NGL 10-Q Quarterly Report June 30, 2023

NGL ENERGY PARTNERS LP

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ngl-20230630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			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)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common units representing Limited Partner Interests

NGL

New York Stock Exchange

Fixed-to-floating rate cumulative redeemable perpetual preferred units

NGL-PB

New York Stock Exchange

Fixed-to-floating rate cumulative redeemable perpetual preferred units

NGL-PC

New York Stock Exchange

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

At August 7, 2023, there were 131,927,343 common units issued and outstanding.

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TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and March 31, 2023	3
	Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2023 and 2022	5
	Unaudited Condensed Consolidated Statements of Changes in Equity for the three months ended June 30, 2023 and 2022	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2023 and 2022	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2 .	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3 .	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
SIGNATURES		54

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Forward-Looking Statements

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

• the prices of crude oil, natural gas liquids, gasoline, diesel, biodiesel and energy prices generally;

• the general level of demand, and the availability of supply, for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;

• the level of crude oil and natural gas drilling and production in areas where we have operations and facilities;

• the ability to obtain adequate supplies of products if an interruption in supply or transportation occurs and the availability of capacity to transport products to market areas;

• the effect of weather conditions on supply and demand for crude oil, natural gas liquids, gasoline, diesel, and biodiesel;

• the effect of natural disasters, earthquakes, hurricanes, tornados, lightning strikes, or other significant weather events;

• the availability of local, intrastate, and interstate transportation infrastructure with respect to our transportation services;

• the availability, price, and marketing of competing fuels;

• the effect of energy conservation efforts on product demand;

• energy efficiencies and technological trends;

• issuance of executive orders, changes in applicable laws, regulations and policies, including tax, environmental, transportation, and employment regulations, or new interpretations by regulatory agencies concerning such laws and regulations and the effect of such laws, regulations and policies (now existing or in the future) on our business operations;

• the effect of executive orders and legislative and regulatory actions on hydraulic fracturing, water disposal and transportation, and the treatment of flowback and produced water;

• hazards or operating risks related to transporting and distributing petroleum products that may not be fully covered by insurance;

• the maturity of the crude oil, natural gas liquids, and refined products industries and competition from other markets;

• loss of key personnel;

• the ability to renew contracts with key customers;

• the ability to maintain or increase the margins we realize for our services;

• the ability to renew leases for our leased equipment and storage facilities;

• inflation, interest rates, and general economic conditions (including recessions and other future disruptions and volatility in the global credit markets, as well as the impact of these events on customers and suppliers);

• the nonpayment, nonperformance or bankruptcy by our counterparties;

• the availability and cost of capital and our ability to access certain capital sources;

• a deterioration of the credit and capital markets;

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• the ability to successfully identify and complete accretive acquisitions and organic growth projects, and integrate acquired assets and businesses;

• the costs and effects of legal and administrative proceedings;

• changes in general economic conditions, including market and macroeconomic disruptions resulting from global pandemics and related governmental responses; and

• political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and sale of crude oil, refined products, natural gas, natural gas liquids, gasoline, diesel or biodiesel.

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, 2023.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(in Thousands, except unit amounts)


	June 30, 2023		March 31, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,786	$	5,431
Accounts receivable-trade, net of allowance for expected credit losses of $ 1,888 and $ 1,964 , respectively	892,266		1,033,956
Accounts receivable-affiliates	12,836		12,362
Inventories	185,638		142,607
Prepaid expenses and other current assets	84,339		98,089
Total current assets	1,182,865		1,292,445
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $ 921,300 and $ 898,184 , respectively	2,196,845		2,223,380
GOODWILL	712,364		712,364
INTANGIBLE ASSETS, net of accumulated amortization of $ 600,613 and $ 580,860 , respectively	1,038,775		1,058,668
INVESTMENTS IN UNCONSOLIDATED ENTITIES	20,049		21,090
OPERATING LEASE RIGHT-OF-USE ASSETS	97,327		90,220
OTHER NONCURRENT ASSETS	57,429		57,977
Total assets	$	5,305,654	$	5,456,144
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	773,678	$	927,591
Accounts payable-affiliates	55		65
Accrued expenses and other payables	159,408		133,616
Advance payments received from customers	19,026		14,699

Operating lease obligations	34,702		34,166
Total current liabilities	986,869		1,110,137
LONG-TERM DEBT, net of debt issuance costs of $ 27,040 and $ 30,117 , respectively	2,803,607		2,857,805
OPERATING LEASE OBLIGATIONS	64,998		58,450
OTHER NONCURRENT LIABILITIES	111,978		111,226
COMMITMENTS AND CONTINGENCIES (NOTE 7)

CLASS D 9.00 % PREFERRED UNITS, 600,000 and 600,000 preferred units issued and outstanding, respectively	551,097		551,097

EQUITY:
General partner, representing a 0.1 % interest, 132,059 and 132,059 notional units, respectively	( 52,565 )		( 52,551 )
Limited partners, representing a 99.9 % interest, 131,927,343 and 131,927,343 common units issued and outstanding, respectively	475,353		455,564
Class B preferred limited partners, 12,585,642 and 12,585,642 preferred units issued and outstanding, respectively	305,468		305,468
Class C preferred limited partners, 1,800,000 and 1,800,000 preferred units issued and outstanding, respectively	42,891		42,891
Accumulated other comprehensive loss	( 434 )		( 450 )
Noncontrolling interests	16,392		16,507
Total equity	787,105		767,429
Total liabilities and equity	$	5,305,654	$	5,456,144

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

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(in Thousands, except unit and per unit amounts)


	Three Months Ended June 30,
	2023		2022
REVENUES:
Water Solutions	$	181,302	$	166,079
Crude Oil Logistics	464,390		865,371
Liquids Logistics	970,412		1,465,933

Total Revenues	1,616,104		2,497,383
COST OF SALES:
Water Solutions	2,569		10,225
Crude Oil Logistics	425,299		822,370
Liquids Logistics	947,247		1,422,416
Corporate and Other	4,214		—
Total Cost of Sales	1,379,329		2,255,011
OPERATING COSTS AND EXPENSES:
Operating	76,681		71,860
General and administrative	20,291		16,757
Depreciation and amortization	68,979		66,660
Gain on disposal or impairment of assets, net	( 1,196 )		( 168 )

Operating Income	72,020		87,263
OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated entities	91		674
Interest expense	( 59,522 )		( 67,311 )
Gain on early extinguishment of liabilities, net	6,808		1,662
Other income, net	306		646
Income Before Income Taxes	19,703		22,934
INCOME TAX (EXPENSE) BENEFIT	( 140 )		172
Net Income	19,563		23,106
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	( 262 )		( 245 )
NET INCOME ATTRIBUTABLE TO NGL ENERGY PARTNERS LP	$	19,301	$	22,861
NET LOSS ALLOCATED TO COMMON UNITHOLDERS (NOTE 3)	$	( 14,482 )	$	( 4,679 )

BASIC AND DILUTED LOSS PER COMMON UNIT	$	( 0.11 )	$	( 0.04 )

BASIC WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	131,927,343		130,695,970
DILUTED WEIGHTED AVERAGE COMMON UNITS OUTSTANDING	131,927,343		130,695,970

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

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in Thousands)


	Three Months Ended June 30,
	2023		2022
Net income	$	19,563	$	23,106
Other comprehensive income (loss)	16		( 50 )
Comprehensive income	$	19,579	$	23,056

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

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Equity

Three Months Ended June 30, 2023

(in Thousands, except unit amounts)


			Limited Partners
			Preferred			Common
	General Partner		Units	Amount		Units	Amount		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total Equity
BALANCE AT MARCH 31, 2023	$	( 52,551 )	14,385,642	$	348,359	131,927,343	$	455,564	$	( 450 )	$	16,507	$	767,429
Distributions to noncontrolling interest owners	—		—	—		—	—		—		( 377 )		( 377 )
Equity issued pursuant to incentive compensation plan (Note 8)	—		—	—		—	474		—		—		474
Net (loss) income	( 14 )		—	—		—	19,315		—		262		19,563
Other comprehensive income	—		—	—		—	—		16		—		16
BALANCE AT JUNE 30, 2023	$	( 52,565 )	14,385,642	$	348,359	131,927,343	$	475,353	$	( 434 )	$	16,392	$	787,105

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Equity

Three Months Ended June 30, 2022

(in Thousands, except unit amounts)


			Limited Partners
			Preferred			Common
	General Partner		Units	Amount		Units	Amount		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total Equity
BALANCE AT MARCH 31, 2022	$	( 52,478 )	14,385,642	$	348,359	130,695,970	$	401,486	$	( 308 )	$	17,394	$	714,453
Distributions to noncontrolling interest owners	—		—	—		—	—		—		( 975 )		( 975 )
Equity issued pursuant to incentive compensation plan	—		—	—		—	497		—		—		497
Net (loss) income	( 5 )		—	—		—	22,866		—		245		23,106
Other comprehensive loss	—		—	—		—	—		( 50 )		—		( 50 )
BALANCE AT JUNE 30, 2022	$	( 52,483 )	14,385,642	$	348,359	130,695,970	$	424,849	$	( 358 )	$	16,664	$	737,031

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

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NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(in Thousands)


	Three Months Ended June 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	19,563	$	23,106
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including amortization of debt issuance costs	73,210		70,968
Gain on early extinguishment of liabilities, net	( 6,808 )		( 1,662 )
Equity-based compensation expense	474		497
Gain on disposal or impairment of assets, net	( 1,196 )		( 168 )
Change in provision for expected credit losses	( 9 )		( 419 )
Net adjustments to fair value of commodity derivatives	( 12,890 )		41,068
Equity in earnings of unconsolidated entities	( 91 )		( 674 )
Distributions of earnings from unconsolidated entities	333		—
Lower of cost or net realizable value adjustments	5,991		5,475
Other	739		1,395
Changes in operating assets and liabilities, exclusive of acquisitions:
Accounts receivable-trade and affiliates	141,016		( 181,341 )
Inventories	( 49,022 )		( 55,507 )
Other current and noncurrent assets	24,206		( 4,613 )
Accounts payable-trade and affiliates	( 153,931 )		66,927
Other current and noncurrent liabilities	13,526		37,434
Net cash provided by operating activities	55,111		2,486
INVESTING ACTIVITIES:
Capital expenditures	( 35,801 )		( 41,006 )
Net settlements of commodity derivatives	12,430		( 2,267 )
Proceeds from sales of assets	21,131		6,851

Investments in unconsolidated entities	( 258 )		—
Distributions of capital from unconsolidated entities	1,057		—
Net cash used in investing activities	( 1,441 )		( 36,422 )
FINANCING ACTIVITIES:
Proceeds from borrowings under revolving credit facility	528,000		552,000
Payments on revolving credit facility	( 486,000 )		( 497,000 )
Repayment and repurchase of senior unsecured notes	( 91,982 )		( 21,517 )
Payments on other long-term debt	—		( 630 )
Debt issuance costs	( 472 )		( 592 )
Distributions to noncontrolling interest owners	( 377 )		( 975 )

Payments to settle contingent consideration liabilities	( 480 )		( 356 )
Principal payments of finance lease	( 4 )		—
Net cash (used in) provided by financing activities	( 51,315 )		30,930
Net increase (decrease) in cash and cash equivalents	2,355		( 3,006 )
Cash and cash equivalents, beginning of period	5,431		3,822
Cash and cash equivalents, end of period	$	7,786	$	816
Supplemental cash flow information:
Cash interest paid	$	25,561	$	34,166
Income taxes paid (net of income tax refunds)	$	1,352	$	1,748
Supplemental non-cash investing and financing activities:
Accrued capital expenditures	$	15,324	$	20,273

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

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 (“GP”). At June 30, 2023, our operations included three segments:

• Our Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from crude oil and natural gas production. We also sell produced water for reuse and recycle and brackish non-potable water to our producer customers to be used in their crude oil exploration and production activities. As part of processing water, we aggregate and sell recovered crude oil, also known as skim oil. We also dispose of solids such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services such as truck and frac tank washouts. Our activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments with leading oil and gas companies including large, investment grade producer customers.

• Our Crude Oil Logistics segment purchases crude oil from producers and marketers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling, and transportation services through its owned assets. Our activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on our owned and leased pipelines.

• Our Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through our 25 owned terminals, third-party storage and terminal facilities, nine common carrier pipelines and a fleet of leased railcars. We also provide services for marine exports of butane through our facility located in Chesapeake, Virginia and we also own a propane pipeline in Michigan.

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.

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, 2023 was derived from our audited consolidated financial statements for the fiscal year ended March 31, 2023 included in our Annual Report on Form 10-K (“Annual Report”) filed with the SEC on May 31, 2023.

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, 2024.

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.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

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

Significant Accounting Policies

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

Income Taxes

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

We have a deferred tax liability of $ 40.5 million and $ 40.7 million at June 30, 2023 and March 31, 2023, respectively, as a result of acquiring corporations in connection with certain of our acquisitions, which is included within other noncurrent liabilities in our unaudited condensed consolidated balance sheets. The deferred tax liability is the tax effected cumulative temporary difference between the GAAP basis and tax basis of the acquired assets within the corporation. For GAAP purposes, certain of the acquired assets will be depreciated and amortized over time which will lower the GAAP basis. The deferred tax benefit recorded during the three months ended June 30, 2023 was $ 0.1 million with an effective tax rate of 22.3 %. The deferred tax benefit recorded during the three months ended June 30, 2022 was $ 0.7 million with an effective tax rate of 24.1 %.

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 uncertain tax positions that required recognition in our unaudited condensed consolidated financial statements at June 30, 2023 or March 31, 2023.

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, 2023		March 31, 2023
	(in thousands)
Propane	$	64,308	$	46,910
Butane	51,837		18,384
Crude oil	47,114		49,586
Biodiesel	14,075		19,778
Ethanol	1,862		3
Diesel	1,312		2,536
Other	5,130		5,410
Total	$	185,638	$	142,607

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Investments in Unconsolidated Entities

Investments we do not control, but can exercise significant influence over, are accounted for using the equity method of accounting. Investments in partnerships and limited liability companies, unless our investment is considered to be minor, and investments in unincorporated joint ventures are also accounted for using the equity method of accounting.

Our investments in unconsolidated entities consist of the following at the dates indicated:


Entity	Segment	Ownership Interest	June 30, 2023		March 31, 2023
			(in thousands)
Water services and land company	Water Solutions	50 %	$	14,494	$	15,036
Water services and land company	Water Solutions	10 %	3,061		3,511
Water services and land company	Water Solutions	50 %	2,089		2,071
Aircraft company (1)	Corporate and Other	50 %	253		308
Natural gas liquids terminal company	Liquids Logistics	50 %	152		164
Total			$	20,049	$	21,090

(1) This is an investment with a related party.

Other Noncurrent Assets

Other noncurrent assets consist of the following at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Linefill (1)	$	37,861	$	37,861
Loan receivable (2)	10,308		8,592
Minimum shipping fees - pipeline commitments (3)	3,560		4,628
Other	5,700		6,896
Total	$	57,429	$	57,977

(1) Represents minimum volumes of product we are required to leave on certain third-party owned pipelines under long-term shipment commitments. At June 30, 2023 and March 31, 2023, linefill consisted of 502,686 barrels of crude oil. Linefill held in pipelines we own is included within property, plant and equipment (see Note 4).

(2) Represents the noncurrent portion of loan receivables, net of allowances for expected credit losses, related to the sale of certain saltwater disposal assets (see Note 15).

(3) Represents the noncurrent portion of minimum shipping fees paid in excess of volumes shipped, or deficiency credits, for a contract with a crude oil pipeline operator. This amount can be recovered when volumes shipped exceed the minimum monthly volume commitment (see Note 7). At June 30, 2023, the deficiency credit was $ 7.8 million, of which $ 4.3 million is recorded within prepaid expenses and other current assets in our unaudited condensed consolidated balance sheet.

Accrued Expenses and Other Payables

Accrued expenses and other payables consist of the following at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Accrued interest	$	77,736	$	49,362
Accrued compensation and benefits	14,673		27,013
Excise and other tax liabilities	12,897		11,777
Derivative liabilities	12,874		14,752
Product exchange liabilities	7,515		4,047
Other	33,713		26,665
Total	$	159,408	$	133,616

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Reclassifications

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

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) interest rate or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” which deferred the sunset date from December 31, 2022 to December 31, 2024 and left all other provisions of ASU 2020-04 unchanged. On April 13, 2022, the ABL Facility (as defined herein) was amended to replace the LIBOR benchmark with the SOFR (as defined herein) benchmark (as discussed further in Note 6). We are continuing to evaluate the effect that this guidance will have on our financial position, results of operations and cash flows.

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,
	2023	2022
Weighted average common units outstanding during the period:
Common units - Basic	131,927,343	130,695,970


Common units - Diluted	131,927,343	130,695,970

For the three months ended June 30, 2023 and 2022, respectively, all potential common units or convertible securities were considered antidilutive.

Our loss per common unit is as follows for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands, except per unit amounts)
Net income	$	19,563	$	23,106
Less: Net income attributable to noncontrolling interests	( 262 )		( 245 )
Net income attributable to NGL Energy Partners LP	19,301		22,861
Less: Distributions to preferred unitholders (1)	( 33,797 )		( 27,545 )
Less: Net loss allocated to GP (2)	14		5
Net loss allocated to common unitholders	$	( 14,482 )	$	( 4,679 )


Basic and diluted loss per common unit	$	( 0.11 )	$	( 0.04 )

(1) Includes cumulative distributions for the three months ended June 30, 2023 and 2022 which were earned but not declared or paid (see Note 8 for a further discussion of the suspension of common unit and preferred unit distributions).

(2) Net loss allocated to the GP includes distributions to which it is entitled as the holder of incentive distribution rights.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 4— Property, Plant and Equipment

Our property, plant and equipment consists of the following at the dates indicated:


Description	Estimated Useful Lives			June 30, 2023		March 31, 2023
	(in years)			(in thousands)
Natural gas liquids terminal and storage assets	2	-	30	$	161,018	$	160,939
Pipeline and related facilities	30	-	40	265,254		265,253
Vehicles and railcars (1)	3	-	25	92,234		92,640
Water treatment facilities and equipment	3	-	30	2,037,277		2,040,792
Crude oil tanks and related equipment	2	-	30	222,611		221,881
Information technology equipment	3	-	7	36,448		35,884
Buildings and leasehold improvements	3	-	40	127,301		130,119
Land				88,074		89,474
Tank bottoms and linefill (2)				35,077		40,001
Other	3	-	20	10,870		10,908
Construction in progress				41,981		33,673
Gross property, plant and equipment				3,118,145		3,121,564
Accumulated depreciation				( 921,300 )		( 898,184 )
Net property, plant and equipment				$	2,196,845	$	2,223,380

(1) Includes a finance lease right-of-use asset of $ 0.1 million. The accumulated amortization related to this finance lease is included within accumulated depreciation.

(2) 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. Linefill, 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.

The following table summarizes depreciation expense and capitalized interest expense for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Depreciation expense	$	49,644	$	47,051
Capitalized interest expense	$	302	$	249

We record (gains) losses from the sales of property, plant and equipment and any write-downs in value due to impairment within gain on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations. The following table summarizes (gains) losses on the disposal or impairment of property, plant and equipment by segment for the period indicated:


	Three Months Ended June 30, 2023
	(in thousands)
Water Solutions	$	11,327
Crude Oil Logistics	800
Liquids Logistics	( 811 )

Total	$	11,316

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 5— Intangible Assets

Our intangible assets consist of the following at the dates indicated:


		June 30, 2023						March 31, 2023
Description	Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in years)	(in thousands)
Amortizable:
Customer relationships	18.8	$	1,196,468	$	( 506,390 )	$	690,078	$	1,196,468	$	( 492,002 )	$	704,466
Customer commitments	21.0	192,000		( 30,720 )		161,280		192,000		( 28,800 )		163,200
Pipeline capacity rights	20.4	7,799		( 2,492 )		5,307		7,799		( 2,427 )		5,372
Rights-of-way and easements	30.6	95,000		( 15,905 )		79,095		94,875		( 15,138 )		79,737
Water rights	16.2	99,869		( 27,965 )		71,904		99,869		( 26,453 )		73,416
Executory contracts and other agreements	23.7	21,996		( 5,806 )		16,190		21,570		( 5,037 )		16,533
Non-compete agreements	—	—		—		—		1,100		( 1,082 )		18
Debt issuance costs (1)	2.7	26,001		( 11,335 )		14,666		25,592		( 9,921 )		15,671
Total amortizable		1,639,133		( 600,613 )		1,038,520		1,639,273		( 580,860 )		1,058,413
Non-amortizable:

Trade names		255				255		255				255
Total		$	1,639,388	$	( 600,613 )	$	1,038,775	$	1,639,528	$	( 580,860 )	$	1,058,668

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

Amortization expense is as follows for the periods indicated:


	Three Months Ended June 30,
Recorded In	2023		2022
	(in thousands)
Depreciation and amortization	$	19,335	$	19,609
Cost of sales	65		68
Interest expense	1,414		1,163
Operating expenses	62		62
Total	$	20,876	$	20,902

The following table summarizes expected amortization of our intangible assets at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	56,343
2025	68,838
2026	65,626
2027	60,128
2028	57,275
2029	55,324
Thereafter	674,986
Total	$	1,038,520

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 6— Long-Term Debt

Our long-term debt consists of the following at the dates indicated:


	June 30, 2023						March 31, 2023
	Face Amount		Unamortized Debt Issuance Costs (1)		Book Value		Face Amount		Unamortized Debt Issuance Costs (1)		Book Value
	(in thousands)
Senior secured notes:
7.500 % Notes due 2026 (“2026 Senior Secured Notes”)	$	2,050,000	$	( 23,714 )	$	2,026,286	$	2,050,000	$	( 26,009 )	$	2,023,991
Asset-based revolving credit facility (“ABL Facility”)	180,000				180,000		138,000				138,000
Senior unsecured notes:
6.125 % Notes due 2025 (“2025 Notes”)	280,745		( 1,036 )		279,709		380,020		( 1,612 )		378,408
7.500 % Notes due 2026 (“2026 Notes”)	319,902		( 2,290 )		317,612		319,902		( 2,496 )		317,406


Long-term debt	$	2,830,647	$	( 27,040 )	$	2,803,607	$	2,887,922	$	( 30,117 )	$	2,857,805

(1) Debt issuance costs related to the ABL Facility are reported within intangible assets, rather than as a reduction of the carrying amount of long-term debt.

2026 Senior Secured Notes

The 2026 Senior Secured Notes bear interest at 7.5 %, which is payable on February 1 and August 1 of each year. The 2026 Senior Secured Notes mature on February 1, 2026. The 2026 Senior Secured Notes were issued pursuant to an indenture dated February 4, 2021 (the “Indenture”).

The 2026 Senior Secured Notes are secured by first priority liens on substantially all of our assets other than our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and second priority liens on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets.

The Indenture contains covenants that, among other things, limit our ability to: pay distributions or make other restricted payments or repurchase stock; incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock; make certain investments; create or incur liens; sell assets; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, make loans or advances or transfer assets to the guarantors (including the Partnership); enter into certain transactions with our affiliates; designate restricted subsidiaries as unrestricted subsidiaries; and merge, consolidate or transfer or sell all or substantially all of our assets. The Indenture specifically restricts our ability to pay distributions until our total leverage ratio (as defined in the Indenture) for the most recently ended four full fiscal quarters at the time of the distribution is not greater than 4.75 to 1.00. These covenants are subject to a number of important exceptions and qualifications.

We have the option to redeem all or a portion of the 2026 Senior Secured Notes at any time at fixed redemption prices contained within the Indenture. If we experience certain kinds of change of control triggering events, we will be required to offer to repurchase the 2026 Senior Secured Notes at 101% of the aggregate principal amount of the 2026 Senior Secured Notes repurchased plus accrued and unpaid interest on the 2026 Senior Secured Notes repurchased to, but not including, the date of purchase.

Compliance

At June 30, 2023, we were in compliance with the covenants under the Indenture.

ABL Facility

The ABL Facility is subject to a borrowing base, which includes a sub-limit for letters of credit. Total commitments under the ABL Facility are $ 600.0 million and the sub-limit for letters of credit is $ 250.0 million. The ABL Facility is secured by a lien on substantially all of our assets, including among other things, a first priority lien on our accounts receivable, inventory, pledged deposit accounts, cash and cash equivalents, renewable energy tax credits and related assets and a second priority lien on all of our other assets. At June 30, 2023, $ 180.0 million had been borrowed under the ABL Facility and we had

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

letters of credit outstanding of approximately $ 141.7 million. The ABL Facility is scheduled to mature at the earliest of (a) February 4, 2026 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions.

At June 30, 2023, the borrowings under the ABL Facility had a weighted average interest rate of 8.28 % calculated as the prime rate of 8.25 % plus a margin of 1.50 % on the alternate base borrowings and the weighted average secured overnight financing rate (“SOFR”) of 5.22 % plus a margin of 2.50 % on the SOFR borrowings. On June 30, 2023, the interest rate in effect on letters of credit was 2.50 %.

The ABL Facility contains various affirmative and negative covenants, including financial reporting requirements and limitations on indebtedness, liens, mergers, consolidations, liquidations and dissolutions, sales of assets, distributions and other restricted payments, investments (including acquisitions) and transactions with affiliates. The ABL Facility contains, as the only financial covenant, a fixed charge coverage ratio that is tested based on the financial statements for the most recently ended fiscal quarter upon the occurrence and during the continuation of a Cash Dominion Event (as defined in the ABL Facility). At June 30, 2023, no Cash Dominion Event had occurred.

Compliance

At June 30, 2023, we were in compliance with the covenants under the ABL Facility.

Senior Unsecured Notes

The senior unsecured notes include the 2025 Notes, which mature on March 1, 2025 and the 2026 Notes, which mature on April 15, 2026 (collectively, the “Senior Unsecured Notes”).

Repurchases

The following table summarizes repurchases of Senior Unsecured Notes for the period indicated:


	Three Months Ended June 30, 2023
	(in thousands)
2025 Notes
Notes repurchased	$	99,275
Cash paid (excluding payments of accrued interest)	$	91,982
Gain on early extinguishment of debt (1)	$	6,906

(1) Gain on early extinguishment of debt for the 2025 Notes during the three months ended June 30, 2023 is inclusive of the write-off of debt issuance costs of $ 0.4 million. The gain is reported within gain on early extinguishment of liabilities, net within our unaudited condensed consolidated statement of operations.

Redemption Rights

We currently have the right to redeem all or a portion of the outstanding 2025 Notes at 100% of the principal amount plus accrued and unpaid interest. As of April 15, 2024, we will have the right to redeem all or a portion of the outstanding 2026 Notes at 100% of the principal amount plus accrued and unpaid interest.

Compliance

At June 30, 2023, we were in compliance with the covenants under all of the Senior Unsecured Notes indentures.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Debt Maturity Schedule

The scheduled maturities of our long-term debt are as follows at June 30, 2023:


Fiscal Year Ending March 31,	2026 Senior Secured Notes		ABL Facility		Senior Unsecured Notes		Total
	(in thousands)
2024 (nine months)	$	—	$	—	$	—	$	—
2025	—		—		280,745		280,745
2026	2,050,000		180,000		—		2,230,000
2027	—		—		319,902		319,902



Total	$	2,050,000	$	180,000	$	600,647	$	2,830,647

Amortization of Debt Issuance Costs

Amortization expense for debt issuance costs related to long-term debt was $ 2.7 million and $ 3.0 million during the three months ended June 30, 2023 and 2022, respectively.

The following table summarizes expected amortization of debt issuance costs at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	7,967
2025	10,570
2026	8,471
2027	32
Total	$	27,040

Note 7— Commitments and Contingencies

Legal Contingencies

In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against 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. On December 5, 2019, in response to the defendants’ post-trial motion, the Court issued an Order overturning the jury’s damages award and ordering the case to be set for a damages-only trial (the “December 5th Order”). Both parties filed applications with the trial court asking the trial court to certify the December 5th Order for interlocutory, immediate review by the Appellate Court. On January 7, 2020, the Supreme Court of Delaware (“Supreme Court”) entered an Order accepting an interlocutory appeal of various issues relating to both the quantum meruit and fraudulent misrepresentation verdicts. The Supreme Court heard oral arguments of the parties on November 4, 2020, took the matters presented under advisement and on January 28, 2021, issued a ruling that (a) LCT is not entitled to “benefit-of-the-bargain” damages on its fraud claim; (b) LCT is not entitled to receive fraudulent misrepresentation damages separate from its quantum meruit damages; (c) the trial court abused its discretion when it ordered a new trial on damages relating to LCT’s claim of fraudulent misrepresentation; and (d) the trial court properly ordered a new trial on LCT’s claim of quantum meruit damages. The re-trial of the quantum meruit claim was conducted in Delaware state court from February 6, 2023 through February 15, 2023 and resulted in the jury returning a verdict consisting of an award of $ 36.0 million subject to statutory interest and costs, as applicable, which through June 30, 2023, equals approximately $ 21.0 million. The GP and the Partnership contend that the jury verdict is not supportable by controlling law or the evidentiary record; and on July 28, 2023, filed their notice of appeal to the Delaware Supreme Court which raises various issues relating to the quantum meruit verdict, including but not limited to, certain written orders and oral evidentiary and other rulings made prior to and during the February 2023 remand trial. Any allocation of the ultimate verdict award, if any, between the GP and the Partnership will be made by the board of directors of our GP once all information is available to it and after any post-trial and/or any appellate process has concluded and the verdict is final as a matter of law. As of June 30, 2023, we have accrued approximately $ 4.0 million related to this matter, of which approximately $ 1.5 million represents interest accrued through June 30, 2023.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The Partnership is a party defendant to a purported class action complaint filed in the federal court in the Northern District of Oklahoma styled Gary R. Underwood, Successor Trustee for the James L. Price Revocable Living Trust, on behalf of the Trust and all others similarly situated v. NGL Energy Partners LP , Case No. 4:21-cv-00135-CVE-SH. This case seeks class certification on behalf of owners who allege the Partnership’s Crude Oil Logistics group violated Oklahoma’s Production Revenue Standards Act when it failed to include statutory interest on proceeds payments it made to certain mineral owners and to state unclaimed property divisions for oil purchased from certain Oklahoma wells. A substantial portion of the statutory interest claimed to be owed in the lawsuit related to suspended proceeds we inherited from our predecessors and remitted to various state unclaimed property divisions in 2016. With no admission of liability or wrongdoing, but only to avoid the expense and uncertainty of future litigation, the Partnership entered into a settlement agreement in this case to resolve all claims made against it by the plaintiff and the proposed class. We have agreed to pay the sum of approximately $ 8.4 million to the plaintiff and the proposed class. On April 3, 2023, we paid this money into escrow. During the final fairness hearing on June 15, 2023, the settlement agreement was approved by the court and an order granting final approval of the class action settlement was entered into record.

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 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, 2023, we have an environmental liability, measured on an undiscounted basis, of $ 1.4 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.

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, 2023	$	35,163
Liabilities incurred	761

Liabilities associated with disposed assets (1)	( 202 )
Liabilities settled	( 218 )
Accretion expense	956
Balance at June 30, 2023	$	36,460

(1) Relates to the sale of three saltwater disposal wells and other long-lived assets within our Water Solutions business.

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.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Pipeline Capacity Agreement

We have a noncancellable agreement with a crude oil pipeline operator, which guarantees us minimum monthly shipping capacity on the pipeline. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under this agreement, 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, and this agreement allows 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 prepaid expenses and other current assets and in other noncurrent assets in our unaudited condensed consolidated balance sheet for minimum shipping fees paid in both the current and previous periods that are expected to be recovered in future periods by exceeding the minimum monthly volumes (see Note 2).

The following table summarizes future minimum throughput payments under this agreement at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	20,179
2025	26,784



Total	$	46,963

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, 2023, we had the following commodity purchase commitments:


	Crude Oil (1)			Natural Gas Liquids
	Value		Volume (in barrels)	Value		Volume (in gallons)
	(in thousands)
Fixed-Price Commodity Purchase Commitments:
2024 (nine months)	$	118,567	1,770	$	56,497	62,971
2025	—		—	4,225		5,502
2026	—		—	4,464		6,510
2027	—		—	2,963		4,284
Total	$	118,567	1,770	$	68,149	79,267

Index-Price Commodity Purchase Commitments:
2024 (nine months)	$	3,498,572	51,552	$	626,651	834,342
2025	1,858,904		28,498	10,131		12,660
2026	620,681		10,410	—		—
Total	$	5,978,157	90,460	$	636,782	847,002

(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, whereby our counterparty is required to pay us for any volumes not delivered, we have not entered into corresponding long-term sales contracts for volumes we may not receive.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

At June 30, 2023, we had the following commodity sale commitments:


	Crude Oil			Natural Gas Liquids
	Value		Volume (in barrels)	Value		Volume (in gallons)
	(in thousands)
Fixed-Price Commodity Sale Commitments:
2024 (nine months)	$	120,705	1,788	$	147,824	146,561
2025	—		—	7,666		9,044
2026	—		—	4,377		5,660
2027	—		—	2,783		3,846
2028	—		—	51		60
Total	$	120,705	1,788	$	162,701	165,171

Index-Price Commodity Sale Commitments:
2024 (nine months)	$	2,917,130	41,781	$	547,765	618,036
2025	1,150,483		16,950	18,348		19,805
2026	25,775		390	—		—


Total	$	4,093,388	59,121	$	566,113	637,841

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 physical 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 9) 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 9 and represent $ 20.3 million of our prepaid expenses and other current assets and $ 13.0 million of our accrued expenses and other payables at June 30, 2023.

Other Commitments

We have noncancellable agreements for product storage, railcar spurs and real estate. The following table summarizes future minimum payments under these agreements at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	12,895
2025	3,712
2026	1,374
2027	1,365
2028	1,319
2029	1,252
Thereafter	3,273
Total	$	25,190

Note 8— Equity

Partnership Equity

The Partnership’s equity consists of a 0.1 % GP interest and a 99.9 % limited partner interest, which consists of common units. Our GP has the right, but not the obligation, to contribute a proportionate amount of capital to the Partnership to maintain its 0.1 % GP interest. Our GP is not required to guarantee or pay any of our debts and obligations. At June 30, 2023, we owned 8.69 % of our GP.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Suspension of Common Unit and Preferred Unit Distributions

The board of directors of our GP temporarily suspended all distributions (common unit distributions which began with the quarter ended December 31, 2020 and preferred unit distributions which began with the quarter ended March 31, 2021) in order to deleverage our balance sheet and meet the financial performance ratios set within the Indenture of the 2026 Senior Secured Notes, as discussed further in Note 6.

Class B Preferred Units

As of June 30, 2023, there were 12,585,642 of our Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) outstanding.

The current distribution rate for the Class B Preferred Units is a floating rate of the three-month LIBOR interest rate (5.55% for the quarter ended June 30, 2023) plus a spread of 7.213%. Effective July 3, 2023, the reference to LIBOR in the formulation for the distribution rate in these securities was replaced with three-month CME Term SOFR, as calculated and published by CME Group Benchmark Administration, Ltd., plus a tenor spread adjustment of 0.26161%, in accordance with the Adjustable Interest R ate (LIBOR) Act (the “LIBOR Act”), and the rules implementing the LIBOR Act. For the quarter ended June 30, 2023, we did not declare or pay distributions to the holders of the Class B Preferred Units, thus the quarterly distribution for June 30, 2023 is $ 0.7974 and the cumulative distribution since suspension for each Class B Preferred Unit is $ 6.2003 . In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of June 30, 2023 is $ 86.4 million.

Class C Preferred Units

As of June 30, 2023, there were 1,800,000 of our Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) outstanding.

The current distribution rate for the Class C Preferred Units is 9.625% per year of the $25.00 liquidation preference per unit (equal to $2.41 per unit per year). For the quarter ended June 30, 2023, we did not declare or pay distributions to the holders of the Class C Preferred Units, thus the quarterly distribution for June 30, 2023 is $ 0.6016 and the cumulative distribution since suspension for each Class C Preferred Unit is $ 6.0157 . In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of June 30, 2023 is $ 12.0 million.

Class D Preferred Units

As of June 30, 2023, there were 600,000 preferred units (“Class D Preferred Units”) and warrants exercisable to purchase an aggregate of 25,500,000 common units outstanding.

The following table summarizes the outstanding warrants at June 30, 2023:


Issuance Date and Description	Number of Warrants	Exercise Price
July 2, 2019
Premium warrants	10,000,000	$	17.45
Par warrants	7,000,000	$	14.54
October 31, 2019
Premium warrants	5,000,000	$	16.28
Par warrants	3,500,000	$	13.56

All outstanding warrants are currently exercisable and any unexercised warrants will expire on the tenth anniversary of the date of issuance. The warrants will not participate in cash distributions.

The current distribution rate for the Class D Preferred Units is 10.00% (equal to $100.00 per every $1,000 in unit value per year), and includes an additional 0.50% rate increase due to a Class D distribution payment default, as defined within the

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Partnership Agreement . For the quarter ended June 30, 2023, we did not declare or pay distributions to the holders of the Class D Preferred Units, thus the average quarterly distribution at June 30, 2023 is $ 27.31 and the average cumulative distribution since suspension for each Class D Preferred unit is $ 279.65 . In addition, the amount of cumulative but unpaid distributions shall continue to accumulate at the then applicable rate until all unpaid distributions have been paid in full. The total amount due as of June 30, 2023 is $ 188.0 million.

On or after July 1, 2024, the holders of our Class D Preferred Units can elect, from time to time, for the distributions to be calculated based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with the Partnership Agreement) plus a spread of 7.00% (“Class D Variable Rate,” as defined in the Partnership Agreement). Each Class D Variable Rate election shall be effective for at least four quarters following such election.

Total Preferred Unit Distributions in Arrears

The total preferred unit distributions in arrears for all classes of preferred units are $ 286.4 million as of June 30, 2023.

Equity-Based Incentive Compensation

Our GP adopted a long-term incentive plan (“LTIP”), which allowed for the issuance of equity-based compensation. Our GP granted certain restricted units to employees and directors, which vest in tranches, subject to the continued service of the recipients through the vesting date (the “Service Awards”). The Service Awards may also vest upon a change of control, at the discretion of the board of directors of our GP. No distributions accrue to or are paid on the Service Awards during the vesting period. The LTIP expired on May 10, 2021.

The following table summarizes the Service Award activity during the three months ended June 30, 2023:


		Weighted-Average
		Grant Date
	Number of	Fair Value
	Units	Per Unit
Unvested Service Award units at March 31, 2023	627,975	$ 2.15

Units forfeited	( 3,250 )	$ 2.15
Unvested Service Award units at June 30, 2023	624,725	$ 2.15

As the LTIP expired on May 10, 2021, we had no common units available for grant during the three months ended June 30, 2023.

As of June 30, 2023, there are 624,725 unvested Service Awards which are expected to vest on November 15, 2023. Also, any current unvested Service Awards that are forfeited or canceled will not be available for future grants.

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

During the three months ended June 30, 2023 and 2022, we recorded compensation expense related to Service Awards of $ 0.5 million and $ 0.5 million, respectively.

For the unvested Service Awards at June 30, 2023, we had estimated future expense of $ 0.7 million which we expect to record by November 15, 2023.

Note 9— Fair Value of Financial Instruments

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

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Commodity Derivatives

The following table summarizes the estimated fair values of our commodity derivative assets and liabilities reported in our unaudited condensed consolidated balance sheets at the dates indicated:


	June 30, 2023				March 31, 2023
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(in thousands)
Level 1 measurements	$	60,126	$	( 8,061 )	$	63,553	$	( 6,043 )
Level 2 measurements	30,674		( 16,023 )		25,128		( 15,827 )
	90,800		( 24,084 )		88,681		( 21,870 )

Netting of counterparty contracts (1)	( 11,075 )		11,075		( 6,670 )		6,670
Net cash collateral held	( 45,800 )		( 865 )		( 47,686 )		( 114 )
Commodity derivatives	$	33,925	$	( 13,874 )	$	34,325	$	( 15,314 )

(1) Relates to commodity derivative assets and liabilities that are expected to be net settled on an exchange or through a master netting arrangement with the counterparty. Our physical contracts that do not qualify as normal purchase normal sale transactions are not subject to such master netting arrangements.

The following table summarizes the accounts that include our commodity derivative assets and liabilities in our unaudited condensed consolidated balance sheets at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Prepaid expenses and other current assets	$	31,653	$	33,875
Other noncurrent assets	2,272		450
Accrued expenses and other payables	( 12,874 )		( 14,752 )
Other noncurrent liabilities	( 1,000 )		( 562 )
Net commodity derivative asset	$	20,051	$	19,011

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table summarizes our open commodity derivative contract positions at the dates indicated. We do not account for these derivatives as hedges.


Contracts	Settlement Period	Net Long (Short) Notional Units (in barrels)	Fair Value of Net Assets (Liabilities)
		(in thousands)
At June 30, 2023:
Crude oil fixed-price (1)	July 2023–March 2024	1,024	$	43,852
Propane fixed-price (1)	July 2023–March 2025	24,709	( 4,652 )
Refined products fixed-price (1)	July 2023–December 2024	( 548 )	3,221
Butane fixed-price (1)	July 2023–April 2024	( 15,466 )	11,180
Other	July 2023–September 2024		13,115
			66,716
Net cash collateral held			( 46,665 )
Net commodity derivative asset			$	20,051

At March 31, 2023:
Crude oil fixed-price (1)	April 2023–March 2024	1,069	$	52,613
Propane fixed-price (1)	April 2023–March 2025	( 320 )	( 4,047 )
Refined products fixed-price (1)	April 2023–July 2024	( 429 )	4,468
Butane fixed-price (1)	April 2023–March 2024	( 830 )	3,485
Other	April 2023–September 2024		10,292
			66,811
Net cash collateral held			( 47,800 )
Net commodity derivative asset			$	19,011

(1) We may have fixed price physical purchases, including inventory, offset by floating price physical sales or floating price physical purchases offset by fixed price physical sales. These contracts are derivatives we have entered into as an economic hedge against the risk of mismatches between fixed and floating price physical obligations.

During the three months ended June 30, 2023 and 2022, we recorded net gains of $ 12.9 million and net losses of $ 41.1 million, respectively, from our commodity derivatives to revenues and cost of sales in our unaudited condensed consolidated statements of operations.

Credit Risk

We have credit policies that we believe minimize our overall credit risk, including an evaluation of potential counterparties’ financial condition (including credit ratings), collateral requirements under certain circumstances, and the use of industry standard master netting agreements, which allow for offsetting counterparty receivable and payable balances for certain transactions. At June 30, 2023, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a counterparty does not perform on a contract, we may not realize amounts that have been recorded in our unaudited condensed consolidated balance sheets and recognized in our net income.

Interest Rate Risk

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

On and after April 15, 2024, distributions on the Class C Preferred Units will accumulate at a percentage of the $25.00 liquidation preference equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with the Partnership Agreement) plus a spread of 7.384%. On or after July 1, 2024, the holders of our Class D Preferred Units can elect, from time to time, for the distributions to be calculated based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with the Partnership Agreement) plus the Class D Variable Rate. Each Class D Variable Rate election shall be effective for at least four quarters following such election.

Fair Value of Fixed-Rate Notes

The following table provides fair value estimates of our fixed-rate notes at June 30, 2023 (in thousands):


2026 Senior Secured Notes	$	2,014,125
2025 Notes	$	269,866
2026 Notes	$	300,601

For the 2026 Senior Secured Notes, 2025 Notes and 2026 Notes, the fair value estimates were developed based on publicly traded quotes and would be classified as Level 2 in the fair value hierarchy.

Note 10— Segments

Our operations are organized into three reportable segments: (i) Water Solutions, (ii) Crude Oil Logistics and (iii) Liquids Logistics, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Our Liquids Logistics reportable segment includes operating segments that have been aggregated based on the nature of the products and services provided. Operating income of these segments is reviewed by the chief operating decision maker to evaluate performance and make business decisions. Intersegment transactions are recorded based on prices negotiated between the segments and are eliminated upon consolidation.

See Note 1 for a discussion of the products and services of our reportable segments. The remainder of our business operations is presented as “Corporate and Other” and consists of certain corporate expenses that are not allocated to the reportable segments. The following table summarizes revenues related to our segments for the periods indicated:

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Revenues:
Water Solutions:
Topic 606 revenues
Disposal service fees	$	148,024	$	120,309
Sale of recovered crude oil	23,017		38,449
Sale of water	4,441		5,808
Other service revenues	5,667		1,513
Non-Topic 606 revenues	153		—
Total Water Solutions revenues	181,302		166,079
Crude Oil Logistics:
Topic 606 revenues
Crude oil sales	450,128		847,776
Crude oil transportation and other	12,046		20,595
Non-Topic 606 revenues	2,378		1,859
Elimination of intersegment sales	( 162 )		( 4,859 )
Total Crude Oil Logistics revenues	464,390		865,371
Liquids Logistics:
Topic 606 revenues
Refined products sales	578,039		748,679
Propane sales	111,686		221,795
Butane sales	70,158		200,476
Other product sales	79,841		154,642
Service revenues	1,319		2,982
Non-Topic 606 revenues	129,369		137,359

Total Liquids Logistics revenues	970,412		1,465,933



Total revenues	$	1,616,104	$	2,497,383

During the three months ended June 30, 2023 and 2022, our Liquids Logistics revenues included $ 19.6 million and $ 41.8 million of non-US revenues, respectively.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following tables summarize depreciation and amortization expense (including amortization expense recorded within interest expense, cost of sales and operating expenses in Note 5 and Note 6) and operating income (loss) by segment for the periods indicated.


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Depreciation and Amortization:
Water Solutions	$	54,485	$	49,910
Crude Oil Logistics	9,746		11,754
Liquids Logistics	3,279		3,449
Corporate and Other	5,700		5,855
Total	$	73,210	$	70,968

Operating Income (Loss):
Water Solutions	$	69,331	$	53,605
Crude Oil Logistics	17,007		18,989
Liquids Logistics	7,831		26,640
Corporate and Other	( 22,149 )		( 11,971 )
Total	$	72,020	$	87,263

The following table summarizes additions to property, plant and equipment and intangible assets by segment for the periods indicated. This information has been prepared on the accrual basis, and includes property, plant and equipment and intangible assets acquired in acquisitions.


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Water Solutions	$	38,956	$	40,835
Crude Oil Logistics	974		4,133
Liquids Logistics	4,093		1,386
Corporate and Other	69		367
Total	$	44,092	$	46,721

The following tables summarize long-lived assets, net (consisting of property, plant and equipment, intangible assets, operating lease right-of-use assets and goodwill) and total assets by segment at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Long-lived assets, net:
Water Solutions	$	2,780,759	$	2,810,534
Crude Oil Logistics	857,046		870,999
Liquids Logistics (1)	371,060		363,736
Corporate and Other	36,446		39,363
Total	$	4,045,311	$	4,084,632

(1) Includes $ 10.8 million and $ 12.5 million of non-US long-lived assets at June 30, 2023 and March 31, 2023, respectively.


	June 30, 2023		March 31, 2023
	(in thousands)
Total assets:
Water Solutions	$	2,980,133	$	3,009,869
Crude Oil Logistics	1,520,425		1,616,953
Liquids Logistics (1)	758,581		774,221
Corporate and Other	46,515		55,101
Total	$	5,305,654	$	5,456,144

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

(1) Includes $ 31.3 million and $ 32.3 million of non-US total assets at June 30, 2023 and March 31, 2023, respectively.

Note 11— Transactions with Affiliates

The following table summarizes our related party transactions for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)

Purchases from equity method investees	$	486	$	498
Purchases from entities affiliated with management	$	100	$	—

Accounts receivable from affiliates consist of the following at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
NGL Energy Holdings LLC	$	11,868	$	11,688
Equity method investees	968		673
Entities affiliated with management	—		1
Total	$	12,836	$	12,362

Accounts payable to affiliates consist of the following at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Equity method investees	$	54	$	64
Entities affiliated with management	1		1
Total	$	55	$	65

Other Related Party Transactions

Guarantee of Outstanding Loan for KAIR2014 LLC (“KAIR2014”)

In connection with the purchase of our 50 % interest in an aircraft company, KAIR2014, we executed a joint and several guarantee for the benefit of the lender for KAIR2014’s outstanding loan. The other owner of KAIR2014, our Chief Executive Officer, H. Michael Krimbill, is a party to a similar guarantee. This guarantee obligates us for the payment and performance of KAIR2014 with respect to the repayment of the loan. As of June 30, 2023, the outstanding balance of the loan is approximately $ 2.2 million. Payments are made monthly, reducing the outstanding balance, and the loan matures in September 2023. As the guarantee is joint and several, we could be liable for the entire outstanding balance of the loan. The loan is collateralized by the airplane owned by KAIR2014 and in the event of a default, the lender could seek payment in full from us. As of June 30, 2023, no accrual has been recorded related to this guarantee.

Note 12— Revenue from Contracts with Customers

We recognize revenue for services and products under revenue contracts as our obligations to either perform services or deliver or sell products under the contracts are satisfied. Our revenue contracts in scope under ASC 606 primarily have a single performance obligation and we do not receive material amounts of non-cash consideration. Our costs to obtain or fulfill our revenue contracts were not material as of June 30, 2023.

The majority of our revenue agreements are in the scope under ASC 606 and the remainder of our revenue comes from contracts that are accounted for as derivatives under ASC 815 or that contain nonmonetary exchanges or leases in the scope of ASC 845 and ASC 842, respectively. See Note 10 for a detail of disaggregated revenue. Revenue from contracts accounted for as derivatives under ASC 815 within our Liquids Logistics segment includes $ 1.7 million of net gains related to changes in the mark-to-market value of these contracts recorded during the three months ended June 30, 2023.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Remaining Performance Obligations

Most of our service contracts are such that we have the right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date. Therefore, we utilized the practical expedient in ASC 606-10-55-18 under which we recognize revenue in the amount to which we have the right to invoice. Applying this practical expedient, we are not required to disclose the transaction price allocated to remaining performance obligations under these contracts. The following table summarizes the amount and timing of revenue recognition for such contracts at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	88,981
2025	92,003
2026	26,893
2027	10,630
2028	1,271
2029	457
Thereafter	346
Total	$	220,581

Contract Assets and Liabilities

The following tables summarize the balances of our contract assets and liabilities at the dates indicated:


	June 30, 2023		March 31, 2023
	(in thousands)
Accounts receivable from contracts with customers	$	353,891	$	425,760
Contract assets (current)	$	—	$	10,050


Contract liabilities balance at March 31, 2023	$	14,520
Payment received and deferred	8,396
Payment recognized in revenue	( 4,146 )
Contract liabilities balance at June 30, 2023	$	18,770

Note 13— Leases

Lessee Accounting

Our leasing activity primarily consists of product storage, office space, real estate, railcars, and equipment.

The following table summarizes the components of our lease cost for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Operating lease cost (1)	$	12,112	$	13,678
Variable lease cost (1)	7,726		7,028
Short-term lease cost (1)	40		94
Finance lease cost
Amortization of right-of-use asset (2)	1		—
Interest on lease obligation (3)	3		—
Total lease cost	$	19,882	$	20,800

(1) Included in operating expenses in our unaudited condensed consolidated statements of operations.

(2) Included in depreciation and amortization expense in our unaudited condensed consolidated statements of operations.

(3) Included in interest expense in our unaudited condensed consolidated statements of operations.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

The following table summarizes maturities of our lease obligations at June 30, 2023 (in thousands):


	Operating		Finance
Fiscal Year Ending March 31,	Leases		Lease (1)
2024 (nine months)	$	32,999	$	21
2025	30,970		28
2026	18,204		28
2027	12,188		28
2028	9,711		10
2029	4,908		—
Thereafter	21,855		—
Total lease payments	130,835		115
Less imputed interest	( 31,135 )		( 27 )
Total lease obligations	$	99,700	$	88

(1) At June 30, 2023, the short-term finance lease obligation of less than $ 0.1 million is included in accrued expenses and other payables and the long-term finance lease obligation of $ 0.1 million is included in other noncurrent liabilities.

The following table summarizes supplemental cash flow information related to our leases for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease obligations
Operating cash outflows from operating leases	$	12,135	$	13,031
Operating cash outflows from finance lease	$	3	$	—
Financing cash outflows from finance lease	$	4	$	—

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	17,337	$	5,920

Lessor Accounting and Subleases

Our lessor arrangements include storage and railcar contracts. We also, from time to time, sublease certain of our storage capacity and railcars to third-parties. Fixed rental revenue is recognized on a straight-line basis over the lease term. During the three months ended June 30, 2023 and 2022, fixed rental revenue was $ 4.4 million , which includes $ 1.1 million of sublease revenue, and $ 3.5 million , which includes $ 0.2 million of sublease revenue, respectively.

The following table summarizes future minimum lease payments to be received under various noncancellable operating lease agreements at June 30, 2023 (in thousands):


Fiscal Year Ending March 31,
2024 (nine months)	$	9,686
2025	9,398
2026	9,369
2027	8,049
2028	5,040
2029	745

Total	$	42,287

Note 14— Allowance for Current Expected Credit Loss (CECL)

ASU 2016-13 requires that an allowance for expected credit losses be recognized for certain financial assets that reflects the current expected credit loss over the financial asset’s contractual life. The valuation allowance considers the risk of loss, even if remote, and considers past events, current conditions and reasonable and supportable forecasts.

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

We are exposed to credit losses primarily through sale of products and services and notes receivable from third-parties. A counterparty’s ability to pay is assessed through a credit process that considers the payment terms, the counterparty’s established credit rating or our assessment of the counterparty’s credit worthiness and other risks. We can require prepayment or collateral to mitigate credit risks.

We group our financial assets into pools of counterparties with similar risk characteristics for the purpose of determining the allowance for expected credit losses. Each reporting period, we assess whether a significant change in the risk of expected credit loss has occurred. Among the quantitative and qualitative factors considered in calculating our allowance for expected credit losses are historical financial data, including write-offs and allowances, current conditions, industry risk and current credit ratings. Financial assets will be written off in whole, or in part, when practical recovery efforts have been exhausted and no reasonable expectation of recovery exists. Subsequent recoveries of amounts previously written off are recorded as an increase to the allowance for expected credit losses. We manage receivable pools using past due balances as a key credit quality indicator.

The following table summarizes changes in our allowance for expected credit losses for the period indicated:


	Accounts Receivable - Trade		Notes Receivable and Other
	(in thousands)
Balance at March 31, 2023	$	1,964	$	48
Change in provision for expected credit losses	( 43 )		34

Write-offs charged against the provision	( 33 )		—
Balance at June 30, 2023	$	1,888	$	82

Note 15— Other Matters

Sale of Certain Saltwater Disposal Assets

On June 21, 2023, we sold certain saltwater disposal assets in the Eagle Ford Basin to a third-party for total consideration of $ 3.0 million, of which $ 0.05 million was in cash and $ 2.95 million was a loan receivable. Interest on the loan receivable is based on the prime rate and is due monthly beginning on August 1, 2023. The loan receivable matures on December 31, 2025. We recorded a loss of $ 5.4 million within gain on disposal or impairment of assets, net in our unaudited condensed consolidated statement of operations for the three months ended June 30, 2023 .

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

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

The following is a discussion of NGL Energy Partners LP’s (“we,” “us,” “our,” or the “Partnership”) financial condition and results of operations as of and for the three months ended June 30, 2023. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (“Quarterly Report”), as well as Part II, Item 7–“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (“Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on May 31, 2023.

Overview

We are a Delaware limited partnership. NGL Energy Holdings LLC serves as our general partner (“GP”). At June 30, 2023, our operations included three segments: Water Solutions, Crude Oil Logistics and Liquids Logistics. See Note 1 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion of these businesses.

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Global Pandemic, Ukraine War and Market Update

Since March 2020, and throughout the last three years, global markets and commodity prices have been extremely volatile due to the impacts from the COVID-19 pandemic, with further impacts on volatility caused by the war in Ukraine that began in February 2022. While we have seen continued recovery in commodity prices since the beginning of the pandemic, there is still volatility that we expect to continue at least for the near-term and possibly longer, due to the uncertainty of the pandemic, the war in Ukraine and the result of any economic recession or depression that has occurred or may occur in the future. This volatility could negatively impact future prices for crude oil, natural gas, petroleum products and industrial products.

In addition, if we see a continuation or acceleration of fiscal year 2023’s inflationary conditions, rising interest rates, supply chain disruptions and tight labor markets, then we may also see higher costs of operating our assets and executing on our capital projects in fiscal year 2024. During fiscal year 2023, the war in Ukraine may have amplified inflation and supply chain constraints complicating the rebound of the global economy after the COVID-19 pandemic. In an effort to curb inflation, the U.S. Federal Reserve raised interest rates during fiscal year 2023, in May 2023 and most recently on July 26, 2023. The U.S. Federal Reserve may implement additional increases in fiscal year 2024, which will increase the cost of our ABL Facility (as defined herein). On the other hand, our ability to pass along rate increases reflecting changes in producer and/or consumer price indices to our customers, under our contracts, should help to counterbalance the impact of inflation on our costs.

Seismic Activity

The subsurface injection of produced water for disposal has been associated with recent induced seismic events in Texas and New Mexico. While these events have been of relatively low magnitude, industry and relevant state regulators are, nevertheless, taking proactive measures to attempt to prevent similar induced seismic events. More specifically, we are engaged in various collaborative industry efforts with other disposal operators and relevant state regulatory agencies, working to collect and review data, enhance understanding of regional fault systems, and ultimately develop and implement appropriate longer-term mitigation strategies. As part of this effort, we have implemented reductions in injected volumes at certain facilities, and where appropriate have temporarily shut-in facilities. To date, due to the capacity of our integrated system in the affected areas, the diverse locations of our disposal facilities, and the connectivity of our system, our ability to dispose of produced water has not been materially impacted by these actions.

Consolidated Results of Operations

The following table summarizes our unaudited condensed consolidated statements of operations for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Revenues	$	1,616,104	$	2,497,383
Cost of sales	1,379,329		2,255,011
Operating expenses	76,681		71,860
General and administrative expense	20,291		16,757
Depreciation and amortization	68,979		66,660
Gain on disposal or impairment of assets, net	(1,196)		(168)

Operating income	72,020		87,263
Equity in earnings of unconsolidated entities	91		674
Interest expense	(59,522)		(67,311)
Gain on early extinguishment of liabilities, net	6,808		1,662
Other income, net	306		646
Income before income taxes	19,703		22,934
Income tax (expense) benefit	(140)		172
Net income	19,563		23,106
Less: Net income attributable to noncontrolling interests	(262)		(245)
Net income attributable to NGL Energy Partners LP	$	19,301	$	22,861

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Items Impacting the Comparability of Our Financial Results

Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to commodity price volatility, acquisitions, dispositions and other transactions. Our results of operations for the three months ended June 30, 2023 are not necessarily indicative of the results of operations to be expected for future periods or for the full fiscal year ending March 31, 2024.

Recent Developments

Repurchases of Senior Unsecured Notes

During the three months ended June 30, 2023, we repurchased $99.3 million of the 6.125% senior unsecured notes due 2025 (“2025 Notes”) (see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report).

Acquisitions and Dispositions

The following transactions impacted the comparability of our results of operations between our current and prior fiscal years.

On June 21, 2023, we sold certain saltwater disposal assets in the Eagle Ford Basin (see Note 15 to our unaudited condensed consolidated financial statements included in this Quarterly Report).

As previously reported, on March 30, 2023, we sold our crude marine assets and on March 31, 2023, we sold certain saltwater disposal assets in the Midland Basin.

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Segment Operating Results for the Three Months Ended June 30, 2023 and 2022

Water Solutions

The following table summarizes the operating results of our Water Solutions segment for the periods indicated:


	Three Months Ended June 30,
	2023		2022		Change
	(in thousands, except per barrel and per day amounts)
Revenues:
Water disposal service fees	$	142,952	$	113,883	$	29,069
Sale of recovered crude oil	23,017		38,449		(15,432)
Recycled water	4,220		4,410		(190)
Other revenues	11,113		9,337		1,776
Total revenues	181,302		166,079		15,223
Expenses:
Cost of sales-excluding impact of derivatives	2,569		4,818		(2,249)
Derivative loss	—		5,407		(5,407)
Operating expenses	55,082		48,197		6,885
General and administrative expenses	1,178		3,263		(2,085)
Depreciation and amortization expense	54,423		49,848		4,575
(Gain) loss on disposal or impairment of assets, net	(1,281)		941		(2,222)

Total expenses	111,971		112,474		(503)
Segment operating income	$	69,331	$	53,605	$	15,726

Produced water processed (barrels per day)
Delaware Basin	2,153,059		1,887,230		265,829
Eagle Ford Basin	132,934		98,513		34,421
DJ Basin	169,494		150,329		19,165
Other Basins	2,978		17,886		(14,908)
Total	2,458,465		2,153,958		304,507
Recycled water (barrels per day)	99,436		136,925		(37,489)
Total (barrels per day)	2,557,901		2,290,883		267,018
Skim oil sold (barrels per day) (1)	3,710		3,957		(247)
Service fees for produced water processed ($/barrel) (2)	$	0.64	$	0.58	$	0.06
Recovered crude oil for produced water processed ($/barrel) (2)	$	0.10	$	0.20	$	(0.10)
Operating expenses for produced water processed ($/barrel) (2)	$	0.25	$	0.25	$	—

(1) As of June 30, 2023, approximately 53,000 barrels of skim oil were stored and we expect that they will be sold during the second quarter of fiscal year 2024.

(2) Total produced water barrels processed during the three months ended June 30, 2023 and 2022 were 223,720,295 and 196,010,195, respectively.

Water Disposal Service Fee Revenues. The increase was primarily due to an increase in produced water volumes processed from contracted customers mainly in the Delaware Basin and increased fees in new contracts entered into during fiscal year 2023. Also, higher fees charged for interruptible spot volumes contributed to the increase. In addition, there was an increase in payments made by certain producers for committed volumes not delivered. Service fees for produced water processed ($/barrel) also benefited from these deficiency payments.

Recovered Crude Oil Revenues. The decrease was due primarily to lower realized crude oil prices received from the sale of skim oil barrels and lower skim oil volumes per barrel of produced water processed. While the amount of skim oil recovered was in line with historical averages, a certain amount of skim oil barrels was stored due to tighter pipeline specifications which reduced the amount of skim oil sold during the quarter. We expect to sell both stored and ongoing production of skim oil during the second quarter of fiscal year 2024.

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Recycled Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The decrease was due primarily to lower recycled water volumes related to timing of water to be used in completions, partially offset by higher pricing for recycled water.

Other Revenues. Other revenues primarily include brackish non-potable water revenues, water pipeline revenues, land surface use revenues, solids disposal revenues and reimbursements from construction projects. The increase was due primarily to higher land surface use revenues and higher reimbursements from construction projects partially offset by lower sales of brackish non-potable water related to the timing of our customers transitioning from brackish non-potable water to recycled water and lower water pipeline revenues.

Cost of Sales-Excluding Impact of Derivatives . The decrease was due primarily to lower purchases of brackish non-potable water from third-parties to meet customer needs due to the termination of a joint marketing agreement.

Derivative Loss . We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the crude oil we expect to recover when processing produced water and selling recovered skim oil. During the three months ended June 30, 2023, we had no derivative activity. During the three months ended June 30, 2022, we had $0.1 million of net unrealized gains on derivatives and $5.5 million of net realized losses on derivatives.

Operating and General and Administrative Expenses . The increase was due primarily to higher operating expenses due to increased produced water volumes processed, partially offset by lower legal and overhead costs.

Depreciation and Amortization Expense . The increase was due primarily to depreciation of newly developed facilities and infrastructure partially offset by certain long-term assets being fully amortized or impaired during the fiscal year ended March 31, 2023 and three months ended June 30, 2023.

(Gain) Loss on Disposal or Impairment of Assets, Net. During the three months ended June 30, 2023, we recorded a net gain of $5.0 million primarily related to the sale of certain assets and a net loss of $3.8 million related to the abandonment of certain capital projects and the retirement of certain assets. During the three months ended June 30, 2022, we recorded a loss of $0.5 million related to the sale of certain assets as part of the termination of a joint marketing agreement and a net loss of $0.5 million primarily related to the abandonment of certain capital projects and the sale and retirement of certain other miscellaneous assets.

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Crude Oil Logistics

The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated:


	Three Months Ended June 30,
	2023		2022		Change
	(in thousands, except per barrel amounts)
Revenues:
Crude oil sales	$	450,128	$	847,776	$	(397,648)
Crude oil transportation and other	14,424		22,454		(8,030)
Total revenues (1)	464,552		870,230		(405,678)
Expenses:
Cost of sales-excluding impact of derivatives	432,681		801,362		(368,681)
Derivative (gain) loss	(7,220)		25,867		(33,087)
Operating expenses	10,463		12,188		(1,725)
General and administrative expenses	979		1,330		(351)
Depreciation and amortization expense	9,746		11,754		(2,008)
Loss (gain) on disposal or impairment of assets, net	896		(1,260)		2,156
Total expenses	447,545		851,241		(403,696)
Segment operating income	$	17,007	$	18,989	$	(1,982)

Crude oil sold (barrels)	6,007		7,634		(1,627)
Crude oil transported on owned pipelines (barrels)	6,563		7,170		(607)
Crude oil storage capacity - owned and leased (barrels) (2)	5,232		5,232		—
Crude oil storage capacity leased to third-parties (barrels) (2)	2,250		1,501		749
Crude oil inventory (barrels) (2)	685		855		(170)
Crude oil sold ($/barrel)	$	74.934	$	111.053	$	(36.119)
Cost per crude oil sold ($/barrel) (3)	$	72.029	$	104.973	$	(32.944)
Crude oil product margin ($/barrel) (3)	$	2.905	$	6.080	$	(3.175)

(1) Revenues include $0.2 million and $4.9 million of intersegment sales during the three months ended June 30, 2023 and 2022, respectively, that are eliminated in our unaudited condensed consolidated statements of operations.

(2) Information is presented as of June 30, 2023 and June 30, 2022, respectively.

(3) Cost and product margin per barrel excludes the impact of derivatives.

Crude Oil Sales Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases were due primarily to a decrease in crude oil prices during the three months ended June 30, 2023, compared to the three months ended June 30, 2022 and lower sales volumes due to an increase in buy/sell transactions during the three months ended June 30, 2023. Buy/sell transactions are transactions in which we purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are netted for these transactions.

Also, during the three months ended June 30, 2023, physical volumes on the Grand Mesa Pipeline averaged approximately 72,000 barrels per day, compared to approximately 79,000 barrels per day during the three months ended June 30, 2022. Lower demand for heavier crude oil grades, and the resulting lower crude oil prices, resulted in decreased production in the DJ Basin and consequently, lower contracted volumes shipped on Grand Mesa.

Margins from the sale of crude oil decreased during the three months ended June 30, 2023 compared to the three months ended June 30, 2022 due to the sale of higher priced inventory into a market in which prices are declining. In addition, the lower crude oil prices resulted in lower contracted rates with certain producers, compared to the prior year when the contracted rates were higher due to the higher crude oil prices. We also realized lower contract differentials on certain other sales contracts. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin.

Derivative (Gain) Loss. Our cost of sales during the three months ended June 30, 2023 included $12.4 million of net realized gains on derivatives, driven by decreasing crude oil prices, and $5.2 million of net unrealized losses on derivatives. The amounts for the three months ended June 30, 2023 included net realized gains of $8.7 million and net unrealized losses of $5.2 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below

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under “Non-GAAP Financial Measures.” Our cost of sales during the three months ended June 30, 2022 included $76.9 million of net realized losses on derivatives, driven by increasing crude oil prices, partially offset by $51.0 million of net unrealized gains on derivatives. The amounts for the three months ended June 30, 2022 included net realized losses of $46.3 million and net unrealized gains of $29.5 million associated with derivative instruments related to our hedge of the CMA Differential Roll.

Crude Oil Transportation and Other Revenues. The decrease was primarily due to the sale of our marine assets on March 30, 2023.

Operating and General and Administrative Expenses . The decrease was primarily related to the sale of our marine assets on March 30, 2023. Additionally, the June 30, 2023 quarter benefited from lower expenses due to the fulfillment of contractual commercial credits provided to customers, and the completion of the renegotiation of certain leases, both of which occurred during the second half of the prior fiscal year.

Depreciation and Amortization Expense. The decrease was due primarily to the sale of our marine assets on March 30, 2023.

Loss (Gain) on Disposal or Impairment of Assets, Net . During the three months ended June 30, 2023, we recorded a net loss of $0.9 million primarily due to a loss on the sale of linefill. During the three months ended June 30, 2022, we recorded a net gain of $1.3 million primarily due to the sale of land, which was previously used by our trucking business, and the sale of certain other equipment, offset by the write-off of equipment and software previously utilized by, but not sold with our trucking business.

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Liquids Logistics

The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated:


	Three Months Ended June 30,
	2023		2022		Change
	(in thousands, except per gallon amounts)
Refined products sales:
Revenues-excluding impact of derivatives	$	578,039	$	748,679	$	(170,640)
Cost of sales-excluding impact of derivatives	565,180		738,074		(172,894)
Derivative loss	111		1,052		(941)
Product margin	12,748		9,553		3,195

Propane sales:
Revenues	112,250		222,574		(110,324)
Cost of sales-excluding impact of derivatives	110,484		212,289		(101,805)
Derivative gain	(2,109)		(1,932)		(177)
Product margin	3,875		12,217		(8,342)

Butane sales:
Revenues	70,240		200,594		(130,354)
Cost of sales-excluding impact of derivatives	74,060		200,219		(126,159)
Derivative gain	(6,487)		(8,132)		1,645
Product margin	2,667		8,507		(5,840)

Other product sales:
Revenues-excluding impact of derivatives	205,791		295,006		(89,215)
Cost of sales-excluding impact of derivatives	205,451		266,752		(61,301)
Derivative (gain) loss	(1,399)		18,805		(20,204)
Product margin	1,739		9,449		(7,710)

Service revenues:
Revenues	2,399		4,138		(1,739)
Cost of sales	263		347		(84)
Product margin	2,136		3,791		(1,655)

Expenses:
Operating expenses	11,136		11,475		(339)
General and administrative expenses	1,795		2,021		(226)
Depreciation and amortization expense	3,214		3,381		(167)
Gain on disposal or impairment of assets, net	(811)		—		(811)
Total expenses	15,334		16,877		(1,543)
Segment operating income	$	7,831	$	26,640	$	(18,809)

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	Three Months Ended June 30,
	2023		2022		Change
	(in thousands, except per gallon amounts)
Natural gas liquids and refined products storage capacity - owned and leased (gallons) (1)	158,124		167,559		(9,435)

Refined products sold (gallons)	220,087		188,626		31,461
Refined products sold ($/gallon)	$	2.626	$	3.969	$	(1.343)
Cost per refined products sold ($/gallon) (2)	$	2.568	$	3.913	$	(1.345)
Refined products product margin ($/gallon) (2)	$	0.058	$	0.056	$	0.002
Refined products inventory (gallons) (1)	504		1,110		(606)

Propane sold (gallons)	139,753		164,844		(25,091)
Propane sold ($/gallon)	$	0.803	$	1.350	$	(0.547)
Cost per propane sold ($/gallon) (2)	$	0.791	$	1.288	$	(0.497)
Propane product margin ($/gallon) (2)	$	0.012	$	0.062	$	(0.050)
Propane inventory (gallons) (1)	87,423		63,862		23,561

Butane sold (gallons)	78,489		120,525		(42,036)
Butane sold ($/gallon)	$	0.895	$	1.664	$	(0.769)
Cost per butane sold ($/gallon) (2)	$	0.944	$	1.661	$	(0.717)
Butane product (loss) margin ($/gallon) (2)	$	(0.049)	$	0.003	$	(0.052)
Butane inventory (gallons) (1)	69,632		49,547		20,085

Other products sold (gallons)	91,099		93,637		(2,538)
Other products sold ($/gallon)	$	2.259	$	3.151	$	(0.892)
Cost per other products sold ($/gallon) (2)	$	2.255	$	2.849	$	(0.594)
Other products product margin ($/gallon) (2)	$	0.004	$	0.302	$	(0.298)
Other products inventory (gallons) (1)	12,452		28,187		(15,735)

(1) Information is presented as of June 30, 2023 and June 30, 2022, respectively.

(2) Cost and product margin (loss) per gallon excludes the impact of derivatives.

Refined Products Sales Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, during the three months ended June 30, 2023 were due to a decrease in refined products prices. This was partially offset by an increase in new supply and sales contracts.

Refined Products product margins, excluding the impact of derivatives, increased during the three months ended June 30, 2023 due to continued higher demand in several markets that were experiencing tighter supply in April and May 2023. Supply issues were resolved toward the end of May 2023 resulting in an increase in supply, resulting in lower product margins.

Refined Products Derivative Loss. Our Refined Products product margin during the three months ended June 30, 2023 included a realized loss of $0.1 million and the three months ended June 30, 2022 included a realized loss of $1.1 million.

Propane Sales Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to significantly lower propane market prices during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. Propane volumes decreased during the three months ended June 30, 2023 as contracted volumes in the Northeast were pulled later in the season due to the warmer heating season and those volumes carried our customers through the spring months, as well as idling other lower performing terminals.

Propane product margins, excluding the impact of derivatives, decreased as propane prices declined steadily during the quarter resulting in us selling higher priced inventory into a declining market. We expect these losses to be offset during the heating season when customers take delivery on their fixed price contracts. Margins during the prior year quarter benefited from the value of inventory being reduced to its lower of cost or net realizable value as of March 31, 2022.

Propane Derivative Gain. Our wholesale cost of propane sales during the three months ended June 30, 2023 included net unrealized gains of $2.3 million on derivatives and $0.2 million of net realized losses on derivatives. Our wholesale cost of propane sales during the three months ended June 30, 2022 included less than $0.1 million of net unrealized gains on derivatives and $1.9 million of net realized gains on derivatives.

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Butane Sales Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to lower commodity prices and lower volumes as a result of weaker spot demand for the product and a weak exports market. In addition, volumes declined due to a change in strategy by a significant customer.

Butane product margins, excluding the impact of derivatives, decreased during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 due to the declining prices, lower export demand, increased freight charges due to higher fuel surcharges and lower railcar utilization. Volumes decreased due to reduced export demands for butane. Margins during the three months ended June 30, 2023 were decreased due to a lower of cost or net realizable value adjustment of $5.4 million.

Butane Derivative Gain. Our cost of butane sales during the three months ended June 30, 2023 included $6.8 million of net unrealized gains on derivatives and $0.4 million of net realized losses on derivatives. Our cost of butane sales during the three months ended June 30, 2022 included $6.1 million of net unrealized gains on derivatives and $2.1 million of net realized gains on derivatives.

Other Products Sales Revenues and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to a decrease in market prices during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Market prices decreased due to the Environmental Protection Agency (“EPA”) Renewable Fuel Standards (“RFS”) final mandate which lowered the required amount of biodiesel to be blended, thus increasing the amount of supply in the market.

Other product sales product margins, excluding the impact of derivatives, during the three months ended June 30, 2023 decreased from the prior year primarily due to increased supply in the market due to the EPA’s final RFS mandate. Margins during the prior year quarter benefited from favorable supply contracts and volatility caused by the war in the Ukraine.

Other Products Derivative (Gain) Loss. Our derivatives of other products during the three months ended June 30, 2023 included $0.5 million of net unrealized losses and $1.9 million of net realized gains on derivatives. Our derivatives of other products during the three months ended June 30, 2022 included $0.3 million of net unrealized losses and $18.5 million of net realized losses on derivatives.

Service Revenues and Cost of Sales. This revenue includes storage, terminaling and transportation services income. Revenues during the three months ended June 30, 2023 decreased from the prior year due to lower throughput at our Chesapeake terminal related to unexpected repairs of one of our tanks.

Operating and General and Administrative Expenses . The decrease was primarily related to lower incentive compensation costs due to lower operating results.

Depreciation and Amortization Expense. Depreciation and amortization expense during the three months ended June 30, 2023 was consistent with the three months ended June 30, 2022.

Gain on Disposal or Impairment of Assets, Net . During the three months ended June 30, 2023, we recorded a net gain of $0.8 million on the sale of land and a dock in Florida.

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Corporate and Other

The operating loss within “Corporate and Other” includes the following components for the periods indicated:


	Three Months Ended June 30,
	2023		2022		Change
	(in thousands)
Cost of sales
Derivative loss	$	4,214	$	—	$	4,214
Expenses:


General and administrative expenses	16,339		10,143		6,196
Depreciation and amortization expense	1,596		1,677		(81)
Loss on disposal or impairment of assets, net	—		151		(151)
Total expenses	17,935		11,971		5,964
Operating loss	$	(22,149)	$	(11,971)	$	(10,178)

Cost of Sales - Derivative Loss. Our cost of sales during the three months ended June 30, 2023 included $1.3 million of net realized losses and $2.9 million of net unrealized losses on derivatives. We have entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices that drive our working capital demands, as we experienced in the prior fiscal year, thus impacting our ability to reduce absolute indebtedness until commodity prices weakened. These positions will expire between August 2023 and December 2023.

General and Administrative Expenses. The expenses during the three months ended June 30, 2023 were higher due to an increase in incentive compensation expense and the timing of payment compared to the prior year. Prior year incentive compensation payments were made during the quarter ended September 30, 2022.

Depreciation and Amortization Expense. Depreciation and amortization expense during the three months ended June 30, 2023 was consistent with the three months ended June 30, 2022.

Loss on Disposal or Impairment of Assets, Net . During the three months ended June 30, 2022, we received a prepayment of a loan receivable due July 31, 2023, and in exchange for the prepayment we reduced the amount of the final payment and recorded a loss for the reduction in the amount due.

Equity in Earnings of Unconsolidated Entities

Equity in earnings of unconsolidated entities was $0.1 million during the three months ended June 30, 2023, compared to $0.7 million during the three months ended June 30, 2022. The decrease of $0.6 million during the three months ended June 30, 2023 was due primarily to lower earnings from certain membership interests related to specific land and water services operations.

Interest Expense

The following table summarizes the components of our consolidated interest expense for the periods indicated:


	Three Months Ended June 30,
	2023		2022		Change
	(in thousands)
Senior secured notes	$	38,438	$	38,438	$	—
Senior unsecured notes	10,963		20,819		(9,856)
Revolving credit facility	4,602		3,240		1,362
Other indebtedness	1,415		636		779
Total debt interest expense	55,418		63,133		(7,715)
Amortization of debt issuance costs	4,104		4,178		(74)
Total interest expense	$	59,522	$	67,311	$	(7,789)

The debt interest expense decreased $7.7 million during the three months ended June 30, 2023 due primarily to the repurchase of the 7.5% senior unsecured notes due 2023 (“2023 Notes”) throughout the year and the redemption of the remaining 2023 Notes on March 31, 2023. This decrease was partially offset by an accrual of interest related to a legal claim

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(see Note 7 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion) and an increase in our revolving credit facility interest rates in the current year.

Gain on Early Extinguishment of Liabilities, Net

Gain on early extinguishment of liabilities, net was $6.8 million during the three months ended June 30, 2023, compared to $1.7 million during the three months ended June 30, 2022. During the three months ended June 30, 2023 and 2022, the net gain (inclusive of debt issuance costs written off) relates to the early extinguishment of a portion of the outstanding Senior Unsecured Notes (as defined herein). See Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Other Income, Net

Other income, net of $0.3 million for the three months ended June 30, 2023 consisted primarily of interest income on loan receivables (see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion). Other income, net of $0.6 million for the three months ended June 30, 2022 consisted primarily of a gain related to a bankruptcy settlement.

Income Tax (Expense) Benefit

Income tax expense was $0.1 million during the three months ended June 30, 2023, compared to an income tax benefit of $0.2 million during the three months ended June 30, 2022. See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report for a further discussion.

Noncontrolling Interests

Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third-parties. Noncontrolling interest income was $0.3 million during the three months ended June 30, 2023, compared to $0.2 million during the three months ended June 30, 2022. The increase during the three months ended June 30, 2023 was due primarily to higher income from certain water solutions operations and recycling operations during the three months ended June 30, 2023.

Non-GAAP Financial Measures

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

We define EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to certain refined products businesses within our Liquids Logistics segment as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. We believe that EBITDA provides additional information to investors for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information to investors for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities.

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

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Liquids Logistics segment. The primary hedging strategy of these businesses 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 cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost. We include this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA. In our Crude Oil Logistics segment, we purchase certain crude oil barrels using the West Texas Intermediate (“WTI”) calendar month average (“CMA”) price and sell the crude oil barrels using the WTI CMA price plus the Argus CMA Differential Roll Component (“CMA Differential Roll”) per our contracts. To eliminate the volatility of the CMA Differential Roll, we entered into derivative instrument positions in January 2021 to secure a margin of approximately $0.20 per barrel on 1.5 million barrels per month from May 2021 through December 2023. Due to the nature of these positions, the cash flow and earnings recognized on a GAAP basis will differ from period to period depending on the current crude oil price and future estimated crude oil price which are valued utilizing third-party market quoted prices. We are recognizing in Adjusted EBITDA the gains and losses from the derivative instrument positions entered into in January 2021 to properly align with the physical margin we are hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Net income	$	19,563	$	23,106
Less: Net income attributable to noncontrolling interests	(262)		(245)
Net income attributable to NGL Energy Partners LP	19,301		22,861
Interest expense	59,536		67,326
Income tax expense (benefit)	140		(172)
Depreciation and amortization	68,921		66,614
EBITDA	147,898		156,629
Net unrealized gains on derivatives	(632)		(56,902)
CMA Differential Roll net losses (gains) (1)	(9,137)		34,620
Inventory valuation adjustment (2)	336		(555)
Lower of cost or net realizable value adjustments	2,764		(9,286)
Gain on disposal or impairment of assets, net	(1,196)		(168)
Gain on early extinguishment of liabilities, net	(6,808)		(1,662)
Equity-based compensation expense	474		497
Acquisition expense (3)	5		—

Other (4)	951		703
Adjusted EBITDA	$	134,655	$	123,876

(1) Adjustment to align, within Adjusted EBITDA, the net gains and losses of the Partnership’s CMA Differential Roll derivative instruments positions with the physical margin being hedged. See “Non-GAAP Financial Measures” section above for a further discussion.

(2) Amounts represent the difference between the market value of the inventory at the balance sheet date and its cost. See “Non-GAAP Financial Measures” section above for a further discussion.

(3) Amount represents expenses we incurred related to legal and advisory costs associated with acquisitions.

(4) Amounts represent unrealized gains/losses on marketable securities and accretion expense for asset retirement obligations. Also, the amount for the three months ended June 30, 2022 includes non-cash operating expenses related to our Grand Mesa Pipeline.

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The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts reported in our unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of cash flows for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Depreciation and amortization per EBITDA table	$	68,921	$	66,614
Intangible asset amortization recorded to cost of sales	(65)		(68)
Depreciation and amortization of unconsolidated entities	(159)		(170)
Depreciation and amortization attributable to noncontrolling interests	282		284
Depreciation and amortization per unaudited condensed consolidated statements of operations	$	68,979	$	66,660


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Depreciation and amortization per EBITDA table	$	68,921	$	66,614
Amortization of debt issuance costs recorded to interest expense	4,104		4,178
Amortization of royalty expense recorded to operating expense	62		62
Depreciation and amortization of unconsolidated entities	(159)		(170)
Depreciation and amortization attributable to noncontrolling interests	282		284
Depreciation and amortization per unaudited condensed consolidated statements of cash flows	$	73,210	$	70,968

The following table reconciles interest expense per the EBITDA table above to interest expense reported in our unaudited condensed consolidated statements of operations for the periods indicated:


	Three Months Ended June 30,
	2023		2022
	(in thousands)
Interest expense per EBITDA table	$	59,536	$	67,326
Interest expense attributable to unconsolidated entities	(14)		(15)

Interest expense per unaudited condensed consolidated statements of operations	$	59,522	$	67,311

The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated:


	Three Months Ended June 30, 2023
	Water Solutions		Crude Oil Logistics		Liquids Logistics		Corporate and Other		Consolidated
	(in thousands)
Operating income (loss)	$	69,331	$	17,007	$	7,831	$	(22,149)	$	72,020
Depreciation and amortization	54,423		9,746		3,214		1,596		68,979
Amortization recorded to cost of sales	—		—		65		—		65
Net unrealized losses (gains) on derivatives	—		5,135		(8,719)		2,952		(632)
CMA Differential Roll net losses (gains)	—		(9,137)		—		—		(9,137)
Inventory valuation adjustment	—		—		336		—		336
Lower of cost or net realizable value adjustments	—		—		2,764		—		2,764
(Gain) loss on disposal or impairment of assets, net	(1,281)		896		(811)		—		(1,196)
Equity-based compensation expense	—		—		—		474		474
Acquisition expense	1		—		19		(15)		5
Other income, net	180		106		1		19		306
Adjusted EBITDA attributable to unconsolidated entities	227		—		(5)		44		266
Adjusted EBITDA attributable to noncontrolling interest	(546)		—		—		—		(546)

Other	859		38		54		—		951
Adjusted EBITDA	$	123,194	$	23,791	$	4,749	$	(17,079)	$	134,655

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	Three Months Ended June 30, 2022
	Water Solutions		Crude Oil Logistics		Liquids Logistics		Corporate and Other		Consolidated
	(in thousands)
Operating income (loss)	$	53,605	$	18,989	$	26,640	$	(11,971)	$	87,263
Depreciation and amortization	49,848		11,754		3,381		1,677		66,660
Amortization recorded to cost of sales	—		—		68		—		68
Net unrealized gains on derivatives	(124)		(51,005)		(5,773)		—		(56,902)
CMA Differential Roll net losses (gains)	—		34,620		—		—		34,620
Inventory valuation adjustment	—		—		(555)		—		(555)
Lower of cost or net realizable value adjustments	—		1,567		(10,853)		—		(9,286)
Loss (gain) on disposal or impairment of assets, net	941		(1,260)		—		151		(168)
Equity-based compensation expense	—		—		—		497		497

Other income (expense), net	259		28		(93)		452		646
Adjusted EBITDA attributable to unconsolidated entities	825		—		(7)		44		862
Adjusted EBITDA attributable to noncontrolling interest	(532)		—		—		—		(532)

Other	225		385		93		—		703
Adjusted EBITDA	$	105,047	$	15,078	$	12,901	$	(9,150)	$	123,876

Liquidity, Sources of Capital and Capital Resource Activities

General

Our principal sources of liquidity and capital resource requirements are cash flows from our operations, borrowings under our asset-based revolving credit facility (“ABL Facility”), issuing long-term notes, common and/or preferred units, loans from financial institutions, asset securitizations or asset sales. We expect our primary cash outflows to be related to capital expenditures, interest and repayment of debt maturities.

We believe that our anticipated cash flows from operations and the borrowing capacity under our ABL Facility will be sufficient to meet our liquidity needs, including the repayment of the 2025 Notes. Our borrowing needs vary during the year due in part to the seasonal nature of certain businesses within our Liquids Logistics segment. Our greatest working capital borrowing needs generally occur during the period of June through December, when we are building our natural gas liquids inventories in anticipation of the butane blending and heating seasons. Our working capital borrowing needs generally decline during the period of January through March, when the cash inflows from our Liquids Logistics segment are the greatest. In addition, our working capital borrowing needs vary with changes in commodity prices. A significant increase in commodity prices could drive up our working capital demands and limit our ability to continue to delever our balance sheet and restrict our financial flexibility. To protect our liquidity and leverage, we entered into economic hedges that mitigate this exposure from June through December when we are building inventory.

Cash Management

We manage cash by utilizing a centralized cash management program that concentrates the cash assets of our operating subsidiaries in joint accounts for the purposes of providing financial flexibility and lowering the cost of borrowing, transaction costs and bank fees. Our centralized cash management program provides that funds in excess of the daily needs of our operating subsidiaries are concentrated, consolidated or otherwise made available for use within our consolidated group. All of our wholly-owned operating subsidiaries participate in this program. Under the cash management program, depending on whether a participating subsidiary has short-term cash surpluses or cash requirements, we provide cash to the subsidiary or the subsidiary provides cash to us.

Short-Term Liquidity

Our principal sources of short-term liquidity consist of cash flows from our operations and borrowings under our ABL Facility, which we believe will provide liquidity to operate our business, manage our working capital requirements and repay current maturities.

The ABL Facility commitments are $600.0 million which includes a sub-limit for letters of credit of $250.0 million. At June 30, 2023, $180.0 million had been borrowed under the ABL Facility and we had letters of credit outstanding of

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approximately $141.7 million. The ABL Facility is scheduled to mature at the earliest of (a) February 4, 2026 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions.

For additional information related to our ABL Facility, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

As of June 30, 2023, our current assets exceeded our current liabilities by approximately $196.0 million.

Long-Term Financing

We expect to fund our long-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or asset sales.

Senior Secured Notes

On February 4, 2021, we issued $2.05 billion of our 7.5% senior secured notes due 2026 (“2026 Senior Secured Notes”) in a private placement. The 2026 Senior Secured Notes bear interest at 7.5%, which is payable on February 1 and August 1 of each year. The 2026 Senior Secured Notes mature on February 1, 2026. The 2026 Senior Secured Notes were issued pursuant to an indenture dated February 4, 2021 (the “Indenture”).

Senior Unsecured Notes

The senior unsecured notes include the 2025 Notes, which mature on March 1, 2025 and the 7.5% senior unsecured notes due 2026 (“2026 Notes”), which mature on April 15, 2026 (collectively, the “Senior Unsecured Notes”).

Repurchases

During the three months ended June 30, 2023, we repurchased $99.3 million of the 2025 Notes at a total cash cost of $92.0 million (excluding payments of accrued interest).

Redemption Rights

For additional information related to our long-term debt, see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Capital Expenditures, Acquisitions and Other Investments

The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and linefill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated.


	Capital Expenditures						Other
	Expansion		Maintenance		Acquisitions (1)		Investments (2)
	(in thousands)
Three Months Ended June 30,
2023	$	27,565	$	16,527	$	—	$	258
2022	$	31,354	$	15,367	$	—	$	—

(1) There were no acquisitions during the three months ended June 30, 2023 or 2022.

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(2) Amount for the three months ended June 30, 2023 relates to contributions made to unconsolidated entities. There were no other investments during the three months ended June 30, 2022.

Capital expenditures for the fiscal year ending March 31, 2024 are expected to be approximately $115 to 125 million.

Distributions Declared

The board of directors of our GP decided to temporarily suspend all distributions in order to deleverage our balance sheet until we meet the 4.75 to 1.00 total leverage ratio set forth within the indenture of the 2026 Senior Secured Notes. This resulted in the suspension of the quarterly common unit distributions, which began with the quarter ended December 31, 2020, and all preferred unit distributions, which began with the quarter ended March 31, 2021. The board of directors of our GP expects to evaluate the reinstatement of the common unit and all preferred unit distributions in due course, taking into account a number of important factors, including our leverage, liquidity, the sustainability of cash flows, upcoming debt maturities, capital expenditures and the overall performance of our businesses.

Contractual Obligations

Our contractual obligations primarily consist of purchase commitments, outstanding debt principal and interest obligations, lease obligations, pipeline commitments, asset retirement obligations and other commitments.

For a discussion of contractual obligations, see Note 6, Note 7 and Note 13 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Cash Flows

The following table summarizes the sources (uses) of our cash flows for the periods indicated:


	Three Months Ended June 30,
Cash Flows Provided by (Used in):	2023		2022
	(in thousands)
Operating activities, before changes in operating assets and liabilities	$	79,316	$	139,586
Changes in operating assets and liabilities	(24,205)		(137,100)
Operating activities	$	55,111	$	2,486
Investing activities	$	(1,441)	$	(36,422)
Financing activities	$	(51,315)	$	30,930

Operating Activities. The increase in net cash provided by operating activities during the three months ended June 30, 2023 was due primarily to fluctuations in working capital, particularly accounts receivable and accounts payable, during the three months ended June 30, 2023, and increased earnings from operations.

Investing Activities . Net cash used in investing activities was $1.4 million during the three months ended June 30, 2023, compared to net cash used in investing activities of $36.4 million during the three months ended June 30, 2022. The decrease in net cash used in investing activities was due primarily to:

• a $14.7 million decrease in payments to settle derivatives;

• a $14.3 million increase in proceeds received from certain asset sales during the three months ended June 30, 2023; and

• a decrease in capital expenditures from $41.0 million (includes payment of amounts accrued as of March 31, 2022) during the three months ended June 30, 2022 to $35.8 million (includes payment of amounts accrued as of March 31, 2023) during the three months ended June 30, 2023 due primarily to the timing of the expenditures in our Water Solutions segment.

Financing Activities . Net cash used in financing activities was $51.3 million during the three months ended June 30, 2023, compared to net cash provided by financing activities of $30.9 million during the three months ended June 30, 2022. The increase in net cash used in financing activities was due primarily to:

• an increase of $70.5 million paid in cash to repurchase a portion of our Senior Unsecured Notes during the three months ended June 30, 2023; and

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• a decrease of $13.0 million in borrowings on the revolving credit facility (net of repayments) during the three months ended June 30, 2023.

Supplemental Guarantor Information

NGL Energy Partners LP (parent) and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes (see Note 6 to our unaudited condensed consolidated financial statements included in this Quarterly Report). Certain of our wholly owned subsidiaries (“Guarantor Subsidiaries”) have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes.

The guarantees are senior unsecured obligations of each Guarantor Subsidiary and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor Subsidiary, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor Subsidiary. The guarantee of our Senior Unsecured Notes by each Guarantor Subsidiary is subject to certain automatic customary releases, including in connection with the sale, disposition or transfer of all of the capital stock, or of all or substantially all of the assets, of such Guarantor Subsidiary to one or more persons that are not us or a restricted subsidiary, the exercise of legal defeasance or covenant defeasance options, the satisfaction and discharge of the indentures governing our Senior Unsecured Notes, the designation of such Guarantor Subsidiary as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the indentures governing our Senior Unsecured Notes, the release of such Guarantor Subsidiary from its guarantee under our revolving credit facility, the liquidation or dissolution of such Guarantor Subsidiary or upon the consolidation, merger or transfer of all assets of the Guarantor Subsidiary to us or another Guarantor Subsidiary in which the Guarantor Subsidiary dissolves or ceases to exist (collectively, the “Releases”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. We are not restricted from making investments in the Guarantor Subsidiaries and there are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to NGL Energy Partners LP (parent). None of the assets of the Guarantor Subsidiaries (other than the investments in non-guarantor subsidiaries) are restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.

The rights of holders of our Senior Unsecured Notes against the Guarantor Subsidiaries may be limited under the U.S. Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law.

As permitted under Rule 13-01(a)(4)(vi) of Regulation S-K, we have excluded summarized financial information for the Partnership because the assets, liabilities, and results of operations of NGL Energy Partners LP (parent), NGL Energy Finance Corp. and the Guarantor Subsidiaries are not materially different than the corresponding amounts in our consolidated financial statements, and we believe that such summarized financial information would be repetitive and would not provide incremental value to investors.

Environmental Legislation

See our Annual Report for a discussion of proposed environmental legislation and regulations that, if enacted, could result in increased compliance and operating costs. However, at this time we cannot predict the structure or outcome of any future legislation or regulations or the eventual cost we could incur in compliance.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements that are applicable to us, see Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires the selection and application of appropriate accounting principles to the relevant facts and circumstances of our operations and the use of estimates made by management. We have identified certain more critical judgment areas in the application of our accounting policies that are most important to the portrayal of our consolidated financial position and results of operations. The application of these accounting policies, which requires subjective or complex judgments regarding estimates and projected outcomes of future events, and changes in these accounting policies, could have a material effect on our consolidated financial statements. There have been no material changes in the critical accounting estimates previously disclosed in our Annual Report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

A portion of our long-term debt is variable-rate debt. Changes in interest rates impact the interest payments of our variable-rate debt but generally do not impact the fair value of the liability. Conversely, changes in interest rates impact the fair value of our fixed-rate debt but do not impact its cash flows.

The ABL Facility is variable-rate debt with interest rates that are generally indexed to the prime rate or SOFR, an adjusted forward-looking term rate based on the secured overnight financing rate. At June 30, 2023, we had $180.0 million of outstanding borrowings under the ABL Facility at a weighted average interest rate of 8.28%. A change in interest rates of 0.125% would result in an increase or decrease of our annual interest expense of $0.2 million, based on borrowings outstanding at June 30, 2023.

The current distribution rate for the Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”) is a floating rate of the three-month London Interbank Offered Rate (“LIBOR”) interest rate (5.55% for the quarter ended June 30, 2023) plus a spread of 7.213%. A change in interest rates of 0.125% would result in an increase or decrease of our Class B Preferred Unit distribution of $0.1 million, based on the Class B Preferred Units outstanding at June 30, 2023. Effective July 3, 2023, the reference to LIBOR in the formulation for the distribution rate in these securities was replaced with three-month CME Term SOFR, as calculated and published by CME Group Benchmark Administration, Ltd., plus a tenor spread adjustment of 0.26161%, in accordance with the Adjustable Interest R ate (LIBOR) Act (the “LIBOR Act”), and the rules implementing the LIBOR Act.

On and after April 15, 2024, distributions on the Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units will accumulate at a percentage of the $25.00 liquidation preference equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with the amended and restated limited partnership agreement (the “Partnership Agreement”)) plus a spread of 7.384%. On or after July 1, 2024, the holders of our Class D Preferred Units can elect, from time to time, for the distributions to be calculated based on a floating rate equal to the applicable three-month LIBOR interest rate (or alternative rate as determined in accordance with the Partnership Agreement) plus a spread of 7.00% (“Class D Variable Rate,” as defined in the Partnership Agreement). Each Class D Variable Rate election shall be effective for at least four quarters following such election.

Commodity Price Risk

Our operations are subject to certain business risks, including commodity price 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. Procedures and limits for managing commodity price risks are specified in our market risk policy. Open commodity positions and market price changes are monitored daily and are reported to senior management and to marketing operations personnel.

The crude oil, natural gas liquids, and refined and renewables products industries are “margin-based” and “cost-plus” businesses in which our realized margins depend on the differential of sales prices over our supply costs. We have no control over market conditions. As a result, our profitability may be impacted by sudden and significant changes in the price of crude oil, natural gas liquids, and refined and renewables products.

We engage in various types of forward contracts and financial derivative transactions to reduce the effect of price volatility on our product costs, to protect the value of our inventory positions, and to help ensure the availability of product during periods of short supply. We attempt to balance our contractual portfolio by purchasing volumes when we have a matching purchase commitment from our wholesale and retail customers. We may experience net unbalanced positions from time to time. In addition to our ongoing policy to maintain a balanced position, for accounting purposes we are required, on an ongoing basis, to track and report the market value of our derivative portfolio.

Although we use financial derivative instruments to reduce the market price risk associated with forecasted transactions, we do not account for financial derivative transactions as hedges. All changes in the fair value of our physical contracts that do not qualify as normal purchases and normal sales and settlements (whether cash transactions or non-cash mark-to-market adjustments) are reported either within revenue (for sales contracts) or cost of sales (for purchase contracts) in our unaudited condensed consolidated statements of operations, regardless of whether the contract is physically or financially settled.

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The following table summarizes the hypothetical impact on the June 30, 2023 fair value of our commodity derivatives of an increase of 10% in the value of the underlying commodity (in thousands):


	Increase (Decrease) To Fair Value

Crude oil (Crude Oil Logistics segment)	$	98
Propane (Liquids Logistics segment)	$	(538)
Butane (Liquids Logistics segment)	$	(3,588)
Refined Products (Liquids Logistics segment)	$	(5,044)
Other Products (Liquids Logistics segment)	$	13,295
Canadian dollars (Liquids Logistics segment)	$	124

Changes in commodity prices may also impact the volumes that we are able to transport, dispose, store and market, which also impact our cash flows.

Credit Risk

Our operations are also subject to credit risk, which is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Procedures and limits for managing credit risk are specified in our credit policy. Credit risk is monitored daily and we believe we minimize exposure through the following:

• requiring certain customers to prepay or place deposits for our products and services;

• requiring certain customers to post letters of credit or other forms of surety;

• monitoring individual customer receivables relative to previously-approved credit limits;

• requiring certain customers to take delivery of their contracted volume ratably rather than allow them to take delivery at their discretion;

• entering into master netting agreements that allow for offsetting counterparty receivable and payable balances for certain transactions;

• reviewing the receivable aging regularly to identify issues or trends that may develop; and

• requiring marketing personnel to manage their customers’ receivable position and suspend sales to customers that have not timely paid outstanding invoices.

At June 30, 2023, our primary counterparties were retailers, resellers, energy marketers, producers, refiners, and dealers.

Fair Value

We determine the fair value of our exchange traded derivative financial instruments utilizing publicly available prices, and for non-exchange traded derivative financial instruments, we utilize pricing models for similar instruments including publicly available prices and forward curves generated from a compilation of data gathered from third-parties.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure the information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer of our GP, as appropriate, to allow timely decisions regarding required disclosure.

We completed an evaluation under the supervision and with participation of our management, including the principal executive officer and principal financial officer of our GP, of the effectiveness of the design and operation of our disclosure controls and procedures at June 30, 2023. Based on this evaluation, the principal executive officer and principal financial officer of our GP have concluded that as of June 30, 2023, such disclosure controls and procedures were effective.

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There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved from time to time in various legal proceedings and claims arising in the ordinary course of business. For information related to legal proceedings, see the discussion under the caption “ Legal Contingencies ” in Note 7 to our unaudited condensed consolidated financial statements included in this Quarterly Report, which is incorporated by reference into this Item 1.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in Part I, Item 1A–“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Pursuant to certain covenants within the indenture of our 2026 Senior Secured Notes, the board of directors of our general partner temporarily suspended all common unit and preferred unit distributions. For additional information related to the suspension of distributions, see Note 8 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended June 30, 2023, no director or officer of the Partnership adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits


Exhibit Number						Description
2.1						Membership Interest Purchase Agreement, dated as of March 3, 2023 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-35172) filed with the SEC on April 3, 2023)
2.2						Membership Interest Purchase Agreement, dated as of March 3, 2023 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-35172) filed with the SEC on April 3, 2023)
4.1*						Eighth Supplemental Indenture, dated as of June 30, 2023, among NGL Energy Partners LP, NGL Energy Finance Corp., the Guaranteeing Subsidiary, the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee
4.2*						Sixth Supplemental Indenture, dated as of June 30, 2023, among NGL Energy Partners LP, NGL Energy Finance Corp., the Guaranteeing Subsidiary, the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee
4.3*						Second Supplemental Indenture, dated as of July 13, 2022, among NGL Energy Operating LLC, NGL Energy Finance Corp., the other Guarantors, U.S. Bank National Association and U.S. Bank Trust Company, National Association, as Trustee
4.4*						Third Supplemental Indenture, dated as of June 30, 2023, among NGL Water Solutions Permian, LLC, NGL North Ranch, LLC, NGL Energy Operating LLC, NGL Energy Finance Corp., the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee
10.1*						Fourth Amendment to Credit Agreement dated as of July 13, 2023, by and among NGL Energy Operating LLC, NGL Energy Partners LP, each Guarantor party hereto, JPMorgan Chase Bank, N.A. and certain other financial institutions
10.2*						Credit Party Accession Agreement, dated as of June 30, 2023, among NGL North Ranch, LLC and JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent
22.1*						List of Issuers and Guarantor Subsidiaries of NGL Energy Partners LP
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH**						Inline XBRL Schema Document
101.CAL**						Inline XBRL Calculation Linkbase Document
101.DEF**						Inline XBRL Definition Linkbase Document
101.LAB**						Inline XBRL Label Linkbase Document
101.PRE**						Inline XBRL Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Exhibits filed with this report.

** The following documents are formatted in Inline XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and March 31, 2023, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2023 and 2022, (iv) Unaudited Condensed Consolidated Statements of Changes in Equity for the three months ended June 30, 2023 and 2022, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2023 and 2022, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NGL Energy Partners LP

	By:	NGL Energy Holdings LLC, its general partner

Date: August 9, 2023		By:	/s/ H. Michael Krimbill
			H. Michael Krimbill
			Chief Executive Officer

Date: August 9, 2023		By:	/s/ Bradley P. Cooper
			Bradley P. Cooper
			Chief Financial Officer

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements Note 1 Organization and Operations Note 2 Significant Accounting Policies Note 3 Loss Per Common Unit Note 4 Property, Plant and Equipment Note 5 Intangible Assets Note 6 Long-term Debt Note 7 Commitments and Contingencies Note 8 Equity Note 9 Fair Value Of Financial Instruments Note 10 Segments Note 11 Transactions with Affiliates Note 12 Revenue From Contracts with Customers Note 13 Leases Note 14 Allowance For Current Expected Credit Loss (cecl)Note 15 Other Matters Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

2.1 Membership Interest Purchase Agreement, dated as of March 3, 2023 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-35172) filed with the SEC on April 3, 2023) 2.2 Membership Interest Purchase Agreement, dated as of March 3, 2023 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-35172) filed with the SEC on April 3, 2023) 4.1* Eighth Supplemental Indenture, dated as of June 30, 2023, among NGL Energy Partners LP, NGL Energy Finance Corp., the Guaranteeing Subsidiary, the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee 4.2* Sixth Supplemental Indenture, dated as of June 30, 2023, among NGL Energy Partners LP, NGL Energy Finance Corp., the Guaranteeing Subsidiary, the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee 4.3* Second Supplemental Indenture, dated as of July 13, 2022, among NGL Energy Operating LLC, NGL Energy Finance Corp., the other Guarantors, U.S. Bank National Association and U.S. Bank Trust Company, National Association, as Trustee 4.4* Third Supplemental Indenture, dated as of June 30, 2023, among NGL Water Solutions Permian, LLC, NGL North Ranch, LLC, NGL Energy Operating LLC, NGL Energy Finance Corp., the other Guarantors and U.S. Bank Trust Company, N.A., as Trustee 10.1* Fourth Amendment to Credit Agreement dated as of July 13, 2023, by and among NGL Energy Operating LLC, NGL Energy Partners LP, each Guarantor party hereto, JPMorgan Chase Bank, N.A. and certain other financial institutions 10.2* Credit Party Accession Agreement, dated as of June 30, 2023, among NGL North Ranch, LLC and JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent 22.1* List of Issuers and Guarantor Subsidiaries of NGL Energy Partners LP 31.1* Certification of Chief Executive Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002

NGL 10-Q Quarter ended June 30, 2023

Exhibits