NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported its third quarter Fiscal 2023 financial results. Highlights include:

• Net income for the third quarter of Fiscal 2023 of $59.0 million, compared to a net loss of $19.0 million for the third quarter of Fiscal 2022; Net income for the first nine months of Fiscal 2023 of $85.7 million, compared to a net loss of $154.7 million for the comparable period of Fiscal 2022

• Adjusted EBITDA⁽¹⁾ for the third quarter of Fiscal 2023 of $193.3 million, compared to $147.7 million for the third quarter of Fiscal 2022; Adjusted EBITDA for the first nine months of Fiscal 2023 of $459.4 million, compared to $385.1 million for the comparable period of 2022

• Operating income for the Water Solutions segment of $59.7 million for the third quarter of Fiscal 2023, compared to $19.9 million for the third quarter of Fiscal 2022

• Record Water Solutions’ quarterly Adjusted EBITDA⁽¹⁾ of $121.7 million for the third quarter of Fiscal 2023, a 47.1% increase compared to the third quarter of Fiscal 2022 and a 16.2% increase over the immediately preceding fiscal quarter

• In the face of significant inflationary pressure, Water Solutions managed to reduce operating expense to $0.25 per barrel versus $0.27 per barrel in the immediately preceding fiscal quarter

• Record produced water volumes processed of approximately 2.43 million barrels per day during the third quarter of Fiscal 2023, growing 31.9% from the same period in the prior year and 7.1% over the immediately preceding fiscal quarter

• Increasing Water Solutions Adjusted EBITDA⁽²⁾ guidance from $430 million plus to $440 million plus for Fiscal 2023

• Reduced $98.1 million in principal on unsecured notes and equipment financing note in the quarter

• Anticipate all 2023 unsecured notes to be repaid no later than June 30, 2023

“Our Water Solutions segment continues to see strong disposal volume and skim oil growth, achieving record Adjusted EBITDA⁽¹⁾ and water volumes processed in the quarter. This strong performance plus the return of working capital has allowed us to lean into the repurchase of our 2023 notes, $97.5 million in the current quarter. The current remaining balance is approximately $203 million, and our plan is to call the remaining 2023 notes no later than June 30, 2023. Paying off the 2023 notes is a key strategic goal as we look to drive down absolute debt and further reduce leverage. We are increasing guidance for our Water Solutions' Adjusted EBITDA⁽²⁾ from over $430 million to over $440 million for full year Fiscal 2023 and maintaining $630 million plus consolidated Adjusted EBITDA⁽²⁾ guidance. Due to the increasing activity and volumes in the Delaware Basin, we are adjusting our capital expenditure guidance to a range of $115 million - $125 million in order to keep up with our customers growth,” stated Mike Krimbill, NGL’s CEO. “As we’ve discussed before, we continue to work on sales of non-core assets in the fourth quarter that will continue to drive leverage lower,” Krimbill concluded.

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⁽¹⁾ See the “Non-GAAP Financial Measures” section of this release for the definition of Adjusted EBITDA (as used herein) and a discussion of this non-GAAP financial measure.

⁽²⁾ Certain of the forward-looking financial measures are provided on a non-GAAP basis. A reconciliation of forward-looking financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is potentially misleading and not practical given the difficulty of projecting event driven transactional and other non-core operating items in any future period. The magnitude of these items, however, may be significant.

Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted EBITDA⁽¹⁾ from continuing operations by reportable segment for the periods indicated:

Water Solutions

Operating income for the Water Solutions segment increased $39.9 million for the quarter ended December 31, 2022, compared to the quarter ended December 31, 2021. The Partnership processed approximately 2.43 million barrels of produced water per day during the quarter ended December 31, 2022, a 31.9% increase when compared to approximately 1.84 million barrels of water per day processed during the quarter ended December 31, 2021. This increase was due to higher production volumes (and associated produced water) primarily in the Delaware Basin driven by higher crude oil prices and completion activity as well as higher fees charged for spot volumes. The Partnership also sold approximately 168,000 barrels per day of produced and recycled water for use in our customers’ completion activities.

Revenues from recovered skim oil totaled $30.3 million for the quarter ended December 31, 2022, an increase of $12.4 million from the prior year period. This increase was due to higher volumes of skim oil barrels sold due to an increase in produced water volumes processed as well as higher realized crude oil prices received from the sale of skim oil barrels. 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.

Operating expenses in the Water Solutions segment decreased to $0.25 per produced barrel processed compared to $0.26 per produced barrel processed in the comparative quarter last year primarily due to the increase in produced water processed. Three of the Water Solutions segment’s largest variable expenses, utility, royalty and chemical expenses, were not (and are not expected to be) 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.

Crude Oil Logistics

Operating income for the Crude Oil Logistics segment increased $13.8 million for the quarter ended December 31, 2022, compared to the quarter ended December 31, 2021. The increase was due to higher product margins compared to the prior year period and an increase in net derivative gains of $7.7 million. Product margins increased due to higher contracted rates with certain producers as well as increased differentials on certain other sales contracts. Operating and general and administrative expenses declined by $2.3 million, primarily due to the sale of our trucking business during our fourth quarter of the prior year. In addition, during the prior year quarter, we recorded an impairment charge of $2.2 million due to damage caused by Hurricane Ida to one of our Gulf Coast terminals. During the three months ended December 31, 2022, physical volumes on the Grand Mesa Pipeline averaged approximately 77,000 barrels per day, compared to approximately 83,000 barrels per day for the three months ended December 31, 2021. Overall production in the DJ Basin continues to be negatively impacted by producer permitting issues.

Liquids Logistics

Operating income for the Liquids Logistics segment decreased $2.6 million for the quarter ended December 31, 2022, compared to the quarter ended December 31, 2021. Our Butane product margins (excluding the impact of derivatives) were lower as product purchased earlier in the season continues to compete with product purchased in a discounted market, resulting in our product being more expensive. Propane results are below expectations partially due to warmer than normal winter temperatures. Product margins for refined products also increased as we continue to be well positioned from a supply and inventory perspective in certain markets experiencing tight supply. For the current quarter, losses from net derivative activity for all products in this segment increased by $6.4 million, compared to the prior year quarter.

Capitalization and Liquidity

Total liquidity (cash plus available capacity on our asset-based revolving credit facility (“ABL Facility”)) was approximately $280.1 million as of December 31, 2022. Borrowings on the Partnership’s ABL Facility totaled approximately $156.0 million. The increase from March 31, 2022 was primarily due to increases in working capital balances driven by increased inventory volumes and higher net account receivable balances.

The Partnership is in compliance with all of its debt covenants and has no significant debt maturities before November 2023. The Partnership expects to pay off the remaining outstanding 2023 Notes no later than June 30, 2023 using cash flows from operations, and if needed, borrowings under our ABL Facility. Proceeds generated from other cash flow positive initiatives currently being pursued, such as sales of non-core assets, may also be used for additional debt reductions.

Third Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 4:30 pm Central Time on Thursday, February 9, 2023. Analysts, investors, and other interested parties may join the webcast via the event link: https://www.webcaster4.com/Webcast/Page/2808/47555 or by dialing (888) 506-0062 and providing access code: 893513. An archived audio replay of the call will be available for 14 days, which can be accessed by dialing (877) 481-4010 and providing replay passcode 47555.

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 certain refined products businesses within NGL’s 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. 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 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 records a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of 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. 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 NGL is 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.

We do not provide a reconciliation for non-GAAP estimates on a forward-looking basis where we are unable to provide a meaningful calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various items that would impact the most directly comparable forward-looking U.S. GAAP financial measure that have not yet occurred, are out of the Partnership’s control and/or cannot be reasonably predicted. Forward-looking non-GAAP financial measures provided without the most directly comparable U.S. GAAP financial measures may vary materially from the corresponding U.S. GAAP financial measures.

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.

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(1) Information is presented as of December 31, 2022 and December 31, 2021, respectively.

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