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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
(Amendment No. 1)

(Mark One)

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
OR
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-35172

NGL Energy Partners LP
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
27-3427920
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
6120 South Yale Avenue, Suite 805
Tulsa, Oklahoma
 
74136
(Address of Principal Executive Offices)
 
(Zip Code)
(918) 481-1119
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
Non-accelerated filer o
 
Smaller reporting company ¨
Emerging growth company o
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨   No x

At February 4, 2019, there were 124,033,723 common units issued and outstanding.




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Explanatory Note

This Amendment No. 1 to Form 10-Q (this “Amendment”) amends the Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2018, originally filed on February 11, 2019 (the “Original Filing”) by NGL Energy Partners LP (“we,” “us,” “our,” or the “Partnership”). We are filing this Amendment to correct certain formatting issues that resulted in certain information not being displayed within the footnotes to tables contained primarily in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Original Filing. The formatting issue was the result of a technical error related to the Partnership’s use of Inline XBRL in the Original Filing. We have corrected the issue and the missing language is now being displayed properly.

Except as described above, no other changes have been made to the Original Filing. We have not updated the disclosures contained herein to reflect any event which occurred at a date subsequent to the filing of the Original Filing.


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TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 


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Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by and information currently available to us. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Certain words in this Quarterly Report such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “project,” “will,” and similar expressions and statements regarding our plans and objectives for future operations, identify forward-looking statements. Although we and our general partner believe such forward-looking statements are reasonable, neither we nor our general partner can assure they will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected. Among the key risk factors that may affect our consolidated financial position and results of operations are:

the prices of crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
energy prices generally;
the general level of crude oil, natural gas, and natural gas liquids production;
the general level of demand, and the availability of supply, for crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
the level of crude oil and natural gas drilling and production in areas where we have water treatment and disposal facilities;
the price of gasoline relative to the price of corn, which affects the price of ethanol;
the 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;
actions taken by foreign oil and gas producing nations;
the political and economic stability of foreign oil and gas producing nations;
the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, ethanol, and biodiesel;
the effect of natural disasters, lightning strikes, or other significant weather events;
the availability of local, intrastate, and interstate transportation infrastructure with respect to our truck, railcar, and barge transportation services;
the availability, price, and marketing of competing fuels;
the effect of energy conservation efforts on product demand;
energy efficiencies and technological trends;
governmental regulation and taxation;
the effect of legislative and regulatory actions on hydraulic fracturing, wastewater disposal, and the treatment of flowback and produced water;
hazards or operating risks related to transporting and distributing petroleum products that may not be fully covered by insurance;
the maturity of the crude oil, natural gas liquids, and refined products industries and competition from other marketers;
loss of key personnel;
the ability to renew contracts with key customers;
the ability to maintain or increase the margins we realize for our terminal, barging, trucking, wastewater disposal, recycling, and discharge services;
the ability to renew leases for our leased equipment and storage facilities;
the nonpayment or nonperformance by our counterparties;
the availability and cost of capital and our ability to access certain capital sources;

1

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a deterioration of the credit and capital markets;
the ability to successfully identify and complete accretive acquisitions, and integrate acquired assets and businesses;
changes in the volume of hydrocarbons recovered during the wastewater treatment process;
changes in the financial condition and results of operations of entities in which we own noncontrolling equity interests;
changes in applicable laws and regulations, including tax, environmental, transportation, and employment regulations, or new interpretations by regulatory agencies concerning such laws and regulations and the effect of such laws and regulations (now existing or in the future) on our business operations;
the costs and effects of legal and administrative proceedings;
any reduction or the elimination of the federal Renewable Fuel Standard; and
changes in the jurisdictional characteristics of, or the applicable regulatory policies with respect to, our pipeline assets.

You should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report. Except as may be required by state and federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise. When considering forward-looking statements, please review the risks discussed under Part I, Item 1A–“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

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PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(in Thousands, except unit amounts)
 
December 31, 2018
 
March 31, 2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
23,025

 
$
22,094

Accounts receivable-trade, net of allowance for doubtful accounts of $4,463 and $4,201, respectively
1,006,033

 
1,026,764

Accounts receivable-affiliates
12,564

 
4,772

Inventories
572,931

 
551,303

Prepaid expenses and other current assets
210,452

 
128,742

Assets held for sale
124,509

 
517,604

Total current assets
1,949,514

 
2,251,279

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $402,025 and $343,345, respectively
1,726,162

 
1,518,607

GOODWILL
1,182,614

 
1,204,607

INTANGIBLE ASSETS, net of accumulated amortization of $492,892 and $433,565, respectively
922,763

 
913,154

INVESTMENTS IN UNCONSOLIDATED ENTITIES
4,797

 
17,236

LOAN RECEIVABLE-AFFILIATE

 
1,200

OTHER NONCURRENT ASSETS
170,097

 
245,039

Total assets
$
5,955,947

 
$
6,151,122

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES AND REDEEMABLE NONCONTROLLING INTEREST:
 
 
 
Accounts payable-trade
$
905,958

 
$
852,839

Accounts payable-affiliates
23,410

 
1,254

Accrued expenses and other payables
263,732

 
223,504

Advance payments received from customers
21,437

 
8,374

Current maturities of long-term debt, net of debt issuance costs of $666 and $0, respectively
339,867

 
646

Liabilities and redeemable noncontrolling interest held for sale
10,564

 
42,580

Total current liabilities and redeemable noncontrolling interest
1,564,968

 
1,129,197

LONG-TERM DEBT, net of debt issuance costs of $12,602 and $20,645, respectively, and current maturities
1,877,701

 
2,679,740

OTHER NONCURRENT LIABILITIES
74,903

 
173,514

COMMITMENTS AND CONTINGENCIES (NOTE 9)


 


 
 
 
 
CLASS A 10.75% CONVERTIBLE PREFERRED UNITS, 19,942,169 and 19,942,169 preferred units issued and outstanding, respectively
122,934

 
82,576

 
 
 
 
EQUITY:
 
 
 
General partner, representing a 0.1% interest, 124,158 and 121,594 notional units, respectively
(50,581
)
 
(50,819
)
Limited partners, representing a 99.9% interest, 124,033,723 and 121,472,725 common units issued and outstanding, respectively
2,085,780

 
1,852,495

Class B preferred limited partners, 8,400,000 and 8,400,000 preferred units issued and outstanding, respectively
202,731

 
202,731

Accumulated other comprehensive loss
(273
)
 
(1,815
)
Noncontrolling interests
77,784

 
83,503

Total equity
2,315,441

 
2,086,095

Total liabilities and equity
$
5,955,947

 
$
6,151,122


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(in Thousands, except unit and per unit amounts)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
REVENUES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
751,180

 
$
585,007

 
$
2,395,064

 
$
1,526,944

Water Solutions
 
75,458

 
64,024

 
231,367

 
162,023

Liquids
 
749,433

 
759,589

 
1,759,772

 
1,464,784

Refined Products and Renewables
 
4,800,430

 
2,944,874

 
14,488,619

 
8,806,717

Other
 
319

 
289

 
1,066

 
696

Total Revenues
 
6,376,820

 
4,353,783

 
18,875,888

 
11,961,164

COST OF SALES:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
685,417

 
552,871

 
2,226,397

 
1,423,511

Water Solutions
 
(39,470
)
 
10,192

 
(17,309
)
 
13,019

Liquids
 
707,187

 
721,246

 
1,668,646

 
1,404,147

Refined Products and Renewables
 
4,760,756

 
2,951,440

 
14,440,852

 
8,781,009

Other
 
494

 
117

 
1,481

 
311

Total Cost of Sales
 
6,114,384

 
4,235,866

 
18,320,067

 
11,621,997

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
Operating
 
62,892

 
51,140

 
179,463

 
146,768

General and administrative
 
24,779

 
26,396

 
86,538

 
69,939

Depreciation and amortization
 
53,434

 
52,210

 
158,229

 
158,222

(Gain) loss on disposal or impairment of assets, net
 
(36,246
)
 
(112,388
)
 
71,077

 
(13,246
)
Revaluation of liabilities
 

 

 
800

 
5,600

Operating Income (Loss)
 
157,577

 
100,559

 
59,714

 
(28,116
)
OTHER INCOME (EXPENSE):
 
 
 
 
 
 

 
 

Equity in earnings of unconsolidated entities
 
1,777

 
2,588

 
2,375

 
6,677

Interest expense
 
(39,151
)
 
(51,696
)
 
(126,777
)
 
(150,918
)
Loss on early extinguishment of liabilities, net
 
(10,083
)
 
(21,141
)
 
(10,220
)
 
(22,479
)
Other income (expense), net
 
1,292

 
1,881

 
(31,006
)
 
5,251

Income (Loss) From Continuing Operations Before Income Taxes
 
111,412

 
32,191

 
(105,914
)
 
(189,585
)
INCOME TAX EXPENSE
 
(980
)
 
(364
)
 
(2,322
)
 
(869
)
Income (Loss) From Continuing Operations
 
110,432

 
31,827

 
(108,236
)
 
(190,454
)
Income From Discontinued Operations, net of Tax
 
96

 
24,942

 
404,414

 
9,937

Net Income (Loss)
 
110,528

 
56,769

 
296,178

 
(180,517
)
LESS: NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
307

 
(89
)
 
1,170

 
(221
)
LESS: NET (INCOME) LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 

 
(424
)
 
446

 
261

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
110,835

 
$
56,256

 
$
297,794

 
$
(180,477
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
80,876

 
$
15,470

 
$
(180,870
)
 
$
(232,893
)
NET INCOME FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
96

 
$
24,494

 
$
404,455

 
$
10,187

NET INCOME (LOSS) ALLOCATED TO COMMON UNITHOLDERS
 
$
80,972

 
$
39,964

 
$
223,585

 
$
(222,706
)
BASIC INCOME (LOSS) PER COMMON UNIT
 
 
 
 
 
 
 
 
Income (Loss) From Continuing Operations
 
$
0.65

 
$
0.13

 
$
(1.48
)
 
$
(1.92
)
Income From Discontinued Operations, net of Tax
 
0.00

 
0.20

 
3.30

 
0.08

Net Income (Loss)
 
$
0.65

 
$
0.33

 
$
1.82

 
$
(1.84
)
DILUTED INCOME (LOSS) PER COMMON UNIT
 
 
 
 
 
 
 
 
Income (Loss) From Continuing Operations
 
$
0.64

 
$
0.12

 
$
(1.48
)
 
$
(1.92
)
Income From Discontinued Operations, net of Tax
 
0.00

 
0.20

 
3.30

 
0.08

Net Income (Loss)
 
$
0.64

 
$
0.32

 
$
1.82

 
$
(1.84
)
BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
123,892,680

 
120,844,008

 
122,609,625

 
120,899,502

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
125,959,751

 
124,161,966

 
122,609,625

 
120,899,502


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(in Thousands)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
110,528

 
$
56,769

 
$
296,178

 
$
(180,517
)
Other comprehensive (loss) income
 
(3
)
 
784

 
(27
)
 
350

Comprehensive income (loss)
 
$
110,525

 
$
57,553

 
$
296,151

 
$
(180,167
)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Nine Months Ended December 31, 2018
(in Thousands, except unit amounts)
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Class B Preferred
 
Common
 
Accumulated
Other
 
 
 
 
 
 
General
Partner
 
Units
 
Amount
 

Units
 
Amount
 
Comprehensive
(Income) Loss
 
Noncontrolling
Interests
 
Total
Equity
BALANCES AT MARCH 31, 2018
 
$
(50,819
)
 
8,400,000

 
$
202,731

 
121,472,725

 
$
1,852,495

 
$
(1,815
)
 
$
83,503

 
$
2,086,095

Distributions to general and common unit partners and preferred unitholders (Note 10)
 
(247
)
 

 

 

 
(176,756
)
 

 

 
(177,003
)
Contributions
 

 

 

 

 

 

 
169

 
169

Sawtooth joint venture
 

 

 

 

 
(63
)
 

 
(791
)
 
(854
)
Purchase of noncontrolling interest (Note 4)
 

 

 

 

 
(33
)
 

 
(3,927
)
 
(3,960
)
Redeemable noncontrolling interest valuation adjustment (Note 2)
 

 

 

 

 
(3,349
)
 

 

 
(3,349
)
Repurchase of warrants (Note 10)
 

 

 

 

 
(14,988
)
 

 

 
(14,988
)
Common unit repurchases and cancellations (Note 10)
 

 

 

 
(15,550
)
 
(162
)
 

 

 
(162
)
Equity issued pursuant to incentive compensation plan (Note 10)
 
21

 

 

 
2,347,751

 
33,926

 

 

 
33,947

Warrants exercised (Note 10)
 

 

 

 
228,797

 
2

 

 

 
2

Accretion of beneficial conversion feature of Class A convertible preferred units (Note 10)
 

 

 

 

 
(40,359
)
 

 

 
(40,359
)
Net income (loss)
 
327

 

 

 

 
297,467

 

 
(1,170
)
 
296,624

Other comprehensive loss
 

 

 

 

 

 
(27
)
 

 
(27
)
Cumulative effect adjustment for adoption of ASC 606 (Note 15)
 
139

 

 

 

 
139,167

 

 

 
139,306

Cumulative effect adjustment for adoption of ASU 2016-01 (Note 2)
 
(2
)
 

 

 

 
(1,567
)
 
1,569

 

 

BALANCES AT DECEMBER 31, 2018
 
$
(50,581
)
 
8,400,000

 
$
202,731

 
124,033,723

 
$
2,085,780

 
$
(273
)
 
$
77,784

 
$
2,315,441


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
 
 
Nine Months Ended December 31,
 
 
2018
 
2017
OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
296,178

 
$
(180,517
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Income from discontinued operations, net of tax
 
(404,414
)
 
(9,937
)
Depreciation and amortization, including amortization of debt issuance costs
 
169,573

 
170,987

Loss on early extinguishment or revaluation of liabilities, net
 
11,020

 
28,079

Non-cash equity-based compensation expense
 
32,575

 
27,114

Loss (gain) on disposal or impairment of assets, net
 
71,077

 
(13,246
)
Provision for doubtful accounts
 
409

 
669

Net adjustments to fair value of commodity derivatives
 
(150,664
)
 
99,539

Equity in earnings of unconsolidated entities
 
(2,375
)
 
(6,677
)
Distributions of earnings from unconsolidated entities
 
1,500

 
4,891

Lower of cost or market value adjustment
 
47,785

 
297

Other
 
(225
)
 
241

Changes in operating assets and liabilities, exclusive of acquisitions:
 
 
 
 
Accounts receivable-trade and affiliates
 
12,468

 
(266,304
)
Inventories
 
(69,413
)
 
(84,171
)
Other current and noncurrent assets
 
32,139

 
(5,753
)
Accounts payable-trade and affiliates
 
37,932

 
197,148

Other current and noncurrent liabilities
 
(918
)
 
4,723

Net cash provided by (used in) operating activities-continuing operations
 
84,647

 
(32,917
)
Net cash provided by operating activities-discontinued operations
 
31,011

 
37,204

Net cash provided by operating activities
 
115,658

 
4,287

INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(303,989
)
 
(82,306
)
Acquisitions, net of cash acquired
 
(197,971
)
 
(19,897
)
Settlements of commodity derivatives
 
95,978

 
(85,575
)
Proceeds from sales of assets
 
8,335

 
31,339

Proceeds from divestitures of businesses and investments, net
 
103,594

 
292,117

Investments in unconsolidated entities
 
(92
)
 
(21,461
)
Distributions of capital from unconsolidated entities
 

 
11,710

Repayments on loan for natural gas liquids facility
 
8,371

 
7,425

Loan to affiliate
 
(1,515
)
 
(1,460
)
Repayments on loan to affiliate
 

 
4,160

Other
 

 
20,000

Net cash (used in) provided by investing activities-continuing operations
 
(287,289
)
 
156,052

Net cash provided by (used in) investing activities-discontinued operations
 
845,779

 
(51,000
)
Net cash provided by investing activities
 
558,490

 
105,052

FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
2,956,500

 
1,674,500

Payments on Revolving Credit Facility
 
(3,037,000
)
 
(1,349,500
)
Repayment and repurchase of senior secured and senior unsecured notes
 
(395,471
)
 
(415,568
)
Payments on other long-term debt
 
(488
)
 
(716
)
Debt issuance costs
 
(915
)
 
(2,497
)
Contributions from noncontrolling interest owners, net
 
169

 
23

Distributions to general and common unit partners and preferred unitholders
 
(177,003
)
 
(166,589
)
Distributions to noncontrolling interest owners
 

 
(3,082
)
Proceeds from sale of preferred units, net of offering costs
 

 
202,731

Repurchase of warrants
 
(14,988
)
 
(10,549
)
Common unit repurchases and cancellations
 
(162
)
 
(15,608
)
Payments for settlement and early extinguishment of liabilities
 
(3,534
)
 
(2,408
)
Net cash used in financing activities-continuing operations
 
(672,892
)
 
(89,263
)
Net cash used in financing activities-discontinued operations
 
(325
)
 
(3,645
)
Net cash used in financing activities
 
(673,217
)
 
(92,908
)
Net increase in cash and cash equivalents
 
931

 
16,431

Cash and cash equivalents, beginning of period
 
22,094

 
7,826

Cash and cash equivalents, end of period
 
$
23,025

 
$
24,257

Supplemental cash flow information:
 
 
 
 
Cash interest paid
 
$
132,318

 
$
153,788

Income taxes paid (net of income tax refunds)
 
$
1,893

 
$
1,614

Supplemental non-cash investing and financing activities:
 
 
 
 
Distributions declared but not paid to Class B preferred unitholders
 
$
4,725

 
$
4,725

Accrued capital expenditures
 
$
34,734

 
$
7,444


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements


Note 1Organization and Operations

NGL Energy Partners LP (“we,” “us,” “our,” or the “Partnership”) is a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At December 31, 2018, our operations included:

Our Crude Oil Logistics segment purchases crude oil from producers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling, trucking, marine and pipeline transportation services through its owned assets.
Our Water Solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms, drilling fluids and drilling muds and performs truck and frac tank washouts. In addition, our Water Solutions segment sells the recovered hydrocarbons that result from performing these services and it also sells freshwater to producers for exploration and production activities.
Our Liquids segment supplies natural gas liquids to retailers, wholesalers, refiners, and petrochemical plants throughout the United States and in Canada using its leased underground storage and fleet of leased railcars, markets regionally through its 19 owned terminals throughout the United States, and provides terminaling and storage services at its salt dome storage facility joint venture in Utah.
Our Refined Products and Renewables segment conducts gasoline, diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, Southeast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. In addition, in certain storage locations, our Refined Products and Renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties.

Recent Developments

On July 10, 2018, we completed the sale of virtually all of our Retail Propane segment to Superior Plus Corp. (“Superior”) for total consideration of $889.8 million in cash. Accordingly, upon satisfaction of the significant closing conditions for this transaction during the month of June 2018, the assets, liabilities and redeemable noncontrolling interest of the Retail Propane segment were classified as held for sale in our unaudited condensed consolidated balance sheets. This sale included all three of the retail propane businesses we acquired during the three months ended June 30, 2018 (see Note 4). We retained our 50% ownership interest in Victory Propane, LLC (“Victory Propane”), which we subsequently sold on August 14, 2018 (see Note 2). This transaction, combined with the sale of a portion of our Retail Propane segment to DCC LPG (“DCC”) on March 30, 2018, represents a strategic shift in our operations and will have a significant effect on our operations and financial results going forward. Accordingly, the results of operations and cash flows related to the entire Retail Propane segment (including equity in earnings of Victory Propane) have been classified as discontinued operations for all periods presented and prior periods have been retrospectively adjusted in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows.

Note 2Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include our accounts and those of our controlled subsidiaries. Intercompany transactions and account balances have been eliminated in consolidation. Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. We also own an undivided interest in a crude oil pipeline, and include our proportionate share of assets, liabilities, and expenses related to this pipeline in our unaudited condensed consolidated financial statements.

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim consolidated financial information in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, the unaudited condensed consolidated financial statements exclude certain information and notes required by GAAP for complete annual consolidated financial

8

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


statements. However, we believe that the disclosures made are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements include all adjustments that we consider necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed in this Quarterly Report. The unaudited condensed consolidated balance sheet at March 31, 2018 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2018 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on May 30, 2018 and adjusted retrospectively for the Retail Propane segment disposition as previously described.

These interim unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report. Due to the seasonal nature of certain of our operations and other factors, the results of operations for interim periods are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2019.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amount of assets and liabilities reported at the date of the consolidated financial statements and the amount of revenues and expenses reported during the periods presented.

Critical estimates we make in the preparation of our unaudited condensed consolidated financial statements include, among others, determining the fair value of assets and liabilities acquired in business combinations, the fair value of derivative instruments, the collectibility of accounts receivable, the recoverability of inventories, useful lives and recoverability of property, plant and equipment and amortizable intangible assets, the impairment of long-lived assets and goodwill, the fair value of asset retirement obligations, the value of equity-based compensation, accruals for environmental matters and estimating certain revenues. Although we believe these estimates are reasonable, actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting policies are consistent with those disclosed in Note 2 of our audited consolidated financial statements included in our Annual Report.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value is based upon assumptions that market participants would use when pricing an asset or liability. We use the following fair value hierarchy, which prioritizes valuation technique inputs used to measure fair value into three broad levels:

Level 1: Quoted prices in active markets for identical assets and liabilities that we have the ability to access at the measurement date.
Level 2: Inputs (other than quoted prices included within Level 1) that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 include non-exchange traded derivatives such as over-the-counter commodity price swap and option contracts and forward commodity contracts. We determine the fair value of all of our derivative financial instruments utilizing pricing models for similar instruments. Inputs to the pricing models include publicly available prices and forward curves generated from a compilation of data gathered from third parties.
Level 3: Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair

9

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


value hierarchy. The lowest level input that is significant to a fair value measurement determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to a fair value measurement requires judgment, considering factors specific to the asset or liability.

Derivative Financial Instruments

We record all derivative financial instrument contracts at fair value in our unaudited condensed consolidated balance sheets except for certain contracts that qualify for the normal purchase and normal sale election. Under this accounting policy election, we do not record the contracts at fair value at each balance sheet date; instead, we record the purchase or sale at the contracted value once the delivery occurs.

We have not designated any financial instruments as hedges for accounting purposes. All changes in the fair value of our commodity derivative instruments that do not qualify as normal purchases and normal sales (whether cash transactions or non-cash mark-to-market adjustments) are reported within cost of sales in our unaudited condensed consolidated statements of operations, regardless of whether the contract is physically or financially settled.

We utilize various commodity derivative financial instrument contracts to attempt to reduce our exposure to price fluctuations. We do not enter into such contracts for trading purposes. Changes in assets and liabilities from commodity derivative financial instruments result primarily from changes in market prices, newly originated transactions, and the timing of settlements. We attempt to balance our contractual portfolio in terms of notional amounts and timing of performance and delivery obligations. However, net unbalanced positions can exist or are established based on our assessment of anticipated market movements. Inherent in the resulting contractual portfolio are certain business risks, including commodity price risk and credit risk. Commodity price risk is the risk that the market value of crude oil, natural gas liquids, or refined and renewables products will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Procedures and limits for managing commodity price risks and credit risks are specified in our market risk policy and credit policy, respectively. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel. Credit risk is monitored daily and exposure is minimized through customer deposits, restrictions on product liftings, letters of credit, and entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions.

Income Taxes

We qualify as a partnership for income tax purposes. As such, we generally do not pay United States federal income tax. Rather, each owner reports his or her share of our income or loss on his or her individual tax return. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined, as we do not have access to information regarding each partner’s basis in the Partnership.

We have certain taxable corporate subsidiaries in the United States and Canada, and our operations in Texas are subject to a state franchise tax that is calculated based on revenues net of cost of sales.

During the nine months ended December 31, 2018, we recognized a deferred tax liability of $22.4 million as a result of acquiring a corporation in connection with one of our acquisitions (see Note 4). The deferred tax liability is the tax effected cumulative temporary difference between the GAAP basis and tax basis of the acquired assets within the corporation. For GAAP purposes, certain of the acquired assets will be depreciated and amortized over time which will lower the GAAP basis. The deferred tax liability is $22.3 million at December 31, 2018 and is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheet.

We evaluate uncertain tax positions for recognition and measurement in the unaudited condensed consolidated financial statements. To recognize a tax position, we determine whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of benefit to be recognized in the unaudited condensed consolidated financial statements. We had no material uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at December 31, 2018 or March 31, 2018.


10

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Inventories

Our inventories are valued at the lower of cost or net realizable value, with cost determined using either the weighted-average cost or the first in, first out (FIFO) methods, including the cost of transportation and storage, and with net realizable value defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. In performing this analysis, we consider fixed-price forward commitments.

Inventories consist of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Crude oil
 
$
53,312

 
$
77,351

Natural gas liquids:
 
 
 
 
Propane
 
92,328

 
38,910

Butane
 
30,855

 
12,613

Other
 
8,262

 
6,515

Refined products:
 
 
 
 
Gasoline
 
215,798

 
253,286

Diesel
 
125,565

 
113,939

Renewables:
 
 
 
 
Ethanol
 
38,911

 
38,093

Biodiesel
 
7,900

 
10,596

Total
 
$
572,931

 
$
551,303



Amounts in the table above do not include inventory related to the Retail Propane segment, as these amounts have been classified as assets held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

Investments in Unconsolidated Entities

Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. Investments in partnerships and limited liability companies, unless our investment is considered to be minor, and investments in unincorporated joint ventures are also accounted for using the equity method of accounting. Under the equity method, we do not report the individual assets and liabilities of these entities on our unaudited condensed consolidated balance sheets; instead, our ownership interests are reported within investments in unconsolidated entities on our unaudited condensed consolidated balance sheets. Under the equity method, the investment is recorded at acquisition cost, increased by our proportionate share of any earnings and additional capital contributions and decreased by our proportionate share of any losses, distributions paid, and amortization of any excess investment. Excess investment is the amount by which our total investment exceeds our proportionate share of the net assets of the investee.

Our investments in unconsolidated entities consist of the following at the dates indicated:
Entity
 
Segment
 
Ownership
Interest (1)
 
Date Acquired
or Formed
 
December 31, 2018
 
March 31, 2018
 
 
 
 
 
 
 
 
(in thousands)
Water treatment and disposal facility (2)
 
Water Solutions
 
50%
 
August 2015
 
$
2,378

 
$
2,094

Water services company (3)
 
Water Solutions
 
50%
 
August 2018
 
2,419

 

E Energy Adams, LLC (4)
 
Refined Products and Renewables
 
%
 
December 2013
 

 
15,142

Victory Propane, LLC (5)
 
Corporate and Other
 
%
 
April 2015
 

 

Total
 
 
 
 
 
 
 
$
4,797

 
$
17,236

 
(1)
Ownership interest percentages are at December 31, 2018.
(2)
This is an investment in an unincorporated joint venture.

11

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


(3)
This is an investment in an unincorporated joint venture that we acquired as part of an acquisition in August 2018. See Note 4 for a further discussion.
(4)
On May 3, 2018, we sold our previously held 20% interest in E Energy Adams, LLC for net proceeds of $18.6 million and recorded a gain on disposal of $3.0 million during the nine months ended December 31, 2018 within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations.
(5)
On August 14, 2018, we sold our previously held 50% interest in Victory Propane. See Note 13 for a further discussion.

Variable Interest Entity

Victory Propane was formed as a joint venture in April 2015 by us and an unrelated third party. The business purpose of Victory Propane is to acquire and/or develop retail propane operations in a defined geographic area. In conjunction with the formation of Victory Propane, we agreed to provide Victory Propane a revolving line of credit of $5.0 million and have concluded that Victory Propane is a variable interest entity because the equity of Victory Propane is not sufficient to fund its activities without additional subordinated financial support. As discussed above and in Note 13, during the three months ended September 30, 2018, we sold our interest in Victory Propane.

Other Noncurrent Assets

Other noncurrent assets consist of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Loan receivable (1)
 
$
20,119

 
$
29,463

Line fill (2)
 
33,437

 
34,897

Tank bottoms (3)
 
44,148

 
42,044

Minimum shipping fees - pipeline commitments (4)
 
23,494

 
88,757

Other
 
48,899

 
49,878

Total
 
$
170,097

 
$
245,039

 
    
(1)
Represents the noncurrent portion of a loan receivable associated with our financing of the construction of a natural gas liquids facility that is utilized by a third party.
(2)
Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At December 31, 2018, line fill consisted of 335,069 barrels of crude oil and 262,000 barrels of propane. At March 31, 2018, line fill consisted of 360,425 barrels of crude oil and 262,000 barrels of propane. Line fill held in pipelines we own is included within property, plant and equipment (see Note 5).
(3)
Tank bottoms, which are product volumes required for the operation of storage tanks, are recorded at historical cost. We recover tank bottoms when the storage tanks are removed from service. At December 31, 2018 and March 31, 2018, tank bottoms held in third party terminals consisted of 389,737 barrels and 366,212 barrels of refined products, respectively. Tank bottoms held in terminals we own are included within property, plant and equipment (see Note 5).
(4)
Represents the minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for two contracts with crude oil pipeline operators. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 9). During the three months ended June 30, 2018, we entered into a definitive agreement, as described further in Note 13, in which we agreed to provide the benefit of our deficiency credit under one of these contracts. As a result of providing this benefit to the third party, we wrote off $67.7 million of these deficiency credits to (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statements of operation during the three months ended June 30, 2018. Under the remaining other contract for which we have the future benefit, we currently have 16 months in which to ship the excess volumes.

Amounts in the table above do not include other noncurrent assets related to the Retail Propane segment, as these amounts have been classified as assets held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

12

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Accrued Expenses and Other Payables

Accrued expenses and other payables consist of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Accrued compensation and benefits
 
$
15,174

 
$
18,033

Excise and other tax liabilities
 
42,478

 
40,829

Derivative liabilities
 
112,374

 
51,039

Accrued interest
 
27,360

 
39,947

Product exchange liabilities
 
27,220

 
11,842

Gavilon legal matter settlement (Note 9)
 
12,500

 

Deferred gain on sale of general partner interest in TLP (1)
 

 
30,113

Other
 
26,626

 
31,701

Total
 
$
263,732

 
$
223,504


 
(1)
See Note 15 for a discussion of the accounting for the deferred gain upon adoption of ASU No. 2014-09 and ASU No. 2017-05.

Amounts in the table above do not include accrued expenses and other payables related to our South Pecos water disposal assets and Retail Propane segment, as of December 31, 2018 and March 31, 2018, respectively, as these amounts have been classified as liabilities held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

Noncontrolling Interests

Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. Amounts are adjusted by the noncontrolling interest holder’s proportionate share of the subsidiaries’ earnings or losses each period and any distributions that are paid. Noncontrolling interests are reported as a component of equity, unless the noncontrolling interest is considered redeemable, in which case the noncontrolling interest is recorded between liabilities and equity (mezzanine or temporary equity) in our unaudited condensed consolidated balance sheet. The redeemable noncontrolling interest is adjusted at each balance sheet date to its maximum redemption value if the amount is greater than the carrying value. The redeemable noncontrolling interest is included in liabilities and redeemable noncontrolling interest held for sale in our unaudited condensed consolidated balance sheets (see Note 14). The following table summarizes changes in our redeemable noncontrolling interest (in thousands):
Balance at March 31, 2018
 
$
9,927

Net loss attributable to redeemable noncontrolling interest
 
(446
)
Redeemable noncontrolling interest valuation adjustment
 
3,349

Disposal of redeemable noncontrolling interest
 
(12,830
)
Balance at December 31, 2018
 
$



Business Combination Measurement Period

We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. Pursuant to GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination. As discussed in Note 4, certain of our acquisitions are still within this measurement period, and as a result, the acquisition date fair values we have recorded for the assets acquired and liabilities assumed are subject to change.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses.” The ASU requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected, which would include accounts

13

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


receivable. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The ASU is effective for the Partnership beginning April 1, 2020, and requires a modified retrospective method of adoption, although early adoption is permitted. We are currently in the process of assessing the impact of this ASU on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The ASU will replace previous lease accounting guidance in GAAP. The ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The ASU retains a distinction between finance leases and operating leases. The ASU is effective for the Partnership beginning April 1, 2019. We are currently evaluating our current leases and other contracts that may be considered leases under the new standard and the impact on our internal controls, accounting policies and financial statements and disclosures. Our evaluation process includes compiling a database of our leases, implementing accounting software to assist with compliance and developing internal controls to ensure completeness and accuracy of our leases meeting the scope of this ASU. Upon adoption, we expect to recognize right of use assets and lease liabilities not previously recorded on our consolidated balance sheet. Due to the ongoing nature of our process, we cannot yet determine the quantitative impact of the adoption of this standard. We expect to elect the following transitional practical expedients, which will allow us to not evaluate land easements prior to April 1, 2019: use hindsight in determining the lease term; to not reassess whether current or expired contracts contain leases; to not reassess the lease classification for any expired or existing leases; and to not reassess initial costs. We also expect to elect the optional transition method to record the adoption impact through a cumulative effect adjustment to equity.

On April 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers,” using a modified retrospective approach of adoption. ASU No. 2014-09 supersedes previous revenue recognition requirements in Topic 605, “Revenue Recognition,” and includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To achieve this core principle, more judgment and estimates are required within the revenue recognition process than required under Topic 605. In addition, ASU No. 2014-09 requires significantly expanded disclosures related to the nature, timing, amount and uncertainty of revenue and cash flows arising from contracts with customers. See Note 15 for a further discussion of the impact of adoption of ASU No. 2014-09 on our unaudited condensed consolidated financial statements and our revenue recognition policies.

On April 1, 2018, we adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” One of the provisions of ASU No. 2016-01 was to supersede the guidance to classify equity securities with readily determinable fair value into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in fair value recognized through net income. As a result of the adoption, we recorded a cumulative effect adjustment of $1.6 million, moving the unrealized loss from accumulated other comprehensive income to limited partners’ equity.

Note 3—Income (Loss) Per Common Unit

The following table presents our calculation of basic and diluted weighted average common units outstanding for the periods indicated:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Weighted average common units outstanding during the period:
 
 
 
 
 
 
 
Common units - Basic
123,892,680

 
120,844,008

 
122,609,625

 
120,899,502

Effect of Dilutive Securities:
 
 
 
 
 
 
 
Warrants
1,456,947

 
2,914,383

 

 

Service awards
610,124

 
403,575

 

 

Common units - Diluted
125,959,751

 
124,161,966

 
122,609,625

 
120,899,502


For the three months ended December 31, 2018, the Class A Preferred Units (as defined herein) were considered antidilutive. For the three months ended December 31, 2017, the Class A Preferred Units and Performance Awards were

14

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


considered antidilutive. For the nine months ended December 31, 2018 and 2017, the warrants, Service Awards (as defined herein) and Class A Preferred Units were considered antidilutive.

Our income (loss) per common unit is as follows for the periods indicated:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except unit and per unit amounts)
Income (loss) from continuing operations
$
110,432

 
$
31,827

 
$
(108,236
)
 
$
(190,454
)
Less: Continuing operations loss (income) attributable to noncontrolling interests
307

 
(89
)
 
1,170

 
(221
)
Net income (loss) from continuing operations attributable to NGL Energy Partners LP
110,739

 
31,738

 
(107,066
)
 
(190,675
)
Less: Distributions to preferred unitholders (1)
(29,748
)
 
(16,219
)
 
(73,882
)
 
(42,001
)
Less: Continuing operations (income) loss allocated to general partner (2)
(115
)
 
(49
)
 
78

 
132

Less: Repurchase of warrants (3)

 

 

 
(349
)
Net income (loss) from continuing operations allocated to common unitholders
$
80,876

 
$
15,470

 
$
(180,870
)
 
$
(232,893
)
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax
$
96

 
$
24,942

 
$
404,414

 
$
9,937

Less: Discontinued operations (income) loss attributable to redeemable noncontrolling interests

 
(424
)
 
446

 
261

Less: Discontinued operations (income) allocated to general partner (2)

 
(24
)
 
(405
)
 
(11
)
Net income from discontinued operations allocated to common unitholders
$
96

 
$
24,494

 
$
404,455

 
$
10,187

 
 
 
 
 
 
 
 
Net income (loss) allocated to common unitholders
$
80,972

 
$
39,964

 
$
223,585

 
$
(222,706
)
 
 
 
 
 
 
 
 
Basic income (loss) per common unit
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.65

 
$
0.13

 
$
(1.48
)
 
$
(1.92
)
Income from discontinued operations, net of tax
0.00

 
0.20

 
3.30

 
0.08

Net income (loss)
$
0.65

 
$
0.33

 
$
1.82

 
$
(1.84
)
Diluted income (loss) per common unit
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.64

 
$
0.12

 
$
(1.48
)
 
$
(1.92
)
Income from discontinued operations, net of tax
0.00

 
0.20

 
3.30

 
0.08

Net income (loss)
$
0.64

 
$
0.32

 
$
1.82

 
$
(1.84
)
Basic weighted average common units outstanding
123,892,680

 
120,844,008

 
122,609,625

 
120,899,502

Diluted weighted average common units outstanding
125,959,751

 
124,161,966

 
122,609,625

 
120,899,502

 
(1)
This amount includes the distribution to preferred unitholders as well as the accretion for the beneficial conversion, as discussed further in Note 10.
(2)
Net (income) loss allocated to the general partner includes distributions to which it is entitled as the holder of incentive distribution rights.
(3)
This amount represents the excess of the repurchase price over the fair value of the warrants, as discussed further in Note 10.

Note 4Acquisitions

The following summarizes our acquisitions during the nine months ended December 31, 2018:

Water Pipeline Company

On April 24, 2018, we acquired the remaining 18.375% interest in NGL Water Pipelines, LLC operating in the Delaware Basin portion of the Permian Basin in West Texas for total consideration of approximately $4.0 million. The acquisition of the remaining interest was accounted for as an equity transaction, no gain or loss was recorded, and the carrying

15

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


value of the noncontrolling interest was adjusted to reflect the change in ownership interest of the subsidiary. As of the date of the transaction, the 18.375% interest had a carrying value of $3.9 million.

Saltwater Water Solutions Facilities

During the nine months ended December 31, 2018, we acquired six saltwater disposal facilities (including 15 saltwater disposal wells) for total consideration of approximately $116.0 million.

As part of these acquisitions, we recorded customer relationship and favorable contract intangible assets whereby we estimated the value of these intangible assets using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

We assumed land leases with a royalty component as part of the acquisition of these facilities. The acquisition method of accounting requires that executory contracts with unfavorable terms relative to market conditions at the acquisition date be recorded as liabilities in the acquisition accounting. We recorded a liability to other noncurrent liabilities of $1.1 million related to these leases due to the royalty terms being deemed unfavorable. We will amortize this liability based on the volumes processed by the facilities.

The agreements for these acquisitions contemplate post-closing payments for certain working capital items. We are accounting for these transactions as business combinations. The following table summarizes the preliminary estimates of the fair values as of December 31, 2018 for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
33,202

Goodwill
58,751

Intangible assets
25,124

Other noncurrent liabilities
(1,127
)
Fair value of net assets acquired
$
115,950



As of December 31, 2018, the allocation of the purchase price is considered preliminary as we are continuing to gather additional information to (i) finalize the fair values of the property, plant and equipment and intangible assets and (ii) finalize the calculation of asset retirement obligations.

Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Goodwill represents a premium paid to expand the number of our disposal sites in an oilfield production basin currently serviced by us, thereby enhancing our competitive position as a provider of disposal services in this oilfield production basin. We expect that all of the goodwill will be deductible for federal income tax purposes.

The operations of these water solutions facilities have been included in our unaudited condensed consolidated statement of operations since their acquisition date. Our unaudited condensed consolidated statement of operations for the nine months ended December 31, 2018 includes revenues of $9.1 million and operating income of $3.7 million that were generated by the operations of these water solutions facilities. We incurred $0.2 million of transaction costs related to these acquisitions during the nine months ended December 31, 2018. These amounts are recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

During the nine months ended December 31, 2018, we also acquired five saltwater disposal wells for total consideration of $24.1 million, which we are accounting for as an acquisition of assets.

Freshwater Water Solutions Facilities

During the nine months ended December 31, 2018, we acquired a ranch and four freshwater facilities (including 27 freshwater wells) and a right-of-way that can be used for pipelines for total consideration of approximately $78.1 million.

As part of these acquisitions, we recorded customer relationship and favorable contract intangible assets, whereby we estimated the value of these intangible assets using the income approach, which uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

16

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



A book/tax difference was created as part of one of these acquisitions and as a result, we have recorded a preliminary noncurrent deferred tax liability of $22.4 million (see Note 2 for a further discussion).

We recorded a contingent consideration liability within accrued expenses and other payables and other noncurrent liabilities in our unaudited condensed consolidated balance sheet related to future royalty payments due to the seller. We estimated the contingent consideration based on the contracted royalty rate, which is a flat rate per barrel, multiplied by the expected volumes of freshwater sold. This amount was then discounted to present value using our weighted average cost of capital plus a premium representative of the uncertainty associated with the expected volumes. As of the acquisition date, we recorded a contingent liability of $1.8 million.

We assumed land leases with a royalty component as part of the acquisition of certain of these facilities. The acquisition method of accounting requires that executory contracts with unfavorable terms relative to market conditions at the acquisition date be recorded as liabilities in the acquisition accounting. We recorded a liability within other noncurrent liabilities of $0.5 million related to these leases due to the royalty terms being deemed unfavorable. We will amortize this liability based on the volumes processed by the facilities.

The agreements for these acquisitions contemplate post-closing payments for certain working capital items. We are accounting for these transactions as business combinations. The following table summarizes the preliminary estimates of the fair values as of December 31, 2018 for the assets acquired and liabilities assumed (in thousands):
Current assets
$
519

Property, plant and equipment
23,787

Goodwill
7,771

Intangible assets
68,624

Investments in unconsolidated entities
2,060

Current liabilities
(173
)
Other noncurrent liabilities
(24,527
)
Fair value of net assets acquired
$
78,061



As of December 31, 2018, the allocation of the purchase price is considered preliminary as we are continuing to gather additional information to (i) finalize the fair values of land, other property, plant and equipment, other intangible assets, including water rights and customer relationships, and the investment in the unconsolidated entity and (ii) calculate additional contingent consideration liabilities. We are also engaging a third party valuation firm to assist us in this effort. The noncurrent deferred tax liability is also considered preliminary and will be finalized once the fair value of the assets acquired has been finalized.

Goodwill represents the excess of the consideration paid for the acquired businesses over the fair value of the individual assets acquired, net of liabilities assumed. Goodwill represents a premium paid to expand our service offerings in an oilfield production basin currently serviced by us, thereby enhancing our competitive position as a provider of disposal and other services in this oilfield production basin. We expect that all of the goodwill will be deductible for federal income tax purposes.

The operations of these water solutions facilities have been included in our unaudited condensed consolidated statement of operations since their acquisition date. Our unaudited condensed consolidated statement of operations for the nine months ended December 31, 2018 includes revenues of $1.6 million and an operating loss of $0.2 million that were generated by the operations of these water solutions facilities. We incurred $3.7 million of transaction costs related to these acquisitions during the nine months ended December 31, 2018. These amounts are recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

During the nine months ended December 31, 2018, we also acquired an additional ranch (including 18 freshwater wells) for total consideration of $28.4 million, which we are accounting for as an acquisition of assets.

Retail Propane Businesses

During the three months ended June 30, 2018, we acquired three retail propane businesses for total consideration of approximately $19.1 million. We accounted for these transactions as business combinations.

17

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



On July 9, 2018, and in conjunction with the sale of the Retail Propane segment (see Note 1), we acquired the remaining 40% interest in Atlantic Propane, LLC, which was part of our Retail Propane segment, for total consideration of approximately $12.8 million. The acquisition of the remaining interest was accounted for as an equity transaction, no gain or loss was recorded, and the carrying value of the noncontrolling interest was adjusted to reflect the change in ownership interest of the subsidiary. Atlantic Propane, LLC was included in the sale to Superior (see Note 1).

The assets and liabilities of these retail propane transactions were included in the sale of virtually all of our Retail Propane segment on July 10, 2018 (see Note 14).

Note 5Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:
Description
Estimated
Useful Lives
 
December 31, 2018
 
March 31, 2018
 
(in years)
 
(in thousands)
Natural gas liquids terminal and storage assets
2
-
30
 
$
236,145

 
$
238,487

Pipeline and related facilities
30
-
40
 
243,762

 
243,616

Refined products terminal assets and equipment
15
-
25
 
6,736

 
6,736

Vehicles and railcars
3
-
25
 
126,209

 
121,159

Water treatment facilities and equipment
3
-
30
 
685,675

 
601,139

Crude oil tanks and related equipment
2
-
30
 
211,056

 
218,588

Barges and towboats
5
-
30
 
107,999

 
92,712

Information technology equipment
3
-
7
 
32,622

 
30,749

Buildings and leasehold improvements
3
-
40
 
143,764

 
147,442

Land
 
 
 
 
97,047

 
51,816

Tank bottoms and line fill (1)
 
 
 
 
20,113

 
20,118

Other
3
-
20
 
14,729

 
11,794

Construction in progress
 
 
 
 
202,330

 
77,596

 
 
 
 
 
2,128,187

 
1,861,952

Accumulated depreciation
 
 
 
 
(402,025
)
 
(343,345
)
Net property, plant and equipment
 
 
 
 
$
1,726,162

 
$
1,518,607

 
(1)
Tank bottoms, which are product volumes required for the operation of storage tanks, are recorded at historical cost. We recover tank bottoms when the storage tanks are removed from service. Line fill, which represents our portion of the product volume required for the operation of the proportionate share of a pipeline we own, is recorded at historical cost.

Amounts in the table above do not include property, plant and equipment and accumulated depreciation related to our South Pecos water disposal assets and Retail Propane segment as of December 31, 2018 and March 31, 2018, respectively, as these amounts have been classified as assets held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Depreciation expense
 
$
26,416

 
$
25,493

 
$
77,129

 
$
76,417

Capitalized interest expense
 
$
160

 
$
66

 
$
482

 
$
66



The table above does not include amounts related to the Retail Propane segment, as these amounts have been classified within discontinued operations in our unaudited condensed consolidated statements of operations (see Note 14).


18

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


We record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statements of operations. The following table summarizes (gains) losses on the disposal or impairment of property, plant and equipment by segment for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Crude Oil Logistics
 
$
(75
)
 
$
1,036

 
$
1,251

 
$
(2,993
)
Water Solutions
 
(443
)
 
2,929

 
2,762

 
4,368

Liquids
 

 
(214
)
 
994

 
638

Total
 
$
(518
)
 
$
3,751

 
$
5,007

 
$
2,013



Note 6Goodwill

The following table summarizes changes in goodwill by segment during the nine months ended December 31, 2018:
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products and
Renewables
 
Total
 
 
(in thousands)
Balances at March 31, 2018
 
$
579,846

 
$
424,465

 
$
149,169

 
$
51,127

 
$
1,204,607

Acquisitions (Note 4)
 

 
66,522

 

 

 
66,522

Disposals (Note 16)
 

 
(24,241
)
 

 

 
(24,241
)
Goodwill moved to assets held for sale (1)
 

 
(64,274
)
 

 

 
(64,274
)
Balances at December 31, 2018
 
$
579,846

 
$
402,472

 
$
149,169

 
$
51,127

 
$
1,182,614

 
(1)
This amount relates to the potential sale of the South Pecos water disposal business (see Note 14).


19

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 7Intangible Assets

Our intangible assets consist of the following at the dates indicated:
 
 
 
 
 
 
December 31, 2018
 
March 31, 2018
Description
 
Amortizable Lives
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
(in years)
 
(in thousands)
Amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
3
-
20
 
$
716,305

 
$
(353,102
)
 
$
363,203

 
$
718,763

 
$
(328,666
)
 
$
390,097

Customer commitments
 
10
 
 
 
310,000

 
(67,167
)
 
242,833

 
310,000

 
(43,917
)
 
266,083

Pipeline capacity rights
 
30
 
 
 
161,785

 
(21,090
)
 
140,695

 
161,785

 
(17,045
)
 
144,740

Rights-of-way and easements
 
1
-
40
 
66,086

 
(4,761
)
 
61,325

 
63,995

 
(3,214
)
 
60,781

Executory contracts and other agreements
 
3
-
30
 
45,730

 
(16,482
)
 
29,248

 
42,919

 
(15,424
)
 
27,495

Non-compete agreements
 
2
-
32
 
12,715

 
(2,029
)
 
10,686

 
5,465

 
(706
)
 
4,759

Debt issuance costs (1)
 
5
 
 
 
41,882

 
(28,261
)
 
13,621

 
40,992

 
(24,593
)
 
16,399

Total amortizable
 
 
 
 
 
1,354,503

 
(492,892
)
 
861,611

 
1,343,919

 
(433,565
)
 
910,354

Non-amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Water rights
 
 
 
 
 
58,352

 

 
58,352

 

 

 

Trade names
 
 
 
 
 
2,800

 

 
2,800

 
2,800

 

 
2,800

Total non-amortizable
 
 
 
 
 
61,152

 

 
61,152

 
2,800

 

 
2,800

Total
 
 
 
 
 
$
1,415,655

 
$
(492,892
)
 
$
922,763

 
$
1,346,719

 
$
(433,565
)
 
$
913,154

 
(1)
Includes debt issuance costs related to the Revolving Credit Facility (as defined herein). Debt issuance costs related to fixed-rate notes are reported as a reduction of the carrying amount of long-term debt.

Amounts in the table above do not include intangible assets and accumulated amortization related to our South Pecos water disposal assets and Retail Propane segment as of December 31, 2018 and March 31, 2018, respectively, as these amounts have been classified as assets held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

The weighted-average remaining amortization period for intangible assets is approximately 13.6 years.

Amortization expense is as follows for the periods indicated:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
Recorded In
2018
 
2017
 
2018
 
2017
 
(in thousands)
Depreciation and amortization
$
27,018

 
$
26,717

 
$
81,100

 
$
81,805

Cost of sales
1,385

 
1,505

 
4,234

 
4,596

Interest expense
1,250

 
1,154

 
3,668

 
3,394

Total
$
29,653

 
$
29,376

 
$
89,002

 
$
89,795


Amounts in the table above do not include amortization expense related to the Retail Propane segment, as these amounts have been classified within discontinued operations within our unaudited condensed consolidated statements of operations (see Note 14).


20

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Expected amortization of our intangible assets is as follows (in thousands):
Fiscal Year Ending March 31,
 
2019 (three months)
$
28,410

2020
113,187

2021
101,000

2022
88,245

2023
80,316

Thereafter
450,453

Total
$
861,611



Note 8Long-Term Debt

Our long-term debt consists of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
Face
Amount
 
Unamortized
Debt Issuance
Costs (1)
 
Book
Value
 
Face
Amount
 
Unamortized
Debt Issuance
Costs (1)
 
Book
Value
 
 
(in thousands)
Revolving credit facility:
 
 
 
 
 
 
 
 
 
 
 
 
Expansion capital borrowings
 
$

 
$

 
$

 
$

 
$

 
$

Working capital borrowings
 
889,000

 

 
889,000

 
969,500

 

 
969,500

Senior unsecured notes:
 
 
 
 
 
 
 
 
 
 
 
 
5.125% Notes due 2019 ("2019 Notes") (2)
 
339,886

 
(666
)
 
339,220

 
353,424

 
(1,653
)
 
351,771

6.875% Notes due 2021 ("2021 Notes")
 

 

 

 
367,048

 
(4,499
)
 
362,549

7.500% Notes due 2023 ("2023 Notes")
 
607,323

 
(7,295
)
 
600,028

 
615,947

 
(8,542
)
 
607,405

6.125% Notes due 2025 ("2025 Notes")
 
389,135

 
(5,307
)
 
383,828

 
389,135

 
(5,951
)
 
383,184

Other long-term debt
 
5,492

 

 
5,492

 
5,977

 

 
5,977

 
 
2,230,836

 
(13,268
)
 
2,217,568

 
2,701,031

 
(20,645
)
 
2,680,386

Less: Current maturities
 
340,533

 
(666
)
 
339,867

 
646

 

 
646

Long-term debt
 
$
1,890,303

 
$
(12,602
)
 
$
1,877,701

 
$
2,700,385

 
$
(20,645
)
 
$
2,679,740

 
(1)
Debt issuance costs related to the Revolving Credit Facility are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt.
(2)
Amount is included in current maturities, as discussed further below.

Amounts in the table above do not include long-term debt related to the Retail Propane segment, as these amounts have been classified as liabilities held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

Amortization expense for debt issuance costs related to long-term debt in the table above was $0.9 million and $1.5 million during the three months ended December 31, 2018 and 2017, respectively, and $3.4 million and $4.8 million during the nine months ended December 31, 2018 and 2017, respectively.


21

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Expected amortization of debt issuance costs is as follows (in thousands):
Fiscal Year Ending March 31,
 
 
2019 (three months)
 
$
901

2020
 
2,730

2021
 
2,367

2022
 
2,367

2023
 
2,367

Thereafter
 
2,536

Total
 
$
13,268



Credit Agreement

We are party to a $1.765 billion credit agreement (as amended, the “Credit Agreement”) with a syndicate of banks. As of December 31, 2018, the Credit Agreement includes a revolving credit facility to fund working capital needs, which had a capacity of $1.250 billion for cash borrowings and letters of credit (the “Working Capital Facility”), and a revolving credit facility to fund acquisitions and expansion projects, which had a capacity of $515.0 million (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”). Our Revolving Credit Facility allows us to reallocate amounts between the Expansion Capital Facility and Working Capital Facility. During the three months ended December 31, 2018, we reallocated $50.0 million from the Working Capital Facility to the Expansion Capital Facility. We had letters of credit of $157.9 million on the Working Capital Facility at December 31, 2018.

At December 31, 2018, the borrowings under the Credit Agreement had a weighted average interest rate of 4.81%, calculated as the weighted average LIBOR rate of 2.46% plus a margin of 2.25% for LIBOR borrowings and the prime rate of 5.50% plus a margin of 1.25% on alternate base rate borrowings. At December 31, 2018, the interest rate in effect on letters of credit was 2.25%. Commitment fees were charged at a rate ranging from 0.375% to 0.50% on any unused capacity.

On July 5, 2018, we amended our Credit Agreement. In the amendment, the lenders consented to, subject to the consummation of the Retail Propane disposition, release NGL Propane, LLC and its wholly-owned subsidiaries from its guaranty and other obligations under the loan documents, among other things. In return, the Partnership agreed to use the net proceeds from the Retail Propane disposition to pay down existing indebtedness no later than five business days after the consummation of the Retail Propane disposition.

On February 6, 2019, we amended our Credit Agreement, to among other things, reset the basket for the repurchase of common units with a limit of $150 million in aggregate during the remaining term of the Credit Agreement, not to exceed $50 million per fiscal quarter, so long as, both immediately before and after giving pro forma effect to the repurchases, the Partnership’s Leverage Ratio (as defined in our Credit Agreement) is less than 3.25x and Revolving Availability (also as defined in our Credit Agreement) is greater than or equal to $200 million. In addition, the amendment decreases the Maximum Total Leverage Indebtedness Ratio beginning September 30, 2019 with a further decrease beginning March 31, 2020 (as presented in the table below), and amends the defined term “Consolidated EBITDA” to exclude the “Gavilon Energy EPA Settlement” (as defined in the Credit Agreement) solely for the two quarters ending December 31, 2018 and March 31, 2019.

22

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



The following table summarizes the debt covenant levels specified in the Credit Agreement as of December 31, 2018 (as modified on February 6, 2019):
 
 
 
 
Senior Secured
 
Interest
 
Total Leverage
Period Beginning
 
Leverage Ratio (1)
 
Leverage Ratio (1)
 
Coverage Ratio (2)
 
Indebtedness Ratio (1)
December 31, 2018
 
4.75

 
3.25

 
2.75

 

March 31, 2019
 
4.50

 
3.25

 
2.75

 
6.50

September 30, 2019
 
4.50

 
3.25

 
2.75

 
6.25

March 31, 2020
 
4.50

 
3.25

 
2.75

 
6.00

 
(1)
Represents the maximum ratio for the period presented.
(2)
Represents the minimum ratio for the period presented.

At December 31, 2018, our leverage ratio was approximately 2.96 to 1, our senior secured leverage ratio was approximately 0.01 to 1 and our interest coverage ratio was approximately 3.18 to 1.

We were in compliance with the covenants under the Credit Agreement at December 31, 2018.

Senior Unsecured Notes

Redemption

On October 16, 2018, we redeemed all of the remaining outstanding 2021 Notes. The following table summarizes the redemption of the 2021 Notes for the periods indicated:
 
 
Three and Nine Months Ended
 
 
December 31,
 
 
2018
 
 
(in thousands)
2021 Notes
 
 
Notes redeemed
 
$
367,048

Cash paid (excluding payments of accrued interest)
 
$
373,358

Loss on early extinguishment of debt (1)
 
$
(10,131
)
 
(1)
Loss on the early extinguishment of debt for the 2021 Notes during the three months and nine months ended December 31, 2018 is inclusive of the write off of debt issuance costs of $3.8 million. The loss is reported within loss on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.

Prior to the October 16, 2018 redemption of all of the remaining outstanding 2021 Notes, we paid the final semiannual interest payment on the 2021 Notes of $12.6 million on October 15, 2018.


23

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Repurchases

The following table summarizes repurchases of Senior Unsecured Notes for the periods indicated:
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2018
 
 
(in thousands)
2019 Notes
 
 
 
 
Notes repurchased
 
$
13,538

 
$
13,538

Cash paid (excluding payments of accrued interest)
 
$
13,538

 
$
13,538

Loss on early extinguishment of debt (1)
 
$
(26
)
 
$
(26
)
 
 
 
 
 
2023 Notes
 
 
 
 
Notes repurchased
 
$
3,624

 
$
8,624

Cash paid (excluding payments of accrued interest)
 
$
3,506

 
$
8,575

Gain (loss) on early extinguishment of debt (2)
 
$
74

 
$
(63
)

 
(1)
Loss on the early extinguishment of debt for the 2019 Notes during the three months and nine months ended December 31, 2018 is inclusive of the write off of debt issuance costs of less than $0.1 million. The loss is reported within loss on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.
(2)
Gain (loss) on the early extinguishment of debt for the 2023 Notes during the three months and nine months ended December 31, 2018 is inclusive of the write off of debt issuance costs of less than $0.1 million and $0.1 million, respectively. The gain (loss) is reported within loss on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.

At December 31, 2018, we were in compliance with the covenants under the indentures for all of the Senior Unsecured Notes.

Other Long-Term Debt

We have other notes payable related to equipment financing. The interest rates on these instruments range from 4.13% to 7.10% per year and have an aggregate principal balance of $5.5 million at December 31, 2018.

Debt Maturity Schedule

The scheduled maturities of our long-term debt are as follows at December 31, 2018:
Fiscal Year Ending March 31,
 
Revolving
Credit
Facility
 
Senior Unsecured Notes
 
Other
Long-Term
Debt
 
Total
 
 
(in thousands)
2019 (three months)
 
$

 
$

 
$
161

 
$
161

2020
 

 
339,886

 
648

 
340,534

2021
 

 

 
4,683

 
4,683

2022
 
889,000

 

 

 
889,000

2023
 

 

 

 

Thereafter
 

 
996,458

 

 
996,458

Total
 
$
889,000

 
$
1,336,344

 
$
5,492

 
$
2,230,836



Note 9Commitments and Contingencies

Legal Contingencies

In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against NGL Energy Holdings LLC (the “GP”) and the Partnership seeking payment for investment banking services relating to the purchase of TransMontaigne Inc. and related assets

24

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


in July 2014. After pre-trial rulings, LCT was limited to pursuing claims of (i) quantum meruit (the value of the services rendered by LCT) and (ii) fraudulent misrepresentation against the defendants. Following a jury trial conducted in Delaware state court from July 23, 2018 through August 1, 2018, the jury returned a verdict consisting of an award of $4.0 million for quantum meruit and $29.0 million for fraudulent misrepresentation, subject to statutory interest. The GP and the Partnership contend that the jury verdict, at least in respect of fraudulent misrepresentation, is not supportable by either controlling law or the evidentiary record. Both defendants have a pending motion for judgment as a matter of law on the fraudulent misrepresentation claim and plan to file post-verdict motions as appropriate before the trial court, and, if need be, will file an appeal to the Delaware Supreme Court. It is our position that the awards, even if they each stand, are not cumulative. Any allocation of the ultimate verdict award between the GP and the Partnership will be made by the board of directors once all information is available to it and after the post-trial and any appellate process has run its course and the verdict is final as a matter of law. Because the Partnership is a named defendant in the lawsuit, and any judgment ultimately awarded would be joint and several with the GP, we have determined that it is probable that the Partnership could be liable for a portion of this judgment. At this time, we believe the amount that could be allocated to the Partnership would not be material as it is estimated to be less than $4.0 million. As of December 31, 2018, we have accrued $2.5 million related to this matter.

We are party to various other claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these other claims, legal actions, and complaints, after consideration of amounts accrued, insurance coverage, and other arrangements, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our liabilities may change materially as circumstances develop.

Environmental Matters

At December 31, 2018, we have an environmental liability, measured on an undiscounted basis, of $2.3 million, which is recorded within accrued expenses and other payables in our unaudited condensed consolidated balance sheet. Our operations are subject to extensive federal, state, and local environmental laws and regulations. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our business, and there can be no assurance that we will not incur significant costs. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, could result in substantial costs. Accordingly, we have adopted policies, practices, and procedures in the areas of pollution control, product safety, occupational health, and the handling, storage, use, and disposal of hazardous materials designed to prevent material environmental or other damage, and to limit the financial liability that could result from such events. However, some risk of environmental or other damage is inherent in our business.

In 2015, as previously disclosed, the U.S. Environmental Protection Agency (“EPA”) informed NGL Crude Logistics, LLC, formerly known as Gavilon, LLC (“Gavilon Energy”), of alleged violations that occurred in 2011 by Gavilon Energy of the Clean Air Act’s renewable fuel standards regulations (prior to its acquisition by us in December 2013). On October 4, 2016, the U.S. Department of Justice, acting at the request of the EPA, filed a civil complaint in the Northern District of Iowa against Gavilon Energy and one of its then suppliers, Western Dubuque Biodiesel LLC (“Western Dubuque”). Consistent with the earlier allegations by the EPA, the civil complaint related to transactions between Gavilon Energy and Western Dubuque and the generation of biodiesel renewable identification numbers (“RINs”) sold by Western Dubuque to Gavilon Energy in 2011. On December 19, 2016, we filed a motion to dismiss the complaint. On January 9, 2017, the EPA filed an amended complaint. The amended complaint seeks an order declaring Western Dubuque’s RINs invalid and requiring the defendants to retire an equivalent number of valid RINs and that the defendants pay statutory civil penalties. On January 23, 2017, we filed a motion to dismiss the amended complaint. On May 24, 2017, the court denied our motion to dismiss. Subsequently, the EPA filed a second amended complaint seeking an order declaring Western Dubuque’s RINs invalid, an order requiring us to retire an equivalent number of valid RINs and an award against us of statutory civil penalties. In May 2018, the parties completed briefing on cross-motions for summary judgment concerning liability issues in the case. On July 3, 2018, the Court denied our summary judgment motion and largely granted the plaintiff’s two summary judgment motions on liability. On July 19, 2018, Gavilon Energy reached an agreement in principle with the EPA regarding the terms of a settlement of the case, which was memorialized in a consent decree lodged to the Court on September 27, 2018. Such terms will result in Gavilon Energy paying cash of $25.0 million and retiring 36 million RINs, over a twelve-month period. The consent decree was approved by the Court on November 8, 2018. The consent decree resolves all matters between Gavilon Energy and the EPA in connection with the above-described complaint. During the three months ended December 31, 2018, we paid the EPA $12.5 million and retired all

25

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


36 million RINs. As of December 31, 2018, we have an accrual, which is included within accrued expenses and other payables in our unaudited condensed consolidated balance sheet, of $12.5 million.

Asset Retirement Obligations

We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement, or removal activities when the assets are retired. Our liability for asset retirement obligations is discounted to present value. To calculate the liability, we make estimates and assumptions about the retirement cost and the timing of retirement. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events. The following table summarizes changes in our asset retirement obligation, which is reported within other noncurrent liabilities in our unaudited condensed consolidated balance sheets (in thousands):
Balance at March 31, 2018
$
9,133

Liabilities incurred
441

Liabilities assumed in acquisitions
28

Liabilities moved to liabilities held for sale (1)
(239
)
Liabilities settled
(867
)
Accretion expense
511

Balance at December 31, 2018
$
9,007


 
(1)
This amount relates to the potential sale of the South Pecos water disposal business (see Note 14).

In addition to the obligations described above, we may be obligated to remove facilities or perform other remediation upon retirement of certain other assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminable. We will record an asset retirement obligation for these assets in the periods in which settlement dates are reasonably determinable.

Operating Leases

We have executed various noncancelable operating lease agreements for product storage, office space, vehicles, real estate, railcars, and equipment. The following table summarizes future minimum lease payments under these agreements at December 31, 2018 (in thousands):
Fiscal Year Ending March 31,
 
2019 (three months)
$
29,233

2020
120,861

2021
99,496

2022
72,693

2023
52,270

Thereafter
47,761

Total
$
422,314



Rental expense relating to operating leases was $26.5 million and $30.4 million during the three months ended December 31, 2018 and 2017, respectively, and $81.1 million and $92.9 million for the nine months ended December 31, 2018 and 2017, respectively. Amounts do not include rental expense associated with the Retail Propane segment, as these amounts have been classified within discontinued operations within our unaudited condensed consolidated statements of operations (see Note 14).

Pipeline Capacity Agreements

We have executed noncancelable agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on the pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement,

26

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We currently have an asset recorded in other noncurrent assets in our unaudited condensed consolidated balance sheet for minimum shipping fees paid in both the current and previous periods that are expected to be recovered in future periods by exceeding the minimum monthly volumes (see Note 2).

The following table summarizes future minimum throughput payments under these agreements at December 31, 2018 (in thousands):
Fiscal Year Ending March 31,
 
2019 (three months)
$
12,924

2020
43,203

Total
$
56,127



Of the total future minimum throughput payments in the table above, a third party has agreed to assume all rights and privileges and to be fully responsible for any minimum shipping fees due for actual shipments that are less than our allotted capacity related to $7.4 million of the fiscal year 2019 (three months) amount and $30.0 million of the fiscal year 2020 amount under a definitive agreement we signed during the three months ended June 30, 2018 (see Note 13).

Sales and Purchase Contracts

We have entered into product sales and purchase contracts for which we expect the parties to physically settle and deliver the inventory in future periods.

At December 31, 2018, we had the following commodity purchase commitments (in thousands):
 
 
Crude Oil (1)
 
Natural Gas Liquids
 
 
Value
 
Volume
(in barrels)
 
Value
 
Volume
(in gallons)
Fixed-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2019 (three months)
 
$
64,647

 
1,236

 
$
13,228

 
17,472

2020
 

 

 
1,363

 
1,764

Total
 
$
64,647

 
1,236

 
$
14,591

 
19,236

 
 
 
 
 
 
 
 
 
Index-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2019 (three months)
 
$
520,372

 
12,564

 
$
223,915

 
341,020

2020
 
751,988

 
17,698

 
31,787

 
52,340

2021
 
401,873

 
9,314

 

 

2022
 
344,897

 
7,729

 

 

2023
 
255,400

 
5,482

 

 

Thereafter
 
194,673

 
4,111

 

 

Total
 
$
2,469,203

 
56,898

 
$
255,702

 
393,360


 
(1)
Our crude oil index-price purchase commitments exceed our crude oil index-price sales commitments (presented below) due primarily to our long-term purchase commitments for crude oil that we purchase and ship on the Grand Mesa Pipeline. As these purchase commitments are deliver-or-pay contracts, we have not entered into corresponding long-term sales contracts for volumes we may not receive.

27

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



At December 31, 2018, we had the following commodity sale commitments (in thousands):
 
 
Crude Oil
 
Natural Gas Liquids
 
 
Value
 
Volume
(in barrels)
 
Value
 
Volume
(in gallons)
Fixed-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2019 (three months)
 
$
66,934

 
1,236

 
$
125,315

 
125,194

2020
 

 

 
22,034

 
26,322

2021
 

 

 
247

 
250

Total
 
$
66,934

 
1,236

 
$
147,596

 
151,766

 
 
 
 
 
 
 
 
 
Index-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2019 (three months)
 
$
631,014

 
14,417

 
$
289,954

 
357,514

2020
 
252,541

 
5,426

 
98,176

 
140,827

2021
 

 

 
76,800

 
117,180

Total
 
$
883,555

 
19,843

 
$
464,930

 
615,521



We account for the contracts shown in the tables above using the normal purchase and normal sale election. Under this accounting policy election, we do not record the contracts at fair value at each balance sheet date; instead, we record the purchase or sale at the contracted value once the delivery occurs. Contracts in the tables above may have offsetting derivative contracts (described in Note 11) or inventory positions (described in Note 2).

Certain other forward purchase and sale contracts do not qualify for the normal purchase and normal sale election. These contracts are recorded at fair value in our unaudited condensed consolidated balance sheet and are not included in the tables above. These contracts are included in the derivative disclosures in Note 11, and represent $129.1 million of our prepaid expenses and other current assets and $112.1 million of our accrued expenses and other payables at December 31, 2018.

Note 10Equity

Partnership Equity

The Partnership’s equity consists of a 0.1% general partner interest and a 99.9% limited partner interest, which consists of common units. Our general partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 0.1% general partner interest. Our general partner is not required to guarantee or pay any of our debts and obligations.

General Partner Contributions

In connection with the issuance of common units for the vesting of restricted units and the warrants that were exercised for common units during the nine months ended December 31, 2018, we issued 2,564 notional units to our general partner for less than $0.1 million in order to maintain its 0.1% interest in us.

Equity Issuances

On August 24, 2016, we entered into an equity distribution agreement in connection with an at-the-market program (the “ATM Program”) pursuant to which we may issue and sell up to $200.0 million of common units. We did not issue any common units under the ATM Program during the nine months ended December 31, 2018, and approximately $134.7 million remained available for sale under the ATM Program at December 31, 2018.


28

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Our Distributions

The following table summarizes distributions declared on our common units during the last four quarters:
Date Declared
 
Record Date
 
Payment Date
 
Amount Per Unit
 
Amount Paid/Payable to Limited Partners
 
Amount Paid/Payable to General Partner
 
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
April 24, 2018
 
May 7, 2018
 
May 15, 2018
 
$
0.3900

 
$
47,374

 
$
82

July 24, 2018
 
August 8, 2018
 
August 14, 2018
 
$
0.3900

 
$
47,600

 
$
82

October 23, 2018
 
November 8, 2018
 
November 14, 2018
 
$
0.3900

 
$
48,260

 
$
83

January 22, 2019
 
February 6, 2019
 
February 14, 2019
 
$
0.3900

 
$
48,373

 
$
83



Class A Convertible Preferred Units

On April 21, 2016, we received net proceeds of $235.0 million (net of offering costs of $5.0 million) in connection with the issuance of 19,942,169 Class A Convertible Preferred Units (“Class A Preferred Units”) and 4,375,112 warrants.

We allocated the net proceeds on a relative fair value basis to the Class A Preferred Units, which includes the value of a beneficial conversion feature, and warrants. Accretion for the beneficial conversion feature, recorded as a deemed distribution, was $18.6 million and $5.0 million during the three months ended December 31, 2018 and 2017, respectively, and $40.4 million and $12.3 million during the nine months ended December 31, 2018 and 2017, respectively.

The holders of the warrants may exercise one-third of the warrants from and after the first anniversary of the original issue date, another one-third of the warrants from and after the second anniversary and the final one-third of the warrants from and after the third anniversary. The warrants have an exercise price of $0.01 and an eight year term. We repurchased 1,229,575 unvested warrants for a total purchase price of $15.0 million on April 26, 2018. During the nine months ended December 31, 2018, 228,797 warrants were exercised for common units and we received proceeds of less than $0.1 million. As of December 31, 2018, we had 1,458,371 warrants that remain outstanding.

We pay a cumulative, quarterly distribution in arrears at an annual rate of 10.75% on the Class A Preferred Units to the extent declared by the board of directors of our general partner. The following table summarizes distributions declared on our Class A Preferred Units during the last four quarters:
 
 
 
 
Amount Paid/Payable to Class A
Date Declared
 
Payment Date
 
Preferred Unitholders
 
 
 
 
(in thousands)
April 24, 2018
 
May 15, 2018
 
$
6,449

July 24, 2018
 
August 14, 2018
 
$
6,449

October 23, 2018
 
November 14, 2018
 
$
6,449

January 22, 2019
 
February 14, 2019
 
$
6,449



Class B Preferred Units

On June 13, 2017, we issued 8,400,000 of our 9.00% Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) representing limited partner interests at a price of $25.00 per unit for net proceeds of $202.7 million (net of the underwriters’ discount of $6.6 million and offering costs of $0.7 million).


29

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The current distribution rate for the Class B Preferred Units is 9.0% per year of the $25.00 liquidation preference per unit (equal to $2.25 per unit per year). The following table summarizes distributions declared on our Class B Preferred Units during the last four quarters:
 
 
 
 
 
 
Amount Paid to Class B
Date Declared
 
Record Date
 
Payment Date
 
Preferred Unitholders
 
 
 
 
 
 
(in thousands)
March 19, 2018
 
April 2, 2018
 
April 16, 2018
 
$
4,725

June 19, 2018
 
July 2, 2018
 
July 16, 2018
 
$
4,725

September 12, 2018
 
October 1, 2018
 
October 15, 2018
 
$
4,725

December 17, 2018
 
December 31, 2018
 
January 15, 2019
 
$
4,725



The distribution amount paid on January 15, 2019 is included in accrued expenses and other payables in our unaudited condensed consolidated balance sheet at December 31, 2018.

Equity-Based Incentive Compensation

Our general partner has adopted a long-term incentive plan (“LTIP”), which allows for the issuance of equity-based compensation. Our general partner has granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of the recipients. The awards may also vest upon a change of control, at the discretion of the board of directors of our general partner. No distributions accrue to or are paid on the restricted units during the vesting period.

The restricted units include both awards that: (i) vest contingent on the continued service of the recipients through the vesting date (the “Service Awards”) and (ii) vest contingent both on the continued service of the recipients through the vesting date and also on the performance of our common units relative to other entities in the Alerian MLP Index (the “Index”) over specified periods of time (the “Performance Awards”).

The following table summarizes the Service Award activity during the nine months ended December 31, 2018:
Unvested Service Award units at March 31, 2018
 
2,278,875

Units granted
 
2,910,676

Units vested and issued
 
(2,347,751
)
Units forfeited
 
(232,500
)
Unvested Service Award units at December 31, 2018
 
2,609,300



In connection with the vesting of certain restricted units during the nine months ended December 31, 2018, we canceled 15,550 of the newly-vested common units in satisfaction of $0.2 million of employee tax liability paid by us. Pursuant to the terms of the LTIP, these canceled units are available for future grants under the LTIP.

The following table summarizes the scheduled vesting of our unvested Service Award units at December 31, 2018:
Fiscal Year Ending March 31,
 
 
2019 (three months)
 
308,900

2020
 
1,002,725

2021
 
866,175

2022
 
431,500

Total
 
2,609,300



Service Awards are valued at the average of the high/low sales price as of the grant date less the present value of the expected distribution stream over the vesting period using a risk-free interest rate. We record the expense for each Service Award on a straight-line basis over the requisite period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date value of the award that is vested at that date.


30

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


During the three months ended December 31, 2018 and 2017, we recorded compensation expense related to Service Award units of $3.4 million and $3.1 million, respectively. During the nine months ended December 31, 2018 and 2017, we recorded compensation expense related to Service Awards units of $8.5 million and $11.7 million, respectively.

Of the restricted units granted and vested during the nine months ended December 31, 2018, 1,745,801 units were granted as a bonus for performance during the fiscal year ended March 31, 2018. The total amount of these bonus payments were $20.4 million, of which we had accrued $6.3 million as of March 31, 2018.

The following table summarizes the estimated future expense we expect to record on the unvested Service Award units at December 31, 2018 (in thousands):
Fiscal Year Ending March 31,
 
 
2019 (three months)
 
$
3,570

2020
 
8,157

2021
 
4,076

2022
 
1,316

Total
 
$
17,119



Beginning in April 2015, our general partner granted Performance Award units to certain employees. The number of Performance Award units that would vest was contingent on the performance of our common units relative to the performance of the other entities in the Index. Performance was to be calculated based on the return on our common units (including changes in the market price of the common units and distributions paid during the performance period) relative to the returns on the common units of the other entities in the Index. During the three months ended December 31, 2018, the Compensation Committee of the board of directors terminated the Performance Award plan and all unvested outstanding Performance Awards units were canceled. Accordingly, as no replacement awards were granted, all previously unrecognized compensation cost was expensed as of the cancellation date.

The following table summarizes the Performance Award activity during the nine months ended December 31, 2018:
Unvested Performance Award units at March 31, 2018
 
917,000

Units forfeited
 
(445,500
)
Units canceled
 
(471,500
)
Unvested Performance Award units at December 31, 2018
 



During the July 1, 2015 through June 30, 2018 performance period, the return on our common units was below the return of the 50th percentile of our peer companies in the Index. As a result, no Performance Award units vested on July 1, 2018 and performance units with the July 1, 2018 vesting date are considered to be forfeited.

The fair value of the Performance Awards was estimated using a Monte Carlo simulation at the grant date. We recorded the expense on a straight-line basis over the period beginning with the grant date and ending with the vesting date of the tranche. Any Performance Awards not earned at the end of the performance period will terminate, expire and otherwise be forfeited by the participants. During the three months ended December 31, 2018 and 2017, we recorded compensation expense related to Performance Award units of $3.1 million and $1.1 million, respectively. During the nine months ended December 31, 2018 and 2017, we recorded compensation expense related to Performance Awards units of $4.9 million and $4.5 million, respectively.

The LTIP provides that units allocated to satisfy tax withholding obligations are not deemed to reduce availability for awards under the LTIP. Following a review of the LTIP, the Compensation Committee of the board of directors determined that units vested after July 1, 2016 were inadvertently counted as a reduction to the Partnership’s LTIP reserve. Accordingly, after making the adjustments as provided for in the LTIP, as of December 31, 2018, there are approximately 3.2 million units remaining available for issuance under the LTIP.


31

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Note 11Fair Value of Financial Instruments

Our cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current assets and liabilities (excluding derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature.

Commodity Derivatives

The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our unaudited condensed consolidated balance sheet at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
Derivative
Assets
 
Derivative
Liabilities
 
Derivative
Assets
 
Derivative
Liabilities

 
(in thousands)
Level 1 measurements
 
$
170,644

 
$
(5,793
)
 
$
5,093

 
$
(20,186
)
Level 2 measurements
 
130,513

 
(114,349
)
 
48,752

 
(54,410
)

 
301,157

 
(120,142
)
 
53,845

 
(74,596
)
 
 
 
 
 
 
 
 
 
Netting of counterparty contracts (1)
 
(7,157
)
 
7,157

 
(2,922
)
 
2,922

Net cash collateral (held) provided
 
(131,960
)
 
382

 
(1,762
)
 
17,263

Commodity derivatives
 
$
162,040

 
$
(112,603
)
 
$
49,161

 
$
(54,411
)
 
(1)
Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a netting arrangement with the counterparty.

The following table summarizes the accounts that include our commodity derivative assets and liabilities in our unaudited condensed consolidated balance sheets at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Prepaid expenses and other current assets
 
$
161,823

 
$
49,161

Other noncurrent assets
 
217

 

Accrued expenses and other payables
 
(112,374
)
 
(51,039
)
Other noncurrent liabilities
 
(229
)
 
(3,372
)
Net commodity derivative asset (liability)
 
$
49,437

 
$
(5,250
)



32

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes our open commodity derivative contract positions at the dates indicated. We do not account for these derivatives as hedges.
Contracts
 
Settlement Period
 
Net Long
(Short)
Notional Units
(in barrels)
 
Fair Value
of
Net Assets
(Liabilities)
 
 
 
 
(in thousands)
At December 31, 2018:
 
 
 
 
 
 
Crude oil fixed-price (1)
 
January 2019–January 2020
 
(1,721
)
 
$
27,647

Propane fixed-price (1)
 
January 2019–March 2020
 
923

 
(3,110
)
Refined products fixed-price (1)
 
January 2019–December 2020
 
(6,506
)
 
148,035

Other
 
January 2019–March 2022
 
 
 
8,443

 
 
 
 
 
 
181,015

Net cash collateral held
 
 
 
 
 
(131,578
)
Net commodity derivative asset
 
 
 
 
 
$
49,437

 
 
 
 
 
 
 
At March 31, 2018:
 
 
 
 
 
 
Cross-commodity (2)
 
April 2018–March 2019
 
155

 
$
(430
)
Crude oil fixed-price (1)
 
April 2018–December 2019
 
(1,376
)
 
(8,960
)
Crude oil index (1)
 
April 2018–April 2018
 
(10
)
 
(6
)
Propane fixed-price (1)
 
April 2018–February 2019
 
14

 
1,849

Refined products fixed-price (1)
 
April 2018–January 2020
 
(5,419
)
 
(17,081
)
Refined products index (1)
 
April 2018–April 2018
 
(4
)
 
(17
)
Other
 
April 2018–March 2022
 
 
 
3,894

 
 
 
 
 
 
(20,751
)
Net cash collateral provided
 
 
 
 
 
15,501

Net commodity derivative liability
 
 
 
 
 
$
(5,250
)
 
(1)
We may have fixed price physical purchases, including inventory, offset by floating price physical sales or floating price physical purchases offset by fixed price physical sales. These contracts are derivatives we have entered into as an economic hedge against the risk of mismatches between fixed and floating price physical obligations.
(2)
We may purchase or sell a physical commodity where the underlying contract pricing mechanisms are tied to different commodity price indices. These contracts are derivatives we have entered into as an economic hedge against the risk of one commodity price moving relative to another commodity price.

Amounts in the table above do not include commodity derivative contract positions related to the Retail Propane segment, as these amounts have been classified as assets held for sale within our unaudited condensed consolidated balance sheets (see Note 14).

During the three months and nine months ended December 31, 2018, we recorded net gains of $239.7 million and $150.7 million, respectively, from our commodity derivatives to cost of sales in our unaudited condensed consolidated statements of operations. During the three months and nine months ended December 31, 2017, we recorded net losses of $64.9 million and $99.5 million, respectively, from our commodity derivatives to cost of sales in our unaudited condensed consolidated statements of operations.

Credit Risk

We have credit policies that we believe minimize our overall credit risk, including an evaluation of potential counterparties’ financial condition (including credit ratings), collateral requirements under certain circumstances, and the use of industry standard master netting agreements, which allow for offsetting counterparty receivable and payable balances for certain transactions. At December 31, 2018, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a

33

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


counterparty does not perform on a contract, we may not realize amounts that have been recorded in our unaudited condensed consolidated balance sheets and recognized in our net income.

Interest Rate Risk

Our Revolving Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At December 31, 2018, we had $0.9 billion of outstanding borrowings under our Revolving Credit Facility at a weighted average interest rate of 4.81%.

Fair Value of Fixed-Rate Notes

The following table provides fair value estimates of our fixed-rate notes at December 31, 2018 (in thousands):
Senior Unsecured Notes:
 
2019 Notes
$
338,191

2023 Notes
$
588,602

2025 Notes
$
339,034



For the Senior Unsecured Notes, the fair value estimates were developed based on publicly traded quotes and would be classified as Level 1 in the fair value hierarchy.

Note 12Segments

The following table summarizes revenues related to our segments. Revenues for reporting periods beginning after April 1, 2018 are presented under Topic 606 (see Note 15 for a further discussion), while prior periods are not adjusted and continue to be reported under the accounting standard in effect for those periods. Transactions between segments are recorded based on prices negotiated between the segments. The “Corporate and Other” category in the table below includes certain corporate expenses that are not allocated to the reportable segments. The table below does not include amounts related to the Retail Propane segment, as these amounts has been classified within discontinued operations in our unaudited condensed consolidated statements of operations (see Note 14).

34

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017 (1)
 
2018
 
2017 (1)
 
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
Crude Oil Logistics:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Crude oil sales
 
$
718,621

 
$
556,001

 
$
2,300,703

 
$
1,446,560

Crude oil transportation and other
 
40,003

 
33,017

 
107,032

 
89,318

Non-Topic 606 revenues
 
2,909

 

 
9,291

 

Elimination of intersegment sales
 
(10,353
)
 
(4,011
)
 
(21,962
)
 
(8,934
)
Total Crude Oil Logistics revenues
 
751,180

 
585,007

 
2,395,064

 
1,526,944

Water Solutions:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Disposal service fees
 
55,470

 
41,045

 
167,573

 
109,648

Sale of recovered hydrocarbons
 
17,337

 
17,021

 
56,063

 
37,427

Freshwater revenues
 
651

 

 
1,939

 

Other service revenues
 
1,986

 
5,958

 
5,753

 
14,948

Non-Topic 606 revenues
 
14

 

 
39

 

Total Water Solutions revenues
 
75,458

 
64,024

 
231,367

 
162,023

Liquids:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Propane sales
 
372,224

 
403,236

 
793,605

 
733,684

Butane sales
 
222,412

 
228,535

 
481,459

 
408,312

Other product sales
 
151,246

 
123,677

 
471,547

 
310,389

Service revenues
 
7,616

 
6,166

 
17,509

 
16,106

Non-Topic 606 revenues
 
6,314

 

 
16,506

 

Elimination of intersegment sales
 
(10,379
)
 
(2,025
)
 
(20,854
)
 
(3,707
)
Total Liquids revenues
 
749,433

 
759,589

 
1,759,772

 
1,464,784

Refined Products and Renewables:
 
 
 
 
 
 
 
 
Topic 606 revenues
 
 
 
 
 
 
 
 
Refined products sales
 
1,372,214

 
2,845,482

 
4,260,920

 
8,493,357

Renewables sales
 

 
99,436

 

 
313,366

Service fees and other revenues
 

 
94

 

 
262

Non-Topic 606 revenues
 
3,428,216

 

 
10,227,699

 

Elimination of intersegment sales
 

 
(138
)
 

 
(268
)
Total Refined Products and Renewables revenues
 
4,800,430

 
2,944,874

 
14,488,619

 
8,806,717

Corporate and Other:
 
 
 
 
 
 
 
 
Non-Topic 606 revenues
 
319

 
289

 
1,066

 
696

Elimination of intersegment sales
 

 

 

 

Total Corporate and Other revenues
 
319

 
289

 
1,066

 
696

Total revenues
 
$
6,376,820

 
$
4,353,783

 
$
18,875,888

 
$
11,961,164

 
(1)
We adopted ASC 606 as of April 1, 2018. Revenue reported in fiscal year 2018 is recorded under the ASC 605 guidance.


35

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes depreciation and amortization expense and operating income (loss) by segment for the periods indicated.
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Depreciation and Amortization:
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
18,387

 
$
20,092

 
$
56,486

 
$
61,885

Water Solutions
 
27,561

 
24,586

 
79,212

 
73,847

Liquids
 
6,412

 
6,247

 
19,339

 
18,718

Refined Products and Renewables
 
321

 
323

 
962

 
971

Corporate and Other
 
753

 
962

 
2,230

 
2,801

Total depreciation and amortization
 
$
53,434

 
$
52,210

 
$
158,229

 
$
158,222

 
 
 
 
 
 
 
 
 
Operating Income (Loss):
 
 
 
 
 
 
 
 
Crude Oil Logistics
 
$
32,022

 
$
106,279

 
$
(36,694
)
 
$
111,832

Water Solutions
 
86,737

 
(1,373
)
 
97,476

 
(10,075
)
Liquids
 
21,532

 
22,290

 
34,913

 
(104,589
)
Refined Products and Renewables
 
33,680

 
(4,791
)
 
33,195

 
30,747

Corporate and Other
 
(16,394
)
 
(21,846
)
 
(69,176
)
 
(56,031
)
Total operating income (loss)
 
$
157,577

 
$
100,559

 
$
59,714

 
$
(28,116
)


The following table summarizes additions to property, plant and equipment and intangible assets by segment for the periods indicated. This information has been prepared on the accrual basis, and includes property, plant and equipment and intangible assets acquired in acquisitions.
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Crude Oil Logistics
 
$
6,169

 
$
14,788

 
$
21,701

 
$
26,509

Water Solutions
 
115,928

 
22,556

 
463,423

 
56,996

Liquids
 
357

 
1,188

 
1,738

 
2,868

Corporate and Other
 
248

 
625

 
846

 
1,334

Total
 
$
122,702

 
$
39,157

 
$
487,708

 
$
87,707


The following tables summarize long-lived assets (consisting of property, plant and equipment, intangible assets, and goodwill) and total assets by segment at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Long-lived assets, net:
 
 
 
 
Crude Oil Logistics
 
$
1,596,396

 
$
1,638,558

Water Solutions
 
1,523,897

 
1,256,143

Liquids (1)
 
480,187

 
501,302

Refined Products and Renewables
 
203,842

 
208,849

Corporate and Other
 
27,217

 
31,516

Total
 
$
3,831,539

 
$
3,636,368


 
(1)
Includes $0.5 million and $0.6 million of non-US long-lived assets at December 31, 2018 and March 31, 2018, respectively.


36

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Total assets:
 
 
 
 
Crude Oil Logistics
 
$
2,190,002

 
$
2,285,813

Water Solutions
 
1,607,308

 
1,323,171

Liquids (1)
 
827,920

 
717,690

Refined Products and Renewables
 
1,132,082

 
1,204,633

Corporate and Other
 
74,126

 
102,211

Assets held for sale
 
124,509

 
517,604

Total
 
$
5,955,947

 
$
6,151,122

 
(1)
Includes $30.3 million and $27.5 million of non-US total assets at December 31, 2018 and March 31, 2018, respectively.

Note 13Transactions with Affiliates

SemGroup Corporation (“SemGroup”) holds ownership interests in our general partner. We sell product to and purchase product from SemGroup, and these transactions are included within revenues and cost of sales, respectively, in our unaudited condensed consolidated statements of operations. We also lease crude oil storage from SemGroup.

We purchase ethanol from E Energy Adams, LLC, in which we previously held an ownership interest as an equity method investee. We sold our interest in E Energy Adams, LLC on May 3, 2018 (see Note 2). These transactions are reported within cost of sales in our unaudited condensed consolidated statements of operations.

The following table summarizes these related party transactions for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Sales to SemGroup
 
$
257

 
$
178

 
$
926

 
$
408

Purchases from SemGroup
 
$

 
$
1,050

 
$
1,337

 
$
3,978

Sales to equity method investees
 
$

 
$
98

 
$

 
$
294

Purchases from equity method investees
 
$

 
$
18,373

 
$

 
$
66,842

Sales to entities affiliated with management
 
$
13,470

 
$
64

 
$
28,886

 
$
204

Purchases from entities affiliated with management
 
$
92,066

 
$
193

 
$
251,199

 
$
1,540



Accounts receivable from affiliates consist of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Receivables from SemGroup
 
$
86

 
$
49

Receivables from NGL Energy Holdings LLC
 
7,267

 
4,693

Receivables from equity method investees
 

 
6

Receivables from entities affiliated with management
 
5,211

 
24

Total
 
$
12,564

 
$
4,772




37

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Accounts payable to affiliates consist of the following at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Payables to equity method investees
 
$

 
$
8

Payables to entities affiliated with management
 
23,410

 
1,246

Total
 
$
23,410

 
$
1,254



Other Related Party Transactions

Repurchase of Warrants

On April 26, 2018, we repurchased outstanding warrants, as discussed further in Note 10, from funds managed by Oaktree Capital Management, L.P., who are represented on the board of directors of our general partner.

Agreement with WPX Energy Marketing, LLC (“WPX”)

During the three months ended June 30, 2018, we entered into a definitive agreement with WPX. Under this agreement, we agreed to provide WPX the benefit of our minimum shipping fees or deficiency credits (fees paid in previous periods that were in excess of the volumes actually shipped) totaling $67.7 million at the time of the transaction (as discussed further in Note 2), which can be utilized for volumes shipped that exceed the minimum monthly volume commitment in subsequent periods. As a result, we wrote-off these minimum shipping fees included within other noncurrent assets in our unaudited condensed consolidated balance sheet (see Note 2) and recorded a loss within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. We also agreed that we would only ship crude oil that we are required to purchase from WPX in utilizing our allotted capacity on these pipelines and they agreed to be fully responsible to us for all deficiency payments (money due when our actual shipments are less than our allotted capacity) for the remaining term of our contract, which totals $50.3 million (as discussed further in Note 9). As consideration for this transaction, we paid WPX a net $35.3 million, which we have recorded as a loss within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. A member of the board of directors of our general partner is also an executive of WPX.

Victory Propane

At March 31, 2018, we had a loan receivable from Victory Propane, an equity method investee (see Note 2), of $1.2 million. As the sale of virtually all of our Retail Propane segment to Superior (see Note 1) included the Michigan assets we acquired from Victory Propane during the three months ended December 31, 2017, we were able to recognize our proportionate share of the gain recognized by Victory Propane. As a result, we were able to reverse our proportionate share of their losses that had been recorded against the balance of the loan receivable and write up the value of our investment in Victory Propane to $0.8 million. On August 14, 2018, we sold our 50% interest in Victory Propane to Victory Propane, LLC. As consideration, we received a promissory note in the amount of $3.4 million, which encompassed the purchase price for our 50% interest plus the outstanding balance of the loan receivable of $2.6 million as of the date of the transaction. The promissory note bears no interest and matures on July 31, 2023. We discounted the promissory note to its net present value of $2.6 million, with the amount of the reduction in the value of the promissory note recorded as a loss within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. This was the final transaction in exiting the retail propane business and was considered to be inconsequential by management. As a result of the sale, Victory Propane is no longer considered a related party.

Note 14Assets, Liabilities and Redeemable Noncontrolling Interest Held for Sale and Discontinued Operations

On December 20, 2018, we entered into a definitive agreement with a subsidiary of WaterBridge Resources LLC to sell our South Pecos water disposal business for $238.8 million in cash proceeds and additional consideration upon meeting certain criteria. We will retain this business through closing, which is expected to be before March 31, 2019. These operations include: (i) nine saltwater disposal facilities, (ii) all disposal agreements, commercial, surface and other contracts related to those facilities, (iii) pipelines connected to the facilities and (iv) several disposal permits. All of the assets to be sold in this transaction are located near the town of Pecos, Texas in southern Reeves and Ward counties. The assets and liabilities of our South Pecos business subject to this transaction have been classified as held for sale in our December 31, 2018 unaudited

38

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


condensed consolidated balance sheet. As this sale transaction does not represent a strategic shift that will have a major effect on our operations or financial results, operations related to this portion of our Water Solutions segment have not been classified as discontinued operations.

As discussed in Note 1, as of June 30, 2018, we met the criteria for classifying the assets, liabilities and redeemable noncontrolling interest of our Retail Propane segment as held for sale and the operations as discontinued. On July 10, 2018, we completed the sale of virtually all of our Retail Propane segment to Superior and on August 14, 2018, we sold our previously held interest in Victory Propane, see Note 1 for a further discussion. The assets and liabilities of our Retail Propane segment have been classified as held for sale in our March 31, 2018 unaudited condensed consolidated balance sheet.

The following table summarizes the major classes of assets, liabilities and redeemable noncontrolling interest classified as held for sale at the dates indicated:
 
 
December 31, 2018
 
March 31, 2018
 
 
(in thousands)
Assets Held for Sale
 
 
 
 
Cash and cash equivalents
 
$

 
$
4,113

Accounts receivable-trade, net
 

 
45,924

Inventories
 

 
13,250

Prepaid expenses and other current assets
 

 
2,796

Property, plant and equipment, net
 
55,976

 
201,340

Goodwill
 
64,274

 
107,951

Intangible assets, net
 
4,259

 
141,328

Other assets
 

 
902

Total assets held for sale
 
$
124,509

 
$
517,604

 
 
 
 
 
Liabilities and Redeemable Noncontrolling Interest Held for Sale
 
 
 
 
Accounts payable-trade
 
$

 
$
7,790

Accrued expenses and other payables
 
1,233

 
6,583

Advance payments received from customers
 

 
12,842

Current maturities of long-term debt
 

 
2,550

Long-term debt, net
 

 
2,888

Other noncurrent liabilities
 
9,331

 

Redeemable noncontrolling interest
 

 
9,927

Total liabilities and redeemable noncontrolling interest held for sale
 
$
10,564

 
$
42,580



39

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


The following table summarizes the results of operations from discontinued operations related to the Retail Propane segment for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Revenues
 
$

 
$
160,069

 
$
70,859

 
$
291,872

Cost of sales
 

 
87,487

 
36,758

 
148,443

Operating expenses
 
160

 
33,750

 
27,328

 
90,592

General and administrative expense
 

 
2,822

 
2,589

 
7,750

Depreciation and amortization
 

 
11,130

 
8,706

 
34,205

(Gain) loss on disposal or impairment of assets, net (1)
 
(263
)
 
908

 
(407,646
)
 
2,004

Operating income from discontinued operations
 
103

 
23,972

 
403,124

 
8,878

Equity in earnings of unconsolidated entities
 

 
838

 
1,183

 
593

Interest expense
 

 
(94
)
 
(125
)
 
(331
)
Other income, net
 

 
226

 
364

 
862

Income from discontinued operations before taxes (2)
 
103

 
24,942

 
404,546

 
10,002

Income tax expense
 
(7
)
 

 
(132
)
 
(65
)
Income from discontinued operations, net of tax
 
$
96

 
$
24,942

 
$
404,414

 
$
9,937

 
(1)
Amount for the nine months ended December 31, 2018 includes a gain of $408.9 million on the sale of virtually all of our remaining Retail Propane segment to Superior on July 10, 2018, partially offset by a loss of $1.3 million on the sale of a portion of our Retail Propane segment to DCC on March 30, 2018 related to a working capital adjustment.
(2)
Amounts include income (loss) attributable to redeemable noncontrolling interests. Income attributable to redeemable noncontrolling interest was $0.4 million for the three months ended December 31, 2017, and the loss attributable to redeemable noncontrolling interest was $0.4 million and $0.3 million, respectively, for the nine months ended December 31, 2018 and 2017. There was no income attributable to redeemable noncontrolling interest for the three months ended December 31, 2018.

Continuing Involvement

We have commitments to sell up to 52.6 million gallons of propane, valued at $45.1 million (based on the contract price) to Superior and DCC, the purchasers of the Retail Propane segment, through March 2020. During the three months and nine months ended December 31, 2018, we received a combined $29.6 million and $45.3 million, respectively, from Superior and DCC for propane sold to them during the period.

Note 15Revenue from Contracts with Customers

Impact of Adoption

We adopted Topic 606 on April 1, 2018, using the modified retrospective method. Revenues for reporting periods beginning after April 1, 2018 are presented under Topic 606, while prior periods are not adjusted and continue to be reported under the accounting standard in effect for those periods. We recorded an increase to the beginning balance of equity as of April 1, 2018, due to the cumulative impact of adopting the standard, as discussed further below.

Based on our evaluation, we anticipate that from time to time, differences in the timing of revenues earned and our right to invoice customers may create contract assets or liabilities. These differences in timing would be the result of contracts that contain minimum volume commitments and tiered pricing provisions, primarily within our Water Solutions segment. In addition, we completed the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under this standard. Furthermore, under this standard we made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that we collect from a customer.

As discussed previously, we deferred a portion of the gain related to the sale of our general partner interest in TransMontaigne Partners L.P., of which the current portion was recorded in accrued expenses and other payables and the long-term portion was recorded in other noncurrent liabilities at March 31, 2018 within our unaudited condensed consolidated balance sheet. As this transaction was accounted for under the real estate guidance in ASC 360-20, Property, Plant and

40

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Equipment, we had been amortizing the gain over the life of the related lease agreements. Upon adoption of ASU No. 2014-09 and ASU No. 2017-05, we determined that this transaction should be accounted for under the guidance of ASC 810-10-40 and utilizing the modified retrospective approach of adoption, the deferred gain as of March 31, 2018 of $139.3 million was recognized in the beginning balance of retained earnings as part of our cumulative effect adjustment at April 1, 2018.

The following tables summarize the impact of adoption on our unaudited condensed consolidated balance sheet at December 31, 2018 and our unaudited condensed consolidated statements of operations for the three months and nine months ended December 31, 2018:
 
 
Unaudited Condensed Consolidated Balance Sheet
 
 
December 31, 2018
 
 
As Reported
 
Balances Without Adoption of ASU No. 2014-09
 
Effect of Change
Increase/(Decrease)
 
 
(in thousands)
Accrued expenses and other payables
 
$
263,732

 
$
293,845

 
$
(30,113
)
Other noncurrent liabilities
 
$
74,903

 
$
161,512

 
$
(86,609
)
Equity:
 
 
 
 
 
 
General partner
 
$
(50,581
)
 
$
(50,697
)
 
$
116

Limited partners
 
$
2,085,780

 
$
1,969,174

 
$
116,606

 
 
Unaudited Condensed Consolidated Statement of Operations
 
 
Three Months Ended December 31, 2018
 
 
As Reported
 
Balances Without Adoption of ASU No. 2014-09
 
Effect of Change
Increase/(Decrease)
 
 
(in thousands)
Gain on disposal or impairment of assets, net
 
$
(36,246
)
 
$
(43,774
)
 
$
7,528

Operating income
 
$
157,577

 
$
165,105

 
$
(7,528
)
Net income
 
$
110,528

 
$
118,056

 
$
(7,528
)
 
 
Unaudited Condensed Consolidated Statement of Operations
 
 
Nine Months Ended December 31, 2018
 
 
As Reported
 
Balances Without Adoption of ASU No. 2014-09
 
Effect of Change
Increase/(Decrease)
 
 
(in thousands)
Loss on disposal or impairment of assets, net
 
$
71,077

 
$
48,493

 
$
22,584

Operating income
 
$
59,714

 
$
82,298

 
$
(22,584
)
Net income
 
$
296,178

 
$
318,762

 
$
(22,584
)


Prior to April 1, 2018, we recognized revenue for services and products when all of the following criteria were met under Topic 605: (i) either services have been rendered or products have been delivered or sold; (ii) persuasive evidence of an arrangement existed; (iii) the price for services was fixed or determinable; and (iv) collectibility was reasonably assured. We recorded deferred revenue when we received amounts from our customers but had not yet met the criteria listed above. We recognized deferred revenue in our consolidated statement of operations when the criteria had been met and all services had been rendered.

Effective April 1, 2018, we recognize revenue for services and products under revenue contracts as our obligations to either perform services or deliver or sell products under the contracts are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation in the contract and is recognized as revenue when, or as, the performance obligation is satisfied. Our revenue contracts in scope under ASU No. 2014-09 primarily have a single performance obligation. The evaluation of when performance obligations have been satisfied and the transaction price that is allocated to our performance obligations requires significant judgment and assumptions, including our evaluation of the timing of when control of the underlying good or service has transferred to our customers and the relative stand-alone selling price of goods and services provided to customers under contracts with multiple performance obligations. Actual results can vary from those judgments and assumptions. We do not have any material contracts with multiple performance obligations or under which we receive material amounts of non-cash

41

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


consideration at March 31, 2018. Our costs to obtain or fulfill our revenue contracts were not material as of December 31, 2018.

The majority of our revenue agreements are within scope under ASU No. 2014-09 and the remainder of our revenue comes from contracts that are accounted for as derivatives under ASC 815 or that contain nonmonetary exchanges or leases and are in scope under Topics 845 and 840, respectively. See Note 12 for a detail of disaggregated revenue. Revenue from contracts accounted for as derivatives under ASC 815 within our Refined and Renewables segment includes $151.2 million of net gains related to changes in the marked-to-market value of these arrangements recorded during the three months and nine months ended December 31, 2018.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to allow customers to secure the right to reserve the product or storage capacity to be received or used at a later date, not to receive financing from our customers or to provide customers with financing.

We report taxes collected from customers and remitted to taxing authorities, such as sales and use taxes, on a net basis. We include amounts billed to customers for shipping and handling costs in revenues in our unaudited condensed consolidated statements of operations.

Crude Oil Logistics Performance Obligations

Within the Crude Oil Logistics segment, revenue is disaggregated into two primary revenue streams that include revenue from the sale of commodities and service revenue. For sales of commodities, we are obligated to deliver a predetermined amount of product on a month-to-month basis to our customers. For these types of agreements, revenue is recognized at a point in time based on when the product is delivered and control is transferred to the customer.

For revenue received from services rendered, we are obligated to provide throughput services to move product via pipeline, truck, railcar, or marine vessel or to provide terminal maintenance services. In either case, the obligation is satisfied over time utilizing the output method based on each volume of product that is moved from the origination point to the final destination or based on the passage of time.

Water Solutions Performance Obligations

Within the Water Solutions segment, revenue is disaggregated into two primary revenue streams that include service revenue and commodity sales revenue. For contracts involving disposal services, we accept wastewater and solids for disposal at our facilities. In cases where we have agreed within a contract or are required by law to remove hydrocarbons from the wastewater, the skim oil will be valued as non-cash consideration. Ordinarily, it is required that the fair value of the skim oil is to be estimated at contract inception; however, due to variability of the form of the non-cash consideration, the amount and dollar value is unknown at the contract inception date. Accordingly, ASC 606-10-32-11 allows us to value the skim oil on the date in which the value becomes known.

The Water Solutions segment has certain disposal contracts that contain the following types of terms or pricing structures that involve significant judgment that impacts the determination and timing of revenue.

Minimum volume commitments. We receive a shortfall fee if the customer does not deliver a certain amount of volume of wastewater over a specified period of time. At each reporting period, we make a determination as to the likelihood of earning this fee. We recognize revenue from these contracts when (i) actual volumes are received; and (ii) when the likelihood of a customer exercising its remaining rights to make up the deficient volumes under minimum volume commitments becomes remote (also known as the breakage model).
Tiered pricing. For contracts with tiered pricing provisions, the period in which the tiers are earned and settled (i.e. the “reset period”) may vary from monthly to over a period of multiple months. If the tiered pricing is based on a month, we allocate the fee to the distinct daily service to which it relates. If the tiered pricing spans across multiple reporting periods, we estimate the total transaction price at the beginning of each reset period, based on the expected volumes. We revise our estimates of variable consideration at each reporting date throughout each reset period.
Volume discount pricing. Volume discount pricing is a form of variable consideration whereby the customer pays for the volumes delivered on a cumulative basis. Similar to tiered pricing, the period in which the cumulative

42

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


volumes are earned and settled (i.e. the “reset period”) may vary from daily to over a period of multiple months. If the volume discount is based on a month, we allocate the fee to the distinct daily service to which it relates. If the volume discount period spans across multiple reporting periods, we estimate the total transaction price at the beginning of each reset period, based on the expected volumes. We revise the estimate of variable consideration at each reporting date.

For all of our disposal contracts within the Water Solutions segment, revenue will be recognized over time utilizing the output method based on the volume of wastewater or solids we accept from the customer. For contracts that involve the sale of recovered hydrocarbons and freshwater, we will recognize revenue at a point in time, based on when control of the product is transferred to the customer.

Liquids Performance Obligations

Within the Liquids segment, revenue is disaggregated into two primary revenue streams that include revenue from the sale of commodities and providing services. For commodity sales, we are obligated to deliver a specified amount of product over a specified period of time. For these types of agreements, revenue is recognized at a point in time based on when the product is delivered and control is transferred to the customer. For revenue received from services rendered, we offer a variety of services which include: (i) storage services where product is commingled; (ii) railcar transportation services; (iii) transloading services; and (iv) logistics services. We are obligated to provide these services over a predetermined period of time. Revenue from service contracts is recognized at a point in time upon the transfer of control each month. All revenue from services is recognized over time utilizing the output method based on volumes stored or moved.

Refined Products and Renewables Performance Obligations

The Refined Products and Renewables segment has one distinct revenue stream, which is revenue from commodity sales. In these agreements, we are obligated to sell a predetermined amount of product over a specified period of time. Revenue for all commodity sales is recognized at a point in time once the customer has lifted the agreed-upon volumes.

Remaining Performance Obligations

Most of our service contracts are such that we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. Therefore, we are utilizing the practical expedient in ASC 606-10-55-18 under which we recognize revenue in the amount to which we have the right to invoice. Applying this practical expedient, we are not required to disclose the transaction price allocated to remaining performance obligations under these agreements. The following table summarizes the amount and timing of revenue recognition for such contracts at December 31, 2018 (in thousands):
Fiscal Year Ending March 31,
 
2019 (three months)
$
47,958

2020
143,368

2021
110,593

2022
106,566

2023
105,316

Thereafter
334,657

Total
$
848,458



Many agreements are short-term in nature with a contract term of one year or less. For those contracts, we utilized the practical expedient in ASC 606-10-50 that exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less. Additionally, for our product sales contracts, we have elected the practical expedient set out in ASC 606-10-50-14A, which states that we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these agreements, each unit of product represents a separate performance obligation and therefore future volumes are wholly unsatisfied and disclosure of transaction price allocated to remaining performance obligations is not required. Under product sales contracts, the variability arises as both volume and pricing (typically index-based) are not known until the product is delivered.


43

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


Contract Assets and Liabilities

Amounts owed from our customers under our revenue contracts are typically billed as the service is being provided on a monthly basis and are due within 1-30 days of billing, and are classified as accounts receivable-trade on our unaudited condensed consolidated balance sheets. Under certain of our contracts, we recognize revenues in excess of billings, referred to as contract assets, within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets. Accounts receivable from contracts with customers are presented within accounts receivable-trade and accounts receivable-affiliates in our unaudited condensed consolidated balance sheets. Our contract asset balances primarily relate to our underground cavern storage contracts with multi-period contracts in which the fee escalates each year and the customer provides upfront payment at the beginning of the contract period. We did not record any contract assets during this period.

Under certain of our contracts we may be entitled to receive payments in advance of satisfying our performance obligations under the contract. We recognize a liability for these payments in excess of revenue recognized, referred to as deferred revenue or contract liabilities, within advance payments received from customers in our unaudited condensed consolidated balance sheets. Our deferred revenue primarily relates to:

Prepayments. Some revenue contracts contain prepayment provisions within our Liquids business segment. Revenue received related to our underground cavern storage services is received upfront at the beginning of the contract period and is deferred until services have been rendered. In some cases, we also receive prepayments from customers purchasing commodities, which allows the customer to secure the right to receive their requested volumes in a future period. Revenue from these contracts is initially deferred, thus creating a contract liability.
Multi-period contract in which fee escalates each subsequent year of the contract. Revenue from these contracts are recognized over time based on a weighted average of what is expected to be received over the life of the contract. As the actual amount billed and received from the customer differs from the amount of revenue recognized, a contract liability is recorded.
Tiered pricing and volume discount pricing. As described above, we revise our estimates of variable consideration at each reporting date throughout each reset period. As the actual amount billed and received from the customer differs from the amount of revenue recognized, a contract liability is recorded.
Capital reimbursements. Certain contracts in our Water Solutions segment require that our customers reimburse us for capital expenditures related to the construction of long-lived assets, such as water gathering pipelines and custody transfer points, utilized to provide services to them under the revenue contracts. Because we consider these amounts as consideration from customers associated with ongoing services to be provided to customers, we defer these upfront payments in deferred revenue and recognize the amounts in revenue over the life of the associated revenue contract as the performance obligations are satisfied under the contract.

Deferred revenue is included in advance payments received from customers on the unaudited condensed consolidated balance sheets as the performance obligations related to these revenues are expected to be satisfied within one year or less.

The following tables summarizes the balances of our contract assets and liabilities at the dates indicated:
 
 
Balance at
 
 
April 1, 2018
 
December 31, 2018
 
 
(in thousands)
Accounts receivable from contracts with customers
 
$
677,095

 
$
671,199

 
 
2018
 
 
(in thousands)
Contract liabilities balance at April 1
 
$
8,374

Payment received and deferred
 
66,030

Payment recognized in revenue
 
(52,967
)
Contract liabilities balance at December 31
 
$
21,437



Note 16Other Matters

On November 30, 2018, we completed the sale of NGL Water Solutions Bakken, LLC to an affiliate of Tallgrass Energy, LP for $91.0 million in gross cash proceeds and recorded a gain on disposal of $35.7 million during the nine months

44

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


ended December 31, 2018 within (gain) loss on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. These operations include five saltwater disposal wells located in McKenzie and Dunn Counties, North Dakota. We have made the strategic decision to exit the Bakken saltwater disposal business, as we focus our efforts in larger core areas of operations.

Note 17Subsequent Events

On January 3, 2019, we repurchased $11.9 million of the 2019 Notes.

On January 30, 2019, we executed a purchase and sale agreement under which we will purchase DCP Midstream LP’s natural gas liquids terminal business. Under the terms of the purchase, we will acquire five propane rail terminals and 50% ownership interest in an additional rail terminal for $90.0 million in cash. This agreement also includes an import/export terminal located in Chesapeake, Virginia, with the capability to load and unload ships. These assets will complement our existing liquids portfolio and create additional opportunities for new and existing customers to supply their business and provides access to water for imports and exports. The transaction is subject to certain regulatory and other customary closing conditions and is expected to close by March 31, 2019.

Note 18—Unaudited Condensed Consolidating Guarantor and Non-Guarantor Financial Information

Certain of our wholly owned subsidiaries have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes (see Note 8). Pursuant to Rule 3-10 of Regulation S-X, we have presented in columnar format the unaudited condensed consolidating financial information for NGL Energy Partners LP (Parent), NGL Energy Finance Corp., the guarantor subsidiaries on a combined basis, and the non-guarantor subsidiaries on a combined basis in the tables below. NGL Energy Partners LP and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes. Since NGL Energy Partners LP received the proceeds from the issuance of the Senior Unsecured Notes, all activity has been reflected in the NGL Energy Partners LP (Parent) column in the tables below.

During the periods presented in the tables below, the status of certain subsidiaries changed, in that they either became guarantors of or ceased to be guarantors of the Senior Unsecured Notes. For purposes of the tables below, when the status of a subsidiary changes, all subsidiary activity is included in either the guarantor subsidiaries column or non-guarantor subsidiaries column based on the status of the subsidiary at the balance sheet date regardless of activity during the year.

There are no significant restrictions that prevent the parent or any of the guarantor subsidiaries from obtaining funds from their respective subsidiaries by dividend or loan. None of the assets of the guarantor subsidiaries (other than the investments in non-guarantor subsidiaries) are restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.

For purposes of the tables below, (i) the unaudited condensed consolidating financial information is presented on a legal entity basis, (ii) investments in consolidated subsidiaries are accounted for as equity method investments, and (iii) contributions, distributions, and advances to (from) consolidated entities are reported on a net basis within net changes in advances with consolidated entities in the unaudited condensed consolidating statement of cash flow tables below.

45

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Balance Sheet
(in Thousands)
 
 
December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
5,892

 
$

 
$
14,883

 
$
2,250

 
$

 
$
23,025

Accounts receivable-trade, net of allowance for doubtful accounts
 

 

 
1,005,833

 
200

 

 
1,006,033

Accounts receivable-affiliates
 

 

 
12,564

 

 

 
12,564

Inventories
 

 

 
572,803

 
128

 

 
572,931

Prepaid expenses and other current assets
 

 

 
209,750

 
702

 

 
210,452

Assets held for sale
 

 

 
124,509

 

 

 
124,509

Total current assets
 
5,892

 

 
1,940,342

 
3,280

 

 
1,949,514

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
 

 

 
1,596,911

 
129,251

 

 
1,726,162

GOODWILL
 

 

 
1,111,219

 
71,395

 

 
1,182,614

INTANGIBLE ASSETS, net of accumulated amortization
 

 

 
848,245

 
74,518

 

 
922,763

INVESTMENTS IN UNCONSOLIDATED ENTITIES
 

 

 
4,797

 

 

 
4,797

NET INTERCOMPANY RECEIVABLES (PAYABLES)
 
1,233,222

 

 
(1,249,716
)
 
16,494

 

 

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES
 
2,472,606

 

 
211,793

 

 
(2,684,399
)
 

OTHER NONCURRENT ASSETS
 

 

 
170,097

 

 

 
170,097

Total assets
 
$
3,711,720

 
$

 
$
4,633,688

 
$
294,938

 
$
(2,684,399
)
 
$
5,955,947

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES AND REDEEMABLE NONCONTROLLING INTEREST:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable-trade
 
$

 
$

 
$
905,830

 
$
128

 
$

 
$
905,958

Accounts payable-affiliates
 
1

 

 
23,409

 

 

 
23,410

Accrued expenses and other payables
 
28,052

 

 
234,996

 
684

 

 
263,732

Advance payments received from customers
 

 

 
19,465

 
1,972

 

 
21,437

Current maturities of long-term debt, net of debt issuance costs
 
339,220

 

 
647

 

 

 
339,867

Liabilities and redeemable noncontrolling interest held for sale
 

 

 
10,564

 

 

 
10,564

Total current liabilities and redeemable noncontrolling interest
 
367,273

 

 
1,194,911

 
2,784

 

 
1,564,968

LONG-TERM DEBT, net of debt issuance costs and current maturities
 
983,856

 

 
893,845

 

 

 
1,877,701

OTHER NONCURRENT LIABILITIES
 

 

 
72,326

 
2,577

 

 
74,903

CLASS A 10.75% CONVERTIBLE PREFERRED UNITS
 
122,934

 

 

 

 

 
122,934

EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity
 
2,237,657

 

 
2,472,606

 
289,850

 
(2,762,183
)
 
2,237,930

Accumulated other comprehensive loss
 

 

 

 
(273
)
 

 
(273
)
Noncontrolling interests
 

 

 

 

 
77,784

 
77,784

Total equity
 
2,237,657

 

 
2,472,606

 
289,577

 
(2,684,399
)
 
2,315,441

Total liabilities and equity
 
$
3,711,720

 
$

 
$
4,633,688

 
$
294,938

 
$
(2,684,399
)
 
$
5,955,947


46

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Balance Sheet
(in Thousands)
 
 
March 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
16,915

 
$

 
$
3,329

 
$
1,850

 
$

 
$
22,094

Accounts receivable-trade, net of allowance for doubtful accounts
 

 

 
1,021,616

 
5,148

 

 
1,026,764

Accounts receivable-affiliates
 

 

 
4,772

 

 

 
4,772

Inventories
 

 

 
550,978

 
325

 

 
551,303

Prepaid expenses and other current assets
 

 

 
128,311

 
431

 

 
128,742

Assets held for sale
 

 

 
490,800

 
26,804

 

 
517,604

Total current assets
 
16,915

 

 
2,199,806

 
34,558

 

 
2,251,279

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
 

 

 
1,371,495

 
147,112

 

 
1,518,607

GOODWILL
 

 

 
1,127,347

 
77,260

 

 
1,204,607

INTANGIBLE ASSETS, net of accumulated amortization
 

 

 
829,449

 
83,705

 

 
913,154

INVESTMENTS IN UNCONSOLIDATED ENTITIES
 

 

 
17,236

 

 

 
17,236

NET INTERCOMPANY RECEIVABLES (PAYABLES)
 
2,110,940

 

 
(2,121,741
)
 
10,801

 

 

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES
 
1,703,327

 

 
244,109

 

 
(1,947,436
)
 

LOAN RECEIVABLE-AFFILIATE
 

 

 
1,200

 

 

 
1,200

OTHER NONCURRENT ASSETS
 

 

 
245,039

 

 

 
245,039

Total assets
 
$
3,831,182

 
$

 
$
3,913,940

 
$
353,436

 
$
(1,947,436
)
 
$
6,151,122

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES AND REDEEMABLE NONCONTROLLING INTEREST:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable-trade
 
$

 
$

 
$
850,607

 
$
2,232

 
$

 
$
852,839

Accounts payable-affiliates
 
1

 

 
1,253

 

 

 
1,254

Accrued expenses and other payables
 
41,104

 

 
181,115

 
1,285

 

 
223,504

Advance payments received from customers
 

 

 
4,507

 
3,867

 

 
8,374

Current maturities of long-term debt, net of debt issuance costs
 

 

 
646

 

 

 
646

Liabilities and redeemable noncontrolling interest held for sale
 

 

 
30,066

 
12,514

 

 
42,580

Total current liabilities and redeemable noncontrolling interest
 
41,105

 

 
1,068,194

 
19,898

 

 
1,129,197

LONG-TERM DEBT, net of debt issuance costs and current maturities
 
1,704,909

 

 
974,831

 

 

 
2,679,740

OTHER NONCURRENT LIABILITIES
 

 

 
167,588

 
5,926

 

 
173,514

CLASS A 10.75% CONVERTIBLE PREFERRED UNITS
 
82,576

 

 

 

 

 
82,576

EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
Partners’ equity
 
2,002,592

 

 
1,704,896

 
327,858

 
(2,030,939
)
 
2,004,407

Accumulated other comprehensive loss
 

 

 
(1,569
)
 
(246
)
 

 
(1,815
)
Noncontrolling interests
 

 

 

 

 
83,503

 
83,503

Total equity
 
2,002,592

 

 
1,703,327

 
327,612

 
(1,947,436
)
 
2,086,095

Total liabilities and equity
 
$
3,831,182

 
$

 
$
3,913,940

 
$
353,436

 
$
(1,947,436
)
 
$
6,151,122



47

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Three Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$

 
$

 
$
6,373,719

 
$
4,286

 
$
(1,185
)
 
$
6,376,820

COST OF SALES
 

 

 
6,115,051

 
518

 
(1,185
)
 
6,114,384

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 

 

 
60,816

 
2,076

 

 
62,892

General and administrative
 

 

 
24,619

 
160

 

 
24,779

Depreciation and amortization
 

 

 
50,877

 
2,557

 

 
53,434

Gain on disposal or impairment of assets, net
 

 

 
(36,246
)
 

 

 
(36,246
)
Operating Income (Loss)
 

 

 
158,602

 
(1,025
)
 

 
157,577

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated entities
 

 

 
1,777

 

 

 
1,777

Interest expense
 
(24,026
)
 

 
(15,124
)
 
(12
)
 
11

 
(39,151
)
Loss on early extinguishment of liabilities, net
 
(10,083
)
 

 

 

 

 
(10,083
)
Other income, net
 

 

 
1,303

 

 
(11
)
 
1,292

(Loss) Income From Continuing Operations Before Income Taxes
 
(34,109
)
 

 
146,558

 
(1,037
)
 

 
111,412

INCOME TAX EXPENSE
 

 

 
(980
)
 

 

 
(980
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
144,944

 

 
(730
)
 

 
(144,214
)
 

Income (Loss) From Continuing Operations
 
110,835

 

 
144,848

 
(1,037
)
 
(144,214
)
 
110,432

Income From Discontinued Operations, Net of Tax
 

 

 
96

 

 

 
96

Net Income (Loss)
 
110,835

 

 
144,944

 
(1,037
)
 
(144,214
)
 
110,528

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
307

 
307

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
110,835

 
$

 
$
144,944

 
$
(1,037
)
 
$
(143,907
)
 
$
110,835


48

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Three Months Ended December 31, 2017
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$

 
$

 
$
4,352,426

 
$
1,595

 
$
(238
)
 
$
4,353,783

COST OF SALES
 

 

 
4,235,965

 
139

 
(238
)
 
4,235,866

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
Operating
 

 

 
50,734

 
406

 

 
51,140

General and administrative
 

 

 
26,326

 
70

 

 
26,396

Depreciation and amortization
 

 

 
51,707

 
503

 

 
52,210

Gain on disposal or impairment of assets, net
 

 

 
(112,388
)
 

 

 
(112,388
)
Operating Income
 

 

 
100,082

 
477

 

 
100,559

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of unconsolidated entities
 

 

 
2,588

 

 

 
2,588

Interest expense
 
(36,019
)
 

 
(15,677
)
 
(11
)
 
11

 
(51,696
)
Loss on early extinguishment of liabilities, net
 
(21,141
)
 

 

 

 

 
(21,141
)
Other income (expense), net
 

 

 
2,092

 
(2
)
 
(209
)
 
1,881

(Loss) Income From Continuing Operations Before Income Taxes
 
(57,160
)
 

 
89,085

 
464

 
(198
)
 
32,191

INCOME TAX EXPENSE
 

 

 
(364
)
 

 

 
(364
)
EQUITY IN NET INCOME FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
113,416

 

 
1,012

 

 
(114,428
)
 

Income From Continuing Operations
 
56,256

 

 
89,733

 
464

 
(114,626
)
 
31,827

Income From Discontinued Operations, Net of Tax
 

 

 
23,683

 
1,061

 
198

 
24,942

Net Income
 
56,256

 

 
113,416

 
1,525

 
(114,428
)
 
56,769

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
(89
)
 
(89
)
LESS: NET INCOME ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
(424
)
 
(424
)
NET INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
56,256

 
$

 
$
113,416

 
$
1,525

 
$
(114,941
)
 
$
56,256



49

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Nine Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$

 
$

 
$
18,867,974

 
$
10,768

 
$
(2,854
)
 
$
18,875,888

COST OF SALES
 

 

 
18,322,426

 
495

 
(2,854
)
 
18,320,067

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 

 

 
173,257

 
6,206

 

 
179,463

General and administrative
 

 

 
85,847

 
691

 

 
86,538

Depreciation and amortization
 

 

 
150,551

 
7,678

 

 
158,229

Loss on disposal or impairment of assets, net
 

 

 
71,077

 

 

 
71,077

Revaluation of liabilities
 

 

 
800

 

 

 
800

Operating Income (Loss)
 

 

 
64,016

 
(4,302
)
 

 
59,714

OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
 

 

 
2,375

 

 

 
2,375

Interest expense
 
(83,011
)
 

 
(43,765
)
 
(35
)
 
34

 
(126,777
)
Loss on early extinguishment of liabilities, net
 
(10,220
)
 

 

 

 

 
(10,220
)
Other expense, net
 

 

 
(30,787
)
 

 
(219
)
 
(31,006
)
(Loss) Income From Continuing Operations Before Income Taxes
 
(93,231
)
 

 
(8,161
)
 
(4,337
)
 
(185
)
 
(105,914
)
INCOME TAX EXPENSE
 

 

 
(2,322
)
 

 

 
(2,322
)
EQUITY IN NET INCOME (LOSS) FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
391,025

 

 
(3,750
)
 

 
(387,275
)
 

Income (Loss) From Continuing Operations
 
297,794

 

 
(14,233
)
 
(4,337
)
 
(387,460
)
 
(108,236
)
Income (Loss) From Discontinued Operations, Net of Tax
 

 

 
405,258

 
(1,029
)
 
185

 
404,414

Net Income (Loss)
 
297,794

 

 
391,025

 
(5,366
)
 
(387,275
)
 
296,178

LESS: NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 

 
 

 
 

 
 

 
1,170

 
1,170

LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
446

 
446

NET INCOME (LOSS) ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
297,794

 
$

 
$
391,025

 
$
(5,366
)
 
$
(385,659
)
 
$
297,794


50

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Operations
(in Thousands)
 
 
Nine Months Ended December 31, 2017
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
 
$

 
$

 
$
11,956,719

 
$
4,858

 
$
(413
)
 
$
11,961,164

COST OF SALES
 

 

 
11,622,270

 
140

 
(413
)
 
11,621,997

OPERATING COSTS AND EXPENSES:
 
 

 
 

 
 

 
 

 
 

 
 

Operating
 

 

 
145,377

 
1,391

 

 
146,768

General and administrative
 

 

 
69,726

 
213

 

 
69,939

Depreciation and amortization
 

 

 
156,239

 
1,983

 

 
158,222

Gain on disposal or impairment of assets, net
 

 

 
(13,246
)
 

 

 
(13,246
)
Revaluation of liabilities
 

 

 
5,600

 

 

 
5,600

Operating (Loss) Income
 

 

 
(29,247
)
 
1,131

 

 
(28,116
)
OTHER INCOME (EXPENSE):
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of unconsolidated entities
 

 

 
6,677

 

 

 
6,677

Interest expense
 
(111,609
)
 

 
(39,309
)
 
(34
)
 
34

 
(150,918
)
Loss on early extinguishment of liabilities, net
 
(22,479
)
 

 

 

 

 
(22,479
)
Other income, net
 

 

 
5,851

 
17

 
(617
)
 
5,251

(Loss) Income From Continuing Operations Before Income Taxes
 
(134,088
)
 

 
(56,028
)
 
1,114

 
(583
)
 
(189,585
)
INCOME TAX EXPENSE
 

 

 
(869
)
 

 

 
(869
)
EQUITY IN NET (LOSS) INCOME FROM CONTINUING OPERATIONS OF CONSOLIDATED SUBSIDIARIES
 
(46,389
)
 

 
503

 

 
45,886

 

(Loss) Income From Continuing Operations
 
(180,477
)
 

 
(56,394
)
 
1,114

 
45,303

 
(190,454
)
Income (Loss) From Discontinued Operations, Net of Tax
 

 

 
10,005

 
(651
)
 
583

 
9,937

Net (Loss) Income
 
(180,477
)
 

 
(46,389
)
 
463

 
45,886

 
(180,517
)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
(221
)
 
(221
)
LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
 
 
 
 
 
 
 
 
261

 
261

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(180,477
)
 
$

 
$
(46,389
)
 
$
463

 
$
45,926

 
$
(180,477
)


51

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statements of Comprehensive Income (Loss)
(in Thousands)
 
 
Three Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
110,835

 
$

 
$
144,944

 
$
(1,037
)
 
$
(144,214
)
 
$
110,528

Other comprehensive loss
 

 

 

 
(3
)
 

 
(3
)
Comprehensive income (loss)
 
$
110,835

 
$

 
$
144,944

 
$
(1,040
)
 
$
(144,214
)
 
$
110,525


 
 
Three Months Ended December 31, 2017
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income
 
$
56,256

 
$

 
$
113,416

 
$
1,525

 
$
(114,428
)
 
$
56,769

Other comprehensive income (loss)
 

 

 
795

 
(11
)
 

 
784

Comprehensive income
 
$
56,256

 
$

 
$
114,211

 
$
1,514

 
$
(114,428
)
 
$
57,553



 
 
Nine Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net income (loss)
 
$
297,794

 
$

 
$
391,025

 
$
(5,366
)
 
$
(387,275
)
 
$
296,178

Other comprehensive loss
 

 

 
(1
)
 
(26
)
 

 
(27
)
Comprehensive income (loss)
 
$
297,794

 
$

 
$
391,024

 
$
(5,392
)
 
$
(387,275
)
 
$
296,151


 
 
Nine Months Ended December 31, 2017
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Net (loss) income
 
$
(180,477
)
 
$

 
$
(46,389
)
 
$
463

 
$
45,886

 
$
(180,517
)
Other comprehensive income (loss)
 

 

 
383

 
(33
)
 

 
350

Comprehensive (loss) income
 
$
(180,477
)
 
$

 
$
(46,006
)
 
$
430

 
$
45,886

 
$
(180,167
)


52

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Nine Months Ended December 31, 2018
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities-continuing operations
 
$
(92,619
)
 
$

 
$
173,692

 
$
3,759

 
$
(185
)
 
$
84,647

Net cash provided by operating activities-discontinued operations
 

 

 
27,790

 
3,221

 

 
31,011

Net cash (used in) provided by operating activities
 
(92,619
)
 

 
201,482

 
6,980

 
(185
)
 
115,658

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 

 
(301,883
)
 
(2,106
)
 

 
(303,989
)
Acquisitions, net of cash acquired
 

 

 
(194,044
)
 
(3,927
)
 

 
(197,971
)
Settlements of commodity derivatives
 

 

 
95,978

 

 

 
95,978

Proceeds from sales of assets
 

 

 
8,335

 

 

 
8,335

Proceeds from divestitures of businesses and investments, net
 

 

 
103,594

 

 

 
103,594

Investments in unconsolidated entities
 

 

 
(92
)
 

 

 
(92
)
Repayments on loan for natural gas liquids facility
 

 

 
8,371

 

 

 
8,371

Loan to affiliate
 

 

 
(1,515
)
 

 

 
(1,515
)
Net cash used in investing activities-continuing operations
 

 

 
(281,256
)
 
(6,033
)
 

 
(287,289
)
Net cash provided by investing activities-discontinued operations
 

 

 
838,797

 
6,982

 

 
845,779

Net cash provided by investing activities
 

 

 
557,541

 
949

 

 
558,490

FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 

 

 
2,956,500

 

 

 
2,956,500

Payments on Revolving Credit Facility
 

 

 
(3,037,000
)
 

 

 
(3,037,000
)
Repayment and repurchase of senior unsecured notes
 
(395,471
)
 

 

 

 

 
(395,471
)
Payments on other long-term debt
 

 

 
(488
)
 

 

 
(488
)
Debt issuance costs
 
(16
)
 

 
(899
)
 

 

 
(915
)
Contributions from noncontrolling interest owners, net
 

 

 

 
169

 

 
169

Distributions to general and common unit partners and preferred unitholders
 
(177,003
)
 

 

 

 

 
(177,003
)
Repurchase of warrants
 
(14,988
)
 

 

 

 

 
(14,988
)
Common unit repurchases and cancellations
 
(162
)
 

 

 

 

 
(162
)
Payments for settlement and early extinguishment of liabilities
 

 

 
(3,534
)
 

 

 
(3,534
)
Net changes in advances with consolidated entities
 
669,236

 

 
(661,753
)
 
(7,668
)
 
185

 

Net cash provided by (used in) financing activities-continuing operations
 
81,596

 

 
(747,174
)
 
(7,499
)
 
185

 
(672,892
)
Net cash used in financing activities-discontinued operations
 

 

 
(295
)
 
(30
)
 

 
(325
)
Net cash provided by (used in) financing activities
 
81,596

 

 
(747,469
)
 
(7,529
)
 
185

 
(673,217
)
Net (decrease) increase in cash and cash equivalents
 
(11,023
)
 

 
11,554

 
400

 

 
931

Cash and cash equivalents, beginning of period
 
16,915

 

 
3,329

 
1,850

 

 
22,094

Cash and cash equivalents, end of period
 
$
5,892

 
$

 
$
14,883

 
$
2,250

 
$

 
$
23,025


53

NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)



Unaudited Condensed Consolidating Statement of Cash Flows
(in Thousands)
 
 
Nine Months Ended December 31, 2017
 
 
NGL Energy
Partners LP
(Parent)
 
NGL Energy
Finance Corp.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating Adjustments
 
Consolidated
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities-continuing operations
 
$
415,012

 
$

 
$
(483,118
)
 
$
35,923

 
$
(734
)
 
$
(32,917
)
Net cash provided by operating activities-discontinued operations
 

 

 
35,717

 
1,336

 
151

 
37,204

Net cash provided by (used in) operating activities
 
415,012

 

 
(447,401
)
 
37,259

 
(583
)
 
4,287

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 

 

 
(81,215
)
 
(1,091
)
 

 
(82,306
)
Acquisitions, net of cash acquired
 

 

 
(19,897
)
 

 

 
(19,897
)
Settlements of commodity derivatives
 

 

 
(85,575
)
 

 

 
(85,575
)
Proceeds from sales of assets
 

 

 
31,339

 

 

 
31,339

Proceeds from divestitures of businesses and investments, net
 

 

 
292,117

 

 

 
292,117

Investments in unconsolidated entities
 

 

 
(21,461
)
 

 

 
(21,461
)
Distributions of capital from unconsolidated entities
 

 

 
11,710

 

 

 
11,710

Repayments on loan for natural gas liquids facility
 

 

 
7,425

 

 

 
7,425

Loan to affiliate
 

 

 
(1,460
)
 

 

 
(1,460
)
Repayments on loan to affiliate
 

 

 
4,160

 

 

 
4,160

Other
 

 

 
20,000

 

 

 
20,000

Net cash provided by (used in) investing activities-continuing operations
 

 

 
157,143

 
(1,091
)
 

 
156,052

Net cash used in investing activities-discontinued operations
 

 

 
(50,278
)
 
(722
)
 

 
(51,000
)
Net cash provided by (used in) investing activities
 

 

 
106,865

 
(1,813
)
 

 
105,052

FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 

 

 
1,674,500

 

 

 
1,674,500

Payments on Revolving Credit Facility
 

 

 
(1,349,500
)
 

 

 
(1,349,500
)
Repurchase of senior secured and senior unsecured notes
 
(415,568
)
 

 

 

 

 
(415,568
)
Payments on other long-term debt
 

 

 
(716
)
 

 

 
(716
)
Debt issuance costs
 
(693
)
 

 
(1,804
)
 

 

 
(2,497
)
Contributions from noncontrolling interest owners, net
 

 

 

 
23

 

 
23

Distributions to general and common unit partners and preferred unitholders
 
(166,589
)
 

 

 

 

 
(166,589
)
Distributions to noncontrolling interest owners
 

 

 

 
(3,082
)
 

 
(3,082
)
Proceeds from sale of preferred units, net of offering costs
 
202,731

 

 

 

 

 
202,731

Repurchase of warrants
 
(10,549
)
 

 

 

 

 
(10,549
)
Common unit repurchases and cancellations
 
(15,608
)
 

 

 

 

 
(15,608
)
Payments for settlement and early extinguishment of liabilities
 

 

 
(2,408
)
 

 

 
(2,408
)
Net changes in advances with consolidated entities
 
1

 

 
31,327

 
(31,911
)
 
583

 

Net cash (used in) provided by financing activities-continuing operations
 
(406,275
)
 

 
351,399

 
(34,970
)
 
583

 
(89,263
)
Net cash used in financing activities-discontinued operations
 

 

 
(3,255
)
 
(390
)
 

 
(3,645
)
Net cash (used in) provided by financing activities
 
(406,275
)
 

 
348,144

 
(35,360
)
 
583

 
(92,908
)
Net increase in cash and cash equivalents
 
8,737

 

 
7,608

 
86

 

 
16,431

Cash and cash equivalents, beginning of period
 
6,257

 

 
73

 
1,496

 

 
7,826

Cash and cash equivalents, end of period
 
$
14,994

 
$

 
$
7,681

 
$
1,582

 
$

 
$
24,257



54

Table of Contents


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of NGL Energy Partners LP’s (“we,” “us,” “our,” or the “Partnership”) financial condition and results of operations as of and for the three months and nine months ended December 31, 2018. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”), as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 (“Annual Report”) filed with the Securities and Exchange Commission on May 30, 2018.

Overview

We are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner. At December 31, 2018, our operations included:

Our Crude Oil Logistics segment purchases crude oil from producers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling, trucking, marine and pipeline transportation services through its owned assets.
Our Water Solutions segment provides services for the treatment and disposal of wastewater generated from crude oil and natural gas production and for the disposal of solids such as tank bottoms, drilling fluids and drilling muds and performs truck and frac tank washouts. In addition, our Water Solutions segment sells the recovered hydrocarbons that result from performing these services and it also sells freshwater to producers for exploration and production activities.
Our Liquids segment supplies natural gas liquids to retailers, wholesalers, refiners, and petrochemical plants throughout the United States and in Canada using its leased underground storage and fleet of leased railcars, markets regionally through its 19 owned terminals throughout the United States, and provides terminaling and storage services at its salt dome storage facility joint venture in Utah.
Our Refined Products and Renewables segment conducts gasoline, diesel, ethanol, and biodiesel marketing operations, purchases refined petroleum and renewable products primarily in the Gulf Coast, Southeast and Midwest regions of the United States and schedules them for delivery at various locations throughout the country. In addition, in certain storage locations, our Refined Products and Renewables segment may also purchase unfinished gasoline blending components for subsequent blending into finished gasoline to supply our marketing business as well as third parties.

On July 10, 2018, we completed the sale of virtually all of our Retail Propane segment to Superior Plus Corp. (“Superior”). See Note 1 and Note 14 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the transaction.

As discussed in Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report, we have classified the assets, liabilities and redeemable noncontrolling interest of the Retail Propane segment as held for sale and the operations as discontinued in our unaudited condensed consolidated financial statements. Accordingly, the results of operations and cash flows related to the entire Retail Propane segment (both the portion sold to DCC LPG in March 2018 and the remaining business sold to Superior as well as equity in earnings of Victory Propane, LLC) have been classified as discontinued operations for all periods presented (prior periods have been retrospectively adjusted) in the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows.


55

Table of Contents


Consolidated Results of Operations

The following table summarizes our unaudited condensed consolidated statements of operations for the periods indicated:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Total revenues
$
6,376,820

 
$
4,353,783

 
$
18,875,888

 
$
11,961,164

Total cost of sales
6,114,384

 
4,235,866

 
18,320,067

 
11,621,997

Operating expenses
62,892

 
51,140

 
179,463

 
146,768

General and administrative expense
24,779

 
26,396

 
86,538

 
69,939

Depreciation and amortization
53,434

 
52,210

 
158,229

 
158,222

(Gain) loss on disposal or impairment of assets, net
(36,246
)
 
(112,388
)
 
71,077

 
(13,246
)
Revaluation of liabilities

 

 
800

 
5,600

Operating income (loss)
157,577

 
100,559

 
59,714

 
(28,116
)
Equity in earnings of unconsolidated entities
1,777

 
2,588

 
2,375

 
6,677

Interest expense
(39,151
)
 
(51,696
)
 
(126,777
)
 
(150,918
)
Loss on early extinguishment of liabilities, net
(10,083
)
 
(21,141
)
 
(10,220
)
 
(22,479
)
Other income (expense), net
1,292

 
1,881

 
(31,006
)
 
5,251

Income (loss) from continuing operations before income taxes
111,412

 
32,191

 
(105,914
)
 
(189,585
)
Income tax expense
(980
)
 
(364
)
 
(2,322
)
 
(869
)
Income (loss) from continuing operations
110,432

 
31,827

 
(108,236
)
 
(190,454
)
Income from discontinued operations, net of tax
96

 
24,942

 
404,414

 
9,937

Net income (loss)
110,528

 
56,769

 
296,178

 
(180,517
)
Less: Net loss (income) attributable to noncontrolling interests
307

 
(89
)
 
1,170

 
(221
)
Less: Net (income) loss attributable to redeemable noncontrolling interests

 
(424
)
 
446

 
261

Net income (loss) attributable to NGL Energy Partners LP
$
110,835

 
$
56,256

 
$
297,794

 
$
(180,477
)

Items Impacting the Comparability of Our Financial Results

Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to business combinations, disposals and other transactions. Our results of operations for the three months and nine months ended December 31, 2018 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2019.

Recent Developments
    
Acquisitions

As discussed below, we completed numerous acquisitions during the fiscal year ended March 31, 2018 and the nine months ended December 31, 2018. These acquisitions impact the comparability of our results of operations between our current and prior fiscal years.

During the nine months ended December 31, 2018, in our Water Solutions segment, we acquired the remaining 18.375% interest in NGL Water Pipelines, LLC, six saltwater disposal facilities (including 20 saltwater disposal wells), two ranches and four freshwater facilities (including 45 freshwater wells).

In our Retail Propane segment, we acquired three retail propane businesses and the remaining 40% interest in Atlantic Propane, LLC. The assets and liabilities of these retail propane businesses and Atlantic Propane, LLC were included in the sale of virtually all of our Retail Propane segment on July 10, 2018 and the operations have been classified as discontinued.


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During the year ended March 31, 2018, in our Water Solutions segment, we acquired the remaining 50% ownership interest in NGL Solids Solutions, LLC, and in our Retail Propane segment, we acquired seven retail propane businesses and certain assets from an equity method investee, of which the operations have been classified as discontinued.

See Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of our acquisitions made during the nine months ended December 31, 2018.

Dispositions

On November 30, 2018, we completed the sale of NGL Water Solutions Bakken, LLC to an affiliate of Tallgrass Energy, LP for $91.0 million in gross cash proceeds and recorded a gain on disposal of $35.7 million during the nine months ended December 31, 2018. See Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Redemption and Repurchases of Senior Unsecured Notes

On October 16, 2018, we paid $373.4 million to redeem all of our outstanding 6.875% Senior Unsecured Notes that were due to mature on October 15, 2021 (“2021 Notes”). See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

During the nine months ended December 31, 2018, we repurchased $13.5 million of the 5.125% Senior Unsecured Notes due 2019 (“2019 Notes”) and $8.6 million of the 7.50% Senior Unsecured Notes due 2023 (“2023 Notes”). See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.
 
Subsequent Events

On January 3, 2019, we repurchased $11.9 million of the 2019 Notes.

On January 30, 2019, we executed a purchase and sale agreement under which we will purchase DCP Midstream LP’s wholesale propane business for $90.0 million in cash. The transaction is subject to certain regulatory and other customary closing conditions and is expected to close by March 31, 2019. See Note 17 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

On February 6, 2019, we amended our revolving credit facility to, among other things, reset and increase the basket for the repurchase of common units, decrease the total leverage indebtedness covenant ratio for future quarters and amend the defined term “Consolidated EBITDA.” See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

 

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Segment Operating Results for the Three Months Ended December 31, 2018 and 2017

Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
718,621

 
$
556,001

 
$
162,620

Crude oil transportation and other
 
42,912

 
33,017

 
9,895

Total revenues (1)
 
761,533

 
589,018

 
172,515

Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
722,653

 
551,212

 
171,441

Cost of sales-derivative (gain) loss
 
(26,894
)
 
5,670

 
(32,564
)
Operating expenses
 
13,831

 
11,712

 
2,119

General and administrative expenses
 
1,609

 
1,627

 
(18
)
Depreciation and amortization expense
 
18,387

 
20,092

 
(1,705
)
Gain on disposal or impairment of assets, net
 
(75
)
 
(107,574
)
 
107,499

Total expenses
 
729,511

 
482,739

 
246,772

Segment operating income
 
$
32,022

 
$
106,279

 
$
(74,257
)
 
 
 
 
 
 
 
Crude oil sold (barrels)
 
12,333

 
10,006

 
2,327

Crude oil transported on owned pipelines (barrels)
 
11,820

 
9,228

 
2,592

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,362

 
6,362

 
(1,000
)
Crude oil storage capacity leased to third parties (barrels) (2)
 
2,062

 
2,829

 
(767
)
Crude oil inventory (barrels) (2)
 
1,204

 
1,356

 
(152
)
Crude oil sold ($/barrel)
 
$
58.268

 
$
55.567

 
$
2.701

Cost per crude oil sold ($/barrel)
 
$
56.414

 
$
55.655

 
$
0.759

Crude oil product margin (loss) ($/barrel)
 
$
1.854

 
$
(0.088
)
 
$
1.942

 
(1)
Revenues include $10.4 million and $4.0 million of intersegment sales during the three months ended December 31, 2018 and 2017, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.

Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices and sales volumes during the three months ended December 31, 2018, compared to the three months ended December 31, 2017. The increase in crude oil prices has led to an increase in production volumes for us to market. We continue to market crude oil volumes in the majority of the basins across the United States to support our various pipeline, terminal and transportation assets.

Crude Oil Transportation and Other Revenues. The increase was due to our Grand Mesa Pipeline, which increased revenues by $3.6 million during the three months ended December 31, 2018, compared to the three months ended December 31, 2017, primarily due to increased production growth in the DJ Basin. During the three months ended December 31, 2018, approximately 11.8 million barrels of crude oil were transported on the Grand Mesa Pipeline, which averaged approximately 128,000 barrels per day and financial volumes averaged approximately 129,000 barrels per day (volume amounts are from both internal and external parties). In addition, during the three months ended December 31, 2018, a new crude marketing contract increased revenues by $7.8 million. This was partially offset by a reduction in railcar sublease revenue.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices and increased volumes during the three months ended December 31, 2018, compared to the three months ended December 31, 2017.


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Cost of Sales-Derivatives. Our cost of sales during the three months ended December 31, 2018 included $13.7 million of net realized gains on derivatives and $13.2 million of net unrealized gains on derivatives. The gains were due to the significant decline in crude oil prices during the quarter. Our cost of sales during the three months ended December 31, 2017 included $4.7 million of net realized losses on derivatives and $1.0 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due to utilities related to the higher volumes on Grand Mesa.

Depreciation and Amortization Expense. The decrease was due primarily to downsizing our fleet of crude transportation assets, which decreased depreciation and amortization expense by $1.2 million during the three months ended December 31, 2018, compared to the three months ended December 31, 2017. The decrease was also due to certain intangible assets being fully amortized in prior periods.

Gain on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2018, we recorded a net gain of $0.1 million related to the disposal of certain assets. During the three months ended December 31, 2017, we recorded a gain of $108.6 million on the sale of our previously held 50% interest in Glass Mountain Pipeline, LLC (“Glass Mountain”), and recorded a net loss of $1.0 million on the sales of excess pipe and certain other assets.

Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Disposal service fees
 
$
48,261

 
$
41,045

 
$
7,216

Recovered hydrocarbons
 
17,192

 
17,021

 
171

Other service revenues
 
10,005

 
5,958

 
4,047

Total revenues
 
75,458

 
64,024

 
11,434

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
714

 
711

 
3

Cost of sales-derivative (gain) loss
 
(40,184
)
 
9,481

 
(49,665
)
Operating expenses
 
32,571

 
27,041

 
5,530

General and administrative expenses
 
4,230

 
649

 
3,581

Depreciation and amortization expense
 
27,561

 
24,586

 
2,975

(Gain) loss on disposal or impairment of assets, net
 
(36,171
)
 
2,929

 
(39,100
)
Total (income) expense, net
 
(11,279
)
 
65,397

 
(76,676
)
Segment operating income (loss)
 
$
86,737

 
$
(1,373
)
 
$
88,110

 
 
 
 
 
 
 
Wastewater processed (barrels per day)
 
 
 
 
 
 
Eagle Ford Basin
 
282,070

 
255,634

 
26,436

Permian Basin
 
461,722

 
334,556

 
127,166

DJ Basin
 
177,412

 
121,061

 
56,351

Other Basins
 
77,320

 
78,144

 
(824
)
Total
 
998,524

 
789,395

 
209,129

Solids processed (barrels per day)
 
7,284

 
6,095

 
1,189

Skim oil sold (barrels per day)
 
3,609

 
3,623

 
(14
)
Service fees for wastewater processed ($/barrel)
 
$
0.53

 
$
0.57

 
$
(0.04
)
Recovered hydrocarbons for wastewater processed ($/barrel)
 
$
0.19

 
$
0.23

 
$
(0.04
)
Operating expenses for wastewater processed ($/barrel)
 
$
0.35

 
$
0.37

 
$
(0.02
)


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Disposal Service Fee Revenues. The increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions. We continue to benefit from the increased rig counts as compared to the prior year in the basins in which we operate, particularly in the Permian Basin.

Recovered Hydrocarbon Revenues. The increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions; however, these revenues were negatively impacted by lower skim oil volumes recovered per wastewater barrel processed. Lower skim oil volumes were due primarily to an increase in wastewater transported through pipelines (which contains less oil per barrel of wastewater), as well as operational changes in the DJ basin.

Other Service Revenues. Other service revenues primarily include solids disposal revenues, water pipeline revenues and freshwater revenues, all of which increased during the three months ended December 31, 2018 due to increased volumes as well as acquisitions.

Cost of Sales-Excluding Impact of Derivatives. Cost of Sales-Excluding Impact of Derivatives for the current quarter was consistent with the prior year quarter.

Cost of Sales-Derivatives. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil. Our cost of sales during the three months ended December 31, 2018 included $34.1 million of net unrealized gains on derivatives and $6.1 million of net realized gains on derivatives. In December 2018, we settled derivative contracts that had scheduled settlement dates from January 2019 through December 2020 in order to lock in the gains on those derivatives. Our cost of sales during the three months ended December 31, 2017 included $1.0 million of net realized losses on derivatives and $8.5 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operated due to higher volumes processed at existing facilities and facilities acquired from acquisitions, partially offset by cost reduction efforts. Due to the higher volumes processed, our cost per barrel has decreased, as shown in the table above. Also contributing to the increase was an increase in acquisition expenses related to the purchase of one of the ranches.

Depreciation and Amortization Expense. The increase was due primarily to acquisitions and developed facilities, partially offset by certain intangible assets being fully amortized during the fiscal year ended March 31, 2018 and nine months ended December 31, 2018.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2018, we completed the sale of our Bakken saltwater disposal business and recorded a gain on disposal of $35.7 million (see Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). In addition, we recorded a net gain of $0.5 million on the disposals of certain other assets during the three months ended December 31, 2018. During the three months ended December 31, 2017, we recorded a net loss of $2.9 million on the disposals of certain assets.


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Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
375,415

 
$
403,236

 
$
(27,821
)
Cost of sales-excluding impact of derivatives
 
355,179

 
390,442

 
(35,263
)
Cost of sales-derivative loss (gain)
 
8,245

 
(1,581
)
 
9,826

Product margin
 
11,991

 
14,375

 
(2,384
)
 
 
 
 
 
 
 
Butane sales:
 


 


 
 
Revenues (1)
 
226,642

 
228,535

 
(1,893
)
Cost of sales-excluding impact of derivatives
 
212,117

 
211,293

 
824

Cost of sales-derivative (gain) loss
 
(7,239
)
 
4,295

 
(11,534
)
Product margin
 
21,764

 
12,947

 
8,817

 
 
 

 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
151,742

 
123,677

 
28,065

Cost of sales-excluding impact of derivatives
 
144,957

 
118,220

 
26,737

Cost of sales-derivative loss (gain)
 
3,331

 
(170
)
 
3,501

Product margin
 
3,454

 
5,627

 
(2,173
)
 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
6,013

 
6,166

 
(153
)
Cost of sales
 
976

 
772

 
204

Product margin
 
5,037

 
5,394

 
(357
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
12,763

 
8,659

 
4,104

General and administrative expenses
 
1,539

 
1,361

 
178

Depreciation and amortization expense
 
6,412

 
6,247

 
165

Gain on disposal or impairment of assets, net
 

 
(214
)
 
214

Total expenses
 
20,714

 
16,053

 
4,661

Segment operating income
 
$
21,532

 
$
22,290

 
$
(758
)
 
 
 
 
 
 
 
Liquids storage capacity - owned and leased (gallons) (2)
 
399,757

 
453,971

 
(54,214
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
428,961

 
399,211

 
29,750

Propane sold ($/gallon)
 
$
0.875

 
$
1.010

 
$
(0.135
)
Cost per propane sold ($/gallon)
 
$
0.847

 
$
0.974

 
$
(0.127
)
Propane product margin ($/gallon)
 
$
0.028

 
$
0.036

 
$
(0.008
)
Propane inventory (gallons) (2)
 
120,239

 
130,940

 
(10,701
)
Propane storage capacity leased to third parties (gallons) (2)
 
30,440

 
33,495

 
(3,055
)
 
 
 
 
 
 
 
Butane sold (gallons)
 
201,891

 
191,504

 
10,387

Butane sold ($/gallon)
 
$
1.123

 
$
1.193

 
$
(0.070
)
Cost per butane sold ($/gallon)
 
$
1.015

 
$
1.126

 
$
(0.111
)
Butane product margin ($/gallon)
 
$
0.108

 
$
0.067

 
$
0.041

Butane inventory (gallons) (2)
 
34,488

 
41,941

 
(7,453
)
Butane storage capacity leased to third parties (gallons) (2)
 
59,220

 
80,346

 
(21,126
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
130,362

 
104,136

 
26,226

Other products sold ($/gallon)
 
$
1.164

 
$
1.188

 
$
(0.024
)
Cost per other products sold ($/gallon)
 
$
1.138

 
$
1.134

 
$
0.004

Other products product margin ($/gallon)
 
$
0.026

 
$
0.054

 
$
(0.028
)
Other products inventory (gallons) (2)
 
8,367

 
9,616

 
(1,249
)

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(1)
Revenues include $10.4 million and $2.0 million of intersegment sales during the three months ended December 31, 2018 and 2017, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.

Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales excluding the impact of derivatives were due primarily to lower commodity prices, partially offset by increased volumes.

Cost of Sales-Derivatives. Our cost of wholesale propane sales included $5.9 million of net unrealized losses on derivatives and $2.3 million of net realized losses on derivatives during the three months ended December 31, 2018. During the three months ended December 31, 2017, our cost of wholesale propane sales included $4.2 million of net unrealized losses on derivatives and $5.8 million of net realized gains on derivatives.

Propane product margins, excluding the impact of derivatives, decreased due to decreasing commodity prices over the quarter.

Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decrease in revenues was due to lower commodity prices, partially offset by increased volumes. The increase in cost of sales, excluding the impact of derivatives, was due to increased volumes.

Cost of Sales-Derivatives. Our cost of butane sales during the three months ended December 31, 2018 included $8.3 million of net unrealized gains on derivatives and $1.1 million of net realized losses on derivatives. Our cost of butane sales included $12.6 million of net unrealized gains on derivatives and $16.9 million of net realized losses on derivatives during the three months ended December 31, 2017.

Butane product margins per gallon of butane sold increased for the current quarter versus the prior year quarter due to generally strong demand.

Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increase in revenue and volume of other products was primarily due to an overall increase in NGL production.

Cost of Sales-Derivatives. Our cost of sales of other products included $1.5 million of net realized losses on derivatives and $1.8 million net unrealized losses on derivatives during the three months ended December 31, 2018. Our cost of sales of other products during the three months ended December 31, 2017 included $0.2 million of net unrealized gains on derivatives and $0.1 million of net realized losses on derivatives.

Other product sales product margins during the three months ended December 31, 2018 were impacted by decreasing commodity prices.

Service Revenues. This revenue includes storage, terminaling and transportation services income. Revenue for the current quarter was consistent with the prior year quarter.

Operating and General and Administrative Expenses. Expenses for the current quarter were higher primarily due to an increase in incentive compensation that is specifically tied to performance. In addition, we also incurred increased consulting fees and other fees related to our Sawtooth joint venture.

Depreciation and Amortization Expense. Expense for the current quarter was consistent with the prior year quarter.


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Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives (1)
 
$
4,580,137

 
$
2,845,482

 
$
1,734,655

Cost of sales-excluding impact of derivatives
 
4,719,781

 
2,822,518

 
1,897,263

Derivative (gain) loss
 
(173,332
)
 
40,015

 
(213,347
)
Product margin (loss)
 
33,688

 
(17,051
)
 
50,739

 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
65,847

 
99,436

 
(33,589
)
Cost of sales-excluding impact of derivatives
 
66,649

 
81,846

 
(15,197
)
Derivative (gain) loss
 
(3,587
)
 
7,199

 
(10,786
)
Product margin
 
2,785

 
10,391

 
(7,606
)
 
 
 
 
 
 
 
Service fees and other revenues
 
3,201

 
94

 
3,107

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
3,407

 
3,343

 
64

General and administrative expenses
 
2,266

 
2,088

 
178

Depreciation and amortization expense
 
321

 
323

 
(2
)
Gain on disposal or impairment of assets, net
 

 
(7,529
)
 
7,529

Total expense (income), net
 
5,994

 
(1,775
)
 
7,769

Segment operating income (loss)
 
$
33,680

 
$
(4,791
)
 
$
38,471

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
42,882

 
22,902

 
19,980

Diesel sold (barrels)
 
15,931

 
15,004

 
927

Ethanol sold (barrels)
 
592

 
900

 
(308
)
Biodiesel sold (barrels)
 
237

 
477

 
(240
)
Refined products and renewables storage capacity - leased (barrels) (2)
 
10,293

 
9,046

 
1,247

Refined products and renewables storage capacity sub-leased to third parties (barrels) (2)
 
272

 
1,068

 
(796
)
Gasoline inventory (barrels) (2)
 
3,942

 
3,007

 
935

Diesel inventory (barrels) (2)
 
1,815

 
1,605

 
210

Ethanol inventory (barrels) (2)
 
1,292

 
684

 
608

Biodiesel inventory (barrels) (2)
 
162

 
153

 
9

Refined products sold ($/barrel)
 
$
77.876

 
$
75.067

 
$
2.809

Cost per refined products sold ($/barrel)
 
$
77.303

 
$
75.517

 
$
1.786

Refined products product margin (loss) ($/barrel)
 
$
0.573

 
$
(0.450
)
 
$
1.023

Renewable products sold ($/barrel)
 
$
79.429

 
$
72.212

 
$
7.217

Cost per renewable products sold ($/barrel)
 
$
76.070

 
$
64.666

 
$
11.404

Renewable products product margin ($/barrel)
 
$
3.359

 
$
7.546

 
$
(4.187
)
 
(1)
Revenues include $0.1 million of intersegment sales during the three months ended December 31, 2017 that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.


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Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales-excluding impact of derivatives were due to an increase in refined products prices and increased volumes. The increase in prices was due primarily to supply and demand for refined fuels at our wholesale locations. The increased volumes were due primarily to an expansion of our refined products operations and the continued demand for motor fuels. During the three months ended December 31, 2018, Gulf Coast prices decreased, which negatively affected our margins-excluding impact of derivatives. During the three months ended December 31, 2017, Gulf Coast prices increased, which favorably impacted our margins-excluding impact of derivatives.

Refined Products Cost of Sales-Derivatives. Our cost of sales during the three months ended December 31, 2018 included a gain of $173.3 million from our risk management activities due primarily to NYMEX futures prices decreasing on our short future positions. Our cost of sales during the three months ended December 31, 2017 included a loss of $40.0 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Renewables Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales-excluding impact of derivatives were due primarily to decreased volumes from the loss of a marketing contract with E Energy Adams, LLC in December 2017, partially offset by an increase in renewables prices due primarily to supply and demand for renewable fuels.

Renewables Cost of Sales-Derivatives. Our cost of sales during the three months ended December 31, 2018 included a gain of $3.6 million from our risk management activities due primarily to NYMEX futures prices decreasing on our short future positions. Our cost of sales during the three months ended December 31, 2017 included a loss of $7.2 million from our risk management activities due primarily to unrealized losses on our open forward positions.

Service Fees and Other Revenues. The increase was due primarily to the reclassification of sublease revenue to Service Fees and Other Revenues beginning April 1, 2018 in conjunction with the adoption of ASC 606. See Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Operating and General and Administrative Expenses. The increase was due primarily to an expansion of our refined products operations to include butane blending in February 2018.

Depreciation and Amortization Expense. Depreciation and amortization expense for the current quarter was consistent with the prior year.

Gain on Disposal or Impairment of Assets, Net. During the three months ended December 31, 2017, we recorded $7.5 million of the deferred gain from the sale of the general partner interest in TransMontaigne Partners L.P. (“TLP”) in February 2016. See Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the reasons for the realization of the deferred gain.

Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
319

 
$
289

 
$
30

Cost of sales
 
494

 
117

 
377

(Loss) margin
 
(175
)
 
172

 
(347
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
331

 
385

 
(54
)
General and administrative expenses
 
15,135

 
20,671

 
(5,536
)
Depreciation and amortization expense
 
753

 
962

 
(209
)
Total expenses
 
16,219

 
22,018

 
(5,799
)
Operating loss
 
$
(16,394
)
 
$
(21,846
)
 
$
5,452


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General and Administrative Expenses. The decrease during the three months ended December 31, 2018 was due primarily to lower equity-based compensation expense. During the three months ended December 31, 2018, equity-based compensation expense was $7.8 million, compared to $12.2 million during the three months ended December 31, 2017. The decrease is primarily due to a decrease in annual bonuses paid in common units of approximately $6.7 million, which is partially offset by an increase in expense of $2.0 million specifically related to our Performance Awards. In connection with the cancellation of the Performance Award plan, all previously unrecognized compensation cost was expensed as of the date of cancellation. For further discussion related to the cancellation of the Performance Award plan, see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report. In addition, legal expenses decreased approximately $1.3 million during the three months ended December 31, 2018, as compared to the prior year period.

 
Equity in Earnings of Unconsolidated Entities

The decrease of $0.8 million during the three months ended December 31, 2018 was due primarily to the sale of our investments in Glass Mountain and E Energy Adams, LLC. On December 22, 2017, we sold our previously held 50% interest in Glass Mountain and on May 3, 2018, we sold our previously held 20% interest in E Energy Adams, LLC. These decreases were partially offset by earnings from our 50% interest in a water services company that we acquired as part of an acquisition in August 2018. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Interest Expense

Interest expense includes interest expense on our Revolving Credit Facility (as defined herein) and senior notes, amortization of debt issuance costs, letter of credit fees, interest on equipment financing notes, and accretion of interest on non-interest bearing debt obligations. The decrease of $12.5 million during the three months ended December 31, 2018 was primarily due to the repurchase of all senior secured notes in the prior year and our redemption of the remaining outstanding 2021 Notes on October 16, 2018.

Loss on Early Extinguishment of Liabilities, Net

During the three months ended December 31, 2018, the net loss (inclusive of debt issuance costs written off) relates to the early extinguishment of a portion of the outstanding senior unsecured notes and the redemption of the remaining outstanding 2021 Notes. During the three months ended December 31, 2017, the net loss (inclusive of debt issuance costs written off) relates to the early extinguishment of all of the remaining outstanding senior secured notes and a portion of the senior unsecured notes. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Other Income, Net

The following table summarizes the components of other income, net for the periods indicated:
 
Three Months Ended December 31,
 
2018
 
2017
 
(in thousands)
Interest income (1)
$
1,301

 
$
1,561

Gavilon legal matter settlement (2)
212

 

Other (3)
(221
)
 
320

Other income, net
$
1,292

 
$
1,881

 
(1)
Relates primarily to a loan receivable associated with our financing of the construction of a natural gas liquids facility that is utilized by a third party.
(2)
Represents an adjustment to the accrual for the estimated cost of the settlement of the Gavilon legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).
(3)
During the three months ended December 31, 2018, this relates primarily to unrealized losses on marketable securities. During the three months ended December 31, 2017, this relates primarily to proceeds from a litigation settlement.


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Income Tax Expense

Income tax expense was $1.0 million during the three months ended December 31, 2018, compared to income tax expense of $0.4 million during the three months ended December 31, 2017. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Noncontrolling Interests - Redeemable and Non-redeemable

Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. The increase in the noncontrolling interest loss of $0.8 million during the three months ended December 31, 2018 was due primarily to a loss from operations of the Sawtooth joint venture, which we sold a 28.5% interest in March 2018, and income from operations of Atlantic Propane, LLC in the prior year quarter, which we sold in July 2018.

 
Segment Operating Results for the Nine Months Ended December 31, 2018 and 2017

Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel amounts)
Revenues:
 
 
 
 
 
 
Crude oil sales
 
$
2,300,703

 
$
1,446,560

 
$
854,143

Crude oil transportation and other
 
116,323

 
89,318

 
27,005

Total revenues (1)
 
2,417,026

 
1,535,878

 
881,148

Expenses:
 
 

 
 

 
 

Cost of sales-excluding impact of derivatives
 
2,263,540

 
1,429,471

 
834,069

Cost of sales-derivative (gain) loss
 
(15,214
)
 
2,974

 
(18,188
)
Operating expenses
 
38,870

 
36,079

 
2,791

General and administrative expenses
 
4,852

 
4,927

 
(75
)
Depreciation and amortization expense
 
56,486

 
61,885

 
(5,399
)
Loss (gain) on disposal or impairment of assets, net
 
105,186

 
(111,290
)
 
216,476

Total expenses
 
2,453,720

 
1,424,046

 
1,029,674

Segment operating (loss) income
 
$
(36,694
)
 
$
111,832

 
$
(148,526
)
 
 
 
 
 
 
 
Crude oil sold (barrels)
 
35,449

 
28,588

 
6,861

Crude oil transported on owned pipelines (barrels)
 
31,385

 
24,176

 
7,209

Crude oil storage capacity - owned and leased (barrels) (2)
 
5,362

 
6,362

 
(1,000
)
Crude oil storage capacity leased to third parties (barrels) (2)
 
2,062

 
2,829

 
(767
)
Crude oil inventory (barrels) (2)
 
1,204

 
1,356

 
(152
)
Crude oil sold ($/barrel)
 
$
64.902

 
$
50.600

 
$
14.302

Cost per crude oil sold ($/barrel)
 
$
63.424

 
$
50.107

 
$
13.317

Crude oil product margin ($/barrel)
 
$
1.478

 
$
0.493

 
$
0.985

 
(1)
Revenues include $22.0 million and $8.9 million of intersegment sales during the nine months ended December 31, 2018 and 2017, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.

Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices and sales volumes during the nine months ended December 31, 2018, compared to the nine months ended December 31, 2017. The increase in crude oil prices has led to an increase in production volumes for us to market. We continue to market crude oil volumes in the majority of the basins across the United States to support our various pipeline, terminal and transportation assets.


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Crude Oil Transportation and Other Revenues. The increase was due to our Grand Mesa Pipeline, which increased revenues by $12.7 million during the nine months ended December 31, 2018, compared to the nine months ended December 31, 2017, primarily due to increased production growth in the DJ Basin. During the nine months ended December 31, 2018, approximately 31.4 million barrels of crude oil were transported on the Grand Mesa Pipeline, which averaged approximately 114,000 barrels per day and financial volumes averaged approximately 117,000 barrels per day (volume amounts are from both internal and external parties). In addition, during the nine months ended December 31, 2018, a new crude marketing contract increased revenues by $16.1 million. This was partially offset by a reduction in railcar sublease revenue.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices and increased volumes during the nine months ended December 31, 2018, compared to the nine months ended December 31, 2017.

Cost of Sales-Derivatives. Our cost of sales during the nine months ended December 31, 2018 included $3.3 million of net realized gains on derivatives and $11.9 million of net unrealized gains on derivatives. Our cost of sales during the nine months ended December 31, 2017 included $0.5 million of net realized losses on derivatives and $2.5 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due to utilities related to the higher volumes on Grand Mesa.

Depreciation and Amortization Expense. The decrease was due primarily to downsizing our fleet of crude transportation assets, which decreased depreciation and amortization expense by $4.1 million during the nine months ended December 31, 2018, compared to the nine months ended December 31, 2017. The decrease was also due to certain intangible assets being fully amortized in prior periods.

Loss (Gain) on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2018, we recorded a net loss of $105.2 million, which included a loss of $105.0 million on our transaction with a third party in which they agreed to be fully responsible for our future minimum volume commitment in exchange for $67.7 million of deficiency credits on a contract with a crude oil pipeline operator and $35.3 million in cash (see Note 2 and Note 13 to our unaudited condensed consolidated financial statements included in this Quarterly Report). The loss also includes additional costs related to this transaction of $2.0 million. In addition, we recorded a loss of $1.3 million primarily related to the sale of two terminals during the nine months ended December 31, 2018. During the nine months ended December 31, 2017, we recorded a gain of $108.6 million on the sale of our previously held 50% interest in Glass Mountain, as well as a net gain of $2.7 million on the sales of excess pipe and certain other assets.


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Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel and per day amounts)
Revenues:
 
 
 
 
 
 
Disposal service fees
 
$
149,018

 
$
109,648

 
$
39,370

Recovered hydrocarbons
 
55,681

 
37,427

 
18,254

Other service revenues
 
26,668

 
14,948

 
11,720

Total revenues
 
231,367

 
162,023

 
69,344

Expenses:
 
 
 
 
 
 
Cost of sales-excluding impact of derivatives
 
2,083

 
1,490

 
593

Cost of sales-derivative (gain) loss
 
(19,392
)
 
11,529

 
(30,921
)
Operating expenses
 
98,324

 
74,570

 
23,754

General and administrative expenses
 
5,830

 
1,948

 
3,882

Depreciation and amortization expense
 
79,212

 
73,847

 
5,365

(Gain) loss on disposal or impairment of assets, net
 
(32,966
)
 
3,114

 
(36,080
)
Revaluation of liabilities
 
800

 
5,600

 
(4,800
)
Total expenses
 
133,891

 
172,098

 
(38,207
)
Segment operating income (loss)
 
$
97,476

 
$
(10,075
)
 
$
107,551

 
 
 
 
 
 
 
Wastewater processed (barrels per day)
 
 
 
 
 
 
Eagle Ford Basin
 
277,431

 
228,698

 
48,733

Permian Basin
 
455,211

 
280,158

 
175,053

DJ Basin
 
159,980

 
114,156

 
45,824

Other Basins
 
82,928

 
66,884

 
16,044

Total
 
975,550

 
689,896

 
285,654

Solids processed (barrels per day)
 
6,728

 
5,357

 
1,371

Skim oil sold (barrels per day)
 
3,516

 
2,923

 
593

Service fees for wastewater processed ($/barrel)
 
$
0.56

 
$
0.58

 
$
(0.02
)
Recovered hydrocarbons for wastewater processed ($/barrel)
 
$
0.21

 
$
0.20

 
$
0.01

Operating expenses for wastewater processed ($/barrel)
 
$
0.37

 
$
0.39

 
$
(0.02
)

Disposal Service Fee Revenues. The increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions. We continue to benefit from the increased rig counts as compared to the prior year in the basins in which we operate, particularly in the Permian Basin.

Recovered Hydrocarbon Revenues. The increase was due primarily to an increase in the volume of wastewater processed at existing facilities as well as facilities acquired from acquisitions and an increase in crude oil prices.

Other Service Revenues. The increase was due primarily to an increase in volumes for solids disposal, water pipeline and freshwater businesses as well as acquisitions.

Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in expenses to bring wastewater to certain of our water solutions facilities.

Cost of Sales-Derivatives. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the hydrocarbons we expect to recover when processing the wastewater and selling the skim oil. Our cost of sales during the nine months ended December 31, 2018 included $23.2 million of net unrealized gains on derivatives and $3.8 million of net realized losses on derivatives. In December 2018, we settled derivative contracts that had scheduled settlement dates from January 2019 through December 2020 in order to lock in the gains on those derivatives. Our

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cost of sales during the nine months ended December 31, 2017 included less than $0.1 million of net realized losses on derivatives and $11.5 million of net unrealized losses on derivatives.

Operating and General and Administrative Expenses. The increase was due primarily to the increase in the number of water disposal facilities and wells that we own and operated due to higher volumes processed at existing facilities and facilities acquired from acquisitions, partially offset by cost reduction efforts. Due to the higher volumes processed, our cost per barrel has decreased, as shown in the table above. Also contributing to the increase was an increase in acquisition expenses related to the purchase of one of the ranches.

Depreciation and Amortization Expense. The increase was due primarily to acquisitions and developed facilities, partially offset by certain intangible assets being fully amortized during the fiscal year ended March 31, 2018 and nine months ended December 31, 2018.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2018, we completed the sale of our Bakken saltwater disposal business and recorded a gain on disposal of $35.7 million (see Note 16 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). In addition, we recorded a net loss of $2.7 million on the disposals of certain other assets during the nine months ended December 31, 2018. During the nine months ended December 31, 2017, we recorded a net loss of $4.4 million on the disposals of certain assets, partially offset by a gain of $1.3 million for the termination of a non-compete agreement, which included the carrying value of the corresponding intangible asset that was written off.

Revaluation of Liabilities. The revaluation of liabilities represents the change in the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations during the fiscal year ended March 31, 2017. The expense during the nine months ended December 31, 2018 and 2017 was due primarily to higher actual and expected production from new customers, resulting in an increase to the expected future royalty payment.


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Liquids

The following table summarizes the operating results of our Liquids segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per gallon amounts)
Propane sales:
 
 
 
 
 
 
Revenues (1)
 
$
800,125

 
$
733,684

 
$
66,441

Cost of sales-excluding impact of derivatives
 
758,079

 
710,216

 
47,863

Cost of sales-derivative loss (gain)
 
7,023

 
(7,081
)
 
14,104

Product margin
 
35,023

 
30,549

 
4,474

 
 
 
 
 
 
 
Butane sales:
 
 
 
 
 
 
Revenues (1)
 
487,816

 
408,312

 
79,504

Cost of sales-excluding impact of derivatives
 
466,522

 
386,850

 
79,672

Cost of sales-derivative (gain) loss
 
(581
)
 
19,985

 
(20,566
)
Product margin
 
21,875

 
1,477

 
20,398

 
 
 
 
 
 
 
Other product sales:
 
 
 
 
 
 
Revenues (1)
 
476,159

 
310,389

 
165,770

Cost of sales-excluding impact of derivatives
 
454,606

 
295,645

 
158,961

Cost of sales-derivative loss (gain)
 
1,596

 
(55
)
 
1,651

Product margin
 
19,957

 
14,799

 
5,158

 
 
 
 
 
 
 
Service revenues:
 
 
 
 
 
 
Revenues (1)
 
16,526

 
16,106

 
420

Cost of sales
 
2,255

 
2,294

 
(39
)
Product margin
 
14,271

 
13,812

 
459

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
31,478

 
25,011

 
6,467

General and administrative expenses
 
4,402

 
3,982

 
420

Depreciation and amortization expense
 
19,339

 
18,718

 
621

Loss on disposal or impairment of assets, net
 
994

 
117,515

 
(116,521
)
Total expenses
 
56,213

 
165,226

 
(109,013
)
Segment operating income (loss)
 
$
34,913

 
$
(104,589
)
 
$
139,502

 
 
 
 
 
 
 
Liquids storage capacity - owned and leased (gallons) (2)
 
399,757

 
453,971

 
(54,214
)
 
 
 
 
 
 
 
Propane sold (gallons)
 
929,401

 
881,719

 
47,682

Propane sold ($/gallon)
 
$
0.861

 
$
0.832

 
$
0.029

Cost per propane sold ($/gallon)
 
$
0.823

 
$
0.797

 
$
0.026

Propane product margin ($/gallon)
 
$
0.038

 
$
0.035

 
$
0.003

Propane inventory (gallons) (2)
 
120,239

 
130,940

 
(10,701
)
Propane storage capacity leased to third parties (gallons) (2)
 
30,440

 
33,495

 
(3,055
)
 
 
 
 
 
 
 
Butane sold (gallons)
 
446,340

 
408,440

 
37,900

Butane sold ($/gallon)
 
$
1.093

 
$
1.000

 
$
0.093

Cost per butane sold ($/gallon)
 
$
1.044

 
$
0.996

 
$
0.048

Butane product margin ($/gallon)
 
$
0.049

 
$
0.004

 
$
0.045

Butane inventory (gallons) (2)
 
34,488

 
41,941

 
(7,453
)
Butane storage capacity leased to third parties (gallons) (2)
 
59,220

 
80,346

 
(21,126
)
 
 
 
 
 
 
 
Other products sold (gallons)
 
372,282

 
296,756

 
75,526

Other products sold ($/gallon)
 
$
1.279

 
$
1.046

 
$
0.233

Cost per other products sold ($/gallon)
 
$
1.225

 
$
0.996

 
$
0.229

Other products product margin ($/gallon)
 
$
0.054

 
$
0.050

 
$
0.004

Other products inventory (gallons) (2)
 
8,367

 
9,616

 
(1,249
)

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(1)
Revenues include $20.9 million and $3.7 million of intersegment sales during the nine months ended December 31, 2018 and 2017, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.

Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales excluding the impact of derivatives were due primarily to higher commodity prices in the first six months of the year and increased volumes moved by railcar due primarily to third party pipeline infrastructure issues.

Cost of Sales-Derivatives. Our cost of wholesale propane sales included $3.9 million of net unrealized losses on derivatives and $3.1 million of net realized losses on derivatives during the nine months ended December 31, 2018. During the nine months ended December 31, 2017, our cost of wholesale propane sales included $1.2 million of net unrealized gains on derivatives and $5.9 million of net realized gains on derivatives.

Propane product margins per gallon of propane sold were higher during the nine months ended December 31, 2018 than during the nine months ended December 31, 2017. Product margins have improved due to the increase in commodity prices outpacing rising inventory values in the first six months.

Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales were due primarily to higher commodity prices in the first six months of the year. Volumes increased due to favorable market conditions.

Cost of Sales-Derivatives. Our cost of butane sales during the nine months ended December 31, 2018 included $0.9 million of net unrealized gains on derivatives and $0.3 million of net realized losses on derivatives. Our cost of butane sales included $3.9 million of net unrealized losses on derivatives and $16.1 million of net realized losses on derivatives during the nine months ended December 31, 2017.

Butane product margins per gallon of butane sold were higher during the nine months ended December 31, 2018 than during the nine months ended December 31, 2017 due primarily to a strong pricing market and generally strong demand.

Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. Other product volumes increase was facilitated by a price arbitrage allowing for products to be sold across markets.

Cost of Sales-Derivatives. Our cost of sales of other products included $1.2 million of net unrealized losses on derivatives and $0.4 million of net realized losses on derivatives during the nine months ended December 31, 2018. Our cost of sales of other products during the nine months ended December 31, 2017 included less than $0.1 million of net unrealized losses on derivatives and $0.1 million of net realized gains on derivatives.

Other product sales product margins during the nine months ended December 31, 2018 were higher primarily due to a strong pricing environment and higher than anticipated production.

Service Revenues. This revenue includes storage, terminaling and transportation services income. The increase during the nine months ended December 31, 2018 was primarily related to an increase in revenues at our Port Hudson terminal as well as an increase in our railcar hauling revenue.

Operating and General and Administrative Expenses. Expenses were higher due to an increase in employee commissions resulting from increased profit margins, increased expenses related to the Sawtooth joint venture and a credit in the prior year for ad valorem taxes.

Depreciation and Amortization Expense. Expense for the current period was consistent with the prior year period.

Loss on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2018 and 2017, we recorded a net loss of $1.0 million and $0.6 million, respectively, related to the retirement of assets. During the nine months ended December 31, 2017, we recorded a goodwill impairment charge of $116.9 million within our natural gas liquids salt cavern storage reporting unit due to the decreased demand for natural gas liquid storage and resulting decline in revenues and earnings as compared to actual and projected results of prior and future periods.


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Refined Products and Renewables

The following table summarizes the operating results of our Refined Products and Renewables segment for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands, except per barrel amounts)
Refined products sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives (1)
 
$
14,127,750

 
$
8,493,357

 
$
5,634,393

Cost of sales-excluding impact of derivatives
 
14,213,306

 
8,408,658

 
5,804,648

Derivative (gain) loss
 
(121,579
)
 
69,854

 
(191,433
)
Product margin
 
36,023

 
14,845

 
21,178

 
 
 
 
 
 
 
Renewables sales:
 
 
 
 
 
 
Revenues-excluding impact of derivatives
 
197,317

 
313,366

 
(116,049
)
Cost of sales-excluding impact of derivatives
 
200,398

 
300,433

 
(100,035
)
Derivative (gain) loss
 
(2,518
)
 
2,332

 
(4,850
)
Product (loss) margin
 
(563
)
 
10,601

 
(11,164
)
 
 
 
 
 
 
 
Service fees and other revenues
 
12,307

 
262

 
12,045

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
9,790

 
10,232

 
(442
)
General and administrative expenses
 
6,846

 
6,343

 
503

Depreciation and amortization expense
 
962

 
971

 
(9
)
Gain on disposal or impairment of assets, net
 
(3,026
)
 
(22,585
)
 
19,559

Total expense (income), net
 
14,572

 
(5,039
)
 
19,611

Segment operating income
 
$
33,195

 
$
30,747

 
$
2,448

 
 
 
 
 
 
 
Gasoline sold (barrels)
 
130,687

 
77,877

 
52,810

Diesel sold (barrels)
 
39,765

 
43,792

 
(4,027
)
Ethanol sold (barrels)
 
1,757

 
2,892

 
(1,135
)
Biodiesel sold (barrels)
 
815

 
1,672

 
(857
)
Refined products and renewables storage capacity - leased (barrels) (2)
 
10,293

 
9,046

 
1,247

Refined products and renewables storage capacity sub-leased to third parties (barrels) (2)
 
272

 
1,068

 
(796
)
Gasoline inventory (barrels) (2)
 
3,942

 
3,007

 
935

Diesel inventory (barrels) (2)
 
1,815

 
1,605

 
210

Ethanol inventory (barrels) (2)
 
1,292

 
684

 
608

Biodiesel inventory (barrels) (2)
 
162

 
153

 
9

Refined products sold ($/barrel)
 
$
82.884

 
$
69.807

 
$
13.077

Cost per refined products sold ($/barrel)
 
$
82.673

 
$
69.685

 
$
12.988

Refined products product margin ($/barrel)
 
$
0.211

 
$
0.122

 
$
0.089

Renewable products sold ($/barrel)
 
$
76.717

 
$
68.660

 
$
8.057

Cost per renewable products sold ($/barrel)
 
$
76.936

 
$
66.338

 
$
10.598

Renewable products product (loss) margin ($/barrel)
 
$
(0.219
)
 
$
2.322

 
$
(2.541
)
 
(1)
Revenues include $0.3 million of intersegment sales during the nine months ended December 31, 2017 that are eliminated in our unaudited condensed consolidated statements of operations.
(2)
Information is presented as of December 31, 2018 and December 31, 2017, respectively.


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Refined Products Revenues and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales-excluding impact of derivatives were due to an increase in refined products prices and increased volumes. The increase in prices was due primarily to supply and demand for refined fuels at our wholesale locations. The increased volumes were due primarily to an expansion of our refined products operations and the continued demand for motor fuels. During the nine months ended December 31, 2018, Gulf Coast prices decreased, which negatively affected our margins-excluding impact of derivatives. During the nine months ended December 31, 2017, Gulf Coast prices increased, which favorably impacted our margins-excluding impact of derivatives.

Refined Products Cost of Sales-Derivatives. Our cost of sales during the nine months ended December 31, 2018 included a gain of $121.6 million from our risk management activities due primarily to NYMEX futures prices decreasing on our short future positions. Our cost of sales during the nine months ended December 31, 2017 included a loss of $69.9 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Renewables Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales-excluding impact of derivatives were due primarily to decreased volumes from the loss of a marketing contract with E Energy Adams, LLC in December 2017, partially offset by an increase in renewables prices due primarily to supply and demand for renewable fuels.

Renewables Cost of Sales-Derivatives. Our cost of sales during the nine months ended December 31, 2018 included a gain of $2.5 million from our risk management activities due primarily to NYMEX futures prices decreasing on our short future positions and unrealized gains on our open forward positions. Our cost of sales during the nine months ended December 31, 2017 included a loss of $2.3 million from our risk management activities due primarily to NYMEX futures prices increasing on our short future positions.

Service Fees and Other Revenues. The increase was due primarily to an early termination settlement for one our sublease agreements during the three months ended June 30, 2018 and the reclassification of sublease revenue to Service Fees and Other Revenues beginning April 1, 2018 in conjunction with the adoption of ASC 606. See Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Operating and General and Administrative Expenses. The increase was due primarily to lower environmental expense during the nine months ended December 31, 2018 from an insurance recovery received during the three months ended June 30, 2018 related to a historical environmental indemnification agreement, partially offset by expansion of our refined products operations into butane blending.

Depreciation and Amortization Expense. Depreciation and amortization expense for the current year was consistent with the prior year.

Gain on Disposal or Impairment of Assets, Net. During the nine months ended December 31, 2018, we recorded a gain of $3.0 million on the sale of our previously held 20% interest in E Energy Adams, LLC (see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report). During the nine months ended December 31, 2017, we recorded $22.6 million of the deferred gain from the sale of the general partner interest in TLP in February 2016. See Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of the reasons for the realization of the deferred gain.


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Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:
 
 
Nine Months Ended December 31,
 
 
 
 
2018
 
2017
 
Change
 
 
(in thousands)
Other revenues
 
 
 
 
 
 
Revenues
 
$
1,066

 
$
696

 
$
370

Cost of sales
 
1,481

 
311

 
1,170

(Loss) margin
 
(415
)
 
385

 
(800
)
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Operating expenses
 
1,034

 
876

 
158

General and administrative expenses
 
64,608

 
52,739

 
11,869

Depreciation and amortization expense
 
2,230

 
2,801

 
(571
)
Loss on disposal or impairment of assets, net
 
889

 

 
889

Total expenses
 
68,761

 
56,416

 
12,345

Operating loss
 
$
(69,176
)
 
$
(56,031
)
 
$
(13,145
)

General and Administrative Expenses. The increase during the nine months ended December 31, 2018 was due primarily to higher equity-based compensation expense. During the nine months ended December 31, 2018, equity-based compensation expense was $32.6 million, compared to $27.1 million during the nine months ended December 31, 2017. The increase is primarily due to an increase in annual bonuses paid in common units of approximately $8.2 million. This increase was partially offset by a decrease specifically related to our Service Awards of approximately $3.2 million. The decrease in expense related to the Service Awards was primarily due to the vesting of awards with higher grant date fair values during the nine months ended December 31, 2017. For further discussion of the Service Awards, see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Other drivers contributing to the overall increase in General and Administrative Expenses include the accrual of $2.5 million recorded during the nine months ended December 31, 2018 related to the LCT Capital, LLC (“LCT”) matter as well as increased legal and acquisition expenses. For further discussion of the LCT matter, see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

 
Equity in Earnings of Unconsolidated Entities

The decrease of $4.3 million during the nine months ended December 31, 2018 was due primarily to the sale of our investments in Glass Mountain and E Energy Adams, LLC. On December 22, 2017, we sold our previously held 50% interest in Glass Mountain and on May 3, 2018, we sold our previously held 20% interest in E Energy Adams, LLC. These decreases were partially offset by earnings from our 50% interest in a water services company that we acquired as part of an acquisition in August 2018. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Interest Expense

The decrease of $24.1 million during the nine months ended December 31, 2018 was partially due to the repurchase of all senior secured notes on December 29, 2017. We also repurchased $84.1 million of the 2023 Notes and $110.9 million of the 6.125% Senior Unsecured Notes due 2025 (the “2025 Notes”) during our fiscal year ended March 31, 2018. Also contributing to the decrease is the October 16, 2018 redemption of the remaining outstanding 2021 Notes.

Loss on Early Extinguishment of Liabilities, Net

During the nine months ended December 31, 2018, the net loss (inclusive of debt issuance costs written off) relates to the early extinguishment of a portion of the outstanding senior unsecured notes and the redemption of the 2021 Notes. During the nine months ended December 31, 2017, the net loss (inclusive of debt issuance costs written off) relates to the early

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extinguishment of all of the senior secured notes and a portion of the senior unsecured notes. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Other (Expense) Income, Net

The following table summarizes the components of other (expense) income, net for the periods indicated:
 
Nine Months Ended December 31,
 
2018
 
2017
 
(in thousands)
Interest income (1)
$
4,073

 
$
4,883

Gavilon legal matter settlement (2)
(34,788
)
 

Other (3)
(291
)
 
368

Other (expense) income, net
$
(31,006
)
 
$
5,251

 
(1)
Relates primarily to a loan receivable associated with our financing of the construction of a natural gas liquids facility that is utilized by a third party.
(2)
Represents the accrual for the estimated cost of the settlement of the Gavilon legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion).
(3)
During the nine months ended December 31, 2018, this relates primarily to unrealized losses on marketable securities. During the nine months ended December 31, 2017, this relates primarily to proceeds from a litigation settlement.

Income Tax Expense

Income tax expense was $2.3 million during the nine months ended December 31, 2018, compared to income tax expense of $0.9 million during the nine months ended December 31, 2017. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Noncontrolling Interests - Redeemable and Non-redeemable

Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. The increase in the noncontrolling interest loss of $1.6 million during the nine months ended December 31, 2018 was due primarily to a loss from operations of the Sawtooth joint venture, which we sold a 28.5% interest in March 2018.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided the non-GAAP financial measures of EBITDA and Adjusted EBITDA. These non-GAAP financial measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other entities, even when similar terms are used to identify such measures.

We define EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. We define 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), income (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. We believe that EBITDA provides additional information to investors for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information to investors for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.


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Other than for our Refined Products and Renewables segment, for purposes of our Adjusted EBITDA calculation, we make a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, we record changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, we reverse the previously recorded unrealized gain or loss and record a realized gain or loss. We do not draw such a distinction between realized and unrealized gains and losses on derivatives of our Refined Products and Renewables segment. The primary hedging strategy of our 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 our 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.

The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA:
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
Net income (loss)
$
110,528

 
$
56,769

 
$
296,178

 
$
(180,517
)
Less: Net loss (income) attributable to noncontrolling interests
307

 
(89
)
 
1,170

 
(221
)
Less: Net (income) loss attributable to redeemable noncontrolling interests

 
(424
)
 
446

 
261

Net income (loss) attributable to NGL Energy Partners LP
110,835

 
56,256

 
297,794

 
(180,477
)
Interest expense
39,151

 
51,825

 
126,930

 
151,391

Income tax expense
988

 
364

 
2,454

 
934

Depreciation and amortization
54,153

 
67,025

 
169,235

 
204,514

EBITDA
205,127

 
175,470

 
596,413

 
176,362

Net unrealized (gains) losses on derivatives
(47,909
)
 
775

 
(30,849
)
 
16,851

Inventory valuation adjustment (1)
(61,665
)
 
27,786

 
(60,497
)
 
6,439

Lower of cost or market adjustments
48,198

 
(3,907
)
 
47,785

 
5,504

Gain on disposal or impairment of assets, net
(36,507
)
 
(112,520
)
 
(337,925
)
 
(12,282
)
Loss on early extinguishment of liabilities, net
10,083

 
21,141

 
10,220

 
22,479

Equity-based compensation expense (2)
7,845

 
12,228

 
32,575

 
27,114

Acquisition expense (3)
5,155

 
186

 
9,270

 
132

Revaluation of liabilities (4)

 

 
800

 
5,600

Gavilon legal matter settlement (5)
(212
)
 

 
34,788

 

Other (6)
2,475

 
1,489

 
5,694

 
4,130

Adjusted EBITDA
$
132,590

 
$
122,648

 
$
308,274

 
$
252,329

 
(1)
Amount reflects the difference between the market value of the inventory of our 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. See “Non-GAAP Financial Measures” section above for a further discussion.
(2)
Equity-based compensation expense in the table above may differ from equity-based compensation expense reported in Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report. Amounts reported in the table above include expense accruals for bonuses expected to be paid in common units, whereas the amounts reported in Note 10 to our unaudited condensed consolidated financial statements only include expenses associated with equity-based awards that have been formally granted.
(3)
Amounts represent expenses we incurred related to legal and advisory costs associated with acquisitions, including amounts accrued related to the LCT Capital, LLC legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion), partially offset by reimbursement for certain legal costs incurred in prior periods.
(4)
Amounts represent the non-cash valuation adjustment of contingent consideration liabilities, offset by the cash payments, related to royalty agreements acquired as part of acquisitions in our Water Solutions segment.

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(5)
Represents the accrual for the estimated cost of the settlement of the Gavilon legal matter (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). We have excluded this amount from Adjusted EBITDA as it relates to transactions that occurred prior to our acquisition of Gavilon LLC in December 2013.
(6)
Amounts for the three months and nine months ended December 31, 2018 represent non-cash operating expenses related to our Grand Mesa Pipeline, unrealized losses on marketable securities and accretion expense for asset retirement obligations. Amounts for the three months and nine months ended December 31, 2017 represent non-cash operating expenses related to our Grand Mesa Pipeline and accretion expense for asset retirement obligations.

The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts reported in our unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of operations:
 
 
 
 
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
54,153

 
$
67,025

 
$
169,235

 
$
204,514

Intangible asset amortization recorded to cost of sales
 
(1,385
)
 
(1,505
)
 
(4,234
)
 
(4,596
)
Depreciation and amortization of unconsolidated entities
 
(67
)
 
(2,422
)
 
(301
)
 
(8,265
)
Depreciation and amortization attributable to noncontrolling interests
 
733

 
97

 
2,189

 
399

Depreciation and amortization attributable to discontinued operations
 

 
(10,985
)
 
(8,660
)
 
(33,830
)
Depreciation and amortization per unaudited condensed consolidated statements of operations
 
$
53,434

 
$
52,210

 
$
158,229

 
$
158,222


 
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
 
(in thousands)
Reconciliation to unaudited condensed consolidated statements of cash flows:
 
 
 
 
Depreciation and amortization per EBITDA table
 
$
169,235

 
$
204,514

Amortization of debt issuance costs recorded to interest expense
 
7,110

 
8,169

Depreciation and amortization of unconsolidated entities
 
(301
)
 
(8,265
)
Depreciation and amortization attributable to noncontrolling interests
 
2,189

 
399

Depreciation and amortization attributable to discontinued operations
 
(8,660
)
 
(33,830
)
Depreciation and amortization per unaudited condensed consolidated statements of cash flows
 
$
169,573

 
$
170,987


The following table reconciles interest expense per the EBITDA table above to interest expense reported in our unaudited condensed consolidated statements of operations for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Interest expense per EBITDA table
 
$
39,151

 
$
51,825

 
$
126,930

 
$
151,391

Interest expense attributable to unconsolidated entities
 

 
(40
)
 
(14
)
 
(115
)
Interest expense attributable to discontinued operations
 

 
(89
)
 
(139
)
 
(358
)
Interest expense per unaudited condensed consolidated statements of operations
 
$
39,151

 
$
51,696

 
$
126,777

 
$
150,918



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The following table summarizes additional amounts attributable to discontinued operations in the EBITDA table above for the periods indicated:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(in thousands)
Income tax expense
 
$
7

 
$

 
$
132

 
$
66

Net unrealized (gains) losses on derivatives
 
$

 
$
(141
)
 
$
78

 
$
89

(Gain) loss on disposal or impairment of assets, net
 
$
(262
)
 
$
(135
)
 
$
(409,002
)
 
$
962


The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated. We have revised certain prior period information to be consistent with the calculation method used in the current fiscal year.
 
 
Three Months Ended December 31, 2018
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Discontinued Operations
 
Consolidated
 
 
(in thousands)
Operating income (loss)
 
$
32,022

 
$
86,737

 
$
21,532

 
$
33,680

 
$
(16,394
)
 
$

 
$
157,577

Depreciation and amortization
 
18,387

 
27,561

 
6,412

 
321

 
753

 

 
53,434

Amortization recorded to cost of sales
 

 

 
37

 
1,348

 

 

 
1,385

Net unrealized gains on derivatives
 
(13,165
)
 
(34,114
)
 
(630
)
 

 

 

 
(47,909
)
Inventory valuation adjustment
 

 

 

 
(61,665
)
 

 

 
(61,665
)
Lower of cost or market adjustments
 
11,446

 

 

 
36,752

 

 

 
48,198

Gain on disposal or impairment of assets, net
 
(75
)
 
(36,171
)
 

 

 

 

 
(36,246
)
Equity-based compensation expense
 

 

 

 

 
7,845

 

 
7,845

Acquisition expense
 

 
3,459

 

 

 
1,696

 

 
5,155

Other income (expense), net
 
3

 
(1,134
)
 
19

 
(180
)
 
2,584

 

 
1,292

Adjusted EBITDA attributable to unconsolidated entities
 

 
1,845

 

 

 

 

 
1,845

Adjusted EBITDA attributable to noncontrolling interest
 

 
(33
)
 
(394
)
 

 

 

 
(427
)
Gavilon legal matter settlement
 

 

 

 

 
(212
)
 

 
(212
)
Other
 
2,075

 
100

 
16

 
285

 

 

 
2,476

Discontinued operations
 

 

 

 

 

 
(158
)
 
(158
)
Adjusted EBITDA
 
$
50,693

 
$
48,250

 
$
26,992

 
$
10,541

 
$
(3,728
)
 
$
(158
)
 
$
132,590


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Three Months Ended December 31, 2017
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Discontinued Operations
 
Consolidated
 
 
(in thousands)
Operating income (loss)
 
$
106,279

 
$
(1,373
)
 
$
22,290

 
$
(4,791
)
 
$
(21,846
)
 
$

 
$
100,559

Depreciation and amortization
 
20,092

 
24,586

 
6,247

 
323

 
962

 

 
52,210

Amortization recorded to cost of sales
 
85

 

 
70

 
1,350

 

 

 
1,505

Net unrealized losses (gains) on derivatives
 
962

 
8,504

 
(8,550
)
 

 

 

 
916

Inventory valuation adjustment
 

 

 

 
27,786

 

 

 
27,786

Lower of cost or market adjustments
 
5,207

 

 

 
(9,114
)
 

 

 
(3,907
)
(Gain) loss on disposal or impairment of assets, net
 
(107,574
)
 
2,929

 
(214
)
 
(7,529
)
 

 

 
(112,388
)
Equity-based compensation expense
 

 

 

 

 
12,228

 

 
12,228

Acquisition expense
 

 

 

 

 
186

 

 
186

Other income, net
 
5

 
190

 
93

 
151

 
1,442

 

 
1,881

Adjusted EBITDA attributable to unconsolidated entities
 
3,887

 
144

 

 
1,018

 

 

 
5,049

Adjusted EBITDA attributable to noncontrolling interest
 

 
(185
)
 

 

 

 

 
(185
)
Other
 
1,377

 
91

 
21

 

 

 

 
1,489

Discontinued operations
 

 

 

 

 

 
35,319

 
35,319

Adjusted EBITDA
 
$
30,320

 
$
34,886

 
$
19,957

 
$
9,194

 
$
(7,028
)
 
$
35,319

 
$
122,648


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Nine Months Ended December 31, 2018
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Discontinued Operations
 
Consolidated
 
 
(in thousands)
Operating (loss) income
 
$
(36,694
)
 
$
97,476

 
$
34,913

 
$
33,195

 
$
(69,176
)
 
$

 
$
59,714

Depreciation and amortization
 
56,486

 
79,212

 
19,339

 
962

 
2,230

 

 
158,229

Amortization recorded to cost of sales
 
80

 

 
110

 
4,044

 

 

 
4,234

Net unrealized (gains) losses on derivatives
 
(11,895
)
 
(23,216
)
 
4,183

 

 

 

 
(30,928
)
Inventory valuation adjustment
 

 

 

 
(60,497
)
 

 

 
(60,497
)
Lower of cost or market adjustments
 
11,446

 

 
(504
)
 
36,843

 

 

 
47,785

Loss (gain) on disposal or impairment of assets, net
 
105,186

 
(32,966
)
 
994

 
(3,026
)
 
889

 

 
71,077

Equity-based compensation expense
 

 

 

 

 
32,575

 

 
32,575

Acquisition expense
 

 
3,459

 
161

 

 
5,696

 

 
9,316

Other income (expense), net
 
26

 
(1,504
)
 
63

 
66

 
(29,657
)
 

 
(31,006
)
Adjusted EBITDA attributable to unconsolidated entities
 

 
2,214

 

 
476

 

 

 
2,690

Adjusted EBITDA attributable to noncontrolling interest
 

 
(119
)
 
(945
)
 

 

 

 
(1,064
)
Revaluation of liabilities
 

 
800

 

 

 

 

 
800

Gavilon legal matter settlement
 

 

 

 

 
34,788

 

 
34,788

Other
 
4,976

 
304

 
49

 
365

 

 

 
5,694

Discontinued operations
 

 

 

 

 

 
4,867

 
4,867

Adjusted EBITDA
 
$
129,611

 
$
125,660

 
$
58,363

 
$
12,428

 
$
(22,655
)
 
$
4,867

 
$
308,274


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Nine Months Ended December 31, 2017
 
 
Crude Oil
Logistics
 
Water
Solutions
 
Liquids
 
Refined
Products
and
Renewables
 
Corporate
and
Other
 
Discontinued Operations
 
Consolidated
 
 
(in thousands)
Operating income (loss)
 
$
111,832

 
$
(10,075
)
 
$
(104,589
)
 
$
30,747

 
$
(56,031
)
 
$

 
$
(28,116
)
Depreciation and amortization
 
61,885

 
73,847

 
18,718

 
971

 
2,801

 

 
158,222

Amortization recorded to cost of sales
 
254

 

 
211

 
4,131

 

 

 
4,596

Net unrealized losses on derivatives
 
2,473

 
11,526

 
2,763

 

 

 

 
16,762

Inventory valuation adjustment
 

 

 

 
6,439

 

 

 
6,439

Lower of cost or market adjustments
 
5,207

 

 

 
297

 

 

 
5,504

(Gain) loss on disposal or impairment of assets, net
 
(111,290
)
 
3,114

 
117,515

 
(22,585
)
 

 

 
(13,246
)
Equity-based compensation expense
 

 

 

 

 
27,114

 

 
27,114

Acquisition expense
 

 

 

 

 
132

 

 
132

Other income, net
 
99

 
210

 
100

 
486

 
4,356

 

 
5,251

Adjusted EBITDA attributable to unconsolidated entities
 
11,507

 
425

 

 
3,125

 

 

 
15,057

Adjusted EBITDA attributable to noncontrolling interest
 

 
(619
)
 

 

 

 

 
(619
)
Revaluation of liabilities
 

 
5,600

 

 

 

 

 
5,600

Other
 
3,790

 
276

 
64

 

 

 

 
4,130

Discontinued operations
 

 

 

 

 

 
45,503

 
45,503

Adjusted EBITDA
 
$
85,757

 
$
84,304

 
$
34,782

 
$
23,611

 
$
(21,628
)
 
$
45,503

 
$
252,329


Liquidity, Sources of Capital and Capital Resource Activities

Our principal sources of liquidity and capital are the cash flows from our operations, borrowings under our Revolving Credit Facility and accessing capital markets. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a detailed description of our long-term debt. Our cash flows from operations are discussed below.

Our borrowing needs vary during the year due in part to the seasonal nature of our Liquids and Refined Products and Renewables businesses. Our greatest working capital borrowing needs generally occur during the period of June through December, when we are building our natural gas liquids inventories in anticipation of the heating season as well as building our gasoline inventory in anticipation of the winter gasoline contango and blending season. Our working capital borrowing needs generally decline during the period of January through March, when the cash flows from our Liquids segment are the greatest and gasoline inventories need to be minimized due to certain inventory requirements.

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement) to unitholders as of the record date. Available cash for any quarter generally consists of all cash on hand at the end of that quarter, less the amount of cash reserves established by our general partner, to (i) provide for the proper conduct of our business, (ii) comply with applicable law, any of our debt instruments or other agreements, and (iii) provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters.

We believe that our anticipated cash flows from operations and the borrowing capacity under our Revolving Credit Facility are sufficient to meet our liquidity needs. If our plans or assumptions change or are inaccurate, or if we make acquisitions, we may need to raise additional capital or sell assets. Our ability to raise additional capital, if necessary, depends on various factors and conditions, including market conditions. We cannot give any assurances that we can raise additional capital to meet these needs. Commitments or expenditures, if any, we may make toward any acquisition projects are at our discretion.


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We have made the strategic decision to completely exit the Retail Propane business and Bakken saltwater disposal business and re-deploy proceeds from these sales to repay certain indebtedness and for certain near-term strategic growth opportunities, primarily in the Water Solutions segment. We believe our Water Solutions and Crude Oil Logistics businesses have organic growth opportunities with the activity in our core basins, including the Delaware Basin and DJ Basin in particular. We plan to pursue a strategy of growth through acquisitions as well as undertaking certain capital expansion projects. We expect to consider financing future acquisitions and capital expansion projects through available capacity on our Revolving Credit Facility or other forms of financing.

Other sources of liquidity during the three months ended December 31, 2018 are discussed below.

Dispositions

On November 30, 2018, we completed the sale of NGL Water Solutions Bakken, LLC to an affiliate of Tallgrass Energy, LP for $91.0 million in gross cash proceeds, which we used to pay down amounts outstanding under our Revolving Credit Facility.

Long-Term Debt

Credit Agreement

We are party to a $1.765 billion credit agreement (as amended, the “Credit Agreement”) with a syndicate of banks. As of December 31, 2018, the Credit Agreement includes a revolving credit facility to fund working capital needs, which had a capacity of $1.250 billion for cash borrowings and letters of credit (the “Working Capital Facility”), and a revolving credit facility to fund acquisitions and expansion projects, which had a capacity of $515.0 million (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”). Our Revolving Credit Facility allows us to reallocate amounts between the Expansion Capital Facility and Working Capital Facility. During the three months ended December 31, 2018, we reallocated $50.0 million from the Working Capital Facility to the Expansion Capital Facility. We had letters of credit of $157.9 million on the Working Capital Facility at December 31, 2018.

On February 6, 2019, we amended our revolving credit facility, to among other things, reset and increase the basket for the repurchase of common units, decrease the total leverage indebtedness covenant ratio for future quarters and amend the defined term “Consolidated EBITDA.” See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

We were in compliance with the covenants under the Credit Agreement at December 31, 2018.

Senior Unsecured Notes

The senior unsecured notes include the 2019 Notes, 2021 Notes, 2023 Notes and the 2025 Notes.

Redemption and Repurchases

On October 16, 2018, we redeemed all of our remaining outstanding 2021 Notes. 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. The final semiannual interest payment on the 6.875% Senior Unsecured Notes was made on October 15, 2018, to the holders of record at the close of business on October 1, 2018. We used amounts available under our Revolving Credit Facility to fund the redemption.

During the nine months ended December 31, 2018, we repurchased $13.5 million of the 2019 Notes and $8.6 million of the 2023 Notes. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Compliance

At December 31, 2018, we were in compliance with the covenants under the indentures for all of the senior unsecured notes.

For a further discussion of our Revolving Credit Facility and senior unsecured note redemption and repurchases, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

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Revolving Credit Balances

The following table summarizes our Revolving Credit Facility borrowings for the periods indicated:
 
 
Average Balance
Outstanding
 
Lowest
Balance
 
Highest
Balance
 
 
(in thousands)
Nine Months Ended December 31, 2018
 
 
 
 
 
 
Expansion capital borrowings
 
$
69,711

 
$

 
$
296,500

Working capital borrowings
 
$
818,638

 
$
439,000

 
$
1,095,500

 
 
 
 
 
 
 
Nine Months Ended December 31, 2017
 
 
 
 
 
 
Expansion capital borrowings
 
$
139,704

 
$

 
$
397,000

Working capital borrowings
 
$
811,536

 
$
719,500

 
$
1,014,500


Capital Expenditures, Acquisitions and Other Investments

The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and line fill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated. Amounts in the table below include capital expenditures and acquisitions related to the Retail Propane segment.
 
 
Capital Expenditures
 
 
 
Other
 
 
Expansion (1)
 
Maintenance (2)
 
Acquisitions (3)
 
Investments (4)
 
 
(in thousands)
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
$
113,182

 
$
9,521

 
$

 
$

2017
 
$
39,143

 
$
12,156

 
$
1,047

 
$
13,724

 
 
 
 
 
 
 
 
 
Nine Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
$
303,947

 
$
37,210

 
$
229,871

 
$
92

2017
 
$
83,175

 
$
26,677

 
$
49,481

 
$
27,874

 
(1)
There was no amount for the three months ended December 31, 2018 and the amount for the nine months ended December 31, 2018 includes $0.4 million related to our Retail Propane segment. Amounts for the three months and nine months ended December 31, 2017 include $8.0 million and $10.0 million, respectively, related to our Retail Propane segment.
(2)
There was no amount for the three months ended December 31, 2018 and the amount for the nine months ended December 31, 2018 includes $3.8 million related to our Retail Propane segment. Amounts for the three months and nine months ended December 31, 2017 include $4.1 million and $11.9 million, respectively, related to our Retail Propane segment.
(3)
There was no amount for the three months ended December 31, 2018 and the amount for the nine months ended December 31, 2018 includes $31.9 million related to our Retail Propane segment. Amounts for the three months and nine months ended December 31, 2017 include $1.1 million and $29.6 million, respectively, related to our Retail Propane segment.
(4)
Amounts for the three months and nine months ended December 31, 2018 and 2017 primarily related to contributions made to unconsolidated entities. There were no amounts related to our Retail Propane segment for the three months or nine months ended December 31, 2018. Amounts for the three months and nine months ended December 31, 2017 include $6.4 million and $6.4 million, respectively, related to our Retail Propane segment.


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Cash Flows

The following table summarizes the sources (uses) of our cash flows from continuing operations for the periods indicated:
 
 
Nine Months Ended December 31,
Cash Flows Provided by (Used in)
 
2018
 
2017
 
 
(in thousands)
Operating activities, before changes in operating assets and liabilities
 
$
72,439

 
$
121,440

Changes in operating assets and liabilities
 
12,208

 
(154,357
)
Operating activities-continuing operations
 
$
84,647

 
$
(32,917
)
Investing activities-continuing operations
 
$
(287,289
)
 
$
156,052

Financing activities-continuing operations
 
$
(672,892
)
 
$
(89,263
)

Operating Activities-Continuing Operations. The seasonality of our natural gas liquids businesses has a significant effect on our cash flows from operating activities. Increases in natural gas liquids prices typically reduce our operating cash flows due to higher cash requirements to fund increases in inventories, and decreases in natural gas liquids prices typically increase our operating cash flows due to lower cash requirements to fund increases in inventories. In our Liquids business, we typically experience operating losses or lower operating income during our first and second quarters, or the six months ending September 30, as a result of lower volumes of natural gas liquids sales and when we are building our inventory levels for the upcoming heating season. The heating season runs through the six months ending March 31. The seasonal motor fuel blend during the third quarter of our fiscal year impacts the value of our gasoline inventory in our Refined Products and Renewables business and also represents a period when we build inventory into our system. We borrow under our Revolving Credit Facility to supplement our operating cash flows during the periods in which we are building inventory. Our operations, and as a result our cash flows, are also impacted by positive and negative movements in commodity prices, which cause fluctuations in the value of inventory, accounts receivable and payables, due to increases and decreases in revenues and cost of sales. The decrease in net cash used in operating activities during the nine months ended December 31, 2018 was due primarily to fluctuations in the value of accounts receivable and accounts payable during the nine months ended December 31, 2018.

Investing Activities-Continuing Operations. Net cash used in investing activities was $287.3 million during the nine months ended December 31, 2018, compared to net cash provided by investing activities of $156.1 million during the nine months ended December 31, 2017. The increase in net cash used in investing activities was due primarily to:

an increase in capital expenditures from $82.3 million during the nine months ended December 31, 2017 to $304.0 million during the nine months ended December 31, 2018 due primarily to capital expenditures for expansion projects in our Water Solutions segment;
a $211.5 million decrease in proceeds from sales of assets due primarily to the sales of our previously held 50% interest in Glass Mountain and an increase in proceeds from the sale of excess pipe in our Crude Oil Logistics segment during the nine months ended December 31, 2017 and the sale of our Bakken saltwater disposal business and our previously held 20% interest in E Energy Adams, LLC during the nine months ended December 31, 2018;
a $156.7 million increase in cash paid for acquisitions and investments in unconsolidated entities during the nine months ended December 31, 2018; and
a $20.0 million deposit received during the nine months ended December 31, 2017 related to the sale of a portion of our Retail Propane segment on March 30, 2018.

These increases in net cash used in investing activities were partially offset by a $181.6 million increase in cash flows to settle derivatives.

Financing Activities-Continuing Operations. Net cash used in financing activities was $672.9 million during the nine months ended December 31, 2018, compared to net cash used in financing activities of $89.3 million during the nine months ended December 31, 2017. The increase in net cash used in financing activities was due primarily to:

a decrease of $405.5 million in borrowings on our Revolving Credit Facility (net of repayments) during the nine months ended December 31, 2018; and
a decrease of $202.7 million due to proceeds received from the sale of our preferred units during the nine months ended December 31, 2017.

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These increases in net cash used in financing activities were partially offset by a decrease in repurchases of our senior secured and senior unsecured notes of $20.1 million during the nine months ended December 31, 2018.

Distributions Declared

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement) to unitholders as of the record date. See further discussion of our cash distribution policy in Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities included in our Annual Report.

On December 17, 2018, the board of directors of our general partner declared a distribution on the Class B Preferred Units for the three months ended December 31, 2018 of $4.7 million in the aggregate, which was paid to the holders of the Class B Preferred Units on January 15, 2019.

On January 22, 2019, the board of directors of our general partner declared a distribution of $0.39 per common unit to the unitholders of record on February 6, 2019. In addition, the board of directors declared a distribution to the holders of the Class A Preferred Units of $6.4 million in the aggregate. The distributions to both the common unitholders and the holders of the Class A Preferred Units are to be paid on February 14, 2019.

For a further discussion of our distributions, see Note 10 to our unaudited condensed consolidated financial statements included in this Quarterly Report.


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Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2018 for our fiscal years ending thereafter:
 
 
 
 
Three Months Ending March 31,
 
Fiscal Year Ending March 31,
 
 
 
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
 
(in thousands)
Principal payments on long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expansion capital borrowings
 
$

 
$

 
$

 
$

 
$

 
$

 
$

Working capital borrowings
 
889,000

 

 

 

 
889,000

 

 

Senior unsecured notes
 
1,336,344

 

 
339,886

 

 

 

 
996,458

Other long-term debt
 
5,492

 
161

 
648

 
4,683

 

 

 

Interest payments on long-term debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revolving Credit Facility (1)
 
138,102

 
11,963

 
48,515

 
48,515

 
29,109

 

 

Senior unsecured notes
 
400,090

 
20,626

 
78,094

 
69,384

 
69,384

 
69,384

 
93,218

Other long-term debt
 
376

 
57

 
210

 
109

 

 

 

Letters of credit
 
157,938

 

 

 

 
157,938

 

 

Future minimum lease payments under noncancelable operating leases
 
422,314

 
29,233

 
120,861

 
99,496

 
72,693

 
52,270

 
47,761

Future minimum throughput payments under noncancelable agreements (2)
 
56,127

 
12,924

 
43,203

 

 

 

 

Construction commitments (3)
 
21,586

 
1,516

 
20,070

 

 

 

 

Fixed-price commodity purchase commitments:
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil
 
64,647

 
64,647

 

 

 

 

 

Natural gas liquids
 
14,591

 
13,228

 
1,363

 

 

 

 

Index-price commodity purchase commitments (4):
 

 
 
 
 
 
 
 
 
 
 
 
 
Crude oil (5)
 
2,469,203

 
520,372

 
751,988

 
401,873

 
344,897

 
255,400

 
194,673

Natural gas liquids
 
255,702

 
223,915

 
31,787

 

 

 

 

Total contractual obligations
 
$
6,231,512

 
$
898,642

 
$
1,436,625

 
$
624,060

 
$
1,563,021

 
$
377,054

 
$
1,332,110

 
(1)
The estimated interest payments on our Revolving Credit Facility are based on principal and letters of credit outstanding at December 31, 2018. See Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information on our Credit Agreement.
(2)
We have executed noncancelable agreements with crude oil operators, which guarantee us minimum monthly shipping capacity on the pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement, with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. See Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.
(3)
At December 31, 2018, the construction commitments relate to two new towboats and four new barges currently being built.
(4)
Index prices are based on a forward price curve at December 31, 2018. A theoretical change of $0.10 per gallon of natural gas liquids in the underlying commodity price at December 31, 2018 would result in a change of $39.3 million in the value of our index-price natural gas liquids purchase commitments. A theoretical change of $1.00 per barrel of crude oil in the underlying commodity price at December 31, 2018 would result in a change of $56.9 million in the value of our index-price crude oil purchase commitments. See Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report for further detail of the commitments.
(5)
Our crude oil index-price purchase commitments exceed our crude oil index-price sales commitments (see Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report) due primarily to our long-term purchase commitments for crude oil that we purchase and ship on the Grand Mesa Pipeline. As these purchase commitments are deliver-or-pay contracts, we have not entered into corresponding long-term sales contracts for volumes we may not receive.


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Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements other than the operating leases discussed in Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Environmental Legislation

See our Annual Report for a discussion of proposed environmental legislation and regulations that, if enacted, could result in increased compliance and operating costs. However, at this time we cannot predict the structure or outcome of any future legislation or regulations or the eventual cost we could incur in compliance.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements that are applicable to us, see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires the selection and application of appropriate accounting principles to the relevant facts and circumstances of our operations and the use of estimates made by management. We have identified certain accounting policies that are most important to the portrayal of our consolidated financial position and results of operations. The application of these accounting policies, which requires subjective or complex judgments regarding estimates and projected outcomes of future events, and changes in these accounting policies, could have a material effect on our consolidated financial statements. There have been no material changes in the critical accounting policies previously disclosed in our Annual Report, with the exception of revenue recognition. For further discussion of the changes to our revenue recognition policy, see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report.


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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

A significant portion of our long-term debt is variable-rate debt. Changes in interest rates impact the interest payments of our variable-rate debt but generally do not impact the fair value of the liability. Conversely, changes in interest rates impact the fair value of our fixed-rate debt but do not impact its cash flows.

Our Revolving Credit Facility is variable-rate debt with interest rates that are generally indexed to bank prime or LIBOR interest rates. At December 31, 2018, we had $0.9 billion of outstanding borrowings under our Revolving Credit Facility at a weighted average interest rate of 4.81%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $1.1 million, based on borrowings outstanding at December 31, 2018.

Commodity Price and Credit Risk

Our operations are subject to certain business risks, including commodity price risk and credit risk. Commodity price risk is the risk that the market value of crude oil, natural gas liquids, or refined and renewables products will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract.

Procedures and limits for managing commodity price risks and credit risks are specified in our market risk policy and credit policy, respectively. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel. Credit risk is monitored daily and exposure is minimized through customer deposits, restrictions on product liftings, letters of credit, and entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions. At December 31, 2018, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.

The crude oil, natural gas liquids, and refined and renewables products industries are “margin-based” and “cost-plus” businesses in which gross profits depend on the differential of sales prices over supply costs. We have no control over market conditions. As a result, our profitability may be impacted by sudden and significant changes in the price of crude oil, natural gas liquids, and refined and renewables products.

We engage in various types of forward contracts and financial derivative transactions to reduce the effect of price volatility on our product costs, to protect the value of our inventory positions, and to help ensure the availability of product during periods of short supply. We attempt to balance our contractual portfolio by purchasing volumes when we have a matching purchase commitment from our wholesale and retail customers. We may experience net unbalanced positions from time to time. In addition to our ongoing policy to maintain a balanced position, for accounting purposes we are required, on an ongoing basis, to track and report the market value of our derivative portfolio.

Although we use financial derivative instruments to reduce the market price risk associated with forecasted transactions, we do not account for financial derivative transactions as hedges. We record the changes in fair value of these financial derivative transactions within cost of sales in our unaudited condensed consolidated statements of operations. The following table summarizes the hypothetical impact on the December 31, 2018 fair value of our commodity derivatives of an increase of 10% in the value of the underlying commodity (in thousands):
 
Increase
(Decrease)
To Fair Value
Crude oil (Crude Oil Logistics segment)
$
(7,312
)
Propane (Liquids segment)
$
2,460

Other products (Liquids segment)
$
(582
)
Gasoline (Refined Products and Renewables segment)
$
(18,168
)
Diesel (Refined Products and Renewables segment)
$
(15,317
)
Ethanol (Refined Products and Renewables segment)
$
(2,705
)
Biodiesel (Refined Products and Renewables segment)
$
2,522

Canadian dollars (Liquids segment)
$
489



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Fair Value

We use observable market values for determining the fair value of our derivative instruments. In cases where actively quoted prices are not available, other external sources are used which incorporate information about commodity prices in actively quoted markets, quoted prices in less active markets and other market fundamental analysis.

Item 4.
Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer of our general partner, as appropriate, to allow timely decisions regarding required disclosure.

We completed an evaluation under the supervision and with participation of our management, including the principal executive officer and principal financial officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures at December 31, 2018. Based on this evaluation, the principal executive officer and principal financial officer of our general partner have concluded that as of December 31, 2018, such disclosure controls and procedures were effective to provide the reasonable assurance described above.

There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


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PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

We are involved from time to time in various legal proceedings and claims arising in the ordinary course of business. For information related to legal proceedings, see the discussion under the captions “Legal Contingencies” and “Environmental Matters” in Note 9 to our unaudited condensed consolidated financial statements included in this Quarterly Report, which information is incorporated by reference into this Item 1.

Item 1A.    Risk Factors

There have been no material changes in the risk factors previously disclosed in Part I, Item 1A–“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

During November 2018, 15,550 common units were surrendered by employees to pay tax withholdings in connection with the vesting of restricted units. As a result, we are deeming the surrenders to be “repurchases.” The average price paid per common unit was $9.97. These repurchases were not part of a publicly announced program to repurchase our common units, nor do we have a publicly announced program to repurchase our common units.

Item 3.    Defaults Upon Senior Securities

Not applicable.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.    Other Information

Amendment to Credit Agreement

On February 6, 2019, NGL Energy Partners LP (the “Partnership”), NGL Energy Operating LLC, in its capacity as borrowers’ agent and the other subsidiary borrowers thereto entered into Amendment No. 7 (the “Credit Agreement Amendment”) to the Partnership’s Amended and Restated Credit Agreement (the “Credit Agreement”) with Deutsche Bank Trust Company Americas, as administrative agent, and the other financial institutions party thereto. Among other changes, the Credit Agreement Amendment reset the basket for the repurchase of common units with a limit of $150 million in aggregate during the remaining term of the Credit Agreement, not to exceed $50 million per fiscal quarter, so long as, both immediately before and after giving pro forma effect to the repurchases, the Partnership’s Leverage Ratio (as defined in our Credit Agreement) is less than 3.25x and Revolving Availability (also as defined in our Credit Agreement) is greater than or equal to $200 million. In addition, the amendment decreases the Maximum Total Leverage Indebtedness Ratio to 6.25x beginning September 30, 2019 with a further decrease to 6.00x beginning March 31, 2020, and amends the defined term “Consolidated EBITDA.”

Consolidated EBITDA solely for the two quarters ending December 31, 2018 and March 31, 2019, may be adjusted to exclude the expenses recognized arising from the Gavilon Energy EPA Settlement (as defined in the Credit Agreement).

The Credit Agreement is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. The above description of the material terms of the Credit Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.1.


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Item 6.    Exhibits
Exhibit Number
 
Exhibit
4.1*
 
4.2*
 
4.3*
 
4.4*
 
4.5*
 
4.6*
 
4.7*
 
4.8*
 
4.9*
 
4.10*
 
4.11*
 
4.12*
 
10.1*
 
31.1*
 
31.2*
 
32.1*
 
32.2*
 
101.INS**
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH**
 
XBRL Schema Document
101.CAL**
 
XBRL Calculation Linkbase Document
101.DEF**
 
XBRL Definition Linkbase Document
101.LAB**
 
XBRL Label Linkbase Document
101.PRE**
 
XBRL Presentation Linkbase Document
 
*
Exhibits filed with this report.
**
The following documents are formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at December 31, 2018 and March 31, 2018, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended December 31, 2018 and 2017, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended December 31, 2018 and 2017, (iv) Unaudited Condensed Consolidated Statement of Changes in Equity for the nine months ended December 31, 2018, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2018 and 2017, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
NGL ENERGY PARTNERS LP
 
 
 
 
By:
NGL Energy Holdings LLC, its general partner
 
 
 
Date: February 28, 2019
 
By:
/s/ H. Michael Krimbill
 
 
 
H. Michael Krimbill
 
 
 
Chief Executive Officer
 
 
 
Date: February 28, 2019
 
By:
/s/ Robert W. Karlovich III
 
 
 
Robert W. Karlovich III
 
 
 
Chief Financial Officer


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