Business Overview
NGL Energy Partners LP is a diversified midstream company that operates across three key business segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics. With a presence in several major oil and gas basins, NGL has established itself as a critical player in the energy infrastructure space, providing essential services to producers and downstream customers alike.
Company History
The company's history dates back to its formation in 2011 as a Delaware master limited partnership, with NGL Energy Holdings LLC serving as its general partner. Since its inception, NGL has maintained its focus on three main business segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics. The Water Solutions segment has been integral to the company's operations, offering services such as transportation, treatment, recycling, and disposal of produced and flowback water generated from crude oil and natural gas production. Additionally, this segment sells produced water for reuse and recycle, as well as brackish non-potable water to producer customers.
In the Crude Oil Logistics segment, NGL purchases crude oil from producers and marketers, transporting it to refineries or for resale. The Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products, and biodiesel, serving commercial, retail, and industrial customers. Over the years, NGL has faced various challenges, including a significant net loss of $639.8 million in fiscal year 2021, which included substantial unusual charges related to impairments and other special items. During this period, the company's leverage ratio also increased as it worked to integrate acquisitions and expand its asset base.
Despite these obstacles, NGL has achieved important milestones, such as the completion of the financing and construction of its Lea County Express Pipeline system in fiscal year 2024, a major expansion project that increased its water disposal capacity. The company has also focused on optimizing its asset portfolio, completing several divestitures of non-core assets in recent years. Throughout its history, NGL has navigated various industry cycles and operational challenges while continuing to invest in its core business lines.
NGL Energy Partners continues to focus on its three core business segments, with particular emphasis on growing its water management infrastructure in the Delaware Basin to serve increasing produced water volumes from oil and gas development. The company has also worked to optimize its crude oil logistics and liquids marketing operations amid volatile commodity prices. There are no major scandals, short seller reports, or CEO departures to report for NGL Energy Partners.
Segment Analysis
NGL's Water Solutions segment is its largest and fastest-growing business, accounting for over 50% of its total adjusted EBITDA in the latest fiscal year. The segment provides produced water gathering, transportation, disposal, and recycling services to oil and gas producers, primarily in the Delaware Basin, DJ Basin, and Eagle Ford Shale. This fee-based business model provides NGL with a stable, recurring revenue stream and has demonstrated consistent growth, with volumes increasing 7% year-over-year in the most recent quarter.
During the three months ended September 30, 2024, the Water Solutions segment generated revenues of $181.87 million, a decrease of 7.8% compared to the prior year period. This decrease was primarily due to lower water disposal service fees, partially offset by an increase in recovered crude oil sales. Segment operating income was $72.83 million, up 23.2% year-over-year, driven by lower operating expenses and depreciation and amortization. The segment processed an average of 2.77 million barrels of water per day during the quarter, an increase of 11.9% compared to the prior year period.
The Crude Oil Logistics segment operates a network of owned and leased crude oil storage, terminaling, and transportation assets, primarily focused on serving producers in the DJ Basin. This segment has faced some headwinds in recent quarters due to lower production volumes on acreage dedicated to NGL, but the partnership remains optimistic about new contracting opportunities that could drive volume growth in the future.
In the three months ended September 30, 2024, the Crude Oil Logistics segment reported revenues of $243.76 million, a decrease of 50.3% compared to the prior year period. This was primarily due to lower crude oil sales volumes from lower production on acreage dedicated to NGL, partially offset by higher crude oil transportation and other sales. Segment operating income was $14.84 million, relatively flat compared to the prior year period. The segment sold 2.87 million barrels of crude oil and transported 5.81 million barrels on its owned pipelines during the quarter.
NGL's Liquids Logistics segment encompasses the company's natural gas liquids (NGL) supply, marketing, and distribution operations. This diversified business includes owned and leased NGL terminals, common carrier pipelines, and a fleet of leased railcars. While the segment has faced margin compression in recent periods, NGL has worked to optimize its portfolio and capitalize on market opportunities, including strong export demand for butane.
For the three months ended September 30, 2024, the Liquids Logistics segment generated revenues of $926.98 million, a decrease of 19.4% year-over-year. This was primarily due to lower refined products, propane, and other product sales, partially offset by higher butane sales. Segment operating income was $1.13 million, a decrease of 95.2% compared to the prior year period, driven by lower product margins across most product lines. During the quarter, the segment sold 206.91 million gallons of refined products, 108.59 million gallons of propane, 109.78 million gallons of butane, and 121.32 million gallons of other products.
Financials
From a financial perspective, NGL has maintained a relatively stable balance sheet, with a net debt to adjusted EBITDA ratio below 5x as of the latest reporting period. The partnership's liquidity position is enhanced by a $600 million asset-based revolving credit facility, which provides ample flexibility to fund growth projects and manage working capital needs.
For the most recent fiscal year (2024), NGL reported revenue of $6.96 billion, a net loss of $143.1 million, operating cash flow of $376.16 million, and free cash flow of $223.87 million. In the most recent quarter (Q2 2025), the company reported revenue of $1.35 billion, net income of $3.39 million, operating cash flow of $11.34 million, and free cash flow of -$82.90 million. The decrease in revenue and net income compared to the prior year quarter was primarily due to lower crude oil and natural gas liquids prices and volumes. The decrease in operating cash flow and free cash flow was due to fluctuations in working capital, particularly accounts receivable and accounts payable.
NGL Energy Partners reported total revenues of $1.35 billion and operating income of $77.73 million for the three months ended September 30, 2024. The company's Adjusted EBITDA, a non-GAAP financial measure, was $147.27 million for the quarter, down 16.4% from the prior year period. NGL continues to focus on managing its capital expenditures, which totaled $94.22 million in the quarter, as it works to optimize its asset base and improve financial flexibility.
Looking ahead, NGL's management team has slightly reduced their full fiscal year 2025 Adjusted EBITDA guidance to a range of $640 million to $650 million, which is a 2% to 4% reduction from their prior guidance. This outlook reflects the continued growth in the Water Solutions segment, as well as anticipated improvements in the Crude Oil Logistics and Liquids Logistics businesses. The partnership has also prioritized deleveraging and equity repurchases, having recently announced a $50 million common unit buyback program.
NGL's total capital expenditure guidance for fiscal year 2025 remained unchanged at $210 million. For the Water Solutions segment, NGL maintained their Adjusted EBITDA guidance of $550 million to $560 million. The company reported that their results were in line with their internal expectations for the first half of the fiscal year. However, they slightly lowered their full year Adjusted EBITDA guidance due to potential challenges in the second half, such as warm weather and lower crude oil prices. The Water Solutions segment, which is their growth engine, maintained its previous guidance.
Liquidity
NGL Energy Partners LP's liquidity position is supported by its $600 million asset-based revolving credit facility. This facility provides the company with significant financial flexibility to fund its growth initiatives and manage its working capital requirements. As of September 30, 2024, $274 million was drawn on the ABL Facility, which includes a $200 million sub-limit for letters of credit, of which $79.4 million was utilized.
The company's focus on maintaining a strong liquidity position is crucial for navigating the cyclical nature of the energy industry and supporting its ongoing operations and strategic investments. NGL's financial metrics as of the latest reporting period include:
- Debt/Equity ratio: 16.88 - Cash on hand: $4.5 million - Current ratio: 1.21 - Quick ratio: 0.98
Risks and Outlook
Risks facing NGL include commodity price volatility, producer activity levels, regulatory changes, and potential operational challenges. However, the company's diversified asset base, long-term customer contracts, and focus on high-growth basins position it well to navigate these industry dynamics.
The midstream energy sector, including NGL's core business lines, is expected to see moderate growth in the coming years, with a compound annual growth rate (CAGR) of around 3-5% projected for the 2024-2027 period. Demand for water management services is likely to continue increasing to support rising US onshore oil and gas production. However, the industry faces headwinds from commodity price volatility, rising costs, and regulatory uncertainty around issues like induced seismicity and environmental regulations.
Overall, NGL Energy Partners presents an interesting investment opportunity in the midstream energy sector. The partnership's strategic positioning, operational execution, and financial discipline suggest it is poised to continue delivering value to unitholders over the long term.