NGL Energy Partners LP (NYSE: NGL) (“the “Partnership” or “NGL”)
is providing certain information regarding its global settlement
with Extraction Oil and Gas, Inc. (“Extraction”) following its
expected emergence from bankruptcy, including Adjusted EBITDA
guidance for the fiscal year ending March 31, 2021 (“Fiscal 2021”)
and the fiscal year ending March 21, 2022 (“Fiscal 2022”).
Extraction, in its Chapter 11 bankruptcy proceeding, rejected
its two transportation service agreements (“TSAs”) with Grand Mesa
Pipeline, LLC (“Grand Mesa”), a subsidiary of the Partnership.
Grand Mesa disputed the rejection and appealed the bankruptcy
court’s approval of the rejection of the TSAs. The parties reached
a global settlement of the dispute which, among other
consideration, provided for the following:
- A new, long-term supply agreement between NGL Crude Logistics
LLC (“NGL Crude”) and Extraction (the “Supply Agreement”), which
includes a significant acreage dedication in the DJ Basin and
retains Extraction’s crude oil volumes for shipping on the Grand
Mesa Pipeline;
- A new rate structure under the Supply Agreement which is based
on calendar month average NYMEX prices with an agreed upon
differential plus an increase in the rate when those NYMEX prices
exceed $50.00 per barrel; and
- The Partnership will receive $35 million as a liquidated
payment for Grand Mesa’s remaining claim on the effective date of
Extraction’s plan of reorganization.
“We are pleased to be able to complete the new Supply Agreement
with Extraction and look forward to working with their management
team as they develop their significant DJ Basin position and
execute their business strategy,” stated Mike Krimbill, NGL’s CEO.
“This new contract positions NGL to retain and transport
significant crude oil volumes for Extraction and aligns the two
companies for future success.”
Based on actual year-to-date results and estimated results for
the remainder of Fiscal 2021, including the impact of the
Extraction bankruptcy, the Partnership is re-instating Fiscal 2021
Adjusted EBITDA guidance at $500 million. Fiscal 2021 Adjusted
EBITDA includes an estimated reduction of $45 million associated
with lower crude oil volumes delivered by Extraction plus the
litigation costs associated with the bankruptcy. Additionally, the
Partnership expects to recognize a non-cash impairment charge that
could be in the range of $380 million to $400 million in the
quarter ending December 31, 2020 associated with certain intangible
assets and goodwill which had a net book value of approximately
$768 million at September 30, 2020 in its Crude Oil Logistics
segment because of the Extraction bankruptcy and settlement.
Management does not expect to recognize any impairment of tangible
assets in this segment related to this matter.
The Partnership is also initiating Adjusted EBITDA guidance for
Fiscal 2022 with a range of $570 million to $600 million. Capital
expenditures are expected to be between $100 million and $125
million for Fiscal 2022, including both growth and maintenance
expenditures. Additional details regarding Adjusted EBITDA and
capital expenditures guidance will be provided when the Partnership
announces its operating results for the quarter ending December 31,
2020.
NGL plans to issue its fiscal third quarter-ended December 31,
2020 earnings press release post-market close on Tuesday February
9, 2021. Members of NGL’s management team intend to host an
earnings call following this release on Tuesday February 9, 2021 at
4:00 pm CT to discuss its financial results. Analysts, investors,
and other interested parties may access the conference call by
dialing (800) 291-4083 and providing access code 5176744. An
archived audio replay of the call will be available for 7 days
beginning at 1:00 pm CT on February 10, 2021, which can be accessed
by dialing (855) 859-2056 and providing access code 5176744.
Forward-Looking Statements
This press release includes “forward-looking statements.” The
forward-looking expectations for Fiscal 2021 and Fiscal 2022 are
based on the most recent volume, price and cost assumptions
available and represent management’s best estimate as of the date
of this release. There is can be no assurance that these volume,
price and cost assumptions will be realized or that other factors
will not impact our actual results of operations. All statements
other than statements of historical facts included or incorporated
herein may constitute forward-looking statements. Actual results
could vary significantly from those expressed or implied in such
statements and are subject to a number of risks and uncertainties.
While NGL believes such forward-looking statements are reasonable,
NGL cannot assure they will prove to be correct. The
forward-looking statements involve risks and uncertainties that
affect operations, financial performance, and other factors as
discussed in filings with the Securities and Exchange Commission.
Other factors that could impact any forward-looking statements are
those risks described in NGL’s annual report on Form 10-K,
quarterly reports on Form 10-Q, and other public filings. You are
urged to carefully review and consider the cautionary statements
and other disclosures made in those filings, specifically those
under the heading “Risk Factors.” NGL undertakes no obligation to
publicly update or revise any forward-looking statements except as
required by law.
Non-GAAP Financial Measures
NGL defines EBITDA as net income (loss) attributable to NGL
Energy Partners LP, plus interest expense, income tax expense
(benefit), and depreciation and amortization expense. NGL defines
Adjusted EBITDA as EBITDA excluding net unrealized gains and losses
on derivatives, lower of cost or market adjustments, gains and
losses on disposal or impairment of assets, gains and losses on
early extinguishment of liabilities, equity-based compensation
expense, acquisition expense, revaluation of liabilities, certain
legal settlements and other. NGL also includes in Adjusted EBITDA
certain inventory valuation adjustments related to certain refined
products businesses with NGL’s Liquids and Refined Products
segment, as discussed below. EBITDA and Adjusted EBITDA should not
be considered as alternatives to net income (loss), income (loss)
from continuing operations before income taxes, cash flows from
operating activities, or any other measure of financial performance
calculated in accordance with GAAP, as those items are used to
measure operating performance, liquidity or the ability to service
debt obligations. NGL believes that EBITDA provides additional
information to investors for evaluating NGL’s ability to make
quarterly distributions to NGL’s unitholders and is presented
solely as a supplemental measure. NGL believes that Adjusted EBITDA
provides additional information to investors for evaluating NGL’s
financial performance without regard to NGL’s financing methods,
capital structure and historical cost basis. Further, EBITDA and
Adjusted EBITDA, as NGL defines them, may not be comparable to
EBITDA, Adjusted EBITDA, or similarly titled measures used by other
entities.
Other than for certain refined products businesses with NGL’s
Liquids and Refined Products segment, for purposes of the Adjusted
EBITDA calculation, NGL makes a distinction between realized and
unrealized gains and losses on derivatives. During the period when
a derivative contract is open, NGL records changes in the fair
value of the derivative as an unrealized gain or loss. When a
derivative contract matures or is settled, NGL reverses the
previously recorded unrealized gain or loss and records a realized
gain or loss. NGL does not draw such a distinction between realized
and unrealized gains and losses on derivatives of certain refined
products businesses with NGL’s Liquids and Refined Products
segment. The primary hedging strategy of NGL’s Refined Products and
Renewables segment is to hedge against the risk of declines in the
value of inventory over the course of the contract cycle, and many
of the hedges are six months to one year in duration at inception.
The “inventory valuation adjustment” row in the reconciliation
table reflects the difference between the market value of the
inventory of these businesses at the balance sheet date and its
cost, adjusted for the impact of seasonal market movements related
to our base inventory and the related hedge. NGL includes this in
Adjusted EBITDA because the unrealized gains and losses associated
with derivative contracts associated with the inventory of these
businesses, which are intended primarily to hedge inventory holding
risk and are included in net income, also affect Adjusted
EBITDA.
Due to the impracticality of predicting certain amounts required
by GAAP such as unrealized gains and losses on derivatives marked
to market and potential changes in estimates for certain contingent
liabilities, NGL does not calculate budgeted Net Income, the GAAP
financial measure most directly comparable to the non-GAAP
financial measure of Adjusted EBITDA.
About NGL Energy Partners LP
NGL Energy Partners LP, a Delaware limited partnership, is a
diversified midstream energy company that transports, stores,
markets and provides other logistics services for crude oil,
natural gas liquids and other products and transports, treats and
disposes of produced water generated as part of the oil and natural
gas production process. For further information, visit the
Partnership’s website at www.nglenergypartners.com.
This release is a qualified notice under Treasury Regulation
Section 1.1446-4(b). Brokers and nominees should treat 100% of NGL
Energy Partner LP’s distributions to foreign investors as being
attributable to income that is effectively connected with a United
States trade or business. Therefore, distributions to foreign
investors are subject to federal income tax withholding at the
highest applicable effective tax rate.
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version on businesswire.com: https://www.businesswire.com/news/home/20210119005368/en/
NGL Energy Partners LP Trey Karlovich, 918.481.1119 Executive
Vice President and Chief Financial Officer Trey.Karlovich@nglep.com
or Linda Bridges, 918.481.1119 Senior Vice President – Finance and
Treasurer Linda.Bridges@nglep.com
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