10-Q 1 ngl-06302018x10q.htm 10-Q Document



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

FORM 10-Q

(Mark One)

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 (Do not check if a smaller reporting company)
 
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 August 3, 2018, there were 122,051,314 common units issued and outstanding.





TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 


i


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 prices of propane and distillates relative to the prices of alternative and competing fuels;
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;

1


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 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.

2


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, 2018
 
March 31, 2018
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
13,682

 
$
22,094

Accounts receivable-trade, net of allowance for doubtful accounts of $4,385 and $4,201, respectively
1,096,596

 
1,026,764

Accounts receivable-affiliates
8,824

 
4,772

Inventories
600,486

 
551,303

Prepaid expenses and other current assets
135,097

 
128,742

Assets held for sale
515,012

 
517,604

Total current assets
2,369,697

 
2,251,279

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $365,782 and $343,345, respectively
1,604,498

 
1,518,607

GOODWILL
1,262,971

 
1,204,607

INTANGIBLE ASSETS, net of accumulated amortization of $452,314 and $433,565, respectively
907,540

 
913,154

INVESTMENTS IN UNCONSOLIDATED ENTITIES
1,995

 
17,236

LOAN RECEIVABLE-AFFILIATE
2,135

 
1,200

OTHER NONCURRENT ASSETS
175,138

 
245,039

Total assets
$
6,323,974

 
$
6,151,122

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES AND REDEEMABLE NONCONTROLLING INTEREST:
 
 
 
Accounts payable-trade
$
836,233

 
$
852,839

Accounts payable-affiliates
24,874

 
1,254

Accrued expenses and other payables
225,617

 
223,504

Advance payments received from customers
21,871

 
8,374

Current maturities of long-term debt
646

 
646

Liabilities and redeemable noncontrolling interest held for sale
55,824

 
42,580

Total current liabilities and redeemable noncontrolling interest
1,165,065

 
1,129,197

LONG-TERM DEBT, net of debt issuance costs of $19,340 and $20,645, respectively, and current maturities
3,032,383

 
2,679,740

OTHER NONCURRENT LIABILITIES
63,539

 
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
91,559

 
82,576

 
 
 
 
EQUITY:
 
 
 
General partner, representing a 0.1% interest, 121,874 and 121,594 notional units, respectively
(50,919
)
 
(50,819
)
Limited partners, representing a 99.9% interest, 121,752,514 and 121,472,725 common units issued and outstanding, respectively
1,740,410

 
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
(257
)
 
(1,815
)
Noncontrolling interests
79,463

 
83,503

Total equity
1,971,428

 
2,086,095

Total liabilities and equity
$
6,323,974

 
$
6,151,122


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

3


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,
 
 
2018
 
2017
REVENUES:
 
 
 
 
Crude Oil Logistics
 
$
783,830

 
$
504,915

Water Solutions
 
76,145

 
46,967

Liquids
 
459,897

 
294,025

Refined Products and Renewables
 
4,524,407

 
2,884,637

Other
 
155

 
161

Total Revenues
 
5,844,434

 
3,730,705

COST OF SALES:
 
 
 
 
Crude Oil Logistics
 
748,245

 
469,470

Water Solutions
 
14,269

 
153

Liquids
 
440,515

 
287,285

Refined Products and Renewables
 
4,492,858

 
2,871,702

Other
 
269

 
73

Total Cost of Sales
 
5,696,156

 
3,628,683

OPERATING COSTS AND EXPENSES:
 
 
 
 
Operating
 
56,262

 
47,836

General and administrative
 
22,390

 
22,385

Depreciation and amortization
 
52,045

 
52,417

Loss (gain) on disposal or impairment of assets, net
 
101,335

 
(11,817
)
Revaluation of liabilities
 
800

 

Operating Loss
 
(84,554
)
 
(8,799
)
OTHER INCOME (EXPENSE):
 
 
 
 
Equity in earnings of unconsolidated entities
 
104

 
1,816

Interest expense
 
(46,268
)
 
(49,104
)
Loss on early extinguishment of liabilities, net
 
(137
)
 
(3,281
)
Other (expense) income, net
 
(33,742
)
 
1,775

Loss From Continuing Operations Before Income Taxes
 
(164,597
)
 
(57,593
)
INCOME TAX EXPENSE
 
(651
)
 
(456
)
Loss From Continuing Operations
 
(165,248
)
 
(58,049
)
Loss From Discontinued Operations, net of Tax
 
(4,041
)
 
(5,658
)
Net Loss
 
(169,289
)
 
(63,707
)
LESS: NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
345

 
(52
)
LESS: NET LOSS ATTRIBUTABLE TO REDEEMABLE NONCONTROLLING INTERESTS
 
398

 
397

NET LOSS ATTRIBUTABLE TO NGL ENERGY PARTNERS LP
 
$
(168,546
)
 
$
(63,362
)
 
 
 
 
 
NET LOSS FROM CONTINUING OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (Note 3)
 
$
(184,909
)
 
$
(68,099
)
NET LOSS FROM DISCONTINUED OPERATIONS ALLOCATED TO COMMON UNITHOLDERS (Note 3)
 
$
(3,639
)
 
$
(5,256
)
NET LOSS ALLOCATED TO COMMON UNITHOLDERS
 
$
(188,548
)
 
$
(73,355
)
BASIC LOSS PER COMMON UNIT
 
 
 
 
Loss From Continuing Operations
 
$
(1.52
)
 
$
(0.56
)
Loss From Discontinued Operations, net of Tax
 
(0.03
)
 
(0.05
)
Net Loss
 
$
(1.55
)
 
$
(0.61
)
DILUTED LOSS PER COMMON UNIT
 
 
 
 
Loss From Continuing Operations
 
$
(1.52
)
 
$
(0.56
)
Loss From Discontinued Operations, net of Tax
 
(0.03
)
 
(0.05
)
Net Loss
 
$
(1.55
)
 
$
(0.61
)
BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
121,544,421

 
120,535,909

DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
 
121,544,421

 
120,535,909

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

4


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in Thousands)
 
 
Three Months Ended June 30,
 
 
2018
 
2017
Net loss
 
$
(169,289
)
 
$
(63,707
)
Other comprehensive loss
 
(11
)
 
(375
)
Comprehensive loss
 
$
(169,300
)
 
$
(64,082
)

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

5


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statement of Changes in Equity
Three Months Ended June 30, 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)
 
(82
)
 

 

 

 
(58,548
)
 

 

 
(58,630
)
Contributions
 

 

 

 

 

 

 
169

 
169

Sawtooth joint venture
 

 

 

 

 
(63
)
 

 
63

 

Purchase of noncontrolling interest (Note 4)
 

 

 

 

 
(33
)
 

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

 

 

 

 
(3,300
)
 

 

 
(3,300
)
Repurchase of warrants (Note 10)
 

 

 

 

 
(14,988
)
 

 

 
(14,988
)
Equity issued pursuant to incentive compensation plan (Note 10)
 

 

 

 
50,992

 
4,619

 

 

 
4,619

Warrants exercised (Note 10)
 

 

 

 
228,797

 
2

 

 

 
2

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

 

 

 

 
(8,983
)
 

 

 
(8,983
)
Net loss
 
(155
)
 

 

 

 
(168,391
)
 

 
(345
)
 
(168,891
)
Other comprehensive loss
 

 

 

 

 

 
(11
)
 

 
(11
)
Cumulative effect adjustment for adoption of ASC 606 (Note 15)
 
139

 

 

 

 
139,167

 

 

 
139,306

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

 

 

 
(1,567
)
 
1,569

 

 

BALANCES AT JUNE 30, 2018
 
$
(50,919
)
 
8,400,000

 
$
202,731

 
121,752,514

 
$
1,740,410

 
$
(257
)
 
$
79,463

 
$
1,971,428


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


6


NGL ENERGY PARTNERS LP AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in Thousands)
 
 
Three Months Ended June 30,
 
 
2018
 
2017
OPERATING ACTIVITIES:
 
 
 
 
Net loss
 
$
(169,289
)
 
$
(63,707
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
 
Loss from discontinued operations, net of tax
 
4,041

 
5,658

Depreciation and amortization, including amortization of debt issuance costs
 
55,939

 
56,739

Loss on early extinguishment or revaluation of liabilities, net
 
937

 
3,281

Non-cash equity-based compensation expense
 
5,511

 
8,821

Loss (gain) on disposal or impairment of assets, net
 
101,335

 
(11,817
)
Provision for doubtful accounts
 
196

 
305

Net adjustments to fair value of commodity derivatives
 
52,685

 
(36,527
)
Equity in earnings of unconsolidated entities
 
(104
)
 
(1,816
)
Distributions of earnings from unconsolidated entities
 

 
1,426

Other
 
(206
)
 
3,857

Changes in operating assets and liabilities, exclusive of acquisitions:
 
 
 
 
Accounts receivable-trade and affiliates
 
(74,930
)
 
129,058

Inventories
 
(48,770
)
 
(3,963
)
Other current and noncurrent assets
 
15,967

 
28,176

Accounts payable-trade and affiliates
 
(30,328
)
 
(139,132
)
Other current and noncurrent liabilities
 
13,830

 
9,956

Net cash used in operating activities-continuing operations
 
(73,186
)
 
(9,685
)
Net cash provided by operating activities-discontinued operations
 
31,790

 
10,676

Net cash (used in) provided by operating activities
 
(41,396
)
 
991

INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(72,710
)
 
(27,645
)
Acquisitions, net of cash acquired
 
(116,592
)
 
(19,897
)
Settlements of commodity derivatives
 
(60,861
)
 
23,349

Proceeds from sales of assets
 
5,406

 
18,493

Proceeds from divestitures of businesses and investments
 
18,594

 

Investments in unconsolidated entities
 
(6
)
 
(5,250
)
Distributions of capital from unconsolidated entities
 

 
2,115

Repayments on loan for natural gas liquids facility
 
2,707

 
2,401

Loan to affiliate
 
(1,050
)
 
(500
)
Net cash used in investing activities-continuing operations
 
(224,512
)
 
(6,934
)
Net cash used in investing activities-discontinued operations
 
(23,008
)
 
(2,266
)
Net cash used in investing activities
 
(247,520
)
 
(9,200
)
FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings under Revolving Credit Facility
 
962,000

 
299,500

Payments on Revolving Credit Facility
 
(605,500
)
 
(344,500
)
Repurchase of senior secured and senior unsecured notes
 
(5,069
)
 
(74,391
)
Payments on other long-term debt
 
(163
)
 
(159
)
Debt issuance costs
 
(771
)
 
(2,096
)
Contributions from noncontrolling interest owners, net
 
169

 
23

Distributions to general and common unit partners and preferred unitholders
 
(53,905
)
 
(53,399
)
Proceeds from sale of preferred units, net of offering costs
 

 
202,977

Repurchase of warrants
 
(14,988
)
 
(10,549
)
Payments for settlement and early extinguishment of liabilities
 
(1,195
)
 
(745
)
Other
 
8,708

 
8,831

Net cash provided by financing activities-continuing operations
 
289,286

 
25,492

Net cash used in financing activities-discontinued operations
 
(9,033
)
 
(9,999
)
Net cash provided by financing activities
 
280,253

 
15,493

 Less cash flows from discontinued operations
 
(251
)
 
(1,589
)
Net (decrease) increase in cash and cash equivalents
 
(8,412
)
 
8,873

Cash and cash equivalents, beginning of period
 
22,094

 
7,826

Cash and cash equivalents, end of period
 
$
13,682

 
$
16,699

Supplemental cash flow information:
 
 
 
 
Cash interest paid
 
$
51,106

 
$
54,335

Income taxes paid (net of income tax refunds)
 
$
908

 
$
1,247

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

 
$

Accrued capital expenditures
 
$
12,657

 
$
1,389


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 1—Organization 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, 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 21 owned terminals throughout the United States, and provides terminaling and storage services at its salt dome storage facility joint venture in Utah.
Our Retail Propane segment sells propane, distillates, equipment and supplies to end users consisting of residential, agricultural, commercial, and industrial customers and to certain resellers in 21 states and the District of Columbia. See below for a discussion of the sale of our Retail Propane segment.
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 $896.5 million in cash after adjusting for estimated working capital. 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”) (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 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 2—Significant 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.


8

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


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, 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.

9

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


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 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 Canada, and our operations in Texas are subject to a state franchise tax that is calculated based on revenues net of cost of sales.

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, 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:
 
 
June 30, 2018
 
March 31, 2018
 
 
(in thousands)
Crude oil
 
$
77,834

 
$
77,351

Natural gas liquids:
 
 
 
 
Propane
 
48,940

 
38,910

Butane
 
46,224

 
12,613

Other
 
8,265

 
6,515

Refined products:
 
 
 
 
Gasoline
 
289,021

 
253,286

Diesel
 
88,092

 
113,939

Renewables:
 
 
 
 
Ethanol
 
35,227

 
38,093

Biodiesel
 
6,883

 
10,596

Total
 
$
600,486

 
$
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
 
June 30, 2018
 
March 31, 2018
 
 
 
 
 
 
 
 
(in thousands)
Water treatment and disposal facility (2)
 
Water Solutions
 
50%
 
August 2015
 
$
1,995

 
$
2,094

E Energy Adams, LLC (3)
 
Refined Products and Renewables
 
—%
 
December 2013
 

 
15,142

Victory Propane, LLC (4)
 
Corporate and Other
 
50%
 
April 2015
 

 

Total
 
 
 
 
 
 
 
$
1,995

 
$
17,236

 
(1)
Ownership interest percentages are at June 30, 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)
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 three months ended June 30, 2018 within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations.
(4)
As our investment is $0 at June 30, 2018, our proportionate share of Victory Propane’s losses have been recorded against the loan receivable we have with 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 to be used for working capital and/or acquisition funding. Victory Propane began using this revolving line of credit shortly after operations commenced. At June 30, 2018, we provided a majority of Victory Propane’s financing 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. Each joint venture member has an equal ownership interest in Victory Propane and has equal representation on Victory Propane’s board of managers to make all significant decisions relating to the operations of Victory Propane. Therefore, we do not have the power to direct activities that significantly influence the economic performance of Victory Propane and have concluded that we are not the primary beneficiary. Our maximum exposure to loss related to Victory Propane is limited to the sum of our equity investment as shown in the table above and the outstanding loan receivable (see Note 13) at June 30, 2018.

Other Noncurrent Assets

Other noncurrent assets consist of the following at the dates indicated:
 
 
June 30, 2018
 
March 31, 2018
 
 
(in thousands)
Loan receivable (1)
 
$
26,441

 
$
29,463

Line fill (2)
 
33,437

 
34,897

Tank bottoms (3)
 
44,148

 
42,044

Minimum shipping fees - pipeline commitments (4)
 
23,204

 
88,757

Other
 
47,908

 
49,878

Total
 
$
175,138

 
$
245,039

 
(1)
Represents the noncurrent portion of a loan receivable associated with our financing of the construction of a natural gas liquids facility to be 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 June 30, 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 June 30, 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 loss (gain) 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 22 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:
 
 
June 30, 2018
 
March 31, 2018
 
 
(in thousands)
Accrued compensation and benefits
 
$
16,600

 
$
18,033

Excise and other tax liabilities
 
33,982

 
40,829

Derivative liabilities
 
66,091

 
51,039

Accrued interest
 
32,758

 
39,947

Product exchange liabilities
 
13,911

 
11,842

Gavilon legal matter settlement (Note 9)
 
35,000

 

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

 
30,113

Other
 
27,275

 
31,701

Total
 
$
225,617

 
$
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 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).

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
 
(398
)
Redeemable noncontrolling interest valuation adjustment
 
3,300

Balance at June 30, 2018
 
$
12,829


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.

Also, as discussed in Note 4, we made certain adjustments during the three months ended June 30, 2018 to our estimates of the acquisition date fair values of assets acquired and liabilities assumed in business combinations that occurred during the fiscal year ended March 31, 2018.

13

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



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 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, and requires a modified retrospective method of adoption. We are currently in the process of compiling a database of leases and analyzing each lease to assess the impact under this ASU on our consolidated financial statements.

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 out of accumulated other comprehensive income and to limited partners’ equity.

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,
 
2018
 
2017
Weighted average common units outstanding during the period:
 
 
 
Common units - Basic
121,544,421

 
120,535,909

Common units - Diluted
121,544,421

 
120,535,909


For the three months ended June 30, 2018 and 2017, the Performance Awards (as defined herein), warrants, Service Awards (as defined herein) and the Class A Preferred Units (as defined herein) were considered antidilutive.


14

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,
 
2018
 
2017
 
(in thousands, except unit and per unit amounts)
Loss from continuing operations
$
(165,248
)
 
$
(58,049
)
Less: Continuing operations loss (income) attributable to noncontrolling interests
345

 
(52
)
Net loss from continuing operations attributable to NGL Energy Partners LP
(164,903
)
 
(58,101
)
Less: Distributions to preferred unitholders (1)
(20,157
)
 
(9,684
)
Less: Continuing operations loss allocated to general partner (2)
151

 
35

Less: Repurchase of warrants (3)

 
(349
)
Net loss from continuing operations allocated to common unitholders
$
(184,909
)
 
$
(68,099
)
 
 
 
 
Loss from discontinued operations attributable to NGL Energy Partners, net of tax
$
(4,041
)
 
$
(5,658
)
Less: Discontinued operations loss attributable to redeemable noncontrolling interests
398

 
397

Less: Discontinued operations loss allocated to general partner (2)
4

 
5

Net loss from discontinued operations allocated to common unitholders
$
(3,639
)
 
$
(5,256
)
 
 
 
 
Net loss allocated to common unitholders
$
(188,548
)
 
$
(73,355
)
 
 
 
 
Basic loss per common unit
 
 
 
Loss from continuing operations
$
(1.52
)
 
$
(0.56
)
Loss from discontinued operations, net of tax
(0.03
)
 
(0.05
)
Net loss
$
(1.55
)
 
$
(0.61
)
Diluted loss per common unit
 
 
 
Loss from continuing operations
$
(1.52
)
 
$
(0.56
)
Loss from discontinued operations, net of tax
(0.03
)
 
(0.05
)
Net loss
$
(1.55
)
 
$
(0.61
)
Basic weighted average common units outstanding
121,544,421

 
120,535,909

Diluted weighted average common units outstanding
121,544,421

 
120,535,909

 
(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 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 4—Acquisitions

The following summarizes our acquisitions during the three months ended June 30, 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 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.


15

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


Saltwater Water Solutions Facilities

During the three months ended June 30, 2018, we acquired five saltwater disposal facilities (including 13 wells) for total consideration of approximately $98.4 million. 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 June 30, 2018, for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
29,419

Goodwill
51,756

Intangible assets
17,207

Current liabilities
(250
)
Fair value of net assets acquired
$
98,132


As of June 30, 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, (ii) calculate any asset retirement obligations and (iii) determine if the leases we assumed are considered to be favorable or unfavorable to market.

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 three months ended June 30, 2018 includes revenues of $1.5 million and operating income of $0.5 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 three months ended June 30, 2018. These amounts are recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

During the three months ended June 30, 2018, we also acquired two disposal wells for total consideration of $9.1 million, which we are accounting for as an acquisition of assets.

Freshwater Water Solutions Facilities

During the three months ended June 30, 2018, we acquired four freshwater facilities (including 16 wells) and a right-of-way that can be used for pipelines for total consideration of approximately $14.5 million. The agreement for this acquisition contemplates post-closing payments for certain working capital items. We are accounting for this transaction as a business combination.

The following table summarizes the preliminary estimates of the fair values as of June 30, 2018, for the assets acquired and liabilities assumed (in thousands):
Property, plant and equipment
$
3,052

Goodwill
6,608

Intangible assets
4,840

Fair value of net assets acquired
$
14,500


As of June 30, 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, (ii) calculate any asset retirement obligations, (iii) calculate any contingent consideration liabilities and (iv) determine if the leases we assumed are considered to be favorable or unfavorable to market.


16

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


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 three months ended June 30, 2018 includes revenues of $0.5 million and operating income of $0.4 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 three months ended June 30, 2018. These amounts are recorded within general and administrative expenses in our unaudited condensed consolidated statement of operations.

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 are accounting for these transactions as business combinations. The assets and liabilities are included in current assets and current liabilities held for sale in our unaudited condensed consolidated balance sheet (see Note 14).

Note 5—Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:
Description
 
Estimated
Useful Lives
 
June 30, 2018
 
March 31, 2018
 
 
 
 
(in thousands)
Natural gas liquids terminal and storage assets
 
2–30 years
 
$
238,561

 
$
238,487

Pipeline and related facilities
 
30–40 years
 
243,616

 
243,616

Refined products terminal assets and equipment
 
15–25 years
 
6,736

 
6,736

Vehicles and railcars
 
3–25 years
 
122,649

 
121,159

Water treatment facilities and equipment
 
3–30 years
 
632,707

 
601,139

Crude oil tanks and related equipment
 
2–30 years
 
215,367

 
218,588

Barges and towboats
 
5–30 years
 
97,366

 
92,712

Information technology equipment
 
3–7 years
 
31,153

 
30,749

Buildings and leasehold improvements
 
3–40 years
 
147,847

 
147,442

Land
 
 
 
56,257

 
51,816

Tank bottoms and line fill (1)
 
 
 
20,118

 
20,118

Other
 
3–20 years
 
11,797

 
11,794

Construction in progress
 
 
 
146,106

 
77,596

 
 
 
 
1,970,280

 
1,861,952

Accumulated depreciation
 
 
 
(365,782
)
 
(343,345
)
Net property, plant and equipment
 
 
 
$
1,604,498

 
$
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 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).


17

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


The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:
 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
(in thousands)
Depreciation expense
 
$
24,729

 
$
24,782

Capitalized interest expense
 
$
149

 
$


The table above 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).

We record losses (gains) from the sales of property, plant and equipment and any write-downs in value due to impairment within loss (gain) on disposal or impairment of assets, net in our unaudited condensed consolidated statements of operations. The following table summarizes losses (gains) on the disposal or impairment of property, plant and equipment by segment for the periods indicated:
 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
(in thousands)
Crude Oil Logistics
 
$
(2,041
)
 
$
(3,632
)
Water Solutions
 
2,475

 
524

Liquids
 
(10
)
 

Total
 
$
424

 
$
(3,108
)

Note 6—Goodwill

The following table summarizes changes in goodwill by segment during the three months ended June 30, 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)
 

 
58,364

 

 

 
58,364

Balances at June 30, 2018
 
$
579,846

 
$
482,829

 
$
149,169

 
$
51,127

 
$
1,262,971



18

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


Note 7—Intangible Assets

Our intangible assets consist of the following at the dates indicated:
 
 
 
 
June 30, 2018
 
March 31, 2018
Description
 
Amortizable Lives
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
(in thousands)
Amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
3–20 years
 
$
727,042

 
$
(336,778
)
 
$
390,264

 
$
718,763

 
$
(328,666
)
 
$
390,097

Customer commitments
 
10 years
 
310,000

 
(51,667
)
 
258,333

 
310,000

 
(43,917
)
 
266,083

Pipeline capacity rights
 
30 years
 
161,785

 
(18,393
)
 
143,392

 
161,785

 
(17,045
)
 
144,740

Rights-of-way and easements
 
1–40 years
 
66,196

 
(3,769
)
 
62,427

 
63,995

 
(3,214
)
 
60,781

Executory contracts and other agreements
 
3–30 years
 
41,730

 
(14,993
)
 
26,737

 
42,919

 
(15,424
)
 
27,495

Non-compete agreements
 
2–32 years
 
8,538

 
(928
)
 
7,610

 
5,465

 
(706
)
 
4,759

Debt issuance costs (1)
 
5 years
 
41,763

 
(25,786
)
 
15,977

 
40,992

 
(24,593
)
 
16,399

Total amortizable
 
 
 
1,357,054

 
(452,314
)
 
904,740

 
1,343,919

 
(433,565
)
 
910,354

Non-amortizable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
 
2,800

 

 
2,800

 
2,800

 

 
2,800

Total non-amortizable
 
 
 
2,800

 

 
2,800

 
2,800

 

 
2,800

Total
 
 
 
$
1,359,854

 
$
(452,314
)
 
$
907,540

 
$
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 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).

The weighted-average remaining amortization period for intangible assets is approximately 13.4 years.

Amortization expense is as follows for the periods indicated:
 
Three Months Ended June 30,
Recorded In
2018
 
2017
 
(in thousands)
Depreciation and amortization
$
27,316

 
$
27,635

Cost of sales
1,465

 
1,585

Interest expense
1,193

 
1,086

Total
$
29,974

 
$
30,306


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


19

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 (nine months)
$
87,171

2020
115,692

2021
103,519

2022
88,841

2023
78,746

Thereafter
430,771

Total
$
904,740


Note 8—Long-Term Debt

Our long-term debt consists of the following at the dates indicated:
 
 
June 30, 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
 
$
265,500

 
$

 
$
265,500

 
$

 
$

 
$

Working capital borrowings
 
1,060,500

 

 
1,060,500

 
969,500

 

 
969,500

Senior unsecured notes:
 
 
 
 
 
 
 
 
 
 
 
 
5.125% Notes due 2019
 
353,424

 
(1,332
)
 
352,092

 
353,424

 
(1,653
)
 
351,771

6.875% Notes due 2021
 
367,048

 
(4,180
)
 
362,868

 
367,048

 
(4,499
)
 
362,549

7.500% Notes due 2023
 
610,947

 
(8,092
)
 
602,855

 
615,947

 
(8,542
)
 
607,405

6.125% Notes due 2025
 
389,135

 
(5,736
)
 
383,399

 
389,135

 
(5,951
)
 
383,184

Other long-term debt
 
5,815

 

 
5,815

 
5,977

 

 
5,977

 
 
3,052,369

 
(19,340
)
 
3,033,029

 
2,701,031

 
(20,645
)
 
2,680,386

Less: Current maturities
 
646

 

 
646

 
646

 

 
646

Long-term debt
 
$
3,051,723

 
$
(19,340
)
 
$
3,032,383

 
$
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.

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 $1.2 million and $1.7 million during the three months ended June 30, 2018 and 2017, respectively.


20

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 (nine months)
 
$
3,697

2020
 
4,018

2021
 
3,646

2022
 
3,064

2023
 
2,376

Thereafter
 
2,539

Total
 
$
19,340


Credit Agreement

We are party to a $1.765 billion credit agreement (the “Credit Agreement”) with a syndicate of banks. As of June 30, 2018, the Credit Agreement includes a revolving credit facility to fund working capital needs, which had a capacity of $1.3 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 $465.0 million (the “Expansion Capital Facility,” and together with the Working Capital Facility, the “Revolving Credit Facility”). We had letters of credit of $128.4 million on the Working Capital Facility at June 30, 2018.

At June 30, 2018, the borrowings under the Credit Agreement had a weighted average interest rate of 4.79%, calculated as the weighted average LIBOR rate of 2.09% plus a margin of 2.50% for LIBOR borrowings and the prime rate of 5.00% plus a margin of 1.50% on alternate base rate borrowings. At June 30, 2018, the interest rate in effect on letters of credit was 2.50%. 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 Retail Propane, LLC and its wholly-owned subsidiaries from its guaranty and other obligations under the loan documents. 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.

The following table summarizes the debt covenant levels specified in the Credit Agreement as of June 30, 2018:
 
 
 
 
Senior Secured
 
Interest
 
Total Leverage
Period Beginning
 
Leverage Ratio (1)
 
Leverage Ratio (1)
 
Coverage Ratio (2)
 
Indebtedness Ratio (1)
June 30, 2018
 
4.75

 
3.25

 
2.50

 

December 31, 2018
 
4.75

 
3.25

 
2.75

 

March 31, 2019 and thereafter
 
4.50

 
3.25

 
2.75

 
6.50

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

At June 30, 2018, our leverage ratio was approximately 4.50 to 1, our senior secured leverage ratio was approximately 0.61 to 1 and our interest coverage ratio was approximately 2.71 to 1.

At June 30, 2018, we were in compliance with the covenants under the Credit Agreement.

Senior Unsecured Notes

Repurchases

21

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



The following table summarizes repurchases of Senior Unsecured Notes for the periods indicated:
 
 
Three Months Ended
 
 
June 30,
 
 
2018
 
 
(in thousands)
2023 Notes
 
 
Notes repurchased
 
$
5,000

Cash paid (excluding payments of accrued interest)
 
$
5,069

Loss on early extinguishment of debt (1)
 
$
(137
)
 
(1)
Loss on the early extinguishment of debt for the 2023 Notes during the three months ended June 30, 2018 is inclusive of the write off of debt issuance costs of $0.1 million. The loss is reported within (loss) gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.

At June 30, 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 $5.8 million at June 30, 2018.

Debt Maturity Schedule

The scheduled maturities of our long-term debt are as follows at June 30, 2018:
Fiscal Year Ending March 31,
 
Revolving
Credit
Facility
 
Senior Unsecured Notes
 
Other
Long-Term
Debt
 
Total
 
 
(in thousands)
2019 (nine months)
 
$

 
$

 
$
638

 
$
638

2020
 

 
353,424

 
648

 
354,072

2021
 

 

 
4,529

 
4,529

2022
 
1,326,000

 
367,048

 

 
1,693,048

2023
 

 

 

 

Thereafter
 

 
1,000,082

 

 
1,000,082

Total
 
$
1,326,000

 
$
1,720,554

 
$
5,815

 
$
3,052,369


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).

Note 9—Commitments 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 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

22

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


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 suit, 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.

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 June 30, 2018, we have an environmental liability, measured on an undiscounted basis, of $2.6 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. Such terms will result in Gavilon Energy incurring an estimated expense of up to $35.0 million over a twelve-month period, which we accrued as of June 30, 2018 and is included within accrued expenses and other payables in our unaudited condensed consolidated balance sheet and other (expense) income, net in our unaudited condensed consolidated statement of operations. The agreement is subject to the parties submitting a definitive consent decree to the Court for its approval. If ultimately approved by the Court, the consent decree will resolve all matters between Gavilon Energy and the EPA in connection with the above-described complaint.


23

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


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

Accretion expense
152

Balance at June 30, 2018
$
9,285


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 June 30, 2018 (in thousands):
Fiscal Year Ending March 31,
 
2019 (nine months)
$
97,269

2020
114,665

2021
98,920

2022
73,322

2023
55,750

Thereafter
48,566

Total
$
488,492


Amounts in the table above exclude leases related to the sale of the Retail Propane segment (see Note 14).

Rental expense relating to operating leases was $27.9 million and $30.7 million during the three months ended June 30, 2018 and 2017, respectively. Amounts do not include rental expense associated with the Retail Propane segment, as these amounts have been classified as part of 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, 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).


24

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


The following table summarizes future minimum throughput payments under these agreements at June 30, 2018 (in thousands):
Fiscal Year Ending March 31,
 
2019 (nine months)
$
39,047

2020
42,456

Total
$
81,503


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 $21.5 million of the fiscal year 2019 (nine months) amount and $28.8 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 June 30, 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 (nine months)
 
$
52,180

 
789

 
$
22,490

 
28,875

 
 
 
 
 
 
 
 
 
Index-Price Commodity Purchase Commitments:
 
 
 
 
 
 
 
 
2019 (nine months)
 
$
1,199,591

 
18,097

 
$
736,389

 
766,672

2020
 
707,225

 
12,148

 
28,812

 
36,680

2021
 
506,754

 
9,354

 

 

2022
 
401,691

 
7,752

 

 

2023
 
278,162

 
5,482

 

 

Thereafter
 
204,050

 
4,110

 

 

Total
 
$
3,297,473

 
56,943

 
$
765,201

 
803,352

 
(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.

25

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



At June 30, 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 (nine months)
 
$
53,333

 
794

 
$
92,537

 
96,100

2020
 

 

 
1,040

 
1,045

2021
 

 

 
59

 
60

Total
 
$
53,333

 
794

 
$
93,636

 
97,205

 
 
 
 
 
 
 
 
 
Index-Price Commodity Sale Commitments:
 
 
 
 
 
 
 
 
2019 (nine months)
 
$
1,060,547

 
14,873

 
$
922,685

 
822,251

2020
 
103,434

 
1,570

 
16,232

 
16,579

Total
 
$
1,163,981

 
16,443

 
$
938,917

 
838,830


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 $71.3 million of our prepaid expenses and other current assets and $60.3 million of our accrued expenses and other payables at June 30, 2018.

Note 10—Equity

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 three months ended June 30, 2018, we issued 280 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 three months ended June 30, 2018, and approximately $134.7 million remained available for sale under the ATM Program at June 30, 2018.


26

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 two quarters:
Date Declared
 
Record Date
 
Date Paid/Payable
 
Amount Per Unit
 
Amount Paid/Payable to Limited Partners
 
Amount Paid/Payable to General Partner