NGL Energy Partners LP Announces Second Quarter Fiscal 2018 Financial Results

NGL Energy Partners LP (NYSE: NGL) (“NGL,” “our,” or the “Partnership”)
today reported a net loss for the quarter ended September 30, 2017 of
$173.6 million, primarily due to a non-cash goodwill impairment charge
of $116.9 million to our Sawtooth salt dome cavern reporting unit, which
is part of our Liquids operating segment. This is compared to a net loss
of $66.7 million for the quarter ended September 30, 2016.

Highlights for the quarter include:

• Adjusted EBITDA for the second quarter of Fiscal 2018 was $90.8
  million, compared to $75.5 million for the second quarter of Fiscal
  2017
• Volumes increased over 10% in every segment compared to the same
  quarter last year, including a 30% increase in water disposal volumes
• Distributable cash flow for the second quarter of Fiscal 2018 was
  $35.1 million, compared to $38.0 million for the second quarter of
  Fiscal 2017
• Growth capital expenditures, including acquisitions and other
  investments, totaled approximately $56.7 million during the second
  quarter, the majority of which was related to investments in the Water
  Solutions and Retail Propane segments
• Fiscal 2018 Adjusted EBITDA target remains at approximately $475
  million to $500 million

“Results for this quarter exceeded our expectations with the Crude Oil
Logistics, Water Solutions and Refined Products segments all beating our
forecast for the quarter. Crude volumes on Grand Mesa continue to grow
with over 100,000 barrels per day in August and September. Water volumes
were in excess of 655,000 barrels per day for the quarter, with over
700,000 barrels per day processed in September, and our Refined Products
results improved significantly from the prior two quarters, led by our
re-contracting initiative and improved margins,” stated CEO Mike
Krimbill. “With these results, we believe the Partnership is positioned
for significant value growth in the near future. Our outlook for the
remainder of this year remains unchanged with growth potential embedded
in our existing businesses for next year and beyond.”

Quarterly Results of Operations

The following table summarizes operating income (loss) and Adjusted
EBITDA by operating segment for the periods indicated:

The tables included in this release reconcile operating income (loss) to
Adjusted EBITDA, a non-GAAP financial measure, for each of our operating
segments.

Crude Oil Logistics

The Partnership’s Crude Oil Logistics segment generated Adjusted EBITDA
of $29.6 million during the quarter ended September 30, 2017, compared
to $3.5 million during the quarter ended September 30, 2016. The
Partnership’s Grand Mesa Pipeline commenced commercial operations on
November 1, 2016 and contributed Adjusted EBITDA of approximately $38.0
million during the second quarter of Fiscal 2018 as physical volumes
averaged approximately 89,000 barrels per day and financial volumes
averaged approximately 94,000 barrels per day for the quarter. Volumes
have continued to increase throughout the current year as production in
the DJ Basin grows. The average remaining contract term on the pipeline
is approximately eight years, and all contracts are fee-based with
volume commitments which step up on November 1st in the second and third
years of operations.

The remaining divisions of our Crude Oil Logistics segment continued to
be impacted by competition and low margins in the majority of the basins
across the United States. The Partnership continues to market crude
volumes in this lower price environment to support its various pipeline,
terminal and transportation assets, including Grand Mesa, at near
break-even to slightly negative levels.

Refined Products and Renewables

The Partnership’s Refined Products and Renewables segment generated
Adjusted EBITDA of $22.2 million during the quarter ended September 30,
2017, compared to Adjusted EBITDA of $45.6 million during the quarter
ended September 30, 2016. Total product margin per gallon was $0.011 for
the quarter ended September 30, 2017 compared to $0.006 for the quarter
ended September 30, 2016. The increase in margins was primarily due to
an increase in Gulf Coast prices as a result of supply disruptions. The
decrease in adjusted EBITDA is the result of lower inventory prices
negatively impacting the inventory revaluation adjustment by $2.2
million for the quarter, compared to a $39.5 million positive adjustment
in the same period last year when the Colonial Pipeline was down for
maintenance, causing an increase in refined product prices.

Refined product barrels sold during the quarter ended September 30, 2017
totaled approximately 41.4 million barrels, an increase of approximately
4.0 million barrels compared to the same period in the prior year, as a
result of expansion of our refined products operations. Renewable
barrels sold during the quarter ended September 30, 2017 were
approximately 1.5 million, which was similar to the volumes sold during
the quarter ended September 30, 2016.

Liquids

The Partnership’s Liquids segment generated Adjusted EBITDA of $16.1
million during the quarter ended September 30, 2017, compared to
Adjusted EBITDA of $15.8 million during the quarter ended September 30,
2016. Total product margin per gallon was $0.025 for the quarter ended
September 30, 2017, compared to $0.050 for the quarter ended
September 30, 2016. Margins were negatively impacted by unrealized
losses on derivative instruments related to butane of approximately
$18.2 million. This unrealized loss will be offset in future periods
when physical volumes are sold. Propane volumes increased by
approximately 35.4 million gallons, or 15.9%, during the quarter ended
September 30, 2017 compared to the quarter ended September 30, 2016.
Butane volumes increased by approximately 23.3 million gallons, or
22.8%, during the quarter ended September 30, 2017 compared to the
quarter ended September 30, 2016. Other Liquids volumes increased by
approximately 15.2 million gallons, or 17.5%, during the quarter ended
September 30, 2017 compared to the same period in the prior year. The
increase in overall volumes is primarily attributable to a new long-term
marketing agreement as well as the acquisition of certain natural gas
liquid and condensate terminals from Murphy Energy Corporation. Our
Liquids segment continued to be impacted by unrecovered railcar fleet
costs and excess storage capacity.

Retail Propane

The Partnership’s Retail Propane segment generated Adjusted EBITDA of
$3.2 million during the quarter ended September 30, 2017, compared to
$2.1 million during the quarter ended September 30, 2016. Propane sold
during the quarter ended September 30, 2017 increased by approximately
4.4 million gallons, or 18.7%, compared to the quarter ended
September 30, 2016, primarily due to acquisitions made during the
current year and previous year. Distillates sold during the quarter
ended September 30, 2017 increased by approximately 0.3 million gallons
compared to the quarter ended September 30, 2016. Total product margin
per gallon was $0.864 for the quarter ended September 30, 2017, compared
to $0.902 for the quarter ended September 30, 2016.

Water Solutions

The Partnership’s Water Solutions segment generated Adjusted EBITDA of
$27.3 million during the quarter ended September 30, 2017, compared to
$17.8 million during the quarter ended September 30, 2016. The
Partnership processed approximately 655,000 barrels of wastewater per
day during the quarter ended September 30, 2017, a 30.4% increase,
compared to approximately 503,000 barrels of wastewater per day during
the quarter ended September 30, 2016. Processed water volumes have
increased throughout the year with over 700,000 barrels per day
processed in September as the segment continued to benefit from the
increased rig counts and increased completion activities related to
drilled but uncompleted wells in the basins in which it operates,
particularly in the Permian Basin. Additional water pipelines brought
online in the quarter also contributed to increased revenues. Revenues
from recovered hydrocarbons totaled $10.4 million for the quarter ended
September 30, 2017, an increase of $4.8 million over the prior year
period, related to increased crude oil prices and an increase of oil
percentage in water processed.

Corporate and Other

Adjusted EBITDA for Corporate and Other was a cost of $7.6 million
during the quarter ended September 30, 2017, compared to a cost of $9.4
million during the quarter ended September 30, 2016.

Capitalization and Liquidity

Total long-term debt outstanding, excluding working capital borrowings,
was $2.124 billion at September 30, 2017 compared to $2.149 billion at
March 31, 2017, a decrease of $25.0 million. Working capital borrowings
totaled $869.5 million at September 30, 2017 compared to $814.5 million
at March 31, 2017, an increase of $55.0 million driven primarily by an
increase in accounts receivable during the quarter. Working capital
borrowings, which are fully secured by the Partnership’s net working
capital, are subject to a monthly borrowing base and are excluded from
the Partnership’s debt compliance ratios. Total liquidity (cash plus
available capacity on our revolving credit facility) was approximately
$696.8 million as of September 30, 2017.

Second Quarter Conference Call Information

A conference call to discuss NGL’s results of operations is scheduled
for 11:00 am Eastern Time (10:00 am Central Time) on Tuesday,
November 7, 2017. Analysts, investors, and other interested parties may
access the conference call by dialing (800) 291-4083 and providing
access code 5396739. An archived audio replay of the conference call
will be available for 7 days beginning at 2:00 pm Eastern Time (1:00 pm
Central Time) on November 7, 2017, which can be accessed by dialing
(855) 859-2056 and providing access code 5396739.

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, revaluation of investments, equity-based compensation
expense, acquisition expense, revaluation of liabilities and other. NGL
also includes in Adjusted EBITDA certain inventory valuation adjustments
related to NGL’s Refined Products and Renewables segment, as discussed
below. EBITDA and Adjusted EBITDA should not be considered alternatives
to net (loss) income, (loss) 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. NGL believes that EBITDA provides additional information to
investors for evaluating NGL’s ability to make quarterly distributions
to NGL’s unitholders and is presented solely as a supplemental measure.
NGL believes that Adjusted EBITDA provides additional information to
investors for evaluating NGL’s financial performance without regard to
NGL’s financing methods, capital structure and historical cost basis.
Further, EBITDA and Adjusted EBITDA, as NGL defines them, may not be
comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used
by other entities.

Other than for NGL’s Refined Products and Renewables segment, for
purposes of the Adjusted EBITDA calculation, NGL makes a distinction
between realized and unrealized gains and losses on derivatives. During
the period when a derivative contract is open, NGL records changes in
the fair value of the derivative as an unrealized gain or loss. When a
derivative contract matures or is settled, NGL reverses the previously
recorded unrealized gain or loss and record a realized gain or loss. NGL
does not draw such a distinction between realized and unrealized gains
and losses on derivatives of NGL’s Refined Products and Renewables
segment. The primary hedging strategy of NGL’s Refined Products and
Renewables segment is to hedge against the risk of declines in the value
of inventory over the course of the contract cycle, and many of the
hedges are six months to one year in duration at inception. The
“inventory valuation adjustment” row in the reconciliation table
reflects the difference between the market value of the inventory of
NGL’s Refined Products and Renewables segment at the balance sheet date
and its cost. NGL includes this in Adjusted EBITDA because the
unrealized gains and losses associated with derivative contracts
associated with the inventory of this segment, which are intended
primarily to hedge inventory holding risk and are included in net
income, also affect Adjusted EBITDA.

Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance
capital expenditures, income tax expense, cash interest expense and
other. Maintenance capital expenditures represent capital expenditures
necessary to maintain the Partnership’s operating capacity.
Distributable Cash Flow is a performance metric used by senior
management to compare cash flows generated by the Partnership (excluding
growth capital expenditures and prior to the establishment of any
retained cash reserves by the Board of Directors) to the cash
distributions expected to be paid to unitholders. Using this metric,
management can quickly compute the coverage ratio of estimated cash
flows to planned cash distributions. This financial measure also is
important to investors as an indicator of whether the Partnership is
generating cash flow at a level that can sustain, or support an increase
in, quarterly distribution rates. Actual distribution amounts are set by
the Board of Directors.

Forward Looking Statements

This press release includes “forward-looking statements.” All statements
other than statements of historical facts included or incorporated
herein may constitute forward-looking statements. Actual results could
vary significantly from those expressed or implied in such statements
and are subject to a number of risks and uncertainties. While NGL
believes such forward-looking statements are reasonable, NGL cannot
assure they will prove to be correct. The forward-looking statements
involve risks and uncertainties that affect operations, financial
performance, and other factors as discussed in filings with the
Securities and Exchange Commission. Other factors that could impact any
forward-looking statements are those risks described in NGL’s Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, and other public
filings. You are urged to carefully review and consider the cautionary
statements and other disclosures made in those filings, specifically
those under the heading “Risk Factors.” NGL undertakes no obligation to
publicly update or revise any forward-looking statements except as
required by law.

NGL provides Adjusted EBITDA guidance that does not include certain
charges and costs, which in future periods are generally expected to be
similar to the kinds of charges and costs excluded from Adjusted EBITDA
in prior periods, such as income taxes, interest and other non-operating
items, depreciation and amortization, net unrealized gains and losses on
derivatives, lower of cost or market adjustments, gains and losses on
disposal or impairment of assets, equity-based compensation,
acquisition-related expense, revaluation of liabilities and items that
are unusual in nature or infrequently occurring. The exclusion of these
charges and costs in future periods will have a significant impact on
the Partnership’s Adjusted EBITDA, and the Partnership is not able to
provide a reconciliation of its Adjusted EBITDA guidance to net income
(loss) without unreasonable efforts due to the uncertainty and
variability of the nature and amount of these future charges and costs
and the Partnership believes that such reconciliation, if possible,
would imply a degree of precision that would be potentially confusing or
misleading to investors.

About NGL Energy Partners LP

NGL Energy Partners LP is a Delaware limited partnership. NGL owns and
operates a vertically integrated energy business with five primary
businesses: Crude Oil Logistics, Water Solutions, Liquids, Retail
Propane and Refined Products and Renewables. NGL completed its initial
public offering in May 2011. For further information, visit the
Partnership’s website at www.nglenergypartners.com.

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