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NGL Energy Partners LP (NYSE: NGL) ("the Partnership" or "NGL") is providing an update to the following:
Fiscal Year 2020 Guidance (for year ended March 31, 2020)
Fiscal Year 2021 Forecast
Recent Financial Initiatives
Approved Distributions for quarter ended March 31, 2020
Fiscal Year 2020 Guidance and Fiscal Year 2021 Forecast
The Partnership is re-confirming its Fiscal Year 2020 Guidance for Adjusted EBITDA from continuing operations and expects to be at the higher end of the Partnership’s previously issued guidance range of $565 million to $595 million. The Fiscal Year 2021 forecast (for the year ending March 31, 2021) has been approved by the Board of Directors of the Partnership’s general partner ("the Board"), with the following highlights:
Adjusted EBITDA forecasted to be approximately $600 million
Growth and Maintenance Capital Expenditures of approximately $50 million each. Growth Capital Expenditures are expected to be weighted to the first half of the fiscal year
The Partnership anticipates being free cash flow positive in Fiscal 2021 as Adjusted EBITDA is expected to exceed all fixed charges, capital expenditures and distributions, as well as all of the remaining deferred payments associated with the Mesquite acquisition
Improving leverage, increasing liquidity, optimizing assets, and reducing costs without sacrificing safety, are key focus items for the fiscal year
Management will provide further details on its Fiscal 2020 year-end earnings call which is expected to occur in late May 2020
"We have developed the Fiscal 2021 Forecast using the most recent data and relevant information we have available, including updating our volumes and strategies in each of our business segments. Our storage assets have benefited in recent weeks from the contango markets, and we have worked closely with our producer customers to refine our views on water volumes for the year. However, like others, this uncertain environment presents significant opportunities and challenges for our businesses that are more difficult to predict, and which could impact our performance," stated Mike Krimbill, NGL’s CEO.
"We have invested significant capital into our business over the past year, including the build-out of our fully integrated, large diameter water distribution system in the Northern Delaware Basin, which can transport and dispose of over three million barrels of water per day," added Krimbill. "We believe our existing footprint has more than adequate disposal capacity to handle our producer customers’ requirements for the next several years, allowing us to obtain additional producer acreage dedications and continue to grow our market share, with limited capital requirements."
Recent Financial Initiatives
The Partnership initiated certain financial objectives, including the sale of certain assets, to enhance liquidity and accelerate de-leveraging of the balance sheet. The Partnership recently amended its credit facility to re-allocate availability between its revolving credit facilities, reducing its working capital facility to $350 million and increasing its expansion facility to $1.565 billion, noting no change in the overall $1.915 billion capacity of the facility. This re-allocation was driven by the exit of the Mid-Continent and Gas Blending Refined Products businesses during the Fiscal 2020 fourth quarter, which will reduce working capital borrowing needs going forward. The Partnership continues to evaluate and execute on financial strategies to meet its objectives.
Due to the current unprecedented market conditions, the Board determined it was prudent to enhance NGL’s balance sheet while maintaining a strong capital structure and liquidity. The Board has declared a quarterly distribution of $0.20 per common unit, or $0.80 per common unit on an annualized basis, for the quarter ended March 31, 2020. This cash distribution is payable on May 15, 2020 to common unitholders of record at the close of business on May 7, 2020. The Board will, as it always does, continue to evaluate the distribution on a quarterly basis going forward as this approximately $100 million reduction on an annualized basis will be used to increase liquidity and de-lever the balance sheet and is expected to improve the Partnership’s common unit coverage ratio to over 2.0x.
"Our decision to reduce the common unit distribution by 48.7% was made based on NGL’s and the Board’s priorities of maintaining a strong balance sheet and liquidity as we manage through these uncertain times," stated Krimbill. "This reduction was made despite NGL’s strong distribution coverage for the quarter and expectations for improved coverage going forward. We believe it is in the best interest of all our stakeholders that during this period we enhance our financial flexibility and preserve liquidity. Our objectives are not achieved solely on the back of a distribution reduction. It is a combination of initiatives, including limiting capital expenditures, decreasing expenses and evaluating and executing on other deleveraging transactions, both financial and asset-based, that will accomplish our goals. In the meantime, we will continue to take advantage of operational and capital market opportunities resulting from current market dynamics to best position NGL going forward."
Additionally, the Board declared a Class D Preferred cash distribution of $6.1 million, which amount represents 50% of the Class D Distribution Amount, to be paid to the holders of the Class D Preferred Units. The Class D Stated Value Units will also automatically increase by the non-cash accretion amount of $6.1 million for the quarter ended March 31, 2020. The Class D Preferred distribution will also be made on May 15, 2020.
Forward Looking Statements
This press release includes "forward-looking statements." All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While NGL believes such forward-looking statements are reasonable, NGL cannot assure they will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in NGL’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading "Risk Factors." NGL undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.
Non-GAAP Financial Measures
NGL defines EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. NGL defines Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or market adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. NGL also includes in Adjusted EBITDA certain inventory valuation adjustments related to its Refined Products and Renewables segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income (loss), income (loss) from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. NGL believes that EBITDA provides additional information to investors for evaluating NGL’s ability to make quarterly distributions to NGL’s unitholders and is presented solely as a supplemental measure. NGL believes that Adjusted EBITDA provides additional information to investors for evaluating NGL’s financial performance without regard to NGL’s financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.
Other than for NGL’s Refined Products and Renewables segment, for purposes of the Adjusted EBITDA calculation, NGL makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, NGL records changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, NGL reverses the previously recorded unrealized gain or loss and records a realized gain or loss. NGL does not draw such a distinction between realized and unrealized gains and losses on derivatives of NGL’s Refined Products and Renewables segment. The primary hedging strategy of NGL’s Refined Products and Renewables segment is to hedge against the risk of declines in the value of inventory over the course of the contract cycle, and many of the hedges are six months to one year in duration at inception. The "inventory valuation adjustment" row in the reconciliation table reflects the difference between the market value of the inventory of NGL’s Refined Products and Renewables segment at the balance sheet date and its cost, adjusted for the impact of seasonal market movements related to our base inventory and the related hedge. NGL includes this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA.
Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures, income tax expense, cash interest expense, preferred unit distributions and other. Maintenance capital expenditures represent capital expenditures necessary to maintain the Partnership’s operating capacity. Distributable Cash Flow is a performance metric used by senior management to compare cash flows generated by the Partnership (excluding growth capital expenditures and prior to the establishment of any retained cash reserves by the Board of Directors) to the cash distributions expected to be paid to unitholders. Using this metric, management can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. This financial measure also is important to investors as an indicator of whether the Partnership is generating cash flow at a level that can sustain, or support an increase in, quarterly distribution rates. Actual distribution amounts are set by the Board of Directors.
Due to the impracticality of predicting certain amounts required by GAAP such as unrealized gains and losses on derivatives marked to market and potential changes in estimates for certain contingent liabilities, NGL does not calculate budgeted Net Income, the GAAP financial measure most directly comparable to the non-GAAP financial measures of Distributable Cash Flow and Adjusted EBITDA.
About NGL Energy Partners LP
NGL Energy Partners LP, a Delaware limited partnership, is a diversified midstream energy company that transports, stores, markets and provides other logistics services for crude oil, natural gas liquids and other products and transports, treats and disposes of produced water generated as part of the oil and natural gas production process. For further information, visit the Partnership’s website at www.nglenergypartners.com.
This release is a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat 100% of NGL Energy Partner LP’s distributions to foreign investors as being attributable to income that is effectively connected with a United States trade or business. Therefore, distributions to foreign investors are subject to federal income tax withholding at the highest applicable effective tax rate.
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NGL Energy Partners LP Trey Karlovich, 918.481.1119
Executive Vice President and Chief Financial Officer
Linda Bridges, 918.481.1119
Senior Vice President – Finance and Treasurer