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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 August 5, 2013, there were 62,315,851 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 crude oil and natural gas liquids;

·                  energy prices generally;

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

·                  the general level of crude oil, natural gas, and natural gas liquids production;

·                  the general level of demand for crude oil and natural gas liquids;

·                  the availability of supply of crude oil and natural gas liquids;

·                  the level of crude oil and natural gas production in producing basins in which we have water treatment facilities;

·                  the ability to obtain adequate supplies of propane and distillates 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 natural gas liquids;

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

·                  availability of local, intrastate and interstate transportation infrastructure, including with respect to our truck, rail, and barge transportation services;

·                  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;

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·                  the ability to renew contracts with key customers;

·                  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 natural gas liquids 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 impact of such laws and regulations (now existing or in the future) on our business operations, including our sales of crude oil, condensate, and natural gas liquids, our processing of wastewater, and transportation and hedging activities; 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, 2013.

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PART I

Item 1.                   Financial Statements (Unaudited)

NGL ENERGY PARTNERS LP

Unaudited Condensed Consolidated Balance Sheets

As of June 30, 2013 and March 31, 2013

(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 Ended June 30, 2013 and 2012

(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 Loss

Three Months Ended June 30, 2013 and 2012

(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

Three Months Ended June 30, 2013

(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

Three Months Ended June 30, 2013 and 2012

(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 June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

Note 1 - Organization and Operations

NGL Energy Partners LP (“we”, “our”, or the “Partnership”) is a Delaware limited partnership formed in September 2010. NGL Energy Holdings LLC serves as our general partner. At the time of formation, our operations included a wholesale natural gas liquids business and a retail propane business. We completed an initial public offering in May 2011. 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 with E. Osterman Propane, Inc., its affiliated companies, and members of the Osterman family, whereby we acquired retail propane operations in the northeastern United States.

·                  On November 1, 2011, we completed a business combination 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.

·                  On January 3, 2012, we completed a business combination with seven companies associated with Pacer Propane Holding, L.P., whereby we acquired retail propane operations, primarily in the western United States.

·                  On February 3, 2012, we completed a business combination with North American Propane, Inc., whereby we acquired retail propane and distillate operations in the northeastern United States.

·                  During the year ended March 31, 2012, we completed three additional separate business combination transactions to acquire retail propane operations.

·                  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.

·                  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.

·                  On December 31, 2012, we completed a business combination whereby we acquired all of the membership interests in Third Coast Towing, LLC (“Third Coast”). The business of Third Coast consists primarily of transporting crude oil via barge.

·                  During the year ended March 31, 2013, we completed six additional separate business combination transactions to acquire retail propane and distillate operations, primarily in the northeastern and southeastern United States.

·                  During the year ended March 31, 2013, we completed four additional separate acquisitions to expand the assets and operations of our crude oil logistics and water services businesses.

·                  During the three months ended June 30, 2013, we completed two acquisitions of retail propane and distillate businesses.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

As of June 30, 2013, our businesses include:

·                  A crude oil logistics business, the assets of which include crude oil terminals, pipeline injection stations, a fleet of trucks, a fleet of leased rail cars, and a fleet of barges and tow boats. Our crude oil logistics 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. The operations of our crude oil logistics segment began with our June 2012 merger with High Sierra.

·                  A water services business, the assets of which include water treatment and disposal facilities, a fleet of water trucks, and frac tanks. Our water services business generates revenues from the gathering, transportation, treatment, and disposal of wastewater generated from oil and natural gas production operations, and from the sale of recycled water and recovered hydrocarbons. The operations of our water services segment began with our June 2012 merger with High Sierra.

·                  Our natural gas liquids logistics business, which supplies natural gas liquids to retailers, wholesalers, and refiners throughout the United States and in Canada, and which provides natural gas liquids terminaling services through its 17 terminals throughout the United States and rail car transportation services through its fleet of owned and predominantly leased rail cars. 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 retail propane business, which sells propane, distillates, and equipment and supplies to end users consisting of residential, agricultural, commercial, and industrial customers and to certain re-sellers in more than 20 states.

Note 2 — Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements as of and for the three months ended June 30, 2013 and 2012 include our accounts and those of our controlled subsidiaries. All significant intercompany transactions and account balances have been eliminated in consolidation. The unaudited condensed consolidated balance sheet as of March 31, 2013 is derived from audited financial statements.

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 unaudited 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 unaudited 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, 2013 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.

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.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

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, 2013.

Revenue Recognition

We record revenues from product sales at the time title to the product transfers to the purchaser, which typically occurs upon receipt of the product by the purchaser. We record terminaling, storage and service revenues at the time the service is performed and we record tank and other rentals over the term of the lease. Revenues for the wastewater disposal business are recognized upon receipt of the wastewater at our disposal facilities.

We report taxes collected from customers and remitted to taxing authorities, such as sales and use taxes, on a net basis. 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.

We enter into certain contracts whereby we agree to purchase product from a counterparty and to sell the same volume of product to the same counterparty at a different location or time. When such agreements are entered into concurrently and are entered into in contemplation of each other, we record the revenues for these transactions net of the cost of sales.

Fair Value Measurements

We apply fair value measurements to certain assets and liabilities, principally our commodity derivative instruments and assets and liabilities acquired in business combinations. Fair value is defined as 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. Such adjustments were not material to the fair values of our derivative instruments.

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 fair value measurements related to our derivative financial instruments were categorized as Level 2 at June 30, 2013 and March 31, 2013 (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 model 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 fair value measurements categorized as Level 3 at June 30, 2013 or March 31, 2013.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 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 used 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 determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement 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:

Note 3 — Acquisitions

Fiscal 2013

As described in Note 1, we have completed a number of business combinations since our initial public offering. Pursuant to GAAP, an entity is allowed a reasonable period of time to obtain the information necessary to identify and measure the value of the assets acquired and liabilities assumed in a business combination. We are still within this measurement period for certain of our acquisitions completed during the year ended March 31, 2013, including:

·                  Pecos, which we acquired in November 2012;

·                  Third Coast, which we acquired in December 2012;

·                  Four acquisitions of crude oil logistics and water services businesses completed during the fiscal year ended March 31, 2013; and

·                  Three acquisitions of retail propane businesses completed during the fiscal year ended March 31, 2013.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

We continue the process of gathering information to ascertain the existence and fair value of assets acquired and liabilities assumed in these acquisitions, and the values we have recorded for the assets acquired and liabilities assumed in these acquisitions is subject to change. The preliminary values we have recorded for the assets acquired and liabilities assumed as of the acquisition dates are summarized below (in thousands):

Consideration paid for these acquisitions consisted of the following (in thousands):

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

Fiscal 2014

During the three months ended June 30, 2013, we completed two acquisitions of retail propane businesses for a combined purchase price of approximately $5.8 million. We also assumed $0.4 million of long-term debt in the form of non-compete agreements. We are still in the process of gathering information to ascertain the existence and fair value of assets acquired and liabilities assumed in these acquisitions.

Note 4 — Earnings per Unit

Our earnings per common and subordinated unit for the periods indicated below were computed as follows:

(*)  The income allocated to the general partner includes distributions to which it is entitled as the holder of incentive distribution rights, which are described in Note 10.

The restricted units described in Note 10 were antidilutive for the three-month periods ended June 30, 2013 and 2012.

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

Note 5 — Property, Plant and Equipment

Our property, plant and equipment consists of the following as of the dates indicated:

Depreciation expense was $13.4 million and $6.1 million for the three months ended June 30, 2013 and 2012, respectively.

Note 6 — Goodwill and Intangible Assets

The changes in the balance of goodwill during the three months ended June 30, 2013 were as follows (in thousands):

Goodwill by reportable segment is as follows:

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NGL ENERGY PARTNERS LP

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

As of June 30, 2013 and March 31, 2013, and for the

Three Months Ended June 30, 2013 and 2012

Our intangible assets consist of the following as of the dates indicated: