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NGL Energy Partners LP Announces Second Quarter Fiscal 2019 Financial Results

November 8, 2018

TULSA, Okla.--(BUSINESS WIRE)--Nov 8, 2018--NGL Energy Partners LP (NYSE:NGL) (“NGL,” “our,” “we,” or the “Partnership”) today reported net income for the quarter ended September 30, 2018 of $354.9 million, compared to a net loss of $173.6 million for the quarter ended September 30, 2017. Net income for the current quarter includes a gain of $408.6 million on the sale of virtually all of our remaining Retail Propane segment.

Highlights include:

Adjusted EBITDA for the second quarter of Fiscal 2019 was $95.4 million, compared to $90.8 million for the second quarter of Fiscal 2018, an increase of 5.1% Completed the sale of virtually all of our remaining Retail Propane segment to Superior Plus Corp. (“Superior Plus”) for approximately $900 million in gross proceeds (adjusted for working capital) on July 10, 2018 Redeemed all of our $367.0 million of outstanding 6.875% Senior Notes due 2021 on October 16, 2018 Confirms Fiscal 2019 Adjusted EBITDA guidance of $450 million Growth capital expenditures, including $110.1 million in acquisitions of Water Solutions facilities and related assets, and other investments, totaled approximately $195.2 million during the second quarter (excluding the former Retail Propane segment)

“We are reporting our second consecutive quarter of record Adjusted EBITDA compared to the same quarters of the prior year. We believe we have successfully repositioned NGL over the past twelve months by raising $1.5 billion in asset sales at double digit multiples, lowering leverage substantially and expanding our Water Solutions business in the Permian Basin. Our quarterly results came in very strong, particularly in the Crude Oil Logistics and Liquids segments, which are trending towards the higher end of our annual guidance,” stated NGL’s CEO Mike Krimbill. “Grand Mesa continues to outpace our projections and will benefit from increased volumes. Our Water Solutions business continues to grow as we execute on securing long-term contracts for wastewater disposal and build our water pipeline infrastructure. Our Refined Products profitability has shifted to the second half of the Fiscal Year. We are very proud of the progress we have made through the first half of this year and we are confident about our performance for the remainder of Fiscal 2019.”

Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted EBITDA by operating segment for the periods indicated:

The tables included in this release reconcile operating income (loss) to Adjusted EBITDA, a non-GAAP financial measure, for each of our operating segments.

Crude Oil Logistics

The Partnership’s Crude Oil Logistics segment generated Adjusted EBITDA of $48.5 million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $29.6 million during the quarter ended September 30, 2017. Results for the second quarter of Fiscal 2019 improved compared to the same quarter in Fiscal 2018 primarily due to increased volumes on Grand Mesa Pipeline as well as improved margins in most of the basins in which the segment operates.

The Partnership’s Grand Mesa Pipeline contributed Adjusted EBITDA of approximately $46.1 million during the second quarter of Fiscal 2019, an increase of $8.1 million when compared to Adjusted EBITDA of approximately $38.0 million during the same quarter of last year, due to increased volumes related to production growth in the DJ Basin. Financial volumes averaged approximately 109,000 barrels per day during the quarter ended September 30, 2018.

Refined Products and Renewables

The Partnership’s Refined Products and Renewables segment generated Adjusted EBITDA of $(1.9) million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $22.2 million during the quarter ended September 30, 2017. The results for the quarter ended September 30, 2018 were negatively impacted by significant price volatility and minor supply disruptions, offset by stronger demand at our wholesale locations, especially in the Southeast and West Texas. Additionally, margins were favorably impacted during the three months ended September 30, 2017 due to Gulf Coast prices increasing significantly as a result of supply disruptions.

Refined product barrels sold during the quarter ended September 30, 2018 totaled approximately 59.1 million barrels, an increase of approximately 17.7 million barrels compared to the same period in the prior year due to an increase in bulk sales volumes. Renewable barrels sold during the quarter ended September 30, 2018 totaled approximately 0.9 million, a decrease of approximately 0.7 million barrels compared to the same period in the prior year.

Liquids

The Partnership’s Liquids segment generated Adjusted EBITDA of $20.5 million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $16.1 million during the quarter ended September 30, 2017. Total product margin per gallon was $0.048 for the quarter ended September 30, 2018, compared to $0.025 for the quarter ended September 30, 2017, as a result of higher prices, increased volumes and improved railcar utilization driven by the Partnership’s efforts to right size its railcar fleet.

Propane volumes increased by approximately 8.9 million gallons, or 3.4%, during the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017. Butane volumes increased by approximately 6.0 million gallons, or 4.8%, during the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017. Other Liquids volumes increased by approximately 22.9 million gallons, or 22.5%, during the quarter ended September 30, 2018 compared to the same period in the prior year. The increase in overall volumes is primarily attributable to an increase in natural gas liquids volumes being transported by railcars due to increased production and third-party pipeline infrastructure issues.

Water Solutions

The Partnership’s Water Solutions segment generated Adjusted EBITDA of $38.8 million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $27.3 million during the quarter ended September 30, 2017. The Partnership processed approximately 1,008,000 barrels of wastewater per day during the quarter ended September 30, 2018, a 53.7% increase when compared to approximately 655,000 barrels of wastewater per day during the quarter ended September 30, 2017.

Processed water volumes have increased in each basin in which the segment operates as the segment continued to benefit from high crude oil prices, increased rig activity and crude oil production. Revenues from recovered hydrocarbons totaled $18.3 million for the quarter ended September 30, 2018, an increase of $7.8 million over the prior year period, related to an increase in the volume of wastewater processed and increased crude oil prices; however, these revenues were negatively impacted by lower skim oil volumes recovered per wastewater barrel processed and basin differentials impacting the net price received for the skim oil sales.

Maintenance capital expenditures for the Water Solutions segment have also increased compared to prior periods due to costs incurred for the replacement and repair of facilities that have been struck by lightning, the installation of new lightning prevention equipment and upgrades or replacement of smaller/obsolete tubing and pumps which are not expected to be recurring.

Retail Propane - Discontinued Operations

The Partnership’s Retail Propane segment generated Adjusted EBITDA of $(0.5) million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $3.2 million during the quarter ended September 30, 2017. On July 10, 2018, we completed the sale of virtually all of our remaining Retail Propane segment to Superior Plus.

Corporate and Other

Adjusted EBITDA for Corporate and Other was $(10.1) million during the quarter ended September 30, 2018, compared to Adjusted EBITDA of $(7.8) million during the quarter ended September 30, 2017. The increased cost was due primarily to increased legal costs related to certain litigation matters.

Capitalization and Liquidity

On July 10, 2018, the Partnership completed the sale of virtually all of its remaining Retail Propane segment and received total consideration of $896.5 million in cash. Proceeds were used to reduce outstanding borrowings on the Partnership’s revolving credit facility and to fund growth capital expenditures and acquisitions during the quarter, primarily in the Water Solutions segment.

Total debt outstanding, excluding working capital borrowings, was $1.773 billion at September 30, 2018 compared to $1.711 billion at March 31, 2018, an increase of $62.2 million, due primarily to the Partnership temporarily paying down a portion of its working capital borrowings with proceeds from the Retail Propane sale. During the quarter ended September 30, 2018, the Partnership issued a notice of redemption of all of its outstanding 6.875% Senior Notes due 2021, which are included in current maturities of debt in the September 30, 2018 balance sheet. On October 16, 2018, we redeemed all of our outstanding 6.875% Senior Notes due 2021 using amounts available under our revolving credit facility. The registered holders received a redemption payment of 101.719% of the principal amount, plus accrued and unpaid interest, which equaled $0.19 per $1,000 of the redeemed notes.

Working capital borrowings totaled $759.0 million at September 30, 2018 compared to $969.5 million at March 31, 2018, a decrease of $210.5 million driven primarily by the use of funds from the sale of our Retail Propane segment to repay debt, which was partially offset by higher accounts receivable and inventory balances. Total liquidity (cash plus available capacity on our revolving credit facility) was approximately $775.0 million as of September 30, 2018.

Second Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled for 11:00 am Eastern Time (10:00 am Central Time) on Thursday, November 8, 2018. Analysts, investors, and other interested parties may access the conference call by dialing (800) 291-4083 and providing access code 5983587. An archived audio replay of the conference call will be available for 7 days beginning at 11:00 am Eastern Time (10:00 am Central Time) on November 9, 2018, which can be accessed by dialing (855) 859-2056 and providing access code 5983587.

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 market 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 our Refined Products and Renewables segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (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 NGL’s Refined Products and Renewables 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 NGL’s Refined Products and Renewables segment. The primary hedging strategy of NGL’s Refined Products and Renewables segment 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 are six months to one year in duration at inception. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of NGL’s Refined Products and Renewables segment 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. 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.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. 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 market 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 is a Delaware limited partnership. NGL owns and operates a vertically integrated energy business with four primary businesses: Crude Oil Logistics, Water Solutions, Liquids, and Refined Products and Renewables. NGL completed its initial public offering in May 2011. For further information, visit the Partnership’s website at www.nglenergypartners.com.

View source version on businesswire.com:https://www.businesswire.com/news/home/20181108005285/en/

CONTACT: NGL Energy Partners LP

Trey Karlovich, 918-481-1119

Chief Financial Officer and Executive Vice President

Trey.Karlovich@nglep.com

or

Linda Bridges, 918-481-1119

Senior Vice President - Finance and Treasurer

Linda.Bridges@nglep.com

KEYWORD: UNITED STATES NORTH AMERICA OKLAHOMA

INDUSTRY KEYWORD: ENERGY OIL/GAS

SOURCE: NGL Energy Partners LP

Copyright Business Wire 2018.

PUB: 11/08/2018 06:30 AM/DISC: 11/08/2018 06:30 AM

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