NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported its fourth quarter and full year fiscal 2022 results. The Partnership reported a loss from continuing operations of $29.4 million for the quarter ended March 31, 2022 and $184.1 million for its full fiscal year 2022.

Highlights for the quarter and fiscal year ended March 31, 2022 include:

• Produced water volumes processed of approximately 1.93 million barrels per day during the quarter ended March 31, 2022, growing 37.7% from the same period in the prior year and 4.7% versus the preceding fiscal quarter
• Water Solutions Adjusted EBITDA¹ of $342 million, an increase of $100.5 million, or 42%, year-over-year
• Adjusted EBITDA¹ from continuing operations for the fourth quarter of Fiscal 2022 of $157.4 million compared to $94.3 million for the fourth quarter of Fiscal 2021
• Fiscal Year 2022 Adjusted EBITDA¹ from continuing operations of $542.5 million compared to $448.3 million in the prior year
• Announced a new long-term produced water transportation, recycling and disposal agreement with a leading investment grade independent producer. The new dedicated agreement spans an area of over 300,000 acres in New Mexico and Texas, bringing our total dedicated acreage portfolio in the Delaware Basin to over 660,000 acres.

“The Partnership had a strong finish to its Fiscal 2022 and continues to see positive momentum as we move into our 2023 fiscal year. Produced water volumes approximated 2.1 million barrels per day in April, 2.2 million barrels per day in May and are expected to exceed this level for the remainder of Fiscal 2023. We achieved our first $90 million Adjusted EBITDA¹ quarter in Water Solutions segment and anticipate Adjusted EBITDA¹ for the Water Solutions segment of over $400 million for the upcoming fiscal year, assuming current producer activity levels and commodity prices. This is an increase of $15 million from our previous guidance of $385 million. We have worked incredibly hard over the past few years to build the premier water solutions asset position in the best basin in the country and we are beginning to realize the benefit of those efforts,” stated Mike Krimbill, NGL’s CEO. “The Partnership expects total Adjusted EBITDA¹ of at least $600 million and capital expenditures of approximately $100 million for Fiscal 2023. Assuming stable commodity prices, we expect the resulting free cash flow to total approximately $280 million, which we plan to use to repay our Senior Notes due 2023. We will update the market on our progress towards these goals as the year goes on,” Krimbill concluded.

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Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted EBITDA¹ from continuing operations by reportable segment for the periods indicated:

Water Solutions

Operating income for the Water Solutions segment increased $113.9 million for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021. The Partnership processed approximately 1.93 million barrels of water per day during the quarter ended March 31, 2022, a 37.7% increase when compared to approximately 1.40 million barrels of water per day processed during the quarter ended March 31, 2021. This increase was due to higher production volumes (and associated produced water) primarily in the Delaware Basin driven by the recovery in crude oil prices from the prior year. The Partnership also sold approximately 146,000 barrels per day of produced and recycled water for use in our customers’ completion activities.

Revenues from recovered crude oil, including the impact from realized skim oil hedges, totaled $26.4 million for the quarter ended March 31, 2022, an increase of $14.3 million from the prior year period. This increase was due to increased skim oil barrels sold due to higher produced water volumes processed as well as higher realized crude oil prices received from the sale of skim oil barrels.

Operating expenses in the Water Solutions segment decreased to $0.28 per produced barrel processed compared to $0.29 per barrel in the comparative quarter last year primarily due to continued efforts to manage operating costs per barrel along with higher produced water volumes processed. Two of the Water Solutions segment’s largest variable expenses, utility and royalty expenses, were not (and are not expected to be) impacted by the rise in inflation due to negotiating long-term utility contracts with fixed rates and royalty contracts with no escalation clauses.

Crude Oil Logistics

Operating income for the fourth quarter of Fiscal 2022 increased slightly compared to the same quarter in Fiscal 2021. Our margins continued to benefit from high crude oil prices, which increase contracted rates with certain producers, and realized gains on the sale of inventory due to rapidly increasing crude oil prices. This was offset by our losses from derivatives which increased by $33 million for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, a portion of which is expected to be realized in Adjusted EBITDA¹ during the quarter ending June 30, 2022.

During the three months ended March 31, 2022, physical volumes on the Grand Mesa Pipeline averaged approximately 74,000 barrels per day, compared to approximately 66,000 barrels per day for the three months ended March 31, 2021. This increase was due primarily to the new supply agreement with a term customer, which commenced in March 2021.

As a part of continued efforts to optimize the Partnership’s asset portfolio, we sold certain of our crude trucking assets during the quarter, which generated a $5.5 million gain on the sale of assets.

Liquids Logistics

Operating income for the Liquids Logistics segment decreased $8.8 million for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021. This decrease is mainly related to lower product margins on propane due to reduced demand, increased competition and lower product allocations from certain suppliers, as well as lower service revenues due to the sale of Sawtooth and less throughput in certain of our terminals. The decrease was offset by higher product margins for butane and refined products as a result of tighter supply markets and volatility caused by the geopolitical unrest.

Propane volumes decreased by 87.8 million gallons, or 18.4%, compared to the quarter ended March 31, 2021, due to the warm winter weather in our core operating areas, increased competition and lower allocations of product from certain suppliers. Butane volumes decreased by 19.2 million gallons, or 10.7%, due to the tight supply market and an increase in demand for exports.

Capitalization and Liquidity

Total liquidity (cash plus available capacity on our asset-based revolving credit facility (“ABL Facility”)) was approximately $232.7 million as of March 31, 2022. On March 31, 2022, the Partnership reported $116.0 million in outstanding borrowings on its ABL Facility, compared to $4.0 million in outstanding borrowings at March 31, 2021. This increase was due to higher working capital requirements as a result of increased commodity prices, a portion of which was funded using free cash flow. On April 13, 2022, the ABL Facility was amended to increase, under the accordion feature, the commitments to $600 million with an agreement to lower the commitments back to $500 million on or before March 31, 2023.

As of March 31, 2022, the Partnership is in compliance with all of its debt covenants and has no significant current debt maturities before November 2023. The Partnership expects to generate approximately $280 million of excess cash flow in Fiscal 2023, which it plans to use to repay outstanding indebtedness and improve leverage.

Fourth Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:00 pm Central Time on Monday, June 6, 2022. Analysts, investors, and other interested parties may join the webcast via the event link: https://www.webcaster4.com/Webcast/Page/2808/45661 or by dialing (888) 506-0062 and providing access code: 956840. An archived audio replay of the call will be available for 14 days, which can be accessed by dialing (877) 481-4010 and providing access code 45661.

NGL filed its Annual Report on Form 10-K for the year ended March 31, 2022 with the Securities and Exchange Commission after market on June 6, 2022. A copy of the Form 10-K can be found on the Partnership’s website at www.nglenergypartners.com. Unitholders may also request, free of charge, a hard copy of our Form 10-K and our complete audited financial statements.

Non-GAAP Financial Measures

NGL defines EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. NGL defines 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. NGL also includes in Adjusted EBITDA certain inventory valuation adjustments related to TransMontaigne Product Services, LLC (“TPSL”), our refined products business in the mid-continent region of the United States (“Mid-Con”) and our gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”), which are included in discontinued operations, and certain refined products businesses within NGL’s Liquids Logistics segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered alternatives to net loss, loss from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. NGL believes that EBITDA provides additional information to investors for evaluating NGL’s ability to make quarterly distributions to NGL’s unitholders and is presented solely as a supplemental measure. NGL believes that Adjusted EBITDA provides additional information to investors for evaluating NGL’s financial performance without regard to NGL’s financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.

Other than for the Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s Liquids Logistics segment, for purposes of the Adjusted EBITDA calculation, NGL makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, NGL records changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, NGL reverses the previously recorded unrealized gain or loss and record a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of the Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within NGL’s 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, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. NGL includes 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 NGL’s Crude Oil Logistics segment, they 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 NGL’s contracts. To eliminate the volatility of the CMA Differential Roll, NGL 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. NGL is 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.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. For the CMA Differential Roll transaction, as discussed above, we have included an adjustment to Distributable Cash Flow to reflect, in the period for which they relate, the actual cash flows for the positions that settled that are not being recognized in Adjusted EBITDA. Distributable Cash Flow is a performance metric used by senior management to compare cash flows generated by the Partnership (excluding growth capital expenditures and prior to the establishment of any retained cash reserves by the Board of Directors) to the cash distributions expected to be paid to unitholders. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. This financial measure also is important to investors as an indicator of whether the Partnership is generating cash flow at a level that can sustain, or support an increase in, quarterly distribution rates. Actual distribution amounts are set by the Board of Directors.

Forward-Looking Statements

This press release includes “forward-looking statements.” All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While NGL believes such forward-looking statements are reasonable, NGL cannot assure they will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in NGL’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” NGL undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

NGL provides Adjusted EBITDA guidance that does not include certain charges and costs, which in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA in prior periods, such as income taxes, interest and other non-operating items, depreciation and amortization, 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 and items that are unusual in nature or infrequently occurring. The exclusion of these charges and costs in future periods will have a significant impact on the Partnership’s Adjusted EBITDA, and the Partnership is not able to provide a reconciliation of its Adjusted EBITDA guidance to net income (loss) without unreasonable efforts due to the uncertainty and variability of the nature and amount of these future charges and costs and the Partnership believes that such reconciliation, if possible, would imply a degree of precision that would be potentially confusing or misleading to investors.

About NGL Energy Partners LP

NGL Energy Partners LP, a Delaware limited partnership, is a diversified midstream energy company that transports, stores, markets and provides other logistics services for crude oil, natural gas liquids and other products and transports, treats and disposes of produced water generated as part of the oil and natural gas production process.

For further information, visit the Partnership’s website at www.nglenergypartners.com.