NGL Energy Partners LP operates as a midstream energy partnership that transports, treats, recycles, and disposes of produced and flowback water generated as part of the energy production process, as well as transports, stores, markets, and provides other logistics services for crude oil and liquid hydrocarbons.
Segments
The company operates through three segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics.
Water Solutions segment transports, treats, recycles and disposes of...
NGL Energy Partners LP operates as a midstream energy partnership that transports, treats, recycles, and disposes of produced and flowback water generated as part of the energy production process, as well as transports, stores, markets, and provides other logistics services for crude oil and liquid hydrocarbons.
Segments
The company operates through three segments: Water Solutions, Crude Oil Logistics, and Liquids Logistics.
Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from crude oil and natural gas production. The company also sells produced water for reuse and recycle and brackish non-potable water to its producer customers to be used in their crude oil exploration and production activities. As part of processing water, the company aggregates and sell recovered crude oil, also known as skim oil. The company also disposes of solids, such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services, such as truck and frac tank washouts. The company’s activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments with leading oil and gas companies, including large, investment grade producer customers.
Crude Oil Logistics segment purchases crude oil from producers and marketers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling and transportation services through its owned assets. The company’s activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on its owned and leased pipelines and storage tanks.
Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through the company’s 23 owned terminals, third-party storage and terminal facilities, nine common carrier pipelines and a fleet of leased railcars. The company also provides services for marine exports of butane through its facility located in Chesapeake, Virginia, and it also owns a propane pipeline in Michigan.
Business Strategies
The key elements of the company’s strategy are to focus building a midstream master limited partnership providing water solutions to upstream customers; operate in a safe and environmentally responsible manner; and achieve growth by utilizing its existing footprint of assets, investing in new assets, customers and ventures that increase volume and enhance its operations, and generate attractive rates of return.
Businesses
Water Solutions
The company’s Water Solutions segment transports, treats, recycles, and disposes of produced and flowback water generated from crude oil and natural gas production. The company also sells produced water for reuse and recycle and brackish non-potable water to its producer customers to be used in their crude oil exploration and production activities. As part of processing water, the company aggregates and sells recovered crude oil, also known as skim oil. The company also dispose of solids such as tank bottoms, drilling fluids and drilling muds and perform other ancillary services such as truck and frac tank washouts. The company activities in this segment are underpinned by long-term, fixed fee contracts and acreage dedications, some of which contain minimum volume commitments with leading oil and gas companies including large, investment grade producer customers.
The company operates in a number of the most prolific crude oil and natural gas producing areas in the United States including the Delaware Basin in New Mexico and Texas, the DJ Basin in Colorado and the Eagle Ford Basin in Texas. With a system that handled approximately 884.6 million barrels of produced water across its areas of operation during the year ended March 31, 2024, the company’s largest independent produced water transportation and disposal company in the United States. The company has approximately 664,000 acres dedicated to its system under long-term agreements in the Northern Delaware Basin. In addition, the company has several minimum volume commitments and other commercial agreements covering the Delaware, DJ and Eagle Ford Basins. The company focuses in building its Water Solutions business has been to secure long-term, fixed fee contracts that contain minimum volume commitments, acreage dedications or similarly strong contractual relationships with large, well-capitalized producer customers.
The company’s core asset in the Water Solutions segment is its system located in the Northern Delaware Basin, where it owns and operates the largest integrated network of large diameter produced water pipelines and recycling facilities. This system spans six counties in New Mexico and Texas that represent one of the most prolific crude oil producing regions in the United States with some of the most economic hydrocarbon resources and lowest break-even economics for producers. The company’s system has over 750 miles of newly-built, in-service large diameter produced water pipelines connected to 56 active saltwater disposal facilities. The company has approximately 664,000 acres dedicated to the Northern Delaware system providing a multi-decade drilling inventory and significant growth opportunity.
On January 22, 2024, the company announced that its Water Solutions business is commencing expansion of its Lea County Express Pipeline System from a capacity of 140,000 barrels of water per day to 340,000 barrels per day in 2024 (‘LEX II Expansion’). The company expects the LEX II Expansion to be completed during the second half of fiscal year 2025. The addition of a second large-diameter pipeline and facilities will greatly expand the capabilities of the company’s existing produced water super-system and create a significantly larger outlet for produced water disposal within the Delaware Basin. The construction of the 27-mile, 30-inch produced water pipeline will transport water to areas outside the core of the basin thereby further diversifying the geographic location of the company’s disposal operations. The LEX II Expansion is fully underwritten by a recently executed minimum volume commitment contract that includes an acreage dedication extension with an investment grade oil and gas producer. The LEX II Expansion includes an incremental increase in committed acreage and volumes under dedication from the producer. Additionally, the LEX II Expansion is expandable up to 500,000 barrels per day.
As part of the company’s operations, it also recycles water, which includes the sale of produced water and recycled water for use in its customers’ completion activities. During the year ended March 31, 2024, the company sold approximately 30.8 million barrels of recycled water.
Operations. The company owns 89 water treatment and disposal facilities.
The company owns the land on which 39 of the 89-water treatment and disposal facilities are located and it either has easements or lease the land on which the remaining water treatment and disposal facilities are located.
On March 31, 2023, the company sold certain saltwater disposal assets in the Midland Basin.
On April 5, 2024, the company sold approximately 122,250 acres of real estate on two ranches located in Eddy and Lea Counties, New Mexico.
The company’s customers bring produced and flowback water generated by crude oil and natural gas exploration and production operations to its facilities for treatment through pipeline gathering systems and by truck. During the year ended March 31, 2024, in the Delaware Basin, the company received approximately 98% of produced and flowback water via pipelines. Once the company takes delivery of the water, the level of processing is determined by the ultimate disposition of the water.
The company’s facilities dispose of produced water primarily into deep underground formations. At the company’s disposal facilities, it uses proprietary well maintenance programs to enhance injection rates.
Customers: The primary customers of the company’s operations consist mainly of large publicly traded, oil and gas companies with diversified acreage positions across multiple leading oil and gas plays. During the year ended March 31, 2024, 69% of the revenues of the company’s Water Solutions segment were generated from its ten largest customers of the segment.
Trade Names: The company’s Water Solutions segment operates under the NGL Water Solutions trade name.
Technology: The company holds multiple patents for processing technologies.
Crude Oil Logistics
The company’s Crude Oil Logistics segment purchases crude oil from producers and marketers and transports it to refineries or for resale at pipeline injection stations, storage terminals, barge loading facilities, rail facilities, refineries, and other trade hubs, and provides storage, terminaling and transportation services through its owned assets. The company activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on its owned and leased pipelines and storage tanks. The company’s operations are concentrated in and around four prolific crude oil producing regions in the United States, including the DJ Basin in Colorado, the Permian Basin in Texas and New Mexico, the Eagle Ford Basin in Texas and the United States Gulf Coast.
The company’s foundational asset in this segment is the Grand Mesa Pipeline, a 550-mile pipeline that transports crude oil from its origin in Weld County, Colorado to its terminal in Cushing, Oklahoma. The Grand Mesa Pipeline commenced operations on November 1, 2016, and has operated continuously since then. The main line portion of this pipeline is consisted of an undivided interest with Saddlehorn Pipeline Company, LLC (‘Saddlehorn’) in which the company has ownership of 150,000 barrels per day of capacity of the pipeline. During the year ended March 31, 2024, approximately 25.6 million barrels of crude oil were transported on the Grand Mesa Pipeline. Operating costs associated with the Grand Mesa Pipeline are allocated to the company based on its proportionate ownership interest and throughput. The company also owns and operates origin terminals at Lucerne and Riverside, Colorado, where it aggregates crude oil volumes of different types and grades and store them until they are ready for transfer to the Grand Mesa Pipeline. The Lucerne terminal has 950,000 barrels of storage and a 12 bay truck loading facility. The Riverside terminal has 20,000 barrels of storage and a four bay truck loading facility.
Through its ownership in the Grand Mesa Pipeline, the company has sufficient capacity to service its customer contracts at the same origin and termination points with the ability to accept additional volume commitments.
The company owns and operates a large-scale crude oil terminal located in Cushing, Oklahoma with 3,626,000 barrels of storage capacity, seven off-loading lease automatic custody transfer units (‘LACTs’), a full control room, on-site quality management building, and three 24-inch bi-directional pipelines each capable of moving 360,000 barrels per day. The terminal features advantaged connectivity to other terminals and pipelines, including important connections to the Grand Mesa Pipeline and to TC Energy’s terminal with access to the United States Gulf Coast via Marketlink. The company’s terminal is situated on 200 acres and is designed to be expanded based on customer demand. Cushing is one of the most liquid crude oil trading hubs in the world and is the delivery point for West Texas Intermediate futures contracts.
The company owns and operates a crude oil marine terminal in Point Comfort, Texas with 355,000 barrels of storage capacity and six off-loading LACTs. The company’s tanks connect to three docks at the port (two for ocean-going barges and ships and one for inland barges).
The company owns and operates a crude oil pipeline and marine terminal in Houma, Louisiana with 288,000 barrels of storage capacity, two off-loading LACTs, a brown water barge dock and two 12-inch bi-directional pipelines each capable of moving 120,000 barrels per day with connectivity to Shell’s Zydeco System Operations.
Operations: The company purchases crude oil from producers and marketers and transport it to refineries or for resale. The company’s strategically deployed terminals, as well as its owned and contracted pipeline capacity, provide access to a wide range of customers and markets. The company uses this expansive network of transportation assets to deliver crude oil to optimal markets.
The company’s transport crude oil using the following assets:
The Grand Mesa Pipeline, which is described above, and 19 other common carrier pipelines owned by third parties; and
396 owned railcars (all of which are leased to third parties).
The company is in the process of requalifying its 396 owned railcars to be compliant with the standards for railcars for the commodities they are transporting. As of March 31, 2024, 130 railcars have been requalified.
The company also owns 27 strategically located pipeline injection stations.
On March 30, 2023, the company sold its marine assets.
Customers: The company’s customers include crude oil refiners, producers, and marketers. During the year ended March 31, 2024, 86% of the revenues of its Crude Oil Logistics segment were generated from its ten largest customers of the segment.
Supply: The company obtains crude oil from a large base of suppliers, which consists primarily of crude oil producers. The company purchases crude oil from 241 producers at 2,217 leases.
Trade Names: The company’s Crude Oil Logistics segment operates primarily under the NGL Crude Logistics, NGL Crude Transportation, NGL Crude Terminals and NGL Crude Cushing trade names.
Liquids Logistics
The company’s Liquids Logistics segment conducts supply operations for natural gas liquids, refined petroleum products and biodiesel to a broad range of commercial, retail and industrial customers across the United States and Canada. These operations are conducted through the company’s 23 owned terminals, third-party storage and terminal facilities, nine common carrier pipelines and a fleet of leased railcars. The company also provides services for marine exports of butane through its facility located in Chesapeake, Virginia, and it also owns a propane pipeline in Michigan. The company attempts to reduce its exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow it to lock in a margin on a percentage of its winter volumes. The company also enters into financially settled derivative contracts as economic hedges of its physical inventory, physical sales, and physical purchase contracts. The company employs a number of contractual and hedging strategies to minimize commodity exposure and maximize earnings stability of this segment. During the year ended March 31, 2024, the company sold approximately 2.5 billion gallons of natural gas liquids, refined products, and renewables products, or 6.97 million gallons (approximately 166,000 barrels) per day.
Operations: The company procures natural gas liquids from refiners, natural gas processing plants, producers and other resellers for delivery to leased or owned storage space, common carrier pipelines, railcar terminals, and direct to certain customers. The company’s customers take delivery by loading natural gas liquids into transport vehicles from common carrier pipeline terminals, private terminals, its terminals, directly from refineries and rail terminals, and by railcar.
The company utilizes a portion of its railcar fleet and a portion of its leased underground storage to store butane for this purpose. The company also transports customer-owned natural gas liquids on its leased railcars and charge the customers a transportation service fee, as well as sublease railcars to certain customers. The company’s owned and leased terminals and railcar fleet give it the opportunity to access markets throughout the United States, and to move product to locations where demand is highest. The company provides transportation, storage, and throughput services to third parties at its facilities in Port Hudson, Louisiana, Chesapeake, Virginia and Shelton, and Washington.
The company purchases refined petroleum and renewable products primarily in the Gulf Coast, West Coast and Midwest regions of the United States and schedule them for delivery at various locations throughout the country. The company conducts just-in-time sales at a nationwide network of terminals owned by third parties via rack spot sales or delivered sales that do not involve continuing contractual obligations to purchase or deliver product. Rack spot sales are priced and delivered on a daily basis through truck loading racks.
The company owns the land on which 15 of the 23 natural gas liquids terminals are located and it either has easements or lease the land on which the remaining terminals are located.
The company owns a natural gas liquids terminal that supports refined products blending in Port Hudson, Louisiana, and a marine export/import terminal in Chesapeake, Virginia. The Port Hudson terminal is located near Baton Rouge, Louisiana, and is in proximity to other refined products infrastructure along the Colonial pipeline. This truck unloading and storage facility allows for the aggregation and supply of butane and naphtha for motor fuel blending and consists of storage tanks with a total capacity of 720,000 gallons. The Chesapeake facility is a marine export/import terminal situated upstream of Norfolk, Virginia on the Elizabeth River. The site includes a proprietary dock with the capacity to berth handy-sized vessels (a dry bulk carrier of an oil tanker with a capacity between 15,000 and 35,000 dead weight tonnage) to very large gas carriers (a carrier capable of loading anywhere between 100,000 cubic meters to 200,000 cubic meters of natural gas), truck loading and off-road racks along with 22 railcar spots, with service provided by Norfolk Southern Railroad. The facility has an aggregate storage capacity of 20,408,000 gallons.
The company owns 28 transloading units, which enable customers to transfer product from railcars to trucks. These transloading units can be moved to locations along a railroad where it is most convenient for customers to transfer their product.
The company owns the Ambassador Pipeline, an approximately 225-mile propane pipeline, which runs from the Kalkaska gas plant in Kalkaska County, Michigan to a termination point near Marysville in St. Clair County, Michigan. The Wheeler propane terminal, in central Michigan, is located at the mid-point of the pipeline. These assets complement the company’s existing assets in the upper Midwest and will expand its presence in Michigan, one of the top propane markets in the United States.
The company utilizes a fleet of approximately 4,300 high-pressure and general purpose leased railcars of which 295 railcars are subleased by third parties.
The company leases storage space to accommodate the supply requirements and contractual needs of its retail and wholesale customers.
Customers: The company’s Liquids Logistics segment serves approximately 1,200 customers in 48 states, Mexico and Canada, including national, regional and independent retail, industrial, wholesale, petrochemical, refiner and natural gas liquids production customers. During the year ended March 31, 2024, 23% of the revenues of the company’s Liquids Logistics segment were generated from its ten largest customers of the segment.
Seasonality: The company’s wholesale liquids business is largely seasonal as the primary users of propane as heating fuel generally purchase propane during the typical fall and winter heating season. However, the company is able to partially mitigate the effects of seasonality by preselling a portion of its wholesale volumes to retailers and wholesalers and requiring the customer to take delivery of the product regardless of the weather.
Trade Names: The company’s Liquids Logistics segment operates primarily under the NGL Supply Wholesale, NGL Supply Terminal Company, Centennial Energy, Centennial Gas Liquids and NGL Crude Logistics trade names.
Government Regulation
Additionally, contracts the company enters for the interstate transportation or storage of crude oil or natural gas may be subject to the Federal Energy Regulatory Commission (FERC) regulation, including reporting or other requirements.
The company is subject to the anti-market manipulation provisions in the Natural Gas Act and the Natural Gas Policy Act of 1978 (NGPA), which authorizes the FERC to impose fines of up to $1 million per day per violation of the Natural Gas Act, the NGPA, or their implementing regulations.
The company is subject to various federal, state, and local environmental laws and regulations governing the storage, distribution, and transportation of natural gas liquids and the operation of bulk storage liquefied petroleum gas (LPG) terminals, as well as laws and regulations governing hazardous substances and waste, including those addressing the discharge of materials into the environment or otherwise relating to protection of the environment. These laws include, among others, the Resource Conservation and Recovery Act (‘RCRA’), the Comprehensive Environmental Response, Compensation and Liability Act (‘CERCLA’), the federal Clean Air Act (‘CAA’), the Homeland Security Act of 2002, the Emergency Planning and Community Right to Know Act, the Clean Water Act (‘CWA’), the Safe Drinking Water Act, the Oil Spills Prevention and Preparedness Regulations, each as amended, and comparable state statutes.
While natural gas liquids are not a hazardous substance within the meaning of CERCLA, other chemicals used in or generated by the company’s operations may be classified as a hazardous substance.
Wastes containing naturally occurring radioactive materials (‘NORM’) may also be generated in connection with the company’s operations.
Where applicable, the company strives to maintain and implement Spill Prevention Control and Countermeasure (SPCC) plans for its facilities. Violation of SPCC requirements could subject it to monetary penalties, injunctions, conditions or restrictions on operations and, potentially, criminal enforcement actions.
The company’s operations are subject to the CAA and comparable state and local laws and regulations, which regulate emissions of air pollutants from various industrial sources and mandate certain permitting, monitoring, recordkeeping and reporting requirements.
The CWA and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into state waters, as well as navigable waters, defined as waters of the United States (‘WOTUS’), and impose requirements affecting its ability to conduct construction activities in waters and wetlands.
To the degree that species listed under the Endangered Species Act (ESA) or similar state laws, or are protected under the federal Migratory Bird Treaty Act (MBTA) or the Bald and Golden Eagle Protection Act (BGEPA), live, breed or nest in or migrate through the areas where the company or its oil and gas producing customers operate, the company and its customers’ abilities to conduct or expand operations and construct facilities could be limited or be forced to incur material additional costs. Moreover, the company’s customers’ drilling activities may be delayed, restricted, or cancelled in protected habitat areas or during certain seasons, such as breeding and nesting seasons.
For example, on July 3, 2023, the U.S. Fish and Wildlife Service (USFWS) proposed that the dunes sagebrush lizard, which is found in areas where the company operates, be listed as endangered under the ESA.
With respect to general operations, each state in which the company operates adopts National Fire Protection Association, Pamphlet Nos. 54 and 58, or comparable regulations, which establish rules and procedures governing the safe handling of propane, and Pamphlet Nos. 30, 30A, 31, 385, and 395 which establish rules and procedures governing the safe handling of distillates, such as fuel oil.
With respect to the transportation of propane, distillates, crude oil, and water, the company is subject to regulations promulgated under federal legislation, including the Federal Motor Carrier Safety Act and the Homeland Security Act of 2002. Regulations under these statutes cover the security and transportation of hazardous materials and are administered by the United States Department of Transportation (‘DOT’).
The company’s railcar operations are subject to the regulatory jurisdiction of the Federal Railroad Administration of the DOT, as well as other federal and state regulatory agencies.
The workplaces associated with the company’s manufacturing, processing, terminal, disposal, storage, and distribution facilities are subject to the requirements of the federal Occupational Safety and Health Act (OSHA) and comparable state statutes.
History
NGL Energy Partners LP was founded in 1940. The company was incorporated under Delaware law in 2010.
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