10-Q: NGL Energy Partners Posts Strong Profit Growth Amid Strategic Divestitures

NGL Energy Partners LP reported significantly improved net income and Adjusted EBITDA for the quarter and nine months ended December 31, 2025, driven by strategic asset sales and strong performance in its Water Solutions segment.

Summary

• Net income attributable to NGL Energy Partners LP increased to $47.179 million for the three months ended December 31, 2025, up from $13.507 million in the prior year period.
• For the nine months ended December 31, 2025, net income attributable to NGL Energy Partners LP surged to $145.385 million, compared to $25.644 million in the same period of 2024.
• Basic and diluted income per common unit improved to $0.10 for the quarter and $0.16 for the nine months ended December 31, 2025, from losses of $0.12 and $0.47, respectively, in the prior year.
• Adjusted EBITDA from continuing operations rose to $172.528 million for the quarter and $483.833 million for the nine months ended December 31, 2025, reflecting a 9.2% and 8.5% increase year-over-year, respectively.
• The company completed several strategic dispositions, including winding down its biodiesel business, selling its refined products business, certain unconsolidated entities, most of its wholesale propane business, 17 natural gas liquids terminals, and 203 railcars.
• Water Solutions segment's Adjusted EBITDA increased by $21.8 million for the quarter and $62.1 million for the nine months, primarily due to higher produced water volumes processed, especially in the Delaware Basin, and lower expenses.
• Crude Oil Logistics segment's Adjusted EBITDA decreased by $2.0 million for the quarter and $11.8 million for the nine months, impacted by lower commodity prices and expiring transportation contracts, despite increased volumes on the Grand Mesa Pipeline.
• Liquids Logistics segment's Adjusted EBITDA decreased by $3.4 million for the quarter and $7.1 million for the nine months, mainly due to lower product margins for propane and butane, partially offset by gains from the Wholesale Propane Disposition.
• Total revenues decreased for both the three-month ($909.816 million vs. $982.414 million) and nine-month ($2,206.649 million vs. $2,498.120 million) periods, largely due to the strategic divestitures.
• The company repurchased 1,611,088 common units for $15.746 million during the three months ended December 31, 2025, as part of its $50.0 million common unit repurchase program, with $49.7 million repurchased since inception.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report, reflecting successful strategic restructuring and significant improvements in profitability and earnings per unit. The robust performance of the Water Solutions segment and healthy debt metrics underpin a positive outlook, despite revenue declines from divestitures.

Positives

• Net income attributable to NGL Energy Partners LP significantly increased by 249% for the three months and 467% for the nine months ended December 31, 2025, demonstrating improved profitability.
• Basic and diluted income per common unit turned positive, reaching $0.10 for the quarter and $0.16 for the nine months, a substantial improvement from prior year losses.
• Adjusted EBITDA from continuing operations showed healthy growth, increasing by 9.2% for the quarter and 8.5% for the nine months, indicating strong operational performance in core segments.
• The Water Solutions segment exhibited robust growth, with Adjusted EBITDA increasing by $21.8 million (16.4%) for the quarter and $62.1 million (16.0%) for the nine months, driven by higher produced water volumes.
• Produced water processed in the Water Solutions segment increased by 447,636 barrels per day (17.1%) for the quarter and 395,381 barrels per day (14.8%) for the nine months, highlighting operational expansion and efficiency.
• The company successfully executed strategic dispositions, including the sale of its refined products and wholesale propane businesses, contributing to a combined gain of $55.5 million and streamlining operations.
• Debt service coverage rate was approximately 2.60 to 1.0 at December 31, 2025, well above the covenant requirement of 1.1 to 1.0, indicating strong debt servicing capability.
• The company was in compliance with all covenants under its ABL Facility and Term Loan B at December 31, 2025.
• Current assets exceeded current liabilities by approximately $74.6 million at December 31, 2025, indicating a healthy short-term liquidity position.
• The Term Loan B agreement was amended to reduce the SOFR applicable margin range, potentially lowering future interest expenses.

Negatives

• Total revenues decreased by $72.598 million (7.4%) for the three months and $291.471 million (11.7%) for the nine months ended December 31, 2025, primarily due to strategic divestitures.
• Crude Oil Logistics segment's Adjusted EBITDA decreased by $1.996 million (11.5%) for the three months and $11.758 million (22.1%) for the nine months, impacted by lower commodity prices and expiring transportation contracts.
• Liquids Logistics segment's Adjusted EBITDA decreased by $3.369 million (18.1%) for the three months and $7.092 million (19.9%) for the nine months, mainly due to lower product margins for propane and butane.
• Butane product margins per gallon decreased for both the three-month ($0.058) and nine-month ($0.023) periods, attributed to a weak gasoline blending season and selling higher-priced inventory into a declining market.
• Propane product margins per gallon decreased for the nine-month period ($0.004), negatively impacted by selling higher-priced inventory into a declining market early in the period.
• Corporate and Other operating loss increased by $1.848 million for the quarter and $5.669 million for the nine months, primarily due to lower allocations of overhead expenses to other business segments and increased legal expenses.
• Interest expense increased by $0.776 million for the three months ended December 31, 2025, despite a lower weighted average daily balance on the ABL Facility and lower interest rates on the Term Loan B.
• The company recorded a net loss of $5.7 million related to writing down certain saltwater disposal wells and capital projects due to abandonment and retirement of assets during the three months ended December 31, 2025.
• A loss of $5.9 million was recorded from the sale of linefill held on third-party pipelines, including a $1.8 million loss from hedging transactions, during the nine months ended December 31, 2025.

Risks

• Volatility in the prices of crude oil, natural gas liquids, gasoline, and energy prices generally.
• Changes in the general level of demand and availability of supply for crude oil, natural gas liquids, and gasoline.
• The level of crude oil and natural gas drilling and production in areas where operations and facilities are located.
• 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.
• Effect of weather conditions and natural disasters (earthquakes, hurricanes, tornados, lightning strikes) on supply and demand.
• Availability of local, intrastate, and interstate transportation infrastructure for transportation services.
• Availability, price, and marketing of competing fuels.
• Effect of energy conservation efforts, energy efficiencies, and technological trends on product demand.
• Issuance of executive orders, changes in applicable laws, regulations, and policies (tax, environmental, transportation, employment), or new interpretations by regulatory agencies.
• Effect of executive orders and legislative/regulatory actions on hydraulic fracturing, water disposal/transportation, treatment of flowback/produced water, seismic activity, and drilling/right-of-way access.
• Delays or restrictions in obtaining, utilizing, or maintaining permits and/or rights-of-way.
• Hazards or operating risks related to transporting and distributing petroleum products that may not be fully covered by insurance.
• Maturity of the crude oil and natural gas liquids industries and competition from other markets.
• Loss of key personnel.
• Impact of competition on operations, including the ability to renew contracts with key customers.
• Ability to maintain or increase the margins realized for services.
• Ability to renew leases for leased equipment and storage facilities.
• Inflation, interest rates, tariffs, and general economic conditions (including recessions, global credit market disruptions, and impact on customers/suppliers).
• Nonpayment, nonperformance, or bankruptcy by counterparties.
• Availability and cost of capital and the ability to access certain capital sources.
• Deterioration of the credit and capital markets.
• Ability to successfully identify and complete accretive organic growth projects.
• Costs and effects of legal and administrative proceedings.
• Market and macroeconomic disruptions resulting from global pandemics and related governmental responses, and international military conflicts (e.g., war in Ukraine, Middle East conflicts).
• 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, natural gas, and natural gas liquids.
• Information technology risks, including cyberattacks, cybersecurity breaches, and other disruptions to information systems.
• Subsurface injection of produced water for disposal has been associated with induced seismic events in Texas and New Mexico, potentially leading to operational restrictions or shutdowns.

Future Outlook

The company expects capital expenditures for the fiscal year ending March 31, 2026, to be approximately $220 million to $230 million. The board of directors of the General Partner expects to evaluate the reinstatement of common unit distributions in due course, taking into account factors such as leverage, liquidity, sustainability of cash flows, upcoming debt maturities, capital expenditures, and overall business performance. The strategic shift through dispositions is expected to have a significant effect on future operations and financial results.

Management Comments

• The sale of our refined products business and winding down of our biodiesel business represent a strategic shift in our operations and will have a significant effect on our operations and financial results going forward.
• Our ability to dispose of produced water has not been materially impacted by actions taken to prevent induced seismic events, and with our unique positioning outside of the affected areas, we have the ability to grow our asset base.
• The board of directors of our GP expects to evaluate the reinstatement of the common 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.

Industry Context

StockSavvy.ai notes that NGL Energy Partners LP's strategic divestitures align with a broader industry trend among midstream companies to streamline operations, reduce debt, and focus on core, higher-margin assets. The strong performance of the Water Solutions segment, driven by increased produced water volumes, reflects continued robust activity in key oil and gas basins like the Delaware Basin, despite ongoing concerns about seismic activity. The challenges in the Liquids Logistics segment, particularly with butane margins due to a weak blending market, highlight the sensitivity of certain energy products to seasonal demand and market dynamics. The company's efforts to reduce variable-rate debt exposure through interest rate swaps and manage its ABL facility commitments are prudent given the current interest rate environment.

Comparison to Industry Standards

• NGL Energy Partners' Water Solutions segment's growth in produced water processed (up 17.1% for the quarter) indicates strong operational leverage and market share gains in a critical service area for oil and gas production. This growth rate is competitive with leading water management providers in the Permian Basin, such as Select Water Solutions and ProPetro Holding Corp., which also report increasing volumes tied to drilling activity.
• The company's debt service coverage ratio of 2.60 to 1.0 significantly exceeds the covenant of 1.1 to 1.0, demonstrating a healthier financial position compared to some peers in the midstream sector that may operate closer to their covenant limits, such as smaller, highly leveraged MLPs.
• The reduction in ABL Facility commitments from $550 million to $475 million, alongside substantial common unit and Class D preferred unit repurchases, suggests a commitment to deleveraging and returning value to unitholders, a strategy often seen in more mature or financially disciplined midstream companies like Enterprise Products Partners L.P. or Plains All American Pipeline, L.P., though NGL's scale is smaller.
• The decline in Liquids Logistics segment margins due to a 'weak gasoline blending season' for butane and 'selling higher-priced inventory into a declining market' for propane reflects common challenges faced by commodity-exposed logistics providers, similar to issues reported by companies like Targa Resources Corp. or Energy Transfer LP in their NGL segments during periods of market volatility.

Legal Proceedings

• The company is party to various claims, legal actions, and complaints arising in the ordinary course of business, which management believes will not have a material adverse effect on consolidated financial position, results of operations, or cash flows.

Related Party Transactions

• Sales to entities affiliated with management totaled $182,000 for the three months and $597,000 for the nine months ended December 31, 2025.
• Accounts receivable-affiliates from entities affiliated with management were $419,000 at December 31, 2025.
• Accounts payable-affiliates to entities affiliated with management were $1,000 at December 31, 2025.
• A privately negotiated repurchase of 450,000 common units for approximately $4.4 million was made from a member of management on November 22, 2025.

Stakeholder Impact

• Shareholders: Significant improvement in net income and earnings per common unit, along with common unit repurchases, could positively impact shareholder value. The evaluation of common unit distribution reinstatement is a key future consideration.
• Creditors: Strong debt service coverage ratio and compliance with debt covenants indicate improved financial health and reduced credit risk.
• Employees: Strategic divestitures may have led to workforce adjustments in divested segments, but the focus on core operations could stabilize remaining employment.
• Customers: Continued growth in the Water Solutions segment suggests reliable and expanding services for producer customers. Changes in Liquids Logistics operations due to divestitures may alter customer relationships in those areas.

Next Steps

• The board of directors of the General Partner expects to evaluate the reinstatement of common unit distributions in due course.
• The company plans to continue implementing appropriate longer-term mitigation strategies in collaboration with industry and state regulatory agencies regarding seismic activity related to water disposal.
• Capital expenditures for the fiscal year ending March 31, 2026, are expected to be approximately $220 million to $230 million.

Key Dates

Recommendation

The filing demonstrates a significant turnaround in NGL Energy Partners' financial performance, with substantial increases in net income and Adjusted EBITDA from continuing operations. The strategic divestitures, while reducing overall revenue, have clearly improved profitability and streamlined the business model, allowing for a stronger focus on the high-performing Water Solutions segment. The company's strong debt compliance and ongoing unit repurchase program further underscore a commitment to financial discipline and shareholder value. While some segments face challenges, the overall trajectory is positive, suggesting that the company is well-positioned for future growth and potential reinstatement of common unit distributions, making it an attractive 'buy' for investors seeking exposure to a deleveraging and strategically focused midstream energy player.

Keywords

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