of the season was continuing to compete with product purchased in the discounted market.
Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to higher commodity prices and an increased supply of biodiesel to sell during the current year period compared to the prior year period due to favorable supply contracts entered into in the prior year. In addition, our asphalt volumes increased as supply chain issues resulted in greater demand in certain markets.
Other Products Derivatives Loss. Our derivatives of other products
included $1.2 million of net unrealized losses on derivatives and $17.0 million of net realized losses on derivatives during the six months ended September 30, 2022. Our derivatives of other products during the six months ended September 30, 2021 included $0.1 million of net unrealized gains on derivatives and $2.7 million of net realized losses on derivatives.
Other product sales product margins during the six months ended September 30, 2022 increased due to an increase in biodiesel and biodiesel renewable identification number market prices, as well as securing favorable biodiesel supply contracts in the Midwest and transporting the product for sale in more
favorable markets and the increase in demand for asphalt due to the supply chain disruptions.
Service Revenues. This revenue includes storage, terminaling and transportation services income. The decrease during the six months ended September 30, 2022 was due to the disposition of Sawtooth in June 2021 as well as less throughput in certain of our propane and butane terminals.
Operating and General and Administrative Expenses. The increase was primarily due to increased incentive compensation costs. Also, there was also an increase in travel and entertainment as a result of increased sales calling efforts following the pandemic. These increases were partially offset by a decrease in materials and supplies
expenses due to the disposition of Sawtooth.
Depreciation and Amortization Expense. The decrease was primarily due to the disposition of Sawtooth in June 2021 as well as lower amortization expense due to certain intangible assets being fully amortized as of September 30, 2021.
Loss on Disposal or Impairment of Assets, Net. During the six months ended September 30, 2022, we recorded a net loss of $0.1 million primarily due to disposals of certain assets. During the six months ended September 30, 2021, we recorded a net loss of $60.1 million related to the sale of Sawtooth and a net loss of $11.7 million related
to the sale of another terminal during the three months ended September 30, 2021.
General
and Administrative Expenses. The expenses during the six months ended September 30, 2022 were higher than the six months ended September 30, 2021 due to increased incentive compensation payments and the timing of those payments compared to the prior year. Equity-based compensation also increased primarily due to a reversal of an incentive compensation accrual during the six months ended September 30, 2021.
Depreciation and Amortization Expense. Depreciation and amortization expense during the six months ended September 30, 2022 was consistent with the six months ended September 30, 2021.
Gain
on Disposal or Impairment of Assets, Net.During the six months ended September 30, 2022, we sold an airplane for a gain of $1.3 million, which was partially offset by a loss recorded on the prepayment of a loan receivable due July 31, 2023 (as discussed further in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report).
Equity in Earnings of Unconsolidated Entities
Equity
in earnings of unconsolidated entities was $1.9 million during the six months ended September 30, 2022, compared to $0.6 million during the six months ended September 30, 2021. The increase of $1.3 million during the six months ended September 30, 2022 was due primarily to higher earnings from certain membership interests related to specific land and water services operations and a lower loss from our interest in an aircraft company.
Interest Expense
The following table summarizes the components of our consolidated interest expense for the periods indicated:
The
debt interest expense increased $0.1 million during the six months ended September 30, 2022 primarily due to an increase of the revolving credit facility balance and increased floating interest rates, offset by lower interest expense resulting from repurchases of a portion of our Senior Unsecured Notes.
Gain on Early Extinguishment of Liabilities, Net
Gain on early extinguishment of liabilities, net was $4.1 million during the six months ended September 30, 2022, compared to $1.1 million during the six months ended September 30, 2021. During the six months ended September 30,
2022
and 2021, the net gain (inclusive of debt issuance costs written off) primarily relates to the early extinguishment of a portion of the outstanding Senior Unsecured Notes (as defined herein). For the six months ended September 30, 2021, the net gain was partially offset by a loss on the early extinguishment of the Sawtooth credit agreement. See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Other
Income, Net
Other income, net of $0.6 million for the six months ended September 30, 2022 consisted primarily of gains related to bankruptcy settlements. Other income, net of $2.0 million for the six months ended September 30, 2021 consisted primarily of a reversal of an obligation assumed in an acquisition that closed in fiscal year 2020, profits from a retained contract and a tax refund.
Income Tax (Expense) Benefit
Income tax expense was $0.4 million
during the six months ended September 30, 2022, compared to an income tax benefit of $0.7 million during the six months ended September 30, 2021. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
Noncontrolling Interests
Noncontrolling interest income was $0.3 million during the six months ended September 30, 2022, compared to $0.8 million during the six months ended September 30, 2021, which included a loss of $0.2 million from
the operations of Sawtooth. The decrease during the six months ended September 30, 2022 was due primarily to lower income from certain recycling operations and water solutions operations during the six months ended September 30, 2022.
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 net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to certain refined products businesses within our Liquids Logistics segment as discussed below. EBITDA and Adjusted EBITDA should not be considered
as alternatives to net income (loss), income (loss) 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 certain businesses within our
Liquids Logistics 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 certain businesses within our Liquids Logistics segment. The primary hedging strategy of these businesses is to hedge against the risk of declines in the value of inventory over the course of the contract
cycle, and many of the hedges cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost. We include this in Adjusted EBITDA because the unrealized gains and losses 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. In our Crude Oil Logistics segment, we
purchase
certain crude oil barrels using the West Texas Intermediate (“WTI”) calendar month average (“CMA”) price and sell the crude oil barrels using the WTI CMA price plus the Argus CMA Differential Roll Component (“CMA Differential Roll”) per our contracts. To eliminate the volatility of the CMA Differential Roll, we entered into derivative instrument positions in January 2021 to secure a margin of approximately $0.20 per barrel on 1.5 million barrels per month from May 2021 through December 2023. Due to the nature of these positions, the cash flow and earnings recognized on a GAAP basis will differ from period to period depending on the current crude oil price and future estimated crude oil price which are valued utilizing third-party market quoted prices. We are recognizing in Adjusted EBITDA the gains and losses from the derivative instrument positions entered
into in January 2021 to properly align with the physical margin we are hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction.
The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated:
Less:
Net income attributable to noncontrolling interests
(97)
(330)
(342)
(768)
Net income (loss) attributable to NGL Energy Partners LP
3,510
(1,537)
26,371
(136,477)
Interest
expense
68,313
68,512
$
135,639
$
135,642
Income tax expense (benefit)
537
(235)
365
(685)
Depreciation
and amortization
68,103
69,543
134,717
152,900
EBITDA
140,463
136,283
297,092
151,380
Net
unrealized gains on derivatives
(4,828)
(18,490)
(61,730)
(34,754)
CMA Differential Roll net losses (gains) (1)
(6,518)
12,805
28,102
37,115
Inventory
valuation adjustment (2)
(3,560)
(451)
(4,115)
767
Lower of cost or net realizable value adjustments
10,143
3,521
857
(285)
Loss
on disposal or impairment of assets, net
7,653
13,695
7,485
81,233
Gain on early extinguishment of liabilities, net
(2,479)
(1,072)
(4,141)
(1,159)
Equity-based
compensation expense
479
(2,753)
976
(1,793)
Acquisition expense (3)
—
36
—
103
Other
(4)
889
2,687
1,592
4,755
Adjusted EBITDA
$
142,242
$
146,261
$
266,118
$
237,362
(1) Adjustment
to align, within Adjusted EBITDA, the net gains and losses of the Partnership’s CMA Differential Roll derivative instruments positions with the physical margin being hedged. See “Non-GAAP Financial Measures” section above for a further discussion.
(2) Amount reflects the difference between the market value of the inventory at the balance sheet date and its cost. See “Non-GAAP Financial Measures” section above for a further discussion.
(3) Amounts represent expenses we incurred related to legal and advisory costs associated with acquisitions.
(4) Amounts represent non-cash operating expenses related to our Grand Mesa Pipeline, unrealized gains/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:
Amortization of debt issuance costs recorded to interest expense
8,372
8,492
Amortization of royalty expense recorded to operating expense
123
123
Depreciation
and amortization of unconsolidated entities
(364)
(358)
Depreciation and amortization attributable to noncontrolling interests
562
1,267
Depreciation and amortization per unaudited condensed consolidated statements of cash flows
$
143,410
$
162,424
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:
Loss
(gain) on disposal or impairment of assets, net
9,453
(56)
71,833
—
81,230
Equity-based compensation expense
—
—
—
(1,793)
(1,793)
Acquisition
expense
—
—
—
103
103
Other income, net
622
350
658
349
1,979
Adjusted
EBITDA attributable to unconsolidated entities
1,175
—
(19)
(120)
1,036
Adjusted EBITDA attributable to noncontrolling interest
(1,568)
—
(526)
—
(2,094)
Other
160
4,620
(15)
—
4,765
Adjusted
EBITDA
$
168,935
$
61,924
$
24,039
$
(17,536)
$
237,362
Liquidity, Sources of Capital and Capital Resource Activities
General
Our
principal sources of liquidity and capital resource requirements are the cash flows from our operations, borrowings under our asset-based revolving credit facility (“ABL Facility”), debt issuances and the issuance of common and preferred units. We expect our primary cash outflows to be related to capital expenditures, interest and repayment of debt maturities.
We believe that our anticipated cash flows from operations and the borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs, including the repayment of the 2023 Notes. Our borrowing needs vary during the year due in part to the seasonal nature of certain businesses within our Liquids Logistics segment. 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 butane
blending and heating seasons. Our working capital borrowing needs generally decline during the period of January through March, when the cash inflows from our Liquids Logistics segment are the greatest. In addition, our working capital borrowing needs vary with changes in commodity prices.
Cash Management
We manage cash by utilizing a centralized cash management program that concentrates the cash assets of our operating subsidiaries in joint accounts for the purposes of providing financial flexibility and lowering the cost of borrowing, transaction costs and bank fees. Our centralized cash management program provides that funds in excess of the daily needs of our operating subsidiaries
are concentrated, consolidated or otherwise made available for use by other entities within our consolidated group. All of our wholly-owned operating subsidiaries participate in this program. Under the cash management program, depending on whether a participating subsidiary has short-term cash surpluses or cash requirements, we provide cash to the subsidiary or the subsidiary provides cash to us.
Our principal
sources of short-term liquidity consist of cash generated from operating activities and borrowings under our ABL Facility, which we believe will provide liquidity to operate our business, manage our working capital requirements and repay current maturities. Current commitments under the ABL Facility are $600.0 million, but as part of amending the ABL Facility on April 13, 2022, we agreed to reduce the commitments back to $500.0 million on or before March 31, 2023. We currently anticipate having minimal needs for acquisitions or expansion projects and expect to fund these items through cash flows from operations or borrowings under the ABL Facility. At September 30, 2022, $287.0 million had been borrowed under the ABL Facility and we had letters of credit outstanding of approximately $142.8 million. The ABL Facility is scheduled
to mature at the earliest of (a) February 4, 2026 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions. See below for further discussion on the timing of paying down the 2023 Notes.
As of September 30, 2022, our current assets exceeded our current liabilities by approximately $435.2 million.
For additional information related to our ABL Facility, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Long-Term
Financing
In addition to our principal sources of short-term liquidity discussed above, we expect to fund our longer-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or the sale of assets.
Senior Secured Notes
On February 4, 2021, we issued $2.05 billion of 7.5% 2026 Senior Secured Notes (“2026 Senior Secured Notes”) in a private placement. The 2026 Senior Secured Notes bear interest, which is payable on February 1 and August 1 of each year, beginning on August 1, 2021. The 2026 Senior Secured Notes mature on February
1, 2026.
Senior Unsecured Notes
The senior unsecured notes include the 2023 Notes, which mature on November 1, 2023, the 6.125% Notes due 2025, which mature on March 1, 2025 and the 2026 Notes, which mature on April 15, 2026 (collectively, the “Senior Unsecured Notes”).
Repurchases
During the three months ended September 30, 2022, we repurchased $53.1 million of the 2023 Notes at a total cash cost of $50.8 million (excluding payments of accrued interest) and $1.5 million
of the 2026 Notes at a total cash cost of $1.1 million (excluding payments of accrued interest).
We expect to have less than $50 million outstanding under the 2023 Notes by August 1, 2023 and the remaining outstanding balance of the 2023 Notes paid off prior to their maturity date on November 1, 2023 using free cash flow, and if needed, borrowings under our ABL Facility. Proceeds generated from other cash flow positive initiatives currently being pursued may also be used to repay the outstanding balance of the 2023 Notes prior to their maturity.
Other Long-term Debt
On October 29, 2020,
we entered into an equipment loan for $45.0 million which bears interest at a rate of 8.6% and is secured by certain of our barges and towboats. Under this agreement, we are required to make monthly payments of $0.5 million (principal and interest) and a balloon payment of $23.9 million when this loan matures on November 1, 2027.
For additional information related to our long-term debt, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Capital Expenditures, Acquisitions and Other Investments
The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and linefill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated.
(1) There
were no acquisitions during the three months or six months ended September 30, 2022 or 2021.
(2) Amounts for the three months and six months ended September 30, 2022 and 2021 relate to contributions made to unconsolidated entities.
Capital expenditures for the fiscal year ending March 31, 2023 are heavily weighted to the first half of the fiscal year and are expected to be approximately $105 - $115 million.
Distributions Declared
The
board of directors of our GP decided to temporarily suspend all distributions in order to deleverage our balance sheet until we meet the 4.75 to 1.00 total leverage ratio set forth within the indenture of the 2026 Senior Secured Notes. This resulted in the suspension of the quarterly common unit distributions, which began with the quarter ended December 31, 2020, and all preferred unit distributions, which began with the quarter ended March 31, 2021. The board of directors of our GP expects to evaluate the reinstatement of the common unit and all preferred unit distributions in due course, taking into account a number of important factors, including our leverage, liquidity, the sustainability of cash flows, upcoming debt maturities, capital expenditures and the overall performance
of our businesses.
Contractual Obligations
Our contractual obligations primarily consist of purchase commitments, outstanding debt principal and interest obligations, lease obligations, pipeline commitments, asset retirement obligations and other commitments.
For a discussion of contractual obligations, see Note 6, Note 7 and Note 13 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
Cash Flows
The
following table summarizes the sources (uses) of our cash flows for the periods indicated:
Six Months Ended September 30,
Cash Flows Provided by (Used in):
2022
2021
(in thousands)
Operating
activities, before changes in operating assets and liabilities
$
203,661
$
151,504
Changes in operating assets and liabilities
(235,333)
(159,349)
Operating activities
$
(31,672)
$
(7,845)
Investing
activities
$
(60,470)
$
(75,129)
Financing activities
$
92,860
$
83,676
Operating Activities. The seasonality of our Liquids Logistics segment 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 Logistics segment, we typically
experience operating losses or lower operating income during our first and second quarters, or the six months ending September 30, as a result of lower volumes of natural gas liquids sales and when we are building our inventory levels for the upcoming butane blending and heating seasons, which generally begin in late fall, under normal demand conditions,
and run through February or March. 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 used in operating activities during the six months ended September 30, 2022 was due primarily to fluctuations in working capital, particularly accounts receivable, inventory and accounts payable, during the six months ended September 30, 2022, partially offset by increased earnings from operations.
Investing Activities.
Net cash used in investing activities was $60.5 million during the six months ended September 30, 2022, compared to net cash used in investing activities of $75.1 million during the six months ended September 30, 2021. The decrease in net cash used in investing activities was due primarily to:
•an $85.5 million decrease in payments to settle derivatives; and
•a $9.5 million increase in proceeds received from certain asset sales during the six months ended September 30, 2022.
These decreases in net cash used in investing activities were partially offset by:
•lower
proceeds from the divestitures of business and investments as we received net proceeds (gross cash proceeds less the amount of cash sold, excluding accrued expenses) of $63.5 million from the sale of our interest in Sawtooth in June 2021; and
•an increase in capital expenditures from $77.8 million (includes payment of amounts accrued as of March 31, 2021) during the six months ended September 30, 2021 to $94.0 million (includes payment of amounts accrued as of March 31, 2022) during the six months ended September 30, 2022 due primarily to the timing of the expenditures in our Water Solutions segment being heavily weighted to the first half of the current fiscal year.
Financing Activities. Net cash provided by financing activities was $92.9 million during the six months ended September 30, 2022, compared to net cash provided by financing activities of $83.7 million during the six months ended September 30, 2021. The increase in net cash provided by financing activities was due primarily to:
•an increase of $29.0 million in borrowings on the revolving credit facility (net of repayments) during the six months ended September 30, 2022;
•a decrease of $9.1 million in debt issuance costs for the revolving credit facility during the six months ended
September 30, 2022; and
•a decrease of $5.0 million in payments on other long-term debt as the Sawtooth credit agreement was paid off and terminated prior to us selling our ownership interest in Sawtooth in June 2021.
These increases in net cash provided by financing activities were partially offset by an increase of $33.2 million paid in cash to repurchase a portion of our Senior Unsecured Notes during the six months ended September 30, 2022.
Supplemental Guarantor Information
NGL
Energy Partners LP (parent) and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes (see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report). Certain of our wholly owned subsidiaries (“Guarantor Subsidiaries”) have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes.
The guarantees are senior unsecured obligations of each Guarantor Subsidiary and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor Subsidiary, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor Subsidiary. The guarantee of our Senior Unsecured
Notes by each Guarantor Subsidiary is subject to certain automatic customary releases, including in connection with the sale, disposition or transfer of all of the capital stock, or of all or substantially all of the assets, of such Guarantor Subsidiary to one or more persons that are not us or a restricted subsidiary, the exercise of legal defeasance or covenant defeasance options, the satisfaction and discharge of the indentures governing our Senior Unsecured Notes, the designation of such Guarantor Subsidiary as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the indentures governing our Senior
Unsecured Notes, the release of such Guarantor Subsidiary from its guarantee under our revolving credit facility, the liquidation or dissolution of such Guarantor Subsidiary or upon the consolidation, merger or transfer of all assets of the Guarantor Subsidiary to us or another Guarantor Subsidiary in which the Guarantor Subsidiary dissolves or ceases to exist (collectively, the “Releases”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. We are not restricted from making investments in the Guarantor Subsidiaries and there are no significant restrictions on the ability of the Guarantor Subsidiaries
to make distributions to NGL Energy Partners LP (parent). 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.
The rights of holders of our Senior Unsecured Notes against the Guarantor Subsidiaries may be limited under the U.S. Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law.
In March 2020, the
SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 of Regulation S-X to simplify disclosure requirements related to certain registered securities. The amendments became effective on January 4, 2021. As a result of these amendments, parent company and co-issuer subsidiary obligations guaranteed by one or more consolidated subsidiaries are not required to provide separate financial statements, provided that each subsidiary issuer/guarantor is consolidated into the parent company’s consolidated financial statements, the parent company issues the obligations and the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and, subject to certain exceptions, summarized financial information. Accordingly, as permitted under Rule 13-01(a)(4)(vi), we have excluded summarized
financial information for the Partnership because the assets, liabilities, and results of operations of NGL Energy Partners LP (parent), NGL Energy Finance Corp. and the Guarantor Subsidiaries are not materially different than the corresponding amounts in our consolidated financial statements, and we believe that such summarized financial information would be repetitive and would not provide incremental value to investors.
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 Estimates
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 more critical judgment areas in the application of our 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 estimates previously disclosed in our Annual Report.
Item
3.Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
A 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 ABL Facility is variable-rate debt with interest rates that are generally indexed to the Wall Street Journal prime rate or SOFR, an adjusted forward-looking term rate based on the secured overnight financing rate. At September 30, 2022, we had $287.0 million of outstanding
borrowings under the ABL Facility at a weighted average interest rate of 6.63%. A change in
interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $0.4 million, based on borrowings outstanding at September 30, 2022.
On July 1, 2022, the Class B Preferred Units distribution rate changed from a fixed rate of 9.00% to a floating rate of the three-month London Interbank Offered Rate (“LIBOR”) interest rate (2.29%
for the quarter ended September 30, 2022) plus a spread of 7.21%. A change in interest rates of 0.125% would result in an increase or decrease of our Class B Preferred Unit distribution of $0.1 million, based on the Class B Preferred Units outstanding at September 30, 2022.
For our Class C Preferred Units, distributions on and after April 15, 2024 will accumulate at a percentage of the $25.00 liquidation preference equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in the partnership agreement) plus a spread of 7.384%. On or after July 1, 2024, the holders of our Class D Preferred Units can elect, from time to time, for the distributions to be calculated
based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in the partnership agreement) plus a spread of 7.00% (“Class D Variable Rate”, as defined in the partnership agreement). Each Class D Variable Rate election shall be effective for at least four quarters following such election.
Commodity Price Risk
Our operations are subject to certain business risks, including commodity price 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. Procedures and limits for managing commodity price risks
are specified in our market risk policy. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel.
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.
The following table summarizes the hypothetical impact on the September 30, 2022 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)
$
(5,940)
Propane (Liquids Logistics segment)
$
3,365
Butane (Liquids Logistics segment)
$
(4,399)
Refined Products (Liquids Logistics segment)
$
(4,437)
Other
Products (Liquids Logistics segment)
$
6,153
Canadian dollars (Liquids Logistics segment)
$
137
Changes in commodity prices may also impact the volumes that we are able to transport, dispose, store and market, which also impact our cash flows.
Our operations are also subject to credit risk, which is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Procedures and limits for managing credit risk are specified in our credit policy. Credit risk is monitored daily and we believe we minimize exposure through the following:
•requiring certain customers to prepay or place deposits for our products and services;
•requiring certain customers to post letters of credit or other forms of surety;
•monitoring
individual customer receivables relative to previously-approved credit limits;
•requiring certain customers to take delivery of their contracted volume ratably rather than allow them to take delivery at their discretion;
•entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions;
•reviewing the receivable aging regularly to identify issues or trends that may develop; and
•requiring marketing personnel to manage their customers’ receivable position and suspend sales to customers that have not timely paid outstanding invoices.
At September 30,
2022, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.
Fair Value
We determine the fair value of our exchange traded derivative financial instruments utilizing publicly available prices, and for non-exchange traded derivative financial instruments, we utilize pricing models for similar instruments including publicly available prices and forward curves generated from a compilation of data gathered from third-parties.
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 ensure the information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer of our general partner, as appropriate, to allow timely decisions regarding required disclosure.
We completed an evaluation under the supervision and with participation of our management, including the principal executive officer
and principal financial officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures at September 30, 2022. Based on this evaluation, the principal executive officer and principal financial officer of our general partner have concluded that as of September 30, 2022, such disclosure controls and procedures were effective.
There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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 caption “Legal Contingencies” in Note 7 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, 2022.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3.Defaults
Upon Senior Securities
Pursuant to certain covenants within the indenture of our 2026 Senior Secured Notes, the board of directors of our general partner temporarily suspended all common unit and preferred unit distributions. For additional information related to the suspension of distributions, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH**
Inline XBRL Schema Document
101.CAL**
Inline XBRL Calculation Linkbase Document
101.DEF**
Inline
XBRL Definition Linkbase Document
101.LAB**
Inline XBRL Label Linkbase Document
101.PRE**
Inline XBRL Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Exhibits filed with this report.
** The
following documents are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at September 30, 2022 and March 31, 2022, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended September 30, 2022 and 2021, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months and six months ended September 30, 2022 and 2021, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months and six months ended September 30, 2022 and 2021,
(v) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2022 and 2021, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
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.
