TULSA, Okla.--(BUSINESS WIRE)--NGL Energy Partners LP (NYSE: NGL) (the “Partnership” or “NGL”) announced today that the Board of Directors of its general partner declared a quarterly distribution of $0.39 per unit, or $1.56 per unit on an annualized basis, for the quarter ended March 31, 2017. This cash distribution is payable on May 15, 2017 to common unitholders of record at the close of business on May 8, 2017.
Additionally, the Board of Directors declared a distribution for the quarter ended March 31, 2017 to be paid to the holders of the Class A Preferred Units according to the terms outlined in NGL's Partnership Agreement. The Class A Preferred distribution will also be paid on May 15, 2017.
In April 2016, the Board of Directors of NGL’s general partner made the decision to reduce the distribution by 39% in order to focus on strengthening the balance sheet, which included foregoing approximately $64 million of annual general partner distributions. Since that time, NGL has successfully increased liquidity and executed several growth initiatives while targeting distribution coverage in excess of 1.3x. While NGL had anticipated an increase in distributions commencing this quarter, in light of current market conditions, particularly fluctuating commodity prices and their anticipated impact on NGL's results for its quarter ended March 31, 2017, the Board of Directors has chosen to defer this increase in distributions for up to an additional three quarters. Following this deferral, NGL's management anticipates then recommending to its Board of Directors an increase in the distribution policy consistent with NGL's previously announced distribution guidance.
Fiscal Years 2017 and 2018 Guidance
Based upon preliminary financial information, NGL expects fiscal year 2017 Adjusted EBITDA of approximately $380 million, which includes an approximately $42 million contribution by the Grand Mesa Pipeline. These preliminary results were adversely influenced by the significantly warmer than normal winter resulting in lower propane volumes and pricing, continued pressure in crude marketing and transportation, decreased demand for diesel fuel, lower than expected margins for biodiesel sales and an extended decline in gasoline line space values on the Colonial Pipeline, all of which negatively impacted fourth quarter results.
For fiscal year 2018, NGL expects to generate Adjusted EBITDA of approximately $500 million to $525 million, which includes Adjusted EBITDA for Grand Mesa Pipeline for 12 months of operations at approximately $130 million; continued improvement in the water segment; an anticipated increase in crude production and refined products demand; and the benefit of a full 12 months of operations for several of our recent projects and acquisitions, including the Houma and Port of Point Comfort projects and the Port Hudson and Kingfisher terminal assets which were acquired from Murphy Energy in January 2017. NGL's guidance also takes into consideration management’s lowered expectations for propane volumes, continued challenges in crude marketing and transportation together with the impact of lower line space values carrying into fiscal year 2018. Distributable Cash Flow is expected to be $300-325 million and could generate over $100 million of excess cash flow, which would provide at least 1.3x coverage for the year based on the deferral of the distribution increase. Additional information regarding our fiscal year 2018 guidance is expected to be provided on NGL’s earnings call for its fiscal year ended March 31, 2017, which is expected to be held on Thursday, May 25, 2017.
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, gain on early extinguishment of liabilities, revaluation of investments, equity-based compensation expense, acquisition expense and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to our Refined Products and Renewables segment, as described below. EBITDA and Adjusted EBITDA should not be considered 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. 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 records 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 gains and losses associated with derivative contracts of this segment, which are intended primarily to hedge inventory holding risk, also affect Adjusted EBITDA.
Distributable Cash Flow is defined as Adjusted EBITDA minus maintenance capital expenditures and cash interest expense. 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 distributions are set by the Board of Directors of NGL’s general partner.
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.
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: water solutions, crude oil logistics, NGL logistics, refined products/renewables and retail propane. 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 Partners 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.