10-Q: NGL Energy Partners LP Reports Mixed Q1 2025 Results Amidst Market Volatility

Sentiment:

Quarterly Report 8 August 2024 4:17 PM

NGL Energy Partners LP's first quarter of fiscal year 2025 shows a decrease in revenue and net income compared to the same period last year, alongside strategic asset sales and debt refinancing.

Worse than expectedThe company's net income and revenue decreased compared to the same period last year.The company experienced a net loss allocated to common unitholders.The company's cash and cash equivalents decreased significantly.

Summary

NGL Energy Partners LP reported a net income of $10.475 million for the three months ended June 30, 2024, a decrease from $19.563 million in the same period of 2023.
Total revenue decreased to $1.387 billion from $1.616 billion year-over-year, with declines in Crude Oil Logistics and Liquids Logistics segments.
The company experienced a net loss allocated to common unitholders of $19.112 million, or $0.14 per unit, compared to a net loss of $14.482 million, or $0.11 per unit, in the prior year.
The Water Solutions segment saw a slight increase in revenue, while Crude Oil Logistics and Liquids Logistics segments experienced revenue declines.
The company completed strategic asset sales, including freshwater water solutions facilities, saltwater disposal assets, and real estate, generating $81.5 million in proceeds.
NGL Energy Partners refinanced its debt, issuing $2.2 billion in senior secured notes and a $700 million term loan B facility.
The company's ABL Facility had $169 million outstanding and $87.6 million in letters of credit at the end of the quarter.
The company repurchased no common units under its newly authorized $50 million repurchase program.
Preferred unit distributions in arrears were fully paid during the quarter.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive actions like debt refinancing and asset sales, but the overall financial performance is weaker than the previous year. The company is facing challenges in a volatile market, which tempers the positive aspects.

Positives

The company successfully paid all preferred unit distributions in arrears.
Strategic asset sales generated significant cash proceeds.
The company refinanced its debt, issuing $2.2 billion in senior secured notes and a $700 million term loan B facility.
The company's debt service coverage rate was approximately 2.17 to 1.0.
The company authorized a common unit repurchase program of up to $50 million.

Negatives

Net income decreased significantly compared to the same period last year.
Total revenue declined year-over-year, with decreases in Crude Oil Logistics and Liquids Logistics segments.
The company experienced a net loss allocated to common unitholders of $19.112 million, or $0.14 per unit.
The company's cash and cash equivalents decreased from $38.909 million to $5.269 million.
The company's operating activities used $18.059 million in cash.

Risks

The company is subject to commodity price volatility and demand fluctuations.
Global market and commodity price volatility due to the impacts from the COVID-19 pandemic, the war in Ukraine, the conflict between Israel and Hamas and conflicts involving Iran and its proxy forces.
Potential for economic recession or depression and negative impacts on future prices for crude oil, natural gas, petroleum products and industrial products.
Continuation or acceleration of inflationary conditions, rising interest rates, supply chain disruptions and tight labor markets may lead to higher costs.
The subsurface injection of produced water for disposal has been associated with induced seismic events in Texas and New Mexico.
The company is subject to extensive federal, state, and local environmental laws and regulations.

Future Outlook

The company expects continued volatility in commodity prices and global markets due to various factors, including the COVID-19 pandemic and international conflicts. They also anticipate potential impacts from inflation, rising interest rates, supply chain disruptions, and tight labor markets.

Management Comments

Management believes that anticipated cash flows from operations and borrowing capacity under the ABL Facility will be sufficient to meet liquidity needs.
Management expects continued volatility in commodity prices and global markets due to various factors, including the COVID-19 pandemic and international conflicts.
Management is engaged in collaborative industry efforts to mitigate induced seismic events related to water disposal.

Industry Context

The results reflect the ongoing volatility in the energy sector, with fluctuations in commodity prices and demand impacting the company's performance. The company is also navigating regulatory changes and environmental concerns, which are common challenges in the industry.

Comparison to Industry Standards

The decrease in revenue and net income is a trend seen across the midstream energy sector due to market volatility and reduced demand.
The company's strategic asset sales are similar to actions taken by other companies in the sector to optimize their portfolios.
The debt refinancing is a common strategy to manage financial obligations in the current economic environment.
The company's debt service coverage ratio of 2.17 to 1.0 is above the minimum requirement of 1.1 to 1.0 under the Term Loan B agreement.
The company's performance is mixed compared to peers, with some showing stronger results in certain segments while others face similar challenges.

Legal Proceedings

The company is party to various claims, legal actions, and complaints arising in the ordinary course of business.
On June 13, 2024, the company paid LCT Capital, LLC $63.3 million related to the legal judgment against it.

Related Party Transactions

During the three months ended June 30, 2024, the company created a new aviation entity whereby it owns a 90% interest and a member of its management owns a 10% interest.

Stakeholder Impact

Shareholders may be concerned about the decrease in net income and the net loss allocated to common unitholders.
Employees may be affected by potential cost-cutting measures due to the company's financial performance.
Customers may experience changes in service or pricing due to the company's strategic adjustments.
Suppliers may face potential changes in demand or payment terms.
Creditors may be impacted by the company's debt refinancing and financial performance.

Next Steps

The company expects to continue to monitor market conditions and manage its working capital.
The company will evaluate the reinstatement of common unit distributions in due course.
The company will continue to engage in collaborative industry efforts to mitigate induced seismic events related to water disposal.

Key Dates

Date	Description
February 4, 2021	The board of directors of the GP temporarily suspended all distributions, including 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.
February 2, 2024	The company closed on its private offering of $900 million of 8.125% senior secured notes due 2029 and $1.3 billion of 8.375% senior secured notes due 2032 and entered into a new seven-year $700 million senior secured Term Loan B.
April 4, 2024	The board of directors of the GP declared a cash distribution of 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
April 5, 2024	The company sold approximately 122,250 acres of real estate on two ranches located in Eddy and Lea Counties, New Mexico and certain intangible assets to a third-party for total consideration of $69.3 million in cash.
April 9, 2024	The board of directors of the GP declared a cash distribution which fully paid the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
April 15, 2024	The company sold certain saltwater disposal assets and intangible assets in the Delaware Basin to a third-party for total consideration of $4.2 million in cash.
April 18, 2024	The company paid cash distributions of 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
April 25, 2024	The company paid cash distributions which fully paid the remaining distribution arrearages and interest through the quarter ended March 31, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
May 14, 2024	The company sold approximately 1,400 acres of real estate located in Lea County, New Mexico to a third-party for total consideration of $8.0 million in cash.
June 5, 2024	The board of directors of the GP authorized a common unit repurchase program, under which the company may repurchase up to $50.0 million of its outstanding common units from time to time in the open market or in other privately negotiated transactions.
June 13, 2024	The company paid LCT Capital, LLC $63.3 million related to the legal judgment against it.
June 21, 2024	The board of directors of the GP declared a cash distribution for the quarter ended June 30, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
June 24, 2024	The company entered into an equipment loan for $6.4 million with American Bank and Trust Company which bears interest at a rate of 8.5% and is secured by an airplane.
July 1, 2024	The holders of the 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 accordance with the Partnership Agreement) plus a spread of 7.00%.
July 15, 2024	The company paid cash distributions for the quarter ended June 30, 2024 to the holders of the Class B, Class C and Class D Preferred Units.
August 5, 2024	The company amended the Term Loan B agreement to reduce the SOFR margin from 4.50% to 3.75%.

Keywords

NGL Energy Partners, financial results, quarterly report, oil and gas, water solutions, crude oil logistics, liquids logistics, debt refinancing, asset sales, preferred units, EBITDA, net income, revenue, capital expenditures, debt service coverage ratio

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