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

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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    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    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
o
Non-accelerated filer
o
 
Smaller reporting company
Emerging growth company
 
 
 

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.   

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

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbols
 
Name of Each Exchange on Which Registered
Common units representing Limited Partner Interests
 
NGL
 
New York Stock Exchange
Fixed-to-floating rate cumulative redeemable perpetual preferred units
 
NGL-PB
 
New York Stock Exchange
Fixed-to-floating rate cumulative redeemable perpetual preferred units
 
NGL-PC
 
New York Stock Exchange

At August 5, 2020, there were 128,771,715 common units issued and outstanding.



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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:

changes in general economic conditions, including market and macroeconomic disruptions resulting from the novel strain of coronavirus (“COVID-19”) pandemic and related governmental responses;
the prices of crude oil, natural gas liquids, gasoline, diesel, 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, and biodiesel;
the level of crude oil and natural gas drilling and production in areas where we have water treatment and disposal facilities;
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, 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;
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 effect of legislative and regulatory actions on hydraulic fracturing, water disposal and transportation, 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 markets;
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, water disposal, recycling, and discharge services;
the ability to renew leases for our leased equipment and storage facilities;

1

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the nonpayment, nonperformance or bankruptcy by our counterparties;
the availability and cost of capital and our ability to access certain capital sources;
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 crude oil recovered during the water treatment process;
changes in the financial condition and results of operations of entities in which we own noncontrolling equity interests;
the costs and effects of legal and administrative proceedings;
political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and marketing of crude oil, refined products, natural gas, natural gas liquids, gasoline, diesel or biodiesel; 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, 2020.

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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)
 
June 30, 2020
 
March 31, 2020
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
26,400

 
$
22,704

Accounts receivable-trade, net of allowance for expected credit losses of $3,674 and $4,540, respectively
424,814

 
566,834

Accounts receivable-affiliates
14,814

 
12,934

Inventories
135,918

 
69,634

Prepaid expenses and other current assets
75,433

 
101,981

Total current assets
677,379

 
774,087

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $570,806 and $529,068, respectively
2,833,002

 
2,851,555

GOODWILL
993,114

 
993,587

INTANGIBLE ASSETS, net of accumulated amortization of $670,382 and $631,449, respectively
1,574,216

 
1,612,480

INVESTMENTS IN UNCONSOLIDATED ENTITIES
22,626

 
23,182

OPERATING LEASE RIGHT-OF-USE ASSETS
177,010

 
180,708

OTHER NONCURRENT ASSETS
48,739

 
63,137

Total assets
$
6,326,086

 
$
6,498,736

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable-trade
$
367,463

 
$
515,049

Accounts payable-affiliates
22,864

 
17,717

Accrued expenses and other payables
142,836

 
232,062

Advance payments received from customers
25,326

 
19,536

Current maturities of long-term debt
4,521

 
4,683

Operating lease obligations
53,720

 
56,776

Total current liabilities
616,730

 
845,823

LONG-TERM DEBT, net of debt issuance costs of $24,022 and $19,795, respectively, and current maturities
3,281,402

 
3,144,848

OPERATING LEASE OBLIGATIONS
120,986

 
121,013

OTHER NONCURRENT LIABILITIES
112,034

 
114,079

COMMITMENTS AND CONTINGENCIES (NOTE 9)


 


 
 
 
 
CLASS D 9.00% PREFERRED UNITS, 600,000 and 600,000 preferred units issued and outstanding, respectively
544,151

 
537,283

 
 
 
 
EQUITY:
 
 
 
General partner, representing a 0.1% interest, 128,901 and 128,901 notional units, respectively
(51,474
)
 
(51,390
)
Limited partners, representing a 99.9% interest, 128,771,715 and 128,771,715 common units issued and outstanding, respectively
1,283,491

 
1,366,152

Class B preferred limited partners, 12,585,642 and 12,585,642 preferred units issued and outstanding, respectively
305,468

 
305,468

Class C preferred limited partners, 1,800,000 and 1,800,000 preferred units issued and outstanding, respectively
42,891

 
42,891

Accumulated other comprehensive loss
(341
)
 
(385
)
Noncontrolling interests
70,748

 
72,954

Total equity
1,650,783

 
1,735,690

Total liabilities and equity
$
6,326,086

 
$
6,498,736


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 June 30,
 
 
2020
 
2019
REVENUES:
 
 
 
 
Crude Oil Logistics
 
$
276,039

 
$
716,160

Water Solutions
 
88,065

 
71,783

Liquids and Refined Products
 
479,998

 
1,083,693

Other
 
313

 
255

Total Revenues
 
844,415

 
1,871,891

COST OF SALES:
 
 
 
 
Crude Oil Logistics
 
217,557

 
649,240

Water Solutions
 
4,700

 
(2,807
)
Liquids and Refined Products
 
454,336

 
1,043,032

Other
 
454

 
465

Total Cost of Sales
 
677,047

 
1,689,930

OPERATING COSTS AND EXPENSES:
 
 
 
 
Operating
 
64,987

 
61,312

General and administrative
 
17,158

 
20,342

Depreciation and amortization
 
83,986

 
53,754

Loss (gain) on disposal or impairment of assets, net
 
12,022

 
(967
)
Operating (Loss) Income
 
(10,785
)
 
47,520

OTHER INCOME (EXPENSE):
 
 
 
 
Equity in earnings of unconsolidated entities
 
289

 
8

Interest expense
 
(43,961
)
 
(39,877
)
Gain on early extinguishment of liabilities, net
 
19,355

 

Other income, net
 
1,035

 
1,010

(Loss) Income From Continuing Operations Before Income Taxes
 
(34,067
)
 
8,661

INCOME TAX BENEFIT
 
301

 
321

(Loss) Income From Continuing Operations
 
(33,766
)
 
8,982

Loss From Discontinued Operations, net of Tax
 
(1,486
)
 
(943
)
Net (Loss) Income
 
(35,252
)
 
8,039

LESS: NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(51
)
 
268

NET (LOSS) INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(35,303
)
 
$
8,307

NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
(55,815
)
 
$
(120,126
)
NET LOSS FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)
 
$
(1,485
)
 
$
(942
)
NET LOSS ALLOCATED TO COMMON UNITHOLDERS
 
$
(57,300
)
 
$
(121,068
)
BASIC LOSS PER COMMON UNIT
 
 
 
 
Loss From Continuing Operations
 
$
(0.43
)
 
$
(0.95
)
Loss From Discontinued Operations, net of Tax
 
$
(0.01
)
 
$
(0.01
)
Net Loss
 
$
(0.44
)
 
$
(0.96
)
DILUTED LOSS PER COMMON UNIT
 
 
 
 
Loss From Continuing Operations
 
$
(0.43
)
 
$
(0.95
)
Loss From Discontinued Operations, net of Tax
 
$
(0.01
)
 
$
(0.01
)
Net Loss
 
$
(0.44
)
 
$
(0.96
)
BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
128,771,715

 
125,886,738

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
128,771,715

 
125,886,738


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

4

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(in Thousands)
 
 
Three Months Ended June 30,
 
 
2020
 
2019
Net (loss) income
 
$
(35,252
)
 
$
8,039

Other comprehensive income
 
44

 
37

Comprehensive (loss) income
 
$
(35,208
)
 
$
8,076


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

5

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three Months Ended June 30, 2020
(in Thousands, except unit amounts)
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Accumulated
Other
 
 
 
 
 
 
General
Partner
 
Units
 
Amount
 

Units
 
Amount
 
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
BALANCES AT MARCH 31, 2020
 
$
(51,390
)
 
14,385,642

 
$
348,359

 
128,771,715

 
$
1,366,152

 
$
(385
)
 
$
72,954

 
$
1,735,690

Distributions to general and common unit partners and preferred unitholders (Note 10)
 
(26
)
 

 

 

 
(47,652
)
 

 

 
(47,678
)
Distributions to noncontrolling interest owners
 

 

 

 

 

 

 
(2,257
)
 
(2,257
)
Equity issued pursuant to incentive compensation plan (Note 10)
 

 

 

 

 
1,349

 

 

 
1,349

Net (loss) income
 
(57
)
 

 

 

 
(35,246
)
 

 
51

 
(35,252
)
Other comprehensive income
 

 

 

 

 

 
44

 

 
44

Cumulative effect adjustment for adoption of ASU 2016-13 (Note 16)
 
(1
)
 

 

 

 
(1,112
)
 

 

 
(1,113
)
BALANCES AT JUNE 30, 2020
 
$
(51,474
)
 
14,385,642

 
$
348,359

 
128,771,715

 
$
1,283,491

 
$
(341
)
 
$
70,748

 
$
1,650,783



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NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three Months Ended June 30, 2019
(in Thousands, except unit amounts)

 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Preferred
 
Common
 
Accumulated
Other
 
 
 
 
 
 
General
Partner
 
Units
 
Amount
 

Units
 
Amount
 
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
BALANCES AT MARCH 31, 2019
 
$
(50,603
)
 
8,400,000

 
$
202,731

 
124,508,497

 
$
2,067,197

 
$
(255
)
 
$
58,748

 
$
2,277,818

Distributions to general and common unit partners and preferred unitholders
 
(85
)
 

 

 

 
(63,274
)
 

 

 
(63,359
)
Issuance of Class C preferred units, net of offering costs
 

 
1,800,000

 
42,638

 

 

 

 

 
42,638

Equity issued pursuant to incentive compensation plan
 

 

 

 

 
2,752

 

 

 
2,752

Warrants exercised
 

 

 

 
1,458,371

 
15

 

 

 
15

Accretion of beneficial conversion feature of 10.75% Class A convertible preferred units
 

 

 

 

 
(36,517
)
 

 

 
(36,517
)
10.75% Class A convertible preferred units redemption - amount paid in excess of carrying value
 

 

 

 

 
(78,797
)
 

 

 
(78,797
)
Investment in NGL Energy Holdings LLC
 

 

 

 

 
(2,361
)
 

 

 
(2,361
)
Net (loss) income
 
(85
)
 

 

 

 
8,392

 

 
(268
)
 
8,039

Other comprehensive income
 

 

 

 

 

 
37

 

 
37

BALANCES AT JUNE 30, 2019
 
$
(50,773
)
 
10,200,000

 
$
245,369

 
125,966,868

 
$
1,897,407

 
$
(218
)
 
$
58,480

 
$
2,150,265


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

7

Table of Contents


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
 
 
Three Months Ended June 30,
 
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
 
Net (loss) income
 
$
(35,252
)
 
$
8,039

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Loss from discontinued operations, net of tax
 
1,486

 
943

Depreciation and amortization, including amortization of debt issuance costs
 
87,680

 
56,117

Gain on early extinguishment of liabilities, net
 
(19,355
)
 

Non-cash equity-based compensation expense
 
2,302

 
3,701

Loss (gain) on disposal or impairment of assets, net
 
12,022

 
(967
)
Provision for expected credit losses
 
(27
)
 
280

Net adjustments to fair value of commodity derivatives
 
27,402

 
(5,559
)
Equity in earnings of unconsolidated entities
 
(289
)
 
(8
)
Distributions of earnings from unconsolidated entities
 
742

 

Lower of cost or net realizable value adjustments
 
1,950

 
155

Other
 
1,223

 
(1,061
)
Changes in operating assets and liabilities, exclusive of acquisitions:
 
 
 
 
Accounts receivable-trade and affiliates
 
139,734

 
208,572

Inventories
 
(68,281
)
 
(26,954
)
Other current and noncurrent assets
 
30,606

 
(34,761
)
Accounts payable-trade and affiliates
 
(142,439
)
 
(148,413
)
Other current and noncurrent liabilities
 
42,348

 
32,554

Net cash provided by operating activities-continuing operations
 
81,852

 
92,638

Net cash used in operating activities-discontinued operations
 
(1,439
)
 
(22,744
)
Net cash provided by operating activities
 
80,413

 
69,894

INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(97,815
)
 
(155,391
)
Acquisitions, net of cash acquired
 

 
(54,548
)
Net settlements of commodity derivatives
 
(26,653
)
 
2,072

Proceeds from sales of assets
 
150

 
1,673

Investments in unconsolidated entities
 

 
(889
)
Distributions of capital from unconsolidated entities
 
103

 
439

Repayments on loan for natural gas liquids facility
 

 
3,022

Net cash used in investing activities-continuing operations
 
(124,215
)
 
(203,622
)
Net cash provided by investing activities-discontinued operations
 

 
4,375

Net cash used in investing activities
 
(124,215
)
 
(199,247
)
FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
442,500

 
1,139,000

Payments on Revolving Credit Facility
 
(254,500
)
 
(1,155,000
)
Issuance of senior unsecured notes and term credit agreement
 
250,000

 
450,000

Repayment of bridge term credit agreement
 
(250,000
)
 

Repurchase of senior unsecured notes
 
(25,040
)
 

Payments on other long-term debt
 
(163
)
 
(163
)
Debt issuance costs
 
(9,479
)
 
(7,873
)
Distributions to general and common unit partners and preferred unitholders
 
(40,810
)
 
(62,288
)
Distributions to noncontrolling interest owners
 
(2,257
)
 

Proceeds from sale of preferred units, net of offering costs
 

 
42,638

Payments for redemption of preferred units
 

 
(265,128
)
Payments for settlement and early extinguishment of liabilities
 
(62,753
)
 
(543
)
Investment in NGL Energy Holdings LLC
 

 
(2,361
)
Net cash provided by financing activities
 
47,498

 
138,282

Net increase in cash and cash equivalents
 
3,696

 
8,929

Cash and cash equivalents, beginning of period
 
22,704

 
18,572

Cash and cash equivalents, end of period
 
$
26,400

 
$
27,501

Supplemental cash flow information:
 
 
 
 
Cash interest paid
 
$
56,096

 
$
36,538

Income taxes paid (net of income tax refunds)
 
$
590

 
$
2,537

Supplemental non-cash investing and financing activities:
 
 
 
 
Distributions declared but not paid to Class B, Class C and Class D preferred unitholders
 
$
15,030

 
$
5,796

Accrued capital expenditures
 
$
21,042

 
$
32,926

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

8

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 June 30, 2020, our operations included three segments:

Our Crude Oil Logistics segment purchases crude oil from producers and marketers 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, and transportation services through its owned assets. Our activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on our pipelines.
Our Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from crude oil and natural gas production. We also dispose of solids such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services such as truck and frac tank washouts. As part of processing water, we are able to aggregate recovered crude oil, also known as skim oil, that was contained in the water and sell the crude oil. We also sell brackish non-potable water to our producer customers to be used in their crude oil exploration and production activities. Our activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments, with leading oil and gas companies including large, investment grade producer customers.
Our Liquids and Refined Products segment conducts marketing operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through our company-owned terminals, other third party storage and terminal facilities, common carrier pipelines and our extensive fleet of leased railcars. We also provide natural gas liquids and refined product terminaling and storage services at our salt dome storage facility joint venture in Utah and marine exports through our facility located in Chesapeake, Virginia. We employ a number of contractual and hedging strategies to minimize commodity exposure and maximize earnings stability of this segment.

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 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, 2020 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2020 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on June 1, 2020.

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, 2021.


9

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


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 acquisitions, the fair value of derivative instruments, the collectibility of accounts and notes 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.

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 a deferred tax liability of $55.6 million and $56.4 million at June 30, 2020 and March 31, 2020, respectively, as a result of acquiring corporations in connection with certain of our acquisitions, which is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheet. 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 benefit recorded during the three months ended June 30, 2020 was $0.8 million with an effective tax rate of 23.5%. The deferred tax benefit recorded during the three months ended June 30, 2019 was $1.0 million with an effective tax rate of 24.6%.

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 June 30, 2020 or March 31, 2020.

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.


10

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


Inventories consist of the following at the dates indicated:
 
 
June 30, 2020
 
March 31, 2020
 
 
(in thousands)
Crude oil
 
$
44,246

 
$
18,201

Propane
 
39,329

 
25,163

Butane
 
32,714

 
9,619

Biodiesel
 
8,247

 
8,195

Ethanol
 
5,525

 
1,834

Diesel
 
2,239

 
2,414

Other
 
3,618

 
4,208

Total
 
$
135,918

 
$
69,634



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.

Our investments in unconsolidated entities consist of the following at the dates indicated:
Entity
 
Segment
 
Ownership
Interest (1)
 
Date Acquired
 
June 30, 2020
 
March 31, 2020
 
 
 
 
 
 
 
 
(in thousands)
Water services and land company (2)
 
Water Solutions
 
50%
 
November 2019
 
$
16,623

 
$
16,607

Water services and land company (3)
 
Water Solutions
 
50%
 
November 2019
 
1,976

 
2,092

Water services and land company (4)
 
Water Solutions
 
10%
 
November 2019
 
3,103

 
3,384

Aircraft company (5)
 
Corporate and Other
 
50%
 
June 2019
 
286

 
447

Water services company (6)
 
Water Solutions
 
50%
 
August 2018
 
443

 
449

Natural gas liquids terminal company (7)
 
Liquids and Refined Products
 
50%
 
March 2019
 
195

 
203

Total
 
 
 
 
 
 
 
$
22,626

 
$
23,182

 
(1)
Ownership interest percentages are at June 30, 2020.
(2)
This is an investment that we acquired as part of an acquisition in November 2019, and represents certain membership interests in a limited liability company and are related to specific land operations.
(3)
This is an investment that we acquired as part of an acquisition in November 2019, and represents certain membership interests in a limited liability company and are related to specific land operations.
(4)
This is an investment that we acquired as part of an acquisition in November 2019, and represents certain membership interests in a limited liability company and are related to specific water services operations.
(5)
This is an investment with a related party.
(6)
This is an investment that we acquired as part of an acquisition in August 2018.
(7)
This is an investment that we acquired as part of an acquisition in March 2019.


11

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


Other Noncurrent Assets

Other noncurrent assets consist of the following at the dates indicated:
 
 
June 30, 2020
 
March 31, 2020
 
 
(in thousands)
Loan receivable (1)
 
$
2,830

 
$
5,374

Line fill (2)
 
23,039

 
25,763

Minimum shipping fees - pipeline commitments (3)
 
16,374

 
17,443

Other
 
6,496

 
14,557

Total
 
$
48,739

 
$
63,137

 
(1)
Amounts at June 30, 2020 and March 31, 2020 represent the noncurrent portion of a loan receivable, net of an allowance for an expected credit loss, with Victory Propane, LLC. In addition, the amount at March 31, 2020 represents the noncurrent portion of a loan receivable associated with our interest in the construction of a natural gas liquids loading/unloading facility (the “Facility”) that is utilized by a third party. The third party filed for Chapter 11 bankruptcy in July 2019. For a further discussion, see Note 17.
(2)
Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At June 30, 2020, line fill consisted of 335,069 barrels of crude oil. At March 31, 2020, line fill consisted of 335,069 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)
Represents the noncurrent portion of minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for one contract with a crude oil pipeline operator. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 9). As of June 30, 2020, the deficiency credit was $21.1 million, of which $4.7 million is recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet.

Accrued Expenses and Other Payables

Accrued expenses and other payables consist of the following at the dates indicated:
 
 
June 30, 2020
 
March 31, 2020
 
 
(in thousands)
Accrued compensation and benefits
 
$
26,646

 
$
29,990

Excise and other tax liabilities
 
9,549

 
9,941

Derivative liabilities
 
3,469

 
17,777

Accrued interest
 
24,106

 
39,803

Product exchange liabilities
 
2,749

 
1,687

Contingent consideration liability (1)
 
36,169

 
102,419

Other
 
40,148

 
30,445

Total
 
$
142,836

 
$
232,062


 
(1)
Decrease is due to the monthly installment payments made during the three months ended June 30, 2020 related to our acquisition of certain assets of Mesquite Disposals Unlimited, LLC (“Mesquite”). We have made two monthly payments subsequent to June 30, 2020, and per the agreement, we currently have four remaining monthly payments.

Reclassifications

We have reclassified certain prior period financial statement information to be consistent with the classification methods used in the current fiscal year. These reclassifications did not impact previously reported amounts of assets, liabilities, equity, net income, or cash flows.

Recent Accounting Pronouncements

In March 2020, the SEC issued “Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities”, which amends the disclosure requirements for guarantors

12

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


and issuers of guaranteed securities registered or being registered in Rule 3-10 of Regulation S-X. The amendment simplifies the disclosure requirements and permits the amended disclosures to be provided outside the footnotes in audited annual or unaudited interim consolidated financial statements in all filings. The guidance is effective for the Partnership for fiscal periods ending after January 4, 2021, although early adoption is permitted. We adopted this guidance effective April 1, 2020 and elected to include the required summarized financial information in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsLiquidity, Sources of Capital and Capital Resource ActivitiesGuarantor Summarized Financial Information.”

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 trade accounts 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. We adopted ASU No. 2016-13 on April 1, 2020, using the modified retrospective approach with a cumulative effect adjustment of $1.1 million to opening equity at the beginning of the period of adoption. See Note 16 for a further discussion of the impact of the adoption of this ASU on our unaudited condensed consolidated financial statements.

Note 3—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 June 30,
 
 
2020
 
2019
Weighted average common units outstanding during the period:
 
 
 
 
Common units - Basic
 
128,771,715

 
125,886,738

Common units - Diluted
 
128,771,715

 
125,886,738


For the three months ended June 30, 2020 and 2019, all potential common units or convertible securities were considered antidilutive.


13

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


Our loss per common unit is as follows for the periods indicated:
 
 
Three Months Ended June 30,
 
 
2020
 
2019
 
 
(in thousands, except unit and per unit amounts)
(Loss) income from continuing operations
 
$
(33,766
)
 
$
8,982

Less: Continuing operations (income) loss attributable to noncontrolling interests
 
(51
)
 
268

Net (loss) income from continuing operations attributable to NGL Energy Partners LP
 
(33,817
)
 
9,250

Less: Distributions to preferred unitholders (1)
 
(22,054
)
 
(129,460
)
Less: Continuing operations net loss allocated to general partner (2)
 
56

 
84

Net loss from continuing operations allocated to common unitholders
 
$
(55,815
)
 
$
(120,126
)
 
 
 
 
 
Loss from discontinued operations, net of tax
 
$
(1,486
)
 
$
(943
)
Less: Discontinued operations loss allocated to general partner (2)
 
1

 
1

Net loss from discontinued operations allocated to common unitholders
 
$
(1,485
)
 
$
(942
)
 
 
 
 
 
Net loss allocated to common unitholders
 
$
(57,300
)
 
$
(121,068
)
 
 
 
 
 
Basic loss per common unit
 
 
 
 
Loss from continuing operations
 
$
(0.43
)
 
$
(0.95
)
Loss from discontinued operations, net of tax
 
$
(0.01
)
 
$
(0.01
)
Net loss
 
$
(0.44
)
 
$
(0.96
)
Diluted loss per common unit
 
 
 
 
Loss from continuing operations
 
$
(0.43
)
 
$
(0.95
)
Loss from discontinued operations, net of tax
 
$
(0.01
)
 
$
(0.01
)
Net loss
 
$
(0.44
)
 
$
(0.96
)
Basic weighted average common units outstanding
 
128,771,715

 
125,886,738

Diluted weighted average common units outstanding
 
128,771,715

 
125,886,738

 
(1)
This amount includes distributions to preferred unitholders. The final accretion for the beneficial conversion of the 10.75% Class A Convertible Preferred Units and the excess of the 10.75% Class A Convertible Preferred Units repurchase price over the carrying value of the units are included in the three months ended June 30, 2019.
(2)
Net loss allocated to the general partner includes distributions to which it is entitled as the holder of incentive distribution rights.

Note 4Acquisitions

The following summarizes the status of the preliminary purchase price allocation of acquisitions completed prior to April 1, 2020:

Hillstone Environmental Partners, LLC (“Hillstone”) Acquisition

During the three months ended June 30, 2020, we received additional information and recorded an increase of less than $0.1 million to current assets and a decrease of $0.5 million to current liabilities with the offset to goodwill. There were no other adjustments to the fair value of assets acquired and liabilities assumed during the three months ended June 30, 2020. As of June 30, 2020, the allocation of the purchase price is considered preliminary as we are continuing to gather additional information to (i) finalize the calculation of the deferred tax liability and (ii) finalize working capital items.


14

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


Note 5Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:
Description
 
Estimated
Useful Lives
 
June 30, 2020
 
March 31, 2020
 
 
(in years)
 
(in thousands)
Natural gas liquids terminal and storage assets
 
2
-
30
 
$
316,327

 
$
314,694

Pipeline and related facilities
 
30
-
40
 
244,937

 
244,751

Vehicles and railcars
 
3
-
25
 
126,199

 
123,937

Water treatment facilities and equipment
 
3
-
30
 
1,743,555

 
1,525,859

Crude oil tanks and related equipment
 
2
-
30
 
233,402

 
234,143

Barges and towboats
 
5
-
30
 
125,169

 
125,162

Information technology equipment
 
3
-
7
 
37,686