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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended December 31, 2012

or

For the transition period from            to           

Commission File Number: 001-35172

NGL Energy Partners LP

(Exact Name of Registrant as Specified in Its Charter)

(918) 481-1119

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

As of February 7, 2013, there were 49,136,700 common units and 5,919,346 subordinated units issued and outstanding.

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Forward-Looking Statements

This quarterly report on Form 10-Q contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by and information currently available to us.  These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts.  When used in this quarterly report, words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “estimate,” “intend,” “could,” “believe,” “may,” “will” and similar expressions and statements regarding our plans and objectives for future operations, are intended to identify forward-looking statements.  Although we and our general partner believe that the expectations on which such forward-looking statements are based are reasonable, neither we nor our general partner can give assurances that such expectations will prove to be correct.  Forward-looking statements are subject to a variety of risks, uncertainties and assumptions.  If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected.  Among the key risk factors that may have a direct bearing on our results of operations and financial condition are:

·                  the prices and market demand for petroleum products;

·                  energy prices generally;

·                  the price of propane compared to the price of alternative and competing fuels;

·                  the general level of petroleum product demand and the availability of propane supplies;

·                  the level of domestic oil, propane and natural gas production;

·                  the availability of imported oil and natural gas;

·                  the ability to obtain adequate supplies of propane for retail sale in the event of an interruption in supply or transportation and the availability of capacity to transport propane to market areas;

·                  actions taken by foreign oil and gas producing nations;

·                  the political and economic stability of petroleum producing nations;

·                  the effect of weather conditions on demand for oil, natural gas and propane;

·                  the effect of natural disasters or other significant weather events;

·                  availability of local, intrastate and interstate transportation infrastructure;

·                  availability and marketing of competitive fuels;

·                  the impact of energy conservation efforts;

·                  energy efficiencies and technological trends;

·                  governmental regulation and taxation;

·                  the impact of legislative and regulatory actions on hydraulic fracturing;

·                  hazards or operating risks incidental to the transporting and distributing of petroleum products that may not be fully covered by insurance;

·                  the maturity of the propane industry and competition from other propane distributors;

·                  loss of key personnel;

·                  the ability to renew contracts with key customers;

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·                  the ability of our customers to perform on their contracts with us;

·                  the fees we charge and the margins we realize for our terminal services;

·                  the ability to renew leases for general purpose and high pressure rail cars;

·                  the ability to renew leases for underground storage;

·                  the nonpayment or nonperformance by our customers;

·                  the availability and cost of capital and our ability to access certain capital sources;

·                  a deterioration of the credit and capital markets;

·                  the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results;

·                  the ability to successfully integrate acquired assets and businesses;

·                  changes in laws and regulations to which we are subject, including tax, environmental, transportation and employment regulations or new interpretations by regulatory agencies concerning such laws and regulations; and

·                  the costs and effects of legal and administrative proceedings.

You should not put undue reliance on any forward-looking statements.  All forward-looking statements speak only as of the date of this quarterly report.  Except as required by state and federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise.  When considering forward-looking statements, please review the risks described under “Item 1A — Risk Factors” in our annual report on Form 10-K for the fiscal year ended March 31, 2012, as supplemented and updated by Part II, Item 1A, “Risk Factors” in our quarterly reports on Form 10-Q for the quarters ended June 30, 2012 and September 30, 2012.

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PART I

Item 1.                   Financial Statements (Unaudited)

NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Balance Sheets

As of December 31, 2012 and March 31, 2012

(U.S. Dollars in Thousands, except unit amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Statements of Operations

Three Months and Nine Months Ended December 31, 2012 and 2011

(U.S. Dollars in Thousands, except unit and per unit amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months and Nine Months Ended December 31, 2012 and 2011

(U.S. Dollars in Thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Statement of Changes in Partners’ Equity

Nine Months Ended December 31, 2012

(U.S. Dollars in Thousands, except unit amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Statements of Cash Flows

Nine Months Ended December 31, 2012 and 2011

(U.S. Dollars in Thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Note 1 - Organization and Operations

NGL Energy Partners LP (“we”, “our”, “us”, 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 of cash, 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, valued at $30.4 million, and paid $32.2 million of cash 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 of cash in exchange for the assets and operations of North American, including working capital.

·                  On June 19, 2012, we completed a business combination with High Sierra Energy, LP and High Sierra Energy GP, LLC (collectively, “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 $91.8 million of cash (net of $5.0 million of cash acquired) 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 $50.0 million of cash and issued 2,685,042 common units to our general partner.

·                  On November 1, 2012, we completed a business combination 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 $134.6 million at closing, subject to customary post-closing adjustments, and assumed certain obligations with a value of $10.4 million under certain

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

equipment financing facilities.  Also on November 1, 2012, we entered into a call agreement with the former owners of Pecos pursuant to which the former owners of Pecos agreed to purchase a minimum of $45.0 million or a maximum of $60.0 million of common units from us.  On November 12, 2012, the former owners of Pecos purchased 1,834,414 common units from us for $45.0 million pursuant to this agreement.

·                  On December 31, 2012, we completed a business combination transaction whereby we acquired all of the limited liability company membership interests in Third Coast Towing, LLC (“Third Coast”) for $43.0 million in cash. The business of Third Coast consists primarily of transporting crude oil via barge. The agreement contemplates a post-closing adjustment to the purchase price for certain working capital items. Also on December 31, 2012, we entered into a call agreement with the former owners of Third Coast pursuant to which the former owners of Third Coast agreed to purchase a minimum of $8.0 million or a maximum of $10.0 million of common units from us. On January 11, 2013, the former owners of Third Coast purchased 344,680 common units from us for $8.0 million pursuant to this call agreement.

·                  During the nine months ended December 31, 2012, we completed six separate business combination transactions to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States.  On a combined basis, we paid $71.1 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 $0.3 million will be payable as deferred payments on the purchase prices.  We also assumed $6.6 million of long-term debt in the form of non-compete agreements.

·                  During the nine months ended December 31, 2012, we completed four separate acquisitions to expand the assets and operations of our crude oil logistics and water services businesses. On a combined basis, we paid $53.3 million of cash and assumed $1.3 million of long-term debt in the form of non-compete agreements. We also issued 516,978 common units, valued at $12.4 million, as partial consideration for one of these acquisitions. Certain of the acquisition agreements contemplate post-closing adjustment to the purchase price for certain specified working capital items.

As of December 31, 2012, our businesses include:

·                  Retail propane and distillate operations in more than 20 states;

·                  Wholesale natural gas liquids operations throughout the United States and in Canada;

·                  Propane and natural gas liquids transportation and terminalling operations, conducted through 17 owned terminals and a fleet of owned and predominantly leased rail cars;

·                  A crude oil transportation and marketing business, the assets of which include crude oil terminals, a fleet of trucks, a fleet of leased rail cars, and several barges; and

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

Note 2 - Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements as of December 31, 2012 and March 31, 2012 and for the three months and nine months ended December 31, 2012 and 2011 include our accounts and those of our controlled subsidiaries.  All significant intercompany transactions and account balances have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim consolidated financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  The condensed consolidated financial statements include all adjustments that we consider necessary for a fair presentation of the financial position and results of operations for the interim periods presented.  Such adjustments consist only of normal recurring items, unless otherwise disclosed herein.  Accordingly, the condensed consolidated financial statements do not include all the information and notes required by GAAP for complete annual consolidated financial statements.  However, we believe that the disclosures made are adequate to make the information not misleading.  These interim unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended March 31, 2012, included in our Annual Report on Form 10-K.  Due to the seasonal nature of our natural gas liquids operations and other factors, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

The condensed consolidated balance sheet as of March 31, 2012 is derived from audited financial statements. Certain amounts previously reported have been reclassified to conform to the current presentation. In addition, as described in Note 3, certain balances as of March 31, 2012 were adjusted to reflect the final acquisition accounting for certain business combinations.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates.

Significant Accounting Policies

Our significant accounting policies are consistent with those disclosed in Note 2 of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2012.  We have included information below on certain new accounting policies relevant to the businesses acquired in the June 2012 merger with High Sierra, and on certain other accounting policies that are significant to an understanding of the accompanying financial statements.

Revenue Recognition

Revenues from sales of products are recognized on a gross basis at the time title to the product sold transfers to the purchaser and collection of those amounts is reasonably assured.  Sales or purchases with the same counterparty that are entered into in contemplation of one another are reported on a net basis as one transaction.  Revenue from wastewater disposal trucking services is recognized when the wastewater is picked up from the customer’s location or upon delivery of the wastewater to a specific delivery location, depending upon the terms of the contractual agreements.  Revenue from other transportation services is recognized upon completion of the services as defined in the customer agreement.  Revenue on equipment leased under operating leases is billed and recognized monthly according to the terms of the related lease agreement with the customer over the term of the lease.  Net gains and losses resulting from commodity derivative instruments are recognized within cost of sales.

Revenues for the wastewater disposal business are recognized upon delivery of the wastewater to the disposal facilities.  Certain agreements require customers to deliver minimum quantities of wastewater for an agreed upon period.  Revenue is recognized when the wastewater is delivered, with an adjustment for the minimum volume delivery in the event that actual delivered wastewater is less than the committed minimum.  Revenues from hydrocarbons recovered from wastewater are recognized upon sale.

Amounts billed to customers for shipping and handling costs are included in revenues in the consolidated statements of operations.  Shipping and handling costs associated with product sales are included in operating expenses in the consolidated statements of operations.  Taxes collected from customers and remitted to the appropriate taxing authority are excluded from revenues in the consolidated statements of operations.

Fair Value Measurements

We apply fair value measurements to certain assets and liabilities, principally our commodity and interest rate derivative instruments and assets and liabilities acquired in business combinations.  Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  Fair value is based upon assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and risks inherent in valuation techniques and inputs to valuations.  This includes not only the credit standing of counterparties and credit enhancements but also the impact of our own nonperformance risk on our liabilities.  Fair value measurements assume that the transaction occurs in the principal market for the asset or liability or in the absence of a principal market, the most advantageous market for the asset or liability (the market for which the reporting entity would be able to maximize the amount received or minimize the amount paid).  We evaluate the need for credit adjustments to our derivative instrument fair values in accordance with the requirements noted above.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

We use the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

·                  Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access at the measurement date.

·                  Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means.  Instruments categorized in Level 2 include non-exchange traded derivatives such as over-the-counter commodity price swap and option contracts and interest rate protection agreements.  The majority of our derivative financial instruments were categorized as Level 2 at December 31, 2012 and March 31, 2012 (see Note 11).  We determine the fair value of all our derivative financial instruments utilizing pricing models for significantly similar instruments.  Inputs to the pricing models include publicly available prices and forward curves generated from a compilation of data gathered from third parties.

·                  Level 3 — Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.  We did not have any derivative financial instruments categorized as Level 3 at December 31, 2012 or March 31, 2012.

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3).  In some cases, the inputs to measure fair value might fall into different levels of the fair value hierarchy.  The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy.  Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

Supplemental Cash Flow Information

Supplemental cash flow information is as follows for the periods indicated:

Cash flows from commodity derivative instruments are classified as cash flows from investing activities in the consolidated statements of cash flows.

Inventories

Inventories consist of the following:

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Asset Retirement Obligations

An asset retirement obligation (“ARO”) is a legal obligation associated with the retirement of a tangible long-lived asset that generally results from the acquisition, construction, development or normal operation of the asset.  Significant inputs used to estimate an ARO include: (i) the expected retirement date; (ii) the estimated costs of retirement, including adjustments for cost inflation and the time value of money; and (iii) the appropriate method for allocation of estimated asset retirement costs to expense.  The cost for asset retirement is capitalized as part of the cost of the related long-lived assets and subsequently allocated to expense over the remaining useful lives of the assets associated with the obligation.  The ARO liability is accreted to the estimated total retirement obligation over the period the related assets are used through the expected retirement date.

Note 3 — Acquisitions

Third Coast Combination

On December 31, 2012, we completed a business combination transaction whereby we acquired all of the limited liability company membership interests in Third Coast for $43.0 million in cash. The business of Third Coast consists primarily of transporting crude oil via barge. The agreement contemplates a post-closing adjustment to the purchase price for certain working capital items. Also on December 31, 2012, we entered into a call agreement with the former owners of Third Coast pursuant to which the former owners of Third Coast agreed to purchase a minimum of $8.0 million or a maximum of $10.0 million of common units from us. On January 11, 2013, the former owners of Third Coast purchased 344,680 common units from us for $8.0 million pursuant to this agreement. We incurred and charged to general and administrative expense during the three months ended December 31, 2012 approximately $0.4 million of costs related to the Third Coast combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Third Coast. The estimates of fair value reflected as of December 31, 2012 are subject to change. We currently expect to complete this process prior to filing our Form 10-Q for the quarter ended December 31, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Pecos Combination

On November 1, 2012, we completed a business combination whereby we acquired Pecos.  The business of Pecos consists primarily of crude oil purchasing and logistics operations in Texas and New Mexico.  We paid cash of $134.6 million at closing, subject to customary post-closing adjustments, and assumed certain obligations with a value of $10.4 million under certain vehicle and related equipment financing facilities.  Also on November 1, 2012, we entered into a call agreement with the former owners of Pecos pursuant to which the former owners of Pecos agreed to purchase a minimum of $45.0 million or a maximum of $60.0 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 call agreement.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.5 million of costs related to the Pecos combination.

We are in the process of identifying and determining the fair value of the assets and liabilities acquired in the combination with Pecos. The estimates of fair value reflected as of December 31, 2012 are subject to change, and such changes could be material. We expect to complete this process prior to filing our Form 10-Q for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

The consideration paid consists of the following (in thousands):

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Other Crude Oil Logistics and Water Services Business Combinations

During the nine months ended December 31, 2012, we completed four separate acquisitions to expand the assets and operations of our crude oil logistics and water services businesses. On a combined basis, we paid $53.3 million in cash and assumed $1.3 million of long-term debt in the form of non-compete agreements. We also issued 516,978 common units, valued at $12.4 million, as partial consideration for one of these acquisitions. Certain of the agreements contemplate post-closing adjustments to the purchase price for certain specified working capital items. We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.3 million of costs related to these acquisitions.

We are currently in the process of identifying and determining the fair value of the assets and liabilities acquired in this combination. The estimates of fair value reflected as of December 31, 2012 are subject to change. We currently expect to complete this process prior to filing our Form 10-Q for the quarter ended September 30, 2013. We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

The consideration paid consists of the following (in thousands):

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities. Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce. We estimate that all of the goodwill will be deductible for federal income tax purposes.

High Sierra Combination

On June 19, 2012, we completed a business combination with High Sierra, whereby we acquired all of the ownership interests in High Sierra.  We paid $91.8 million of cash, net of $5.0 million of cash acquired, and issued 18,018,468 common units to acquire High Sierra Energy, LP.  These common units were valued at $406.8 million using the closing price of our common units on the New York Stock Exchange (the “NYSE”) on the merger date.  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 $50.0 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 $50.0 million of cash and issued 2,685,042 common units to our general partner.  We recorded the value of the 2,685,042 common units issued to our general partner at $8.0 million, which represents an initial estimate, in accordance with GAAP, of the fair value of the equity issued by our general partner to the former owners of High Sierra’s general partner.  In accordance with the fair value model specified in the accounting standards, this fair value was estimated based on assumptions of future distributions and a discount rate

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

that a hypothetical buyer might use.  Under this model, the potential for distribution growth resulting from the prospect of future acquisitions and capital expansion projects would not be considered in the fair value calculation.  We have not yet completed the accounting for the business combination, and this estimate of fair value is subject to change.  The difference between the estimated fair value of the general partner interests issued by our general partner of $8.0 million, calculated as described above, and the fair value of the common units issued to our general partner of $60.6 million, as calculated using the closing price of the common units on the NYSE, is reported as a reduction to equity.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $3.6 million of costs related to the High Sierra transaction.  We also incurred or accrued costs of approximately $0.6 million related to the equity issuance that we charged to equity.

We have included the results of High Sierra’s operations in our consolidated financial statements beginning on June 19, 2012. During the nine months ended December 31, 2012, our consolidated statement of operations includes operating income of approximately $47.8 million generated by the operations of High Sierra and by the operations of the subsequent acquisitions of crude oil logistics and water services businesses. The following table summarizes the revenues and cost of sales generated from High Sierra’s operations and by the operations of the subsequent acquisitions of crude oil logistics and water services businesses (in thousands):

We are in the process of identifying, and obtaining an independent appraisal of the fair value of, the assets and liabilities acquired in the combination with High Sierra.  The estimates of fair value reflected as of December 31, 2012 are subject to change and such changes could be material.  We expect to complete this process prior to filing our Form 10-K for the fiscal year ending March 31, 2013.  We have preliminarily estimated the fair value of the assets acquired and liabilities assumed as follows (in thousands):

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities.  Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce.  We estimate that all of the goodwill will be deductible for federal income tax purposes.

The fair value of accounts receivable is approximately $0.6 million lower than the contract value, to give effect to estimated uncollectable accounts.

Retail Combinations During the Nine Months Ended December 31, 2012

During the nine months ended December 31, 2012, we entered into six separate business combination agreements to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States.  On a combined basis, we paid cash of $71.1 million and issued 850,676 common units, valued at $18.9 million, in exchange for these assets.  In addition, a combined amount of approximately $0.3 million will be payable as deferred payments on the purchase prices.  We also assumed $6.6 million of long-term debt in the form of non-compete agreements.  We incurred and charged to general and administrative expense during the nine months ended December 31, 2012 approximately $0.3 million related to these acquisitions.  We are in the process of identifying the fair value of the assets and liabilities acquired in the combinations.  The estimates of fair value reflected as of December 31, 2012 are subject to change, and such changes could be material.  Our preliminary estimates of the fair value of the assets acquired and liabilities assumed in these six combinations are as follows (in thousands):

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011

Consideration paid consists of the following (in thousands):

Goodwill represents the excess of the estimated consideration paid for the acquired business over the fair value of the individual assets acquired, net of liabilities.  Goodwill primarily represents the value of synergies between the acquired entities and the Partnership, the opportunity to use the acquired businesses as a platform for growth, and the acquired assembled workforce.  We estimate that all of the goodwill will be deductible for federal income tax purposes.

The retail combinations completed during the nine months ended December 31, 2012 contributed approximately $65.0 million of revenue and approximately $44.2 million of cost of sales to our consolidated statement of operations for the nine months ended December 31, 2012.

Osterman Combination

As described in Note 1, we acquired the operations of Osterman in October 2011. During the three months ended September 30, 2012 we completed the acquisition accounting for this transaction. The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed, based on their fair values (in thousands):

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements - Continued

As of December 31, 2012 and March 31, 2012, and for the

Three Months and Nine Months Ended December 31, 2012 and 2011