Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NGL > SEC Filings for NGL > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for NGL ENERGY PARTNERS LP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for NGL ENERGY PARTNERS LP


14-Nov-2012

Quarterly Report


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

The following is a discussion of our financial condition and results of operations as of and for the three months and six months ended September 30, 2012. The discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the historical consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Overview

NGL Energy Partners LP ("we" or the "Partnership") is a Delaware limited partnership formed in September 2010. NGL Energy Holdings LLC serves as our general partner. We completed an initial public offering in May 2011. At the time of our initial public offering, we owned and operated retail propane and wholesale natural gas liquids businesses. Subsequent to our initial public offering, we significantly expanded our operations through a number of business combinations, including the following:

On October 3, 2011, we completed a business combination transaction with E. Osterman Propane, Inc., its affiliated companies and members of the Osterman family (collectively, "Osterman"), whereby we acquired retail propane operations in the northeastern United States. We issued 4,000,000 common units and paid $94.9 million, net of cash acquired, in exchange for the assets and operations of Osterman. The agreement also contemplated a post-closing payment of $4.8 million for certain specified working capital items, which was paid in November 2012.

On November 1, 2011, we completed a business combination transaction with SemStream, L.P. ("SemStream"), whereby we acquired SemStream's wholesale natural gas liquids supply and marketing operations and its 12 natural gas liquids terminals. We issued 8,932,031 common units and paid $91 million in exchange for the assets and operations of SemStream, including working capital.

On January 3, 2012, we completed a business combination transaction with seven companies associated with Pacer Propane Holding, L.P. (collectively, "Pacer"), whereby we acquired retail propane operations, primarily in the western United States. We issued 1,500,000 common units and paid $32.2 million in exchange for the assets and operations of Pacer, including working capital. We also assumed $2.7 million of long-term debt in the form of non-compete agreements.

On February 3, 2012, we completed a business combination transaction with North American Propane, Inc. ("North American"), whereby we acquired retail propane and distillate operations in the northeastern United States. We paid $69.8 million in exchange for the assets and operations of North American, including working capital.

During April, May, and July 2012, we completed four separate business combination transactions to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States. The largest of these was with Downeast Energy Corp. ("Downeast"). On a combined basis, we paid $60.5 million of cash and issued 850,676 common units in exchange for these assets and operations, including working capital. In addition, a combined amount of approximately $0.4 million will be payable as deferred payments on the purchase price. We also assumed $5.9 million of long-term debt in the form of non-compete agreements.

On June 19, 2012, we completed a business combination with High Sierra Energy LP and High Sierra Energy GP, LLC (collectively, "High Sierra"), whereby we acquired all of the ownership interests in High Sierra. High Sierra's businesses include crude oil gathering, transportation and marketing; water treatment, disposal, and transportation; and natural gas liquids transportation and marketing. We paid $96.8 million of cash and issued 18,018,468 common units to acquire High Sierra Energy, LP. We also paid $97.4 million of High Sierra Energy, LP's long-term debt and other obligations. Our general partner acquired High Sierra Energy GP, LLC by paying $50 million of cash and issuing equity. Our general partner then contributed its ownership interests in High Sierra Energy GP, LLC to us, in return for which we paid our general partner $50 million of cash and issued 2,685,042 common units to our general partner.

As of September 30, 2012, our businesses include:

Our retail propane business, which sells propane and distillates to end users consisting of residential, agricultural, commercial, and industrial customers in over 20 states and to certain re-sellers;


Table of Contents

Our natural gas liquids logistics business, which supplies propane and other natural gas liquids to retailers, wholesalers, and refiners throughout the United States and in Canada, and which provides natural gas liquids terminalling services through its 18 terminals throughout the United States and rail car transportation services through its fleet of owned and predominantly leased rail cars;

A crude oil logistics business, the assets of which include crude oil terminals, a fleet of trucks, and a fleet of leased rail cars; and

A water services business, the assets of which include water treatment and disposal facilities, a fleet of water trucks, and fractionation tanks.

Our retail propane segment sells propane, petroleum distillates, and equipment and supplies to residential, agricultural, commercial, and industrial end-users. Our retail propane segment purchases a large portion of its propane from our natural gas liquids logistics segment. Our retail propane segment generates margins based on the difference between the wholesale cost of product and the selling price of the product in the retail markets. These margins fluctuate over time due to supply and demand conditions. Weather conditions have a significant impact on our sales volumes and prices, as a significant portion of our sales are to residential customers who purchase propane and distillates for home heating purposes.

Our natural gas liquids logistics segment purchases propane, butane, and other natural gas liquids from refiners, processing plants, producers, and other parties, and sells the product to retailers, refiners, and other participants in the wholesale markets. Our natural gas liquids logistics segment owns 18 terminals and operates a fleet of leased rail cars and leases storage capacity. The margins we realize in our wholesale business are substantially lower on a per gallon basis than the margins we realize in our retail business. We attempt to reduce our exposure to the impact of price fluctuations by using "back-to-back" contractual agreements and "pre-sale" agreements that essentially allow us to lock in a margin on a percentage of our winter volumes. We also attempt to reduce our exposure to the impact of price fluctuations by entering into swap agreements whereby we agree to pay a floating rate and receive a fixed rate on a specified notional amount of product. We enter into these agreements as economic hedges against the potential decline in the value of a portion of our inventory. Our natural gas liquids logistics segment includes the operations that were previously reported in our wholesale marketing and supply and terminals segments. Our natural gas liquids logistics segment also includes the natural gas liquids operations we acquired in our June 2012 merger with High Sierra.

Our crude oil transportation and marketing business purchases crude oil from producers and transports it for resale at pipeline injection points, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs. We attempt to reduce our exposure to price fluctuations by using "back-to-back" contractual agreements whenever possible. In addition, we enter into forward contracts, financial swaps, and commodity spread trades as economic hedges of our physical forward sales and purchase contracts with our customers and suppliers. The operations of our crude oil logistics segment began with our June 2012 merger with High Sierra.

Our water services business generates revenues from the transportation, treatment, and disposal of waste-water generated from oil and natural gas production operations, and from the re-sale of recycled water and recovered hydrocarbons. The operations of our water services segment began with our June 2012 merger with High Sierra.

Seasonality and Weather

Seasonality and weather have a significant impact on the demand for propane and butane. The most significant impact of seasonality and weather is on our retail segment. A large portion of our retail operation is in the residential market where propane and distillates are used primarily for heating purposes. Approximately 70% of our retail volume is sold during the peak heating season from October through March. Seasonal volume variations also impact our wholesale operations. Consequently, we expect our sales, operating profits and operating cash flows to be greater in the third and fourth quarters of each fiscal year. We have historically realized operating losses and negative operating cash flows during our first and second fiscal quarters. See "-Liquidity, Sources of Capital and Capital Resource Activities - Cash Flows."

Propane Price Fluctuations

Fluctuations in the price of propane can have a direct impact on our reported revenues and sales volumes and may affect our gross margins depending on our success in passing cost increases on to our retail propane and wholesale supply and marketing customers. The range of low and high spot propane prices per gallon at two key pricing hubs for the periods indicated and the prices as of period end were as follows:


Table of Contents

                                             Conway, Kansas
                                               Spot Price          Spot Price
                                               Per Gallon          Per Gallon
                                             Low        High      At Period End
For the Three Months Ended September 30:
2012                                       $ 0.5069   $ 0.8838   $        0.7919
2011                                         1.3663     1.4750            1.4269
For the Six Months Ended September 30:
2012                                       $ 0.5038   $ 0.9625   $        0.7919
2011                                         1.2763     1.4900            1.4269




                                             Mt. Belvieu, Texas
                                                 Spot Price           Spot Price
                                                 Per Gallon           Per Gallon
                                               Low         High      At Period End
For the Three Months Ended September 30:
2012                                       $    0.7925   $ 0.9888   $        0.9150
2011                                            1.4438     1.6275            1.5119
For the Six Months Ended September 30:
2012                                       $    0.7063   $ 1.2175   $        0.9150
2011                                            1.3800     1.6275            1.5119

Historically, we have been successful in passing on price increases to our customers. We monitor propane prices daily and adjust our retail prices to maintain expected margins by passing on the wholesale costs to our customers. We believe that volatility in commodity prices will continue, and our ability to adjust to and manage this volatility may impact our financial results.

Recent Developments

During October 2012, we completed a business combination whereby we acquired certain entities that operate salt water disposal wells and related assets. During October and November 2012, we acquired two retail propane businesses. On a combined basis, we paid cash of $42.2 million and issued 516,978 common units (valued at $12.4 million) as consideration for these acquisitions. An additional $1.1 million will be payable under non-compete agreements. The agreements contemplate post-closing adjustments to the purchase prices for certain specified working capital items.

On November 1, 2012, we completed a business combination agreement whereby we acquired Pecos Gathering & Marketing, L.L.C. and certain of its affiliated companies (collectively, "Pecos"). The business of Pecos consists primarily of crude oil purchasing and logistics operations in Texas and New Mexico. We paid cash of $134.8 million at closing, subject to customary post-closing adjustments, and assumed certain obligations with a value of $10.4 million under certain equipment financing facilities. Also on November 1, 2012, we entered into an agreement with the former owners of Pecos pursuant to which the former owners of Pecos agreed to purchase a minimum of $45 million or a maximum of $60 million of common units from us. On November 12, 2012, the former owners purchased 1,834,414 common units from us for $45.0 million pursuant to this agreement.

Summary Discussion of Operating Results for the Three Months ended September 30, 2012

Our retail propane segment generated an operating loss of $0.5 million during the three months ended September 30, 2012, which was lower than the operating loss of $3.1 million during the three months ended September 30, 2011. Our retail propane segment generated $0.6 million of operating income during the three months ended September 30, 2012 from businesses acquired during the last twelve months, including Osterman, Pacer, North American, and Downeast. The operations that we owned during the corresponding quarter in the prior year experienced more favorable operating results during the three months ended September 30, 2012 than during the three months ended September 30, 2011, which was due primarily to improved margins on propane sales. Although the average selling price per gallon of propane was lower in the current year than in the prior year, the average cost per gallon decreased by a larger amount than the selling price, and volumes were similar over the two periods.


Table of Contents

Our natural gas liquids logistics segment generated operating income of $10.2 million during the three months ended September 30, 2012. This was due to $12.7 million of operating income related to the operations acquired in the merger with High Sierra. Our legacy wholesale operations generated an operating loss during the three months ended September 30, 2012.

Weather conditions were unusually warm during the recent winter heating season, which significantly reduced the demand for propane. Because of this, and due to continued high levels of production of natural gas and limitations on export infrastructure, the market price for propane and other natural gas liquids was lower during the three months ended September 30, 2012 than during the corresponding period in the prior year.

The operations of our crude oil logistics segment were acquired in our merger with High Sierra. This segment generated operating income of $10.1 million during the three months ended September 30, 2012, which included unrealized gains of $6.7 million on derivatives.

The operations of our water services segment were acquired in our merger with High Sierra. This segment generated operating income of $4.4 million during the three months ended September 30, 2012.

Analysis of our operating results by segment for the three months and six months ended September 30, 2012 is provided below.

  Add NGL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NGL - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.