NGL Energy Partners LP provided an update on Jan. 19 regarding its global settlement with Extraction Oil & Gas Inc. following its expected emergence from bankruptcy.
Extraction Oil & Gas is a customer of Grand Mesa Pipeline LLC, a subsidiary of NGL Energy Partners that provides takeaway capacity for crude oil producers in the Denver-Julesburg (D-J) Basin where Extraction’s operations are focused. The Grand Mesa pipeline originates in Colorado’s Weld County and extends southeast to NGL’s crude oil storage terminal at the Cushing hub in Oklahoma.
In June 2020, Extraction filed for Chapter 11 bankruptcy, making it the second largest U.S. shale producer to declare bankruptcy in the latest downturn. In its bankruptcy proceeding, Extraction rejected the transportation services agreements (TSAs) it had originally entered into with Grand Mesa Pipeline in 2014.
Following an appeal by Grand Mesa of the rejection, the parties reached a global settlement of the dispute, NGL Energy Partners said Jan. 19, which, among other consideration, provided for the following:
- A new, long-term supply agreement between NGL Crude Logistics LLC and Extraction, which includes a significant acreage dedication in the D-J Basin and retains Extraction’s crude oil volumes for shipping on the Grand Mesa Pipeline;
- A new rate structure under the supply agreement which is based on calendar month average Nymex prices with an agreed-upon differential plus an increase in the rate when those Nymex prices exceed $50/bbl; and
- NGL Energy Partners will receive $35 million as a liquidated payment for Grand Mesa’s remaining claim on the effective date of Extraction’s plan of reorganization.
“We are pleased to be able to complete the new supply agreement with Extraction and look forward to working with their management team as they develop their significant D-J Basin position and execute their business strategy,” Mike Krimbill, NGL’s CEO, said in a statement on Jan. 19. “This new contract positions NGL to retain and transport significant crude oil volumes for Extraction and aligns the two companies for future success.”
Based on actual year-to-date results and estimated results for the remainder of Fiscal 2021, including the impact of the Extraction bankruptcy, NGL Energy Partners is re-instating fiscal 2021 adjusted EBITDA guidance at $500 million, the company said in its Jan. 19 release.
Fiscal 2021 adjusted EBITDA includes an estimated reduction of $45 million associated with lower crude oil volumes delivered by Extraction plus the litigation costs associated with the bankruptcy.
Additionally, NGL Energy Partners said it expects to recognize a non-cash impairment charge that could be in the range of $380 million to $400 million in fourth-quarter 2020 associated with certain intangible assets and goodwill because of the Extraction bankruptcy and settlement. Management does not expect to recognize any impairment of tangible assets in the crude oil logistics segment related to this matter.
NGL Energy Partners is also initiating Adjusted EBITDA guidance for fiscal 2022 with a range of $570 million to $600 million. Capex is expected to be between $100 million and $125 million for fiscal 2022, including both growth and maintenance expenditures.
Additional details regarding adjusted EBITDA and capex guidance will be provided when NGL Energy Partners announces its operating results for fourth-quarter 2020 on Feb. 9.
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