NGL Energy Partners LP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a Delaware limited partnership (“we,” “us,” “our,” or the “Partnership”) formed in September 2010. NGL Energy Holdings LLC serves as our general partner (“GP”). At March 31, 2023, our operations included three segments as discussed below. Water Solutions Our Water Solutions segment transports, treats, recycles and disposes of produced and flowback water generated from crude oil and natural gas production. We also sell produced water for reuse and recycle and brackish non-potable water to our producer customers to be used in their crude oil exploration and production activities. As part of processing water, we aggregate and sell recovered crude oil, also known as skim oil. We 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. Our 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. We operate 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 849.5 million barrels of produced water across its areas of operation during the year ended March 31, 2023, we believe that we are the largest independent produced water transportation and disposal company in the United States. 51 The opportunity to generate revenue in our Water Solutions business is driven in large part by the level of crude oil production in the areas where our facilities are located. Recently, our disposal volumes have been positively impacted by the increase in the level of crude oil production, particularly in the Permian and DJ Basins, due to increasing or stable crude oil prices. Lower crude oil prices provide producers with less incentive to drill and complete new wells, which results in lower production and negatively impacts our disposal volumes. Our Water Solutions segment generated operating income of $198.9 million during the year ended March 31, 2023, compared to operating income of $94.9 million during the year ended March 31, 2022. Crude Oil Logistics Our 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. Our activities in this segment are supported by certain long-term, fixed rate contracts which include minimum volume commitments on our owned and leased pipelines. Most of our contracts to purchase or sell crude oil are at floating prices that are indexed to published rates in active markets such as Cushing, Oklahoma, St. James, Louisiana, and Magellan East Houston. We attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts whenever possible. When back-to-back physical contracts are not optimal, we enter into financially settled derivative contracts as economic hedges of our physical inventory, physical sales and physical purchase contracts. We use our transportation assets to move crude oil from the wellhead to the highest value market. Spreads between crude oil prices in different markets can fluctuate, which may expand or limit our opportunity to generate margins by transporting crude oil to different markets. The following table summarizes the range of low and high crude oil spot prices per barrel of New York Mercantile Exchange (“NYMEX”) West Texas Intermediate Crude Oil at Cushing, Oklahoma for the periods indicated and the prices at period end: Crude Oil Spot Price Per Barrel Year Ended March 31, Low High At Period End 2023 $ 66.74 $ 122.11 $ 75.67 2022 $ 58.65 $ 123.70 $ 100.28 2021 (1) $ (37.63) $ 66.09 $ 59.16 (1) On April 20, 2020, crude oil prices collapsed due to low demand as a result of the COVID-19 lockdowns, the price war between Russia and Saudi Arabia and a lack of available storage. We believe volatility in commodity prices will continue into the near term, our ability to adjust to and manage this volatility may impact our financial results. Our Crude Oil Logistics segment generated operating income of $81.5 million during the year ended March 31, 2023, compared to operating income of $45.0 million during the year ended March 31, 2022. Liquids Logistics Our 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 our 25 owned terminals, third-party storage and terminal facilities, nine common carrier pipelines and a fleet of leased railcars. We also provide services for marine exports of butane through our facility located in Chesapeake, Virginia, and we own a propane pipeline system in Michigan. We attempt to reduce our exposure to price fluctuations by using back-to-back physical contracts and pre-sale agreements that allow us to lock in a margin on a percentage of our winter volumes. We also enter into financially settled derivative contracts as economic hedges of our physical inventory, physical sales and physical purchase contracts. Our wholesale liquids business is a “cost-plus” business that can be affected by both price fluctuations and volume variations. We establish our selling price based on a pass-through of our product supply, transportation, handling, storage, and capital costs plus a margin. Also, we conduct just-in-time sales for gasoline and diesel at a national network of terminals owned by third parties via rack spot sales that do not involve continuing contractual obligations to purchase or deliver product. 52 Weather conditions and gasoline blending can have a significant impact on the demand for propane and butane, and sales volumes and prices are typically higher during the colder months of the year. Consequently, our revenues, operating profits, and operating cash flows are typically lower in the first and second quarters of our fiscal year. The following table summarizes the range of low and high propane spot prices per gallon at Conway, Kansas, and Mt. Belvieu, Texas, two of our main pricing hubs, for the periods indicated and the prices at period end: Conway, Kansas Mt. Belvieu, Texas Propane Spot Price Per Gallon Propane Spot Price Per Gallon Year Ended March 31, Low High At Period End Low High At Period End 2023 $ 0.63 $ 1.34 $ 0.74 $ 0.64 $ 1.39 $ 0.78 2022 $ 0.67 $ 1.64 $ 1.37 $ 0.72 $ 1.63 $ 1.39 2021 $ 0.23 $ 1.53 $ 0.86 $ 0.25 $ 1.07 $ 0.92 The following table summarizes the range of low and high butane spot prices per gallon at Mt. Belvieu, Texas for the periods indicated and the prices at period end: Butane Spot Price Per Gallon Year Ended March 31, Low High At Period End 2023 $ 0.85 $ 1.65 $ 0.92 2022 $ 0.78 $ 2.01 $ 1.71 2021 $ 0.28 $ 1.16 $ 0.98 The following table summarizes the range of low and high Gulf Coast gasoline spot prices per barrel using NYMEX gasoline prompt-month futures for the periods indicated and the prices at period end: Gasoline Spot Price Per Gallon Year Ended March 31, Low High At Period End 2023 $ 86.06 $ 179.60 $ 113.42 2022 $ 81.95 $ 154.67 $ 133.96 2021 $ 21.43 $ 90.30 $ 82.04 The following table summarizes the range of low and high diesel spot prices per barrel using NYMEX ULSD prompt-month futures for the periods indicated and the prices at period end: Diesel Spot Price Per Gallon Year Ended March 31, Low High At Period End 2023 $ 109.41 $ 215.69 $ 112.40 2022 $ 74.44 $ 186.37 $ 155.03 2021 $ 25.64 $ 82.64 $ 74.39 We believe volatility in commodity prices will continue, and our ability to adjust to and manage this volatility may impact our financial results. Our Liquids Logistics segment generated operating income of $66.6 million during the year ended March 31, 2023, compared to an operating loss of $8.4 million during the year ended March 31, 2022. The operating loss generated during the year ended March 31, 2022 included a net loss of $60.1 million related to the sale of Sawtooth Caverns, LLC (“Sawtooth”) (see Note 17 to our consolidated financial statements included in this Annual Report on Form 10-K (“Annual Report”)) and a net loss of $11.8 million related to the sale of another terminal. 53 Other Developments Global Pandemic, Ukraine War and Market Update Since March 2020, and throughout the last two years, global markets and commodity prices have been extremely volatile due to the impacts from the COVID-19 pandemic, with further impacts on volatility caused by the war in Ukraine that began in February 2022. While we have seen continued recovery in commodity prices since the beginning of the pandemic, there is still an element of volatility that we expect to continue at least for the near-term and possibly longer, due to the uncertainty of the pandemic, the war in Ukraine and the result of any economic recession or depression that has occurred or may occur in the future. This volatility could negatively impact future prices for oil, natural gas, petroleum products and industrial products. In addition, if we see a continuation or acceleration of fiscal year 2023’s inflationary conditions, rising interest rates, supply chain disruptions and tight labor markets, then we may also see higher costs of operating our assets and executing on our capital projects in fiscal year 2024. During fiscal year 2023, the Russia-Ukraine conflict may have amplified inflation and supply chain constraints that were already constraining and complicating the rebound of the global economy. In an effort to curb inflation, the U.S. Federal Reserve raised interest rates during fiscal year 2023 and most recently on May 3, 2023. The U.S. Federal Reserve may implement additional increases in fiscal year 2024, which will increase the cost of our ABL Facility (as defined herein). On the other hand, our ability to pass along rate increases reflecting changes in producer and/or consumer price indices to our customers, under our contracts, should help to counterbalance the impact of inflation on our costs. Seismic Activity The subsurface injection of produced water for disposal has been associated with recent induced seismic events in Texas and New Mexico. While these events have been of relatively low magnitude, industry and relevant state regulators are, nevertheless, taking proactive measures to attempt to prevent similar induced seismic events. More specifically, we are engaged in various collaborative industry efforts with other disposal operators and relevant state regulatory agencies, working to collect and review data, enhance understanding of regional fault systems, and ultimately develop and implement appropriate longer-term mitigation strategies. As part of this effort, we have implemented reductions in injected volumes at certain facilities, and where appropriate have temporarily shut-in facilities. To date, due to the capacity of our integrated system in the affected areas, the diverse locations of our disposal facilities, and the connectivity of our system, our ability to dispose of produced water has not been materially impacted by these actions. 54 Consolidated Results of Operations The following table summarizes our consolidated statements of operations for the periods indicated: Year Ended March 31, 2023 2022 2021 (in thousands) Revenues $ 8,694,904 $ 7,947,915 $ 5,227,023 Cost of sales 7,650,024 7,139,312 4,493,822 Operating expenses 313,725 285,535 254,562 General and administrative expense 71,818 63,546 70,468 Depreciation and amortization 273,621 288,720 317,227 Loss on disposal or impairment of assets, net 86,888 94,254 475,436 Revaluation of liabilities 9,665 (6,495) 6,261 Operating income (loss) 289,163 83,043 (390,753) Equity in earnings of unconsolidated entities 4,120 1,400 1,938 Interest expense (275,445) (271,640) (198,799) Gain (loss) on early extinguishment of liabilities, net 6,177 1,813 (16,692) Other income (expense), net 28,748 2,254 (36,503) Income (loss) from continuing operations before income taxes 52,763 (183,130) (640,809) Income tax (expense) benefit (271) (971) 3,391 Income (loss) from continuing operations 52,492 (184,101) (637,418) Loss from discontinued operations, net of tax — — (1,769) Net income (loss) 52,492 (184,101) (639,187) Less: Net income attributable to noncontrolling interests (1,106) (655) (632) Net income (loss) attributable to NGL Energy Partners LP $ 51,386 $ (184,756) $ (639,819) Items Impacting the Comparability of Our Financial Results Our current and future results of operations may not be comparable to our historical results of operations for the periods presented due to acquisitions, dispositions and other transactions. Repurchases of Senior Unsecured Notes During the three months ended March 31, 2023, we repurchased or redeemed all $301.9 million of our outstanding 7.5% senior unsecured notes due 2023 (“2023 Notes”) and we repurchased $11.0 million of the 7.5% senior unsecured notes due 2026 (“2026 Notes”) (see Note 7 to our consolidated financial statements included in this Annual Report). Acquisitions and Dispositions We completed several acquisitions and dispositions during the years ended March 31, 2023, 2022 and 2021. These transactions impact the comparability of our results of operations between our current and prior fiscal years. On March 30, 2023, we sold our marine assets and on March 31, 2023, we sold certain saltwater disposal assets in the Midland Basin (see Note 17 to our consolidated financial statements included in this Annual Report). On June 18, 2021, we sold our approximately 71.5% interest in Sawtooth to a group of buyers (see Note 17 to our consolidated financial statements included in this Annual Report). In March 2021, we acquired 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. During the year ended March 31, 2021, we sold certain permits, land and a saltwater disposal facility to a third-party (see Note 17 to our consolidated financial statements included in this Annual Report). 55 Seasonality Seasonality impacts our Liquids Logistics segment. Consequently, for our Liquids Logistics segment, revenues, operating profits and operating cash flows are generated mostly in the third and fourth quarters of our fiscal year. We generally borrow under the revolving credit facility to supplement our operating cash flows during the periods in which we are building inventory. See “–Liquidity, Sources of Capital and Capital Resource Activities–Cash Flows.” Subsequent Events See Note 19 to our consolidated financial statements included in this Annual Report for a discussion of transactions that occurred subsequent to March 31, 2023. Segment Operating Results for the Years Ended March 31, 2023 and 2022 Water Solutions The following table summarizes the operating results of our Water Solutions segment for the periods indicated. Year Ended March 31, 2023 2022 Change (in thousands, except per barrel and per day amounts) Revenues: Water disposal service fees $ 524,689 $ 397,128 $ 127,561 Sale of recovered crude oil 120,705 77,203 43,502 Recycled water 13,841 11,343 2,498 Other revenues 37,803 59,192 (21,389) Total revenues 697,038 544,866 152,172 Expenses: Cost of sales-excluding impact of derivatives 9,737 26,340 (16,603) Derivative loss 4,363 7,640 (3,277) Operating expenses 212,115 175,022 37,093 General and administrative expenses 8,722 7,352 1,370 Depreciation and amortization expense 207,081 214,558 (7,477) Loss on disposal or impairment of assets, net 46,431 25,598 20,833 Revaluation of liabilities 9,665 (6,495) 16,160 Total expenses 498,114 450,015 48,099 Segment operating income $ 198,924 $ 94,851 $ 104,073 Produced water processed (barrels per day) Delaware Basin 2,042,777 1,531,830 510,947 Eagle Ford Basin 119,458 99,298 20,160 DJ Basin 150,619 142,611 8,008 Other Basins 14,483 24,179 (9,696) Total 2,327,337 1,797,918 529,419 Recycled water (barrels per day) 118,847 93,487 25,360 Total (barrels per day) 2,446,184 1,891,405 554,779 Skim oil sold (barrels per day) (1) 3,764 2,864 900 Service fees for produced water processed ($/barrel) (2) $ 0.62 $ 0.61 $ 0.01 Recovered crude oil for produced water processed ($/barrel) (2) $ 0.14 $ 0.12 $ 0.02 Operating expenses for produced water processed ($/barrel) (2) $ 0.25 $ 0.27 $ (0.02) (1) During the three months ended March 31, 2023, approximately 33,480 barrels of skim oil were stored and will be sold during fiscal year 2024. (2) Total produced water barrels processed during the years ended March 31, 2023 and 2022 were 849,477,938 and 656,240,083, respectively. 56 Water Disposal Service Fee Revenues. The increase was due to an increase in produced water volumes processed as a result of increased crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin as well as higher fees charged for spot volumes. In addition, there was an increase in payments made by certain producers for committed volumes not delivered. Service fees for produced water processed ($/barrel) also benefited from these deficiency payments. These were partially offset by lower service fees received per barrel due to increased volumes from customers with long-term acreage dedications or minimum volume commitments with lower contracted fees. Recovered Crude Oil Revenues. The increase was due primarily to higher volumes of skim oil barrels sold due to an increase in produced water volumes processed as well as higher realized crude oil prices received from the sale of skim oil barrels. Additionally, an increase in the number of wells completed in our area of operations during the period with increased flowback activity resulted in higher skim oil volumes per barrel of produced water processed. Recycled Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The increase was due primarily to increasing demand for water to be used in completions, driven by an increase in drilling and completion activity primarily in the Delaware Basin, and our customers’ transition from brackish non-potable water to recycled water, partially offset by lower pricing for recycled water. Other Revenues. Other revenues primarily include brackish non-potable water revenues, water pipeline revenues, land surface use revenues, solids disposal revenues and reimbursements from construction projects. The decrease was due primarily to lower sales of brackish non-potable water related to the termination of a joint marketing agreement as well as our customers transitioning from brackish non-potable water to recycled water, partially offset by reimbursements from construction projects in the current period. Cost of Sales-Excluding Impact of Derivatives . The decrease was due primarily to lower purchases of brackish non-potable water from third-parties to meet customer needs due to the termination of a joint marketing agreement. Derivative Loss . We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the crude oil we expect to recover when processing produced water and selling recovered skim oil. During the year ended March 31, 2023, we had $4.5 million of net unrealized gains on derivatives and $8.8 million of net realized losses on derivatives. During the year ended March 31, 2022, we had $11.7 million of net unrealized losses on derivatives and $4.0 million of net realized gains on derivatives. Operating and General and Administrative Expenses . The increase was due primarily to higher utility, royalty and chemical expenses as a result of the increase in produced water volumes processed. Utility, royalty and chemical expenses, which are three of our largest variable expenses, were not impacted by the rise in inflation due to negotiated long-term utility contracts with fixed rates, royalty contracts with no escalation clauses and a fixed chemical expense per barrel with our chemical provider. The increase was also due to higher incentive compensation expense, higher severance taxes due to the increase in revenue from recovered crude oil and higher repairs and maintenance expense due to timing of repairs and the operation of temporary booster stations. Depreciation and Amortization Expense . The decrease was due primarily to certain long-term assets being fully amortized or impaired during the years ended March 31, 2022 and 2023. This decrease was partially offset by the depreciation of newly developed facilities and infrastructure. Loss on Disposal or Impairment of Assets, Net . During the year ended March 31, 2023, we recorded a net loss of $26.3 million primarily related to the sale of certain assets and a net loss of $21.8 million to write down the value of an inactive saltwater disposal facility and damaged equipment at another saltwater disposal facility, as well as the abandonment of certain capital projects and the retirement of certain assets. We also recorded a loss of $0.5 million related to the termination of a joint marketing agreement. In addition, we recorded a gain of $2.1 million from an insurance recovery for a saltwater disposal facility damaged in a prior period. During the year ended March 31, 2022, we recorded a net loss of $29.8 million primarily related to the write-down of an inactive saltwater disposal facility and damaged equipment and wells at other facilities, abandonment of certain capital projects and the sale of certain other miscellaneous assets. In addition, we recorded a gain of $4.3 million on the sale of certain land and a landfill permit. Revaluation of Liabilities. During the year ended March 31, 2023, there was an increase in expense for the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations due primarily to higher expected production from new customers, resulting in an increase to the expected future royalty payment. During the year ended March 31, 2022, there was a decrease in expense for the valuation of our contingent consideration 57 liabilities related to royalty agreements acquired as part of certain business combinations due primarily to lower expected production from new customers, resulting in a decrease to the expected future royalty payment. Crude Oil Logistics The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated: Year Ended March 31, 2023 2022 Change (in thousands, except per barrel amounts) Revenues: Crude oil sales $ 2,376,434 $ 2,432,393 $ (55,959) Crude oil transportation and other 96,978 84,171 12,807 Total revenues (1) 2,473,412 2,516,564 (43,152) Expenses: Cost of sales-excluding impact of derivatives 2,274,089 2,271,973 2,116 Derivative (gain) loss (14,565) 92,027 (106,592) Operating expenses 50,154 54,606 (4,452) General and administrative expenses 4,547 7,537 (2,990) Depreciation and amortization expense 46,577 48,489 (1,912) Loss (gain) on disposal or impairment of assets, net 31,086 (3,101) 34,187 Total expenses 2,391,888 2,471,531 (79,643) Segment operating income $ 81,524 $ 45,033 $ 36,491 Crude oil sold (barrels) 25,497 31,091 (5,594) Crude oil transported on owned pipelines (barrels) 27,714 28,410 (696) Crude oil storage capacity - owned and leased (barrels) (2) 5,232 5,232 — Crude oil storage capacity leased to third parties (barrels) (2) 1,501 1,501 — Crude oil inventory (barrels) (2) 684 1,339 (655) Crude oil sold ($/barrel) $ 93.204 $ 78.235 $ 14.969 Cost per crude oil sold ($/barrel) (3) $ 89.190 $ 73.075 $ 16.115 Crude oil product margin ($/barrel) (3) $ 4.014 $ 5.160 $ (1.146) (1) Revenues include $8.6 million and $11.1 million of intersegment sales during the years ended March 31, 2023 and 2022, respectively, that are eliminated in our consolidated statements of operations. (2) Information is presented as of March 31, 2023 and March 31, 2022, respectively. The decrease in crude oil inventory was due primarily to capitalizing additional crude oil barrels as linefill as a result of increased requirements. (3) Cost and product margin per barrel excludes the impact of derivatives. Crude Oil Sales Revenues. The decrease was due primarily to a reduction in sales volumes primarily due to lower production in the DJ Basin and increased buy/sell transactions during the year ended March 31, 2023. Buy/sell transactions are transactions in which we purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are netted for these transactions. The decrease was partially offset by an increase in crude oil prices during the year ended March 31, 2023, compared to the year ended March 31, 2022. Crude Oil Transportation and Other Revenues. The increase was primarily due to an increase in charter days and day rates within our marine transportation business as demand increased. On March 30, 2023, we sold our marine assets (see Note 17 to our consolidated financial statements included in this Annual Report). During the year ended March 31, 2023, physical volumes on the Grand Mesa Pipeline averaged approximately 76,000 barrels per day, compared to approximately 78,000 barrels per day for the year ended March 31, 2022. Both contracted and non-contracted volumes decreased as overall production in the DJ Basin declined in part due to producer permitting issues. Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the year ended March 31, 2023, compared to the year ended March 31, 2022 which was offset by a decrease in sales volumes. 58 Derivative (Gain) Loss. Our cost of sales during the year ended March 31, 2023 included $35.5 million of net realized losses on derivatives, driven by increasing crude oil prices, and $50.1 million of net unrealized gains on derivatives. The amounts for the year ended March 31, 2023 included net realized losses of $13.1 million and net unrealized gains of $23.8 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below under “Non-GAAP Financial Measures.” Our cost of sales during the year ended March 31, 2022 included $115.7 million of net realized losses on derivatives, driven by increasing crude oil prices, partially offset by $23.7 million of net unrealized gains on derivatives. The amounts for the year ended March 31, 2022 includes net realized losses of $83.5 million and net unrealized gains of $45.0 million associated with derivative instruments related to our hedge of the CMA Differential Roll. Crude Oil Product Margin . The decrease was primarily due to the sale of higher priced inventory into a market in which prices were declining for most of the year. In the prior year, lower priced inventory was sold into a market in which prices were rising for most of the year. In addition, we incurred increased freight costs during the current period. This decrease in product margin was offset by higher contracted rates with certain producers as well as increased differentials on certain other sales contracts during the first nine months of the current year. Crude oil product margin calculations do not include gains and losses from derivatives that may offset the movement in the physical margin. Operating and General and Administrative Expenses . The decrease was primarily related to the sale of the trucking business during the year ended March 31, 2022, and lower lease expense during the current period due to the completion of the renegotiation of certain leases. Depreciation and Amortization Expense. The decrease was due primarily to the sale of our trucking assets during the year ended March 31, 2022. Loss (Gain) on Disposal or Impairment of Assets, Net . During the year ended March 31, 2023, we recorded an impairment of $23.1 million related to an underperforming crude oil terminal and a loss of $8.0 million on the sale of our marine assets. During the year ended March 31, 2022, we recorded a gain of $5.5 million on the sale of our trucking assets and a loss of $2.2 million due to damage caused by Hurricane Ida to one of our Gulf Coast terminals. 59 Liquids Logistics The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated: Year Ended March 31, 2023 2022 Change (in thousands, except per gallon amounts) Refined products sales: Revenues-excluding impact of derivatives (1) $ 2,554,084 $ 1,899,898 $ 654,186 Cost of sales-excluding impact of derivatives 2,512,748 1,876,728 636,020 Derivative loss 1,255 2,907 (1,652) Product margin 40,081 20,263 19,818 Propane sales: Revenues (1) 1,161,129 1,325,941 (164,812) Cost of sales-excluding impact of derivatives 1,103,786 1,313,765 (209,979) Derivative loss (gain) 11,642 (20,519) 32,161 Product margin 45,701 32,695 13,006 Butane sales: Revenues (1) 773,633 863,348 (89,715) Cost of sales-excluding impact of derivatives 776,845 794,180 (17,335) Derivative (gain) loss (22,976) 18,690 (41,666) Product margin 19,764 50,478 (30,714) Other product sales: Revenues-excluding impact of derivatives (1) 1,025,733 791,125 234,608 Cost of sales-excluding impact of derivatives 970,176 748,392 221,784 Derivative loss 24,483 15,812 8,671 Product margin 31,074 26,921 4,153 Service revenues: Revenues (1) 14,218 16,200 (1,982) Cost of sales 1,603 1,404 199 Product margin 12,615 14,796 (2,181) Expenses: Operating expenses 51,456 55,907 (4,451) General and administrative expenses 7,571 7,166 405 Depreciation and amortization expense 13,301 18,714 (5,413) Loss on disposal or impairment of assets, net 10,283 71,807 (61,524) Total expenses 82,611 153,594 (70,983) Segment operating income (loss) $ 66,624 $ (8,441) $ 75,065 60 Year Ended March 31, 2023 2022 Change (in thousands, except per gallon amounts) Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2) 160,329 156,219 4,110 Refined products sold (gallons) 769,151 776,797 (7,646) Refined products sold ($/gallon) $ 3.321 $ 2.446 $ 0.875 Cost per refined products sold ($/gallon) (3) $ 3.267 $ 2.416 $ 0.851 Refined products product margin ($/gallon) (3) $ 0.054 $ 0.030 $ 0.024 Refined products inventory (gallons) (2) 1,003 1,090 (87) Propane sold (gallons) 1,018,937 1,034,706 (15,769) Propane sold ($/gallon) $ 1.140 $ 1.281 $ (0.141) Cost per propane sold ($/gallon) (3) $ 1.083 $ 1.270 $ (0.187) Propane product margin ($/gallon) (3) $ 0.057 $ 0.011 $ 0.046 Propane inventory (gallons) (2) 48,379 37,719 10,660 Butane sold (gallons) 539,658 588,032 (48,374) Butane sold ($/gallon) $ 1.434 $ 1.468 $ (0.034) Cost per butane sold ($/gallon) (3) $ 1.440 $ 1.351 $ 0.089 Butane product (loss) margin ($/gallon) (3) $ (0.006) $ 0.117 $ (0.123) Butane inventory (gallons) (2) 17,409 19,825 (2,416) Other products sold (gallons) 391,723 376,906 14,817 Other products sold ($/gallon) $ 2.619 $ 2.099 $ 0.520 Cost per other products sold ($/gallon) (3) $ 2.477 $ 1.986 $ 0.491 Other products product margin ($/gallon) (3) $ 0.142 $ 0.113 $ 0.029 Other products inventory (gallons) (2) 12,893 18,614 (5,721) (1) Revenue includes $1.3 million of intersegment sales during the year ended March 31, 2022 that is eliminated in our consolidated statement of operations. (2) Information is presented as of March 31, 2023 and March 31, 2022, respectively. (3) Cost and product margin (loss) per gallon excludes the impact of derivatives. Refined Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increase in refined products prices. This was partially offset by a decrease in volumes primarily related to tighter supply in certain markets. Refined Products Derivative Loss. Our Refined Products product margin during the year ended March 31, 2023 included realized losses of $1.3 million and the year ended March 31, 2022 included realized losses of $2.9 million. Refined Products product margins, excluding the impact of derivatives, for the year ended March 31, 2023 increased from the year ended March 31, 2022 due to higher demand in several markets that were experiencing tighter supply as well as being well positioned from a supply and inventory perspective during the continued period of extreme volatility in commodity prices. Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due primarily to lower propane prices and a decline in volumes. Propane prices have declined along with the decline in global energy prices as a result of the increase in interest rates to curb inflation and the overall concerns in the economy about a potential recession, as well as due to an increase in the days of domestic supply available, combined with lower demand due to the warmer heating season. Sales volumes decreased due to the decommissioning of a critical underground storage facility in the Midwest in April 2022, which were offset by an increase in sales volumes in the state of Michigan due to the completion of the Ambassador Pipeline. Propane Derivative Loss (Gain). Our wholesale propane cost of sales included $6.9 million of net unrealized losses on derivatives and $4.7 million of net realized losses on derivatives during the year ended March 31, 2023. During the year ended March 31, 2022, our cost of wholesale propane sales included $2.0 million of net unrealized gains on derivatives and 61 $18.5 million of net realized gains on derivatives. Propane product margins, excluding the impact of derivatives, increased as we replaced our inventory in a lower price environment and we realized the margin associated with our forward fixed-priced sales contracts and lower inventory costs due to the decreasing prices throughout the year ended March 31, 2023. During the year ended March 31, 2022, we experienced the opposite situation and were replacing our inventory when prices were rising. Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in revenues and cost of sales, excluding the impact of derivatives, were due to lower volumes due to weaker spot demand for the product, especially exports, and lower prices. The softening of export economics continued throughout the year, which led to lower domestic prices as less product was being moved abroad. Butane Derivative (Gain) Loss. Our cost of butane sales during the year ended March 31, 2023 included $3.9 million of net unrealized gains on derivatives and $19.1 million of net realized gains on derivatives. Our cost of butane sales included $1.0 million of net unrealized gains on derivatives and $19.7 million of net realized losses on derivatives during the year ended March 31, 2022. Butane product margins, excluding the impact of derivatives, declined during the year ended March 31, 2023, as compared to the year ended March 31, 2022, due to the declining prices, lower export demand and increased freight charges due to higher fuel surcharges. In addition, we were also negatively impacted by lower location differentials as the product we contracted to purchase in the beginning of the season was continuing to compete with product purchased in the discounted market. Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increased supply of biodiesel to sell during the current year compared to the prior year period due to favorable supply contracts entered into in the prior year. The increase was also related to the increase in asphalt revenues due to increased supply. Other Products Derivatives Loss. Our derivatives of other products included $24.6 million of net realized losses on derivatives and $0.1 million unrealized gains on derivatives during the year ended March 31, 2023. Our derivatives of other products during the year ended March 31, 2022 included $15.8 million of net realized losses on derivatives and there was no unrealized gains or losses on derivatives. Other product sales product margins, excluding the impact of derivatives, during the year ended March 31, 2023 increased due to an increase in biodiesel and biodiesel renewable identification number market prices, as well as securing favorable biodiesel supply contracts in the Midwest and transporting the product for sale in more favorable markets. Service Revenues and Cost of Sales. This revenue includes storage, terminaling and transportation services income. The decrease during the year ended March 31, 2023 was due to the disposition of Sawtooth in June 2021 as well as less throughput in certain of our propane and butane terminals. Cost of sales increased due to higher chemical costs at our natural gas liquids terminals. Operating and General and Administrative Expenses. The decrease was primarily related to lower incentive compensation due to lower operating results. Depreciation and Amortization Expense. The decrease was primarily due to the disposition of Sawtooth in June 2021 as well as lower amortization expense due to certain intangible assets being fully amortized as of March 31, 2023. Loss on Disposal or Impairment of Assets, Net. During the year ended March 31, 2023, we recorded a net loss of $10.1 million due to the impairment of several underperforming natural gas liquids terminals. In addition, during the year ended March 31, 2023, we recorded a net loss of $0.2 million related to the sale and retirement of other assets. During the year ended March 31, 2022, we recorded a net loss of $60.1 million related to the sale of Sawtooth (see Note 17 to our consolidated financial statements included in this Annual Report) and a net loss of $11.8 million related to the sale of another terminal during the three months ended September 30, 2021. 62 Corporate and Other The operating loss within “Corporate and Other” includes the following components for the periods indicated: Year Ended March 31, 2023 2022 Change (in thousands) Cost of sales Derivative loss $ 1,181 $ — $ 1,181 Expenses: General and administrative expenses 50,978 41,491 9,487 Depreciation and amortization expense 6,662 6,959 (297) Gain on disposal or impairment of assets, net (912) (50) (862) Total expenses 56,728 48,400 8,328 Operating loss $ (57,909) $ (48,400) $ (9,509) Cost of Sales - Derivative Loss. Amount for the year ended March 31, 2023 represents an unrealized loss on crude oil options entered into to protect our liquidity position and leverage from a significant increase in commodity prices that drive our working capital demands, as we experienced in the prior fiscal year. These positions will expire between April 2023 and November 2023. General and Administrative Expenses . The increase during the year ended March 31, 2023 was due to increased incentive compensation expense compared to the prior year and an increase in equity-based compensation primarily due to a reversal of an incentive compensation accrual during the year ended March 31, 2022. Depreciation and Amortization Expense. Depreciation and amortization expense during the year ended March 31, 2023 was consistent with the year ended March 31, 2022. Gain on Disposal or Impairment of Assets, Net. During the year ended March 31, 2023, we sold an airplane for a gain of $1.3 million, which was partially offset by a loss recorded to write-off the remaining amount of a loan receivable, due July 31, 2023, that was prepaid by the debtor (as discussed further in Note 2 to our consolidated financial statements included in this Annual Report) and an impairment loss recorded on the sublease of a building we were no longer using. Equity in Earnings of Unconsolidated Entities Equity in earnings of unconsolidated entities was $4.1 million during the year ended March 31, 2023, compared to $1.4 million during the year ended March 31, 2022. The increase of $2.7 million during the year ended March 31, 2023 was due primarily to higher earnings from certain membership interests related to specific land and water services operations and a lower loss from our interest in an aircraft company. Interest Expense The following table summarizes the components of our consolidated interest expense for the periods indicated: Year Ended March 31, 2023 2022 Change (in thousands) Senior secured notes $ 153,750 $ 153,750 $ — Senior unsecured notes 76,288 87,766 (11,478) Revolving credit facility 17,111 10,077 7,034 Other indebtedness 11,559 3,087 8,472 Total debt interest expense 258,708 254,680 4,028 Amortization of debt issuance costs 16,737 16,960 (223) Total interest expense $ 275,445 $ 271,640 $ 3,805 The debt interest expense increased $4.0 million during the year ended March 31, 2023 due primarily to a settlement of a claim for the failure to pay interest on royalty payments, as discussed further in Note 8 to our consolidated financial statements included in this Annual Report and an increase in our revolving credit facility interest rates in the current year. The 63 increases in the current year were offset by lower interest expense resulting from repurchases of a portion of our Senior Unsecured Notes (as defined herein). Gain on Early Extinguishment of Liabilities, Net Gain on early extinguishment of liabilities, net was $6.2 million during the year ended March 31, 2023, compared to $1.8 million during the year ended March 31, 2022. During the years ended March 31, 2023 and 2022, the net gain (inclusive of debt issuance costs written off) primarily relates to the early extinguishment of a portion of the outstanding Senior Unsecured Notes. In addition, we paid a prepayment premium of $1.6 million and wrote off debt issuance costs of less than $0.1 million related to the payoff of an outstanding equipment loan. For the year ended March 31, 2022, the net gain was partially offset by a loss on the early extinguishment of the Sawtooth credit agreement. See Note 7 to our consolidated financial statements included in this Annual Report for a further discussion. Other Income, Net Other income, net was $28.7 million during the year ended March 31, 2023, compared to other income, net of $2.3 million during the year ended March 31, 2022. The increase in other income, net of $26.4 million during the year ended March 31, 2023 was due primarily to the settlement of a dispute associated with commercial activities not occurring in the current reporting periods. See Note 17 to our consolidated financial statements included in this Annual Report for a further discussion. Income Tax Expense Income tax expense was $0.3 million during the year ended March 31, 2023, compared to income tax expense of $1.0 million during the year ended March 31, 2022. See Note 2 to our consolidated financial statements included in this Annual Report for a further discussion. Noncontrolling Interests Noncontrolling interests represent the portion of certain consolidated subsidiaries that are owned by third parties. Noncontrolling interest income was $1.1 million during the year ended March 31, 2023, compared to $0.7 million during the year ended March 31, 2022. The increase of $0.4 million during the year ended March 31, 2023 was due primarily to higher income from certain water solutions operations during the year ended March 31, 2023 and a loss of $0.2 million from the operations of Sawtooth during the year ended March 31, 2022, partially offset by lower income from certain recycling operations during the year ended March 31, 2023. 64 Segment Operating Results for the Years Ended March 31, 2022 and 2021 Water Solutions The following table summarizes the operating results of our Water Solutions segment for the periods indicated. Year Ended March 31, 2022 2021 Change (in thousands, except per barrel and per day amounts) Revenues: Water disposal service fees $ 397,128 $ 308,511 $ 88,617 Sale of recovered crude oil 77,203 28,599 48,604 Recycled water 11,343 3,015 8,328 Other revenues 59,192 30,861 28,331 Total revenues 544,866 370,986 173,880 Expenses: Cost of sales-excluding impact of derivatives 26,340 2,557 23,783 Derivative loss 7,640 7,065 575 Operating expenses 175,022 142,371 32,651 General and administrative expenses 7,352 6,403 949 Depreciation and amortization expense 214,558 222,107 (7,549) Loss on disposal or impairment of assets, net 25,598 76,942 (51,344) Revaluation of liabilities (6,495) 6,261 (12,756) Total expenses 450,015 463,706 (13,691) Segment operating income (loss) $ 94,851 $ (92,720) $ 187,571 Produced water processed (barrels per day) Delaware Basin 1,531,830 1,148,582 383,248 Eagle Ford Basin 99,298 78,397 20,901 DJ Basin 142,611 111,016 31,595 Other Basins 24,179 26,596 (2,417) Total 1,797,918 1,364,591 433,327 Recycled water (barrels per day) 93,487 43,503 49,984 Total (barrels per day) 1,891,405 1,408,094 483,311 Skim oil sold (barrels per day) 2,864 1,957 907 Service fees for produced water processed ($/barrel) (1) $ 0.61 $ 0.62 $ (0.01) Recovered crude oil for produced water processed ($/barrel) (1) $ 0.12 $ 0.06 $ 0.06 Operating expenses for produced water processed ($/barrel) (1) $ 0.27 $ 0.29 $ (0.02) (1) Total produced water barrels processed during the years ended March 31, 2022 and 2021 were 656,240,083 and 498,075,843, respectively. Water Disposal Service Fee Revenues. The increase was due to an increase in produced water volumes processed as a result of increased crude oil production driven by higher crude oil prices and completion activity, primarily in the Delaware Basin. This was partially offset by lower service fees received per barrel due to increased volumes from customers with long-term acreage dedications or minimum volume commitments with lower contracted fees. Recovered Crude Oil Revenues. The increase was due primarily to higher volumes of skim oil sold due to increased produced water processed as well as higher crude oil prices realized. Additionally, an increase in the number of wells completed in our area of operations during the period with increased flowback activity resulted in higher skim oil volumes per barrel of produced water processed. Recycled Water Revenues. The increase was due primarily to increasing demand for water to be used in completions, driven by an increase in drilling and completion activity primarily in the Delaware Basin, and our customers transition from brackish non-potable water to recycled water. 65 Other Revenues. The increase was due primarily to higher sales of brackish non-potable water and pipeline revenues, driven by an increase in drilling and completion activity primarily in the Delaware Basin as well as our increased capacity to meet demand for these services, and higher land surface use fees and sales of caliche due to increased producer activity. Cost of Sales-Excluding Impact of Derivatives . The increase was due primarily to costs related to the transfer of brackish non-potable water and recycled water to the purchaser as well as increased purchases of brackish non-potable water from third-parties to meet customer needs. Derivative Loss. We enter into derivatives in our Water Solutions segment to protect against the risk of a decline in the market price of the crude oil we expect to recover when processing produced water and selling recovered skim oil. During the year ended March 31, 2022, we had $11.7 million of net unrealized losses on derivatives and $4.0 million of net realized gains on derivatives. During the year ended March 31, 2021, we had $24.5 million of net unrealized losses on derivatives and $17.4 million of net realized gains on derivatives. At March 31, 2022, we had approximately 3,000 barrels per day hedged for the next six months at an average price of $87.65 per barrel. Operating and General and Administrative Expenses . The increase was due primarily to higher utility, royalty and chemical expenses as a result of the increase in produced water volumes processed. Utility and royalty expenses, which are two of our biggest variable expenses, were not impacted by the rise in inflation due to negotiating long-term utility contracts with fixed rates and royalty contracts with no escalation clauses. Severance taxes also increased due to the increase in revenue from recovered crude oil. Going forward, the Partnership expects to see slight decreases in its operating expenses per barrel of produced water processed due to continued focus on cost maintenance and reductions and an increase in overall disposal volumes. Depreciation and Amortization Expense . The decrease was due primarily to an impairment charge recorded during the three months ended March 31, 2021 to write down the value of an intangible asset which resulted in lower amortization expense during the year ended March 31, 2022 as well as certain other long-term assets being fully amortized or impaired during the years ended March 31, 2021 and 2022. These decreases were partially offset by the depreciation of newly developed facilities and infrastructure. Loss on Disposal or Impairment of Assets, Net. During the year ended March 31, 2022, we recorded a net loss of $29.8 million primarily related to the write-down of an inactive saltwater disposal facility and damaged equipment and wells at other facilities, abandonment of certain capital projects and the sale of certain other miscellaneous assets. In addition, we recorded a gain of $4.3 million on the sale of certain land and a landfill permit. During the year ended March 31, 2021, we recorded: • an impairment charge of $72.4 million to write down the value of an asset group and certain intangible assets due to a decline in producer activity, resulting in lower disposal volumes (see Note 4 and Note 6 to our consolidated financial statements included in this Annual Report); • an impairment charge of $11.9 million to write down the value of certain inactive or underutilized saltwater disposal facilities (see Note 4 to our consolidated financial statements included in this Annual Report); • a net loss of $6.7 million related to write-down or write off of certain assets, including facilities damaged by lightning strikes and abandoned projects, and the sale of certain other miscellaneous assets (see Note 4 to our consolidated financial statements included in this Annual Report); and • a gain of $14.0 million related to the sale of certain permits, land and a saltwater disposal facility (see Note 17 to our consolidated financial statements included in this Annual Report). Revaluation of Liabilities. During the year ended March 31, 2022, there was a decrease in expense for the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations due primarily to lower expected production from new customers, resulting in a decrease to the expected future royalty payment. During the year ended March 31, 2021, there was an increase in expense for the valuation of our contingent consideration liabilities related to royalty agreements acquired as part of certain business combinations due primarily to higher expected production from new customers, resulting in an increase to the expected future royalty payment. 66 Crude Oil Logistics The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated: Year Ended March 31, 2022 2021 Change (in thousands, except per barrel amounts) Revenues: Crude oil sales $ 2,432,393 $ 1,574,699 $ 857,694 Crude oil transportation and other 84,171 153,588 (69,417) Total revenues (1) 2,516,564 1,728,287 788,277 Expenses: Cost of sales-excluding impact of derivatives 2,271,973 1,473,330 798,643 Derivative loss 92,027 49,314 42,713 Operating expenses 54,606 56,918 (2,312) General and administrative expenses 7,537 8,038 (501) Depreciation and amortization expense 48,489 60,874 (12,385) (Gain) loss on disposal or impairment of assets, net (3,101) 384,143 (387,244) Total expenses 2,471,531 2,032,617 438,914 Segment operating income (loss) $ 45,033 $ (304,330) $ 349,363 Crude oil sold (barrels) 31,091 38,349 (7,258) Crude oil transported on owned pipelines (barrels) 28,410 32,797 (4,387) Crude oil storage capacity - owned and leased (barrels) (2) 5,232 5,239 (7) Crude oil storage capacity leased to third parties (barrels) (2) 1,501 1,501 — Crude oil inventory (barrels) (2) 1,339 1,201 138 Crude oil sold ($/barrel) $ 78.235 $ 41.062 $ 37.173 Cost per crude oil sold ($/barrel) (3) $ 73.075 $ 38.419 $ 34.656 Crude oil product margin ($/barrel) (3) $ 5.160 $ 2.643 $ 2.517 (1) Revenues include $11.1 million and $6.7 million of intersegment sales during the years ended March 31, 2022 and 2021, respectively, that are eliminated in our consolidated statements of operations. (2) Information is presented as of March 31, 2022 and March 31, 2021, respectively. (3) Cost and product margin per barrel excludes the impact of derivatives. Crude Oil Sales Revenues. The increase was due primarily to an increase in crude oil prices during the year ended March 31, 2022, compared to the year ended March 31, 2021. This was offset by a reduction in sales volumes, primarily due to lower production in the DJ Basin. In addition, volumes also declined due to an increase in buy/sell transactions during the year ended March 31, 2022, compared to the year ended March 31, 2021. These are transactions in which we transact to purchase product from a counterparty and sell the same volumes of product to the same counterparty at a different location or time. The revenues, cost of sales and volumes are all netted for these transactions. Crude Oil Transportation and Other Revenues. The decrease was primarily due to our Grand Mesa Pipeline, as revenues from third-parties decreased by $72.6 million during the year ended March 31, 2022, compared to the year ended March 31, 2021. During the year ended March 31, 2022, physical volumes on the Grand Mesa Pipeline averaged approximately 78,000 barrels per day, compared to approximately 90,000 barrels per day for the year ended March 31, 2021 (volume amounts are from both internal and external parties). The decline was primarily due to the court approved rejection of the Extraction Oil & Gas, Inc. (“Extraction”) transportation agreement (as part of their bankruptcy) as well as decreased production in the DJ Basin. Cost of Sales-Excluding Impact of Derivatives. The increase was due primarily to an increase in crude oil prices during the year ended March 31, 2022, compared to the year ended March 31, 2021. The increase was partially offset by a reduction in volumes, as discussed above in “ Crude Oil Sales Revenues .” Derivative Loss. Our cost of sales during the year ended March 31, 2022 included $115.7 million of net realized losses on derivatives, driven by increasing crude oil prices, partially offset by $23.7 million of net unrealized gains on derivatives. The amounts for the year ended March 31, 2022 includes net realized losses of $83.5 million and net unrealized gains of $45.0 67 million associated with derivative instruments related to our hedge of the CMA Differential Roll, defined and discussed below under “Non-GAAP Financial Measures.” Our cost of sales during the year ended March 31, 2021 included $25.9 million of net realized losses on derivatives and $23.4 million of net unrealized losses on derivatives. Gains and losses from derivative activity should be offset by margin generated by the sale of the physical product. Crude Oil Product Margin . The increase was primarily due to higher crude oil prices as certain contracted rates with producers increased due to higher crude oil prices. Operating and General and Administrative Expenses . The decrease was primarily related to the write off of a receivable related to deficiency volumes from Extraction of $5.7 million during the year ended March 31, 2021. The decrease was offset by an increase in utility expenses due to Grand Mesa Pipeline increased utility rates, as well as increased business insurance due to policy rate increases for the year ended March 31, 2022. Depreciation and Amortization Expense. The decrease was due primarily to the reduction of amortization expense due to the impairment of certain intangible assets at the end of the prior year. This was offset by an increase in depreciation expense due to reducing the estimated useful lives of our railcars. (Gain) Loss on Disposal or Impairment of Assets, Net . During the year ended March 31, 2022, we recorded a gain of $5.5 million on the sale of our trucking assets and a loss of $2.2 million due to damage caused by Hurricane Ida to one of our Gulf Coast terminals. During the year ended March 31, 2021, we recorded a net loss of $145.8 million for the impairment of an intangible asset, related to a rejected transportation agreement with Extraction (see Note 17 to our consolidated financial statements included in this Annual Report) and a net loss of $237.8 million for the impairment of goodwill (see Note 5 to our consolidated financial statements included in this Annual Report). 68 Liquids Logistics The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated: Year Ended March 31, 2022 2021 Change (in thousands, except per gallon amounts) Refined products sales: Revenues-excluding impact of derivatives (1) $ 1,899,898 $ 1,124,087 $ 775,811 Cost of sales-excluding impact of derivatives 1,876,728 1,108,493 768,235 Derivative loss 2,907 930 1,977 Product margin 20,263 14,664 5,599 Propane sales: Revenues (1) 1,325,941 1,027,582 298,359 Cost of sales-excluding impact of derivatives 1,313,765 949,402 364,363 Derivative (gain) loss (20,519) 10,994 (31,513) Product margin 32,695 67,186 (34,491) Butane sales: Revenues (1) 863,348 517,857 345,491 Cost of sales-excluding impact of derivatives 794,180 469,394 324,786 Derivative loss 18,690 22,353 (3,663) Product margin 50,478 26,110 24,368 Other product sales: Revenues-excluding impact of derivatives (1) 791,125 446,744 344,381 Cost of sales-excluding impact of derivatives 748,392 424,191 324,201 Derivative loss (gain) 15,812 (7,078) 22,890 Product margin 26,921 29,631 (2,710) Service revenues: Revenues (1) 16,200 33,915 (17,715) Cost of sales 1,404 4,751 (3,347) Product margin 14,796 29,164 (14,368) Expenses: Operating expenses 55,907 55,273 634 General and administrative expenses 7,166 8,507 (1,341) Depreciation and amortization expense 18,714 29,184 (10,470) Loss on disposal or impairment of assets, net 71,807 3,350 68,457 Total expenses 153,594 96,314 57,280 Segment operating (loss) income $ (8,441) $ 70,441 $ (78,882) 69 Year Ended March 31, 2022 2021 Change (in thousands, except per gallon amounts) Natural gas liquids and refined products storage capacity - owned and leased (gallons) (2)(3) 156,219 427,975 (271,756) Refined products sold (gallons) 776,797 834,717 (57,920) Refined products sold ($/gallon) $ 2.446 $ 1.347 $ 1.099 Cost per refined products sold ($/gallon) (4) $ 2.416 $ 1.328 $ 1.088 Refined products product margin ($/gallon) (4) $ 0.030 $ 0.019 $ 0.011 Refined products inventory (gallons) (2) 1,090 1,223 (133) Propane sold (gallons) 1,034,706 1,364,224 (329,518) Propane sold ($/gallon) $ 1.281 $ 0.753 $ 0.528 Cost per propane sold ($/gallon) (4) $ 1.270 $ 0.696 $ 0.574 Propane product margin ($/gallon) (4) $ 0.011 $ 0.057 $ (0.046) Propane inventory (gallons) (2) 37,719 51,026 (13,307) Propane storage capacity leased to third parties (gallons) (2)(3) — 53,947 (53,947) Butane sold (gallons) 588,032 655,256 (67,224) Butane sold ($/gallon) $ 1.468 $ 0.790 $ 0.678 Cost per butane sold ($/gallon) (4) $ 1.351 $ 0.716 $ 0.635 Butane product margin ($/gallon) (4) $ 0.117 $ 0.074 $ 0.043 Butane inventory (gallons) (2) 19,825 20,066 (241) Butane storage capacity leased to third parties (gallons) (2)(3) — 56,700 (56,700) Other products sold (gallons) 376,906 471,245 (94,339) Other products sold ($/gallon) $ 2.099 $ 0.948 $ 1.151 Cost per other products sold ($/gallon) (4) $ 1.986 $ 0.900 $ 1.086 Other products product margin ($/gallon) (4) $ 0.113 $ 0.048 $ 0.065 Other products inventory (gallons) (2) 18,614 19,195 (581) (1) Revenues include $1.3 million and $6.1 million of intersegment sales during the years ended March 31, 2022 and 2021, respectively, that are eliminated in our consolidated statements of operations. (2) Information is presented as of March 31, 2022 and March 31, 2021, respectively. (3) Decrease from March 31, 2021 relates to the sale of Sawtooth on June 18, 2021 (see Note 17 to our consolidated financial statements included in this Annual Report). (4) Cost and product margin per gallon excludes the impact of derivatives. Refined Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to an increase in refined products prices. This was offset by a reduction in volumes sold due to tighter supply in the market. In certain markets in which we compete, allocation of product from suppliers was reduced due to lower demand as a result of the COVID-19 pandemic. We are continuing to work to increase those allocations as demand for refined products increases. Refined Products Derivative Loss. Our Refined Products product margin during the year ended March 31, 2022 included realized losses of $2.9 million and the year ended March 31, 2021 included realized losses of $0.9 million from our risk management activities due primarily to NYMEX future prices increasing on our short future positions. Refined Products product margins, excluding the impact of derivatives, for the year ended March 31, 2022 increased from the year ended March 31, 2021 primarily due to supply being short during the three months ended December 31, 2021, as a result of extended refinery downtime in certain markets in which we compete, and being well positioned during the extreme volatility surrounding global events occurring in the three months ended March 31, 2022. Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to higher commodity prices. The increase in propane prices was the result of lower domestic inventories and a strong export market due to the increase in international prices. This was partially offset by lower propane volumes sold driven by reduced demand due to warmer than normal autumn temperatures, which resulted in 70 lower product demand for crop drying, unusually warm weather during the early winter months and reduced volumes due to the loss of two producer services agreements. Propane Derivative (Gain) Loss . Our wholesale propane cost of sales included $2.0 million of net unrealized gains on derivatives and $18.5 million of net realized gains on derivatives during the year ended March 31, 2022. During the year ended March 31, 2021, our cost of wholesale propane sales included $3.3 million of net unrealized gains on derivatives and $14.3 million of net realized losses on derivatives. Propane product margins, excluding the impact of derivatives, decreased as a result of lower demand due to the warmer than normal winter season, along with increased competition in a number of markets where NGL purchases and sells propane. Midwestern demand was down year-over-year due to lower product demand for crop drying and warmer fall and winter weather. Our margin was also impacted by lower product allocation from certain suppliers and lower storage utilization due to decreased demand and the backwardated market structure. Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due primarily to higher commodity prices. This was partially offset by a volume decrease due to a tight supply market as a result of decreased refinery runs and an increase in demand for exports. Butane Derivative Loss . Our cost of butane sales during the year ended March 31, 2022 included $1.0 million of net unrealized gains on derivatives and $19.7 million of net realized losses on derivatives. Our cost of butane sales included $3.2 million of net unrealized losses on derivatives and $19.1 million of net realized losses on derivatives during the year ended March 31, 2021. Butane product margins, excluding the impact of derivatives, were higher during year ended March 31, 2022 than during the year ended March 31, 2021 due primarily to a tight supply market, driven by an increase in demand for exports and an increase in blending demand, which are driving favorable sales differentials. Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in revenues and cost of sales, excluding the impact of derivatives, were due to higher commodity prices and increased demand for biodiesel. This was partially offset by reduced natural gasoline volumes during the year ended March 31, 2022 as more production was being shipped via pipelines, reducing the availability for product to be shipped by railcars. Other Products Derivatives Loss (Gain) . Our derivatives of other products included $15.8 million of net realized losses on derivatives and there was no unrealized gains or losses on derivatives during the year ended March 31, 2022. Our derivatives of other products during the year ended March 31, 2021 included $0.5 million of net unrealized gains on derivatives and $6.6 million of net realized gains on derivatives. Other product sales product margins, excluding the impact of derivatives, during the year ended March 31, 2022 increased due to an increase in demand for biodiesel and biodiesel renewable identification number market prices, as well as securing favorable biodiesel supply contracts in the Midwest and transporting the product for sale in more favorable markets. The increase was partially offset by a decline in margin for other natural gas liquids, as favorable supply contracts in the prior year and increased demand in certain markets during the prior year drove favorable sale differentials. Less volatility in the market, for both supply and demand, led to tighter margins for these products during the current period. Service Revenues. This revenue includes storage, terminaling and transportation services income. The decrease during the year ended March 31, 2022 was due to the disposition of Sawtooth in June 2021 as well as less throughput in certain of our propane and butane terminals. Operating and General and Administrative Expenses. The decrease was primarily due to the disposition of Sawtooth in June 2021 which was partially offset by increased travel as we came out of the pandemic. Depreciation and Amortization Expense. The decrease was primarily due to the disposition of Sawtooth and lower amortization expense due to certain intangible assets being fully amortized as of September 30, 2021. Loss on Disposal or Impairment of Assets, Net. During the year ended March 31, 2022, we recorded a net loss of $60.1 million related to the sale of Sawtooth (see Note 17 to our consolidated financial statements included in this Annual Report) and a net loss of $11.8 million related to the sale of another terminal during the three months ended September 30, 2021. During the year ended March 31, 2021, we recorded an impairment loss of approximately $3.3 million due to the write down in value of a terminal we have ceased operating. 71 Corporate and Other The operating loss within “Corporate and Other” includes the following components for the periods indicated: Year Ended March 31, 2022 2021 Change (in thousands) Other revenues: Revenues $ — $ 1,255 $ (1,255) Cost of sales — 1,816 (1,816) Loss — (561) 561 Expenses: General and administrative expenses 41,491 47,520 (6,029) Depreciation and amortization expense 6,959 5,062 1,897 (Gain) loss on disposal or impairment of assets, net (50) 11,001 (11,051) Total expenses 48,400 63,583 (15,183) Operating loss $ (48,400) $ (64,144) $ 15,744 General and Administrative Expenses . The decrease during the year ended March 31, 2022 was due primarily to lower compensation and legal expenses, offset by increased consulting fees. Compensation expense decreased due to lower equity-based compensation, partially offset by increased incentive compensation during the current year. Legal expense decreased due to certain claims being settled, in particular our claims related to the bankruptcy of Extraction. (Gain) Loss on Disposal or Impairment of Assets, Net. During the year ended March 31, 2021, we recorded a net loss of $11.0 million, which was primarily due to the write-off of a loan receivable related to the construction of a facility (see Note 17 to our consolidated financial statements included in this Annual Report). Equity in Earnings of Unconsolidated Entities Equity in earnings of unconsolidated entities was $1.4 million during the year ended March 31, 2022, compared to $1.9 million during the year ended March 31, 2021. The decrease of $0.5 million during the year ended March 31, 2022 was due primarily to lower earnings from certain membership interests related to specific land and water services operations. Interest Expense The following table summarizes the components of our consolidated interest expense for the periods indicated: Year Ended March 31, 2022 2021 Change (in thousands) Senior secured notes $ 153,750 $ 24,344 $ 129,406 Senior unsecured notes 87,766 96,711 (8,945) Revolving credit facility 10,077 46,500 (36,423) Other indebtedness 3,087 17,824 (14,737) Total debt interest expense 254,680 185,379 69,301 Amortization of debt issuance costs 16,960 13,420 3,540 Total interest expense $ 271,640 $ 198,799 $ 72,841 The debt interest expense increased $69.3 million during the year ended March 31, 2022 due primarily to the issuance of the 7.5% senior secured notes due 2026 (“2026 Senior Secured Notes”) which resulted in us paying a higher interest rate on certain refinanced indebtedness. This increase was partially offset by the termination of the term credit agreement as well as the repurchases of a portion of our senior unsecured notes to mature in 2023 and 2026 (see Note 7 to our consolidated financial statements included in this Annual Report). 72 Gain (Loss) on Early Extinguishment of Liabilities, Net Gain on early extinguishment of liabilities, net was $1.8 million during the year ended March 31, 2022, compared to a loss on early extinguishment of liabilities, net of $16.7 million during the year ended March 31, 2021. During the years ended March 31, 2022 and 2021, the net gain (loss) (inclusive of debt issuance costs written off) primarily relates to the early extinguishment of a portion of the outstanding Senior Unsecured Notes, partially offset by a loss on the early extinguishment of the Sawtooth credit agreement. See Note 7 to our consolidated financial statements included in this Annual Report for a further discussion. Other Income (Expense), Net Other income, net was $2.3 million during the year ended March 31, 2022, compared to other expense, net of $36.5 million during the year ended March 31, 2021. The decrease in other expense, net of $38.8 million during the year ended March 31, 2022 was due primarily to a $40.0 million fee paid to the holders of the 9.00% Class D Preferred Units (“Class D Preferred Units”) during the year ended March 31, 2021 to obtain their consent in order to complete the issuance of the 2026 Senior Secured Notes and the asset-based revolving credit facility (“ABL Facility”) (see Note 12 to our consolidated financial statements included in this Annual Report), partially offset by proceeds received from a litigation settlement during the year ended March 31, 2021. Income Tax (Expense) Benefit Income tax expense was $1.0 million during the year ended March 31, 2022, compared to an income tax benefit of $3.4 million during the year ended March 31, 2021. See Note 2 to our consolidated financial statements included in this Annual Report for a further discussion. Noncontrolling Interests Noncontrolling interest income was $0.7 million during the year ended March 31, 2022, compared to $0.6 million during the year ended March 31, 2021. The increase of less than $0.1 million during the year ended March 31, 2022 was due primarily to higher income from certain recycling operations, partially offset by a higher loss from operations of the Sawtooth joint venture primarily due to the sale of Sawtooth in June 2021 and lower income from certain water solutions operations. Non-GAAP Financial Measures In addition to financial results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided the non-GAAP financial measures of EBITDA and Adjusted EBITDA. These non-GAAP financial measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other entities, even when similar terms are used to identify such measures. We define EBITDA as net income (loss) attributable to NGL Energy Partners LP, plus interest expense, income tax expense (benefit), and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA excluding net unrealized gains and losses on derivatives, lower of cost or net realizable value adjustments, gains and losses on disposal or impairment of assets, gains and losses on early extinguishment of liabilities, equity-based compensation expense, acquisition expense, revaluation of liabilities, certain legal settlements and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to TransMontaigne Product Services, LLC (“TPSL”), our refined products business in the mid-continent region of the United States (“Mid-Con”) and our gas blending business in the southeastern and eastern regions of the United States (“Gas Blending”), which are included in discontinued operations, and certain refined products businesses within our Liquids Logistics segment, as discussed below. EBITDA and Adjusted EBITDA should not be considered alternatives to net income (loss), income (loss) from continuing operations before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP, as those items are used to measure operating performance, liquidity or the ability to service debt obligations. We believe that EBITDA provides additional information to investors for evaluating our ability to make quarterly distributions to our unitholders and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information to investors for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures used by other entities. 73 Other than for the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within our Liquids Logistics segment, for purposes of our Adjusted EBITDA calculation, we make a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is open, we record changes in the fair value of the derivative as an unrealized gain or loss. When a derivative contract matures or is settled, we reverse the previously recorded unrealized gain or loss and record a realized gain or loss. We do not draw such a distinction between realized and unrealized gains and losses on derivatives of the TPSL, Mid-Con, and Gas Blending businesses, which are included in discontinued operations, and certain businesses within our Liquids Logistics segment. The primary hedging strategy of these businesses is to hedge against the risk of declines in the value of inventory over the course of the contract cycle, and many of the hedges cover extended periods of time. The “inventory valuation adjustment” row in the reconciliation table reflects the difference between the market value of the inventory of these businesses at the balance sheet date and its cost. We include this in Adjusted EBITDA because the unrealized gains and losses associated with derivative contracts associated with the inventory of this segment, which are intended primarily to hedge inventory holding risk and are included in net income, also affect Adjusted EBITDA. In our Crude Oil Logistics segment, we purchase certain crude oil barrels using the West Texas Intermediate (“WTI”) calendar month average (“CMA”) price and sell the crude oil barrels using the WTI CMA price plus the Argus CMA Differential Roll Component (“CMA Differential Roll”) per our contracts. To eliminate the volatility of the CMA Differential Roll, we entered into derivative instrument positions in January 2021 to secure a margin of approximately $0.20 per barrel on 1.5 million barrels per month from May 2021 through December 2023. Due to the nature of these positions, the cash flow and earnings recognized on a GAAP basis will differ from period to period depending on the current crude oil price and future estimated crude oil price which are valued utilizing third-party market quoted prices. We are recognizing in Adjusted EBITDA the gains and losses from the derivative instrument positions entered into in January 2021 to properly align with the physical margin we are hedging each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction. The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated: Year Ended March 31, 2023 2022 2021 (in thousands) Net income (loss) $ 52,492 $ (184,101) $ (639,187) Less: Net income attributable to noncontrolling interests (1,106) (655) (632) Net income (loss) attributable to NGL Energy Partners LP 51,386 (184,756) (639,819) Interest expense 275,505 271,689 198,823 Income tax expense (benefit) 271 971 (3,444) Depreciation and amortization 273,544 287,943 314,476 EBITDA 600,706 375,847 (129,964) Net unrealized (gains) losses on derivatives (50,438) (14,977) 47,366 CMA Differential Roll net losses (gains) (1) 3,547 67,738 — Inventory valuation adjustment (2) (7,795) 8,409 1,224 Lower of cost or net realizable value adjustments (11,534) 10,862 (30,102) Loss on disposal or impairment of assets, net 86,872 94,059 476,601 (Gain) loss on early extinguishment of liabilities, net (6,177) (1,851) 16,692 Equity-based compensation expense 2,718 (1,052) 6,727 Acquisition expense (3) 118 67 1,711 Revaluation of liabilities (4) 9,665 (6,495) 6,261 Class D Preferred Unitholder consent fee (5) — — 40,000 Other (6) 4,993 9,909 11,135 Adjusted EBITDA $ 632,675 $ 542,516 $ 447,651 Adjusted EBITDA - Discontinued Operations (7) $ — $ — $ (621) Adjusted EBITDA - Continuing Operations $ 632,675 $ 542,516 $ 448,272 (1) Adjustment to align, within Adjusted EBITDA, the net gains and losses of the Partnership’s CMA Differential Roll derivative instruments positions with the physical margin being hedged. See “Non-GAAP Financial Measures” section above for a further discussion. (2) Amounts represent the difference between the market value of the inventory at the balance sheet date and its cost. See “Non-GAAP Financial Measures” section above for a further discussion. (3) Amounts represent expenses we incurred related to legal and advisory costs associated with acquisitions. 74 (4) Amounts represent the non-cash valuation adjustment of contingent consideration liabilities, offset by the cash payments, related to royalty agreements acquired as part of acquisitions in our Water Solutions segment. (5) Amount represents the fee paid to the holders of the Class D Preferred Units to obtain their consent in order to complete the issuance of the 2026 Senior Secured Notes and the ABL Facility (see Note 12 to our consolidated financial statements included in this Annual Report). (6) Amounts represent non-cash operating expenses related to our Grand Mesa Pipeline, unrealized gains/losses on marketable securities and accretion expense for asset retirement obligations. Also, the amount for the year ended March 31, 2023 includes the write off of an asset acquired in a prior period acquisition. (7) Amount includes the operations of TPSL, Gas Blending and Mid-Con. The following tables reconcile depreciation and amortization amounts per the EBITDA table above to depreciation and amortization amounts reported in our consolidated statements of operations and consolidated statements of cash flows for the periods indicated: Year Ended March 31, 2023 2022 2021 (in thousands) Depreciation and amortization per EBITDA table $ 273,544 $ 287,943 $ 314,476 Intangible asset amortization recorded to cost of sales (274) (281) (307) Depreciation and amortization of unconsolidated entities (783) (768) (756) Depreciation and amortization attributable to noncontrolling interests 1,134 1,826 3,814 Depreciation and amortization per consolidated statements of operations $ 273,621 $ 288,720 $ 317,227 Depreciation and amortization per EBITDA table $ 273,544 $ 287,943 $ 314,476 Amortization of debt issuance costs recorded to interest expense 16,737 16,960 13,419 Amortization of royalty expense recorded to operating expense 247 247 247 Depreciation and amortization of unconsolidated entities (783) (768) (756) Depreciation and amortization attributable to noncontrolling interests 1,134 1,826 3,814 Depreciation and amortization per consolidated statements of cash flows $ 290,879 $ 306,208 $ 331,200 The following table reconciles interest expense per the EBITDA table above to interest expense reported in our consolidated statements of operations for the periods indicated: Year Ended March 31, 2023 2022 2021 (in thousands) Interest expense per EBITDA table $ 275,505 $ 271,689 $ 198,823 Interest expense attributable to unconsolidated entities (60) (65) (71) Interest expense attributable to noncontrolling interests — 16 47 Interest expense per consolidated statements of operations $ 275,445 $ 271,640 $ 198,799 The following table summarizes additional amounts attributable to discontinued operations in the EBITDA table above for the year ended March 31, 2021 (in thousands): Income tax benefit $ (53) Inventory valuation adjustment $ 27 Lower of cost or net realizable value adjustments $ (27) Loss on disposal or impairment of assets, net $ 1,174 75 The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated. Year Ended March 31, 2023 Water Solutions Crude Oil Logistics Liquids Logistics Corporate and Other Consolidated (in thousands) Operating income (loss) $ 198,924 $ 81,524 $ 66,624 $ (57,909) $ 289,163 Depreciation and amortization 207,081 46,577 13,301 6,662 273,621 Amortization recorded to cost of sales — — 274 — 274 Net unrealized (gains) losses on derivatives (4,464) (50,104) 2,951 1,179 (50,438) CMA Differential Roll net losses (gains) — 3,547 — — 3,547 Inventory valuation adjustment — — (7,795) — (7,795) Lower of cost or net realizable value adjustments — (2,247) (9,287) — (11,534) Loss (gain) on disposal or impairment of assets, net 46,431 31,086 10,283 (912) 86,888 Equity-based compensation expense — — — 2,718 2,718 Acquisition expense 29 — — 89 118 Other income (expense), net 70 330 (1,665) 30,013 28,748 Adjusted EBITDA attributable to unconsolidated entities 4,759 — 27 176 4,962 Adjusted EBITDA attributable to noncontrolling interest (2,269) — — — (2,269) Revaluation of liabilities 9,665 — — — 9,665 Other 2,865 203 1,933 6 5,007 Adjusted EBITDA $ 463,091 $ 110,916 $ 76,646 $ (17,978) $ 632,675 Year Ended March 31, 2022 Water Solutions Crude Oil Logistics Liquids Logistics Corporate and Other Consolidated (in thousands) Operating income (loss) $ 94,851 $ 45,033 $ (8,441) $ (48,400) $ 83,043 Depreciation and amortization 214,558 48,489 18,714 6,959 288,720 Amortization recorded to cost of sales — — 281 — 281 Net unrealized losses (gains) on derivatives 11,652 (23,664) (2,965) — (14,977) CMA Differential Roll net losses (gains) — 67,738 — — 67,738 Inventory valuation adjustment — — 8,409 — 8,409 Lower of cost or net realizable value adjustments — 2,235 8,627 — 10,862 Loss (gain) on disposal or impairment of assets, net 25,598 (3,101) 71,807 (50) 94,254 Equity-based compensation expense — — — (1,052) (1,052) Acquisition expense 4 — — 63 67 Other income, net 718 353 711 472 2,254 Adjusted EBITDA attributable to unconsolidated entities 2,363 — 14 (145) 2,232 Adjusted EBITDA attributable to noncontrolling interest (2,212) — (528) — (2,740) Revaluation of liabilities (6,495) — — — (6,495) Other 921 9,064 (65) — 9,920 Adjusted EBITDA $ 341,958 $ 146,147 $ 96,564 $ (42,153) $ 542,516 76 Year Ended March 31, 2021 Water Solutions Crude Oil Logistics Liquids Logistics Corporate and Other Continuing Operations Discontinued Operations (TPSL, Mid-Con, Gas Blending) Consolidated (in thousands) Operating (loss) income $ (92,720) $ (304,330) $ 70,441 $ (64,144) $ (390,753) $ — $ (390,753) Depreciation and amortization 222,107 60,874 29,184 5,062 317,227 — 317,227 Amortization recorded to cost of sales — — 307 — 307 — 307 Net unrealized losses (gains) on derivatives 24,500 23,432 (566) — 47,366 — 47,366 Inventory valuation adjustment — — 1,197 — 1,197 — 1,197 Lower of cost or net realizable value adjustments — (29,458) (617) — (30,075) — (30,075) Loss on disposal or impairment of assets, net 76,942 384,143 3,350 11,001 475,436 — 475,436 Equity-based compensation expense — — — 6,727 6,727 — 6,727 Acquisition expense 27 — — 1,684 1,711 — 1,711 Other income (expense), net 266 1,565 1,301 (39,635) (36,503) — (36,503) Adjusted EBITDA attributable to unconsolidated entities 3,019 — (3) (252) 2,764 — 2,764 Adjusted EBITDA attributable to noncontrolling interest (1,647) — (2,887) — (4,534) — (4,534) Revaluation of liabilities 6,261 — — — 6,261 — 6,261 Class D Preferred Unitholder consent fee — — — 40,000 40,000 — 40,000 Intersegment transactions (1) — — (27) — (27) — (27) Other 2,751 8,317 100 — 11,168 — 11,168 Discontinued operations — — — — — (621) (621) Adjusted EBITDA $ 241,506 $ 144,543 $ 101,780 $ (39,557) $ 448,272 $ (621) $ 447,651 (1) Amount reflects the transactions with TPSL, Mid-Con and Gas Blending that are eliminated in consolidation. Liquidity, Sources of Capital and Capital Resource Activities General Our principal sources of liquidity and capital resource requirements are cash flows from our operations, borrowings under our ABL Facility, issuing long-term notes, common and/or preferred units, loans from financial institutions, asset securitizations or the sale of assets. We expect our primary cash outflows to be related to capital expenditures, interest and repayment of debt maturities. On February 4, 2021, we closed on our $2.05 billion 2026 Senior Secured Notes offering and entered into a $500.0 million ABL Facility. See Note 7 to our consolidated financial statements included in this Annual Report for a further discussion of these transactions and a description of the 2026 Senior Secured Notes and ABL Facility. These transactions extended the maturity of our debt and provided us with improved liquidity. In conjunction with the transaction, we agreed to certain restricted payment provisions, one of which requires us to temporarily suspend the quarterly common unit distribution which began with the quarter ended December 31, 2020, as well as distributions on all of our preferred units, which began with the quarter ended March 31, 2021, until our total leverage ratio (as defined in the indenture for the 2026 Senior Secured Notes) falls below 4.75 to 1.00. As of March 31, 2023, our total leverage ratio was 4.56 to 1.00. The cash savings from the suspension of the distributions have accelerated the deleveraging of our balance sheet, increased our liquidity and should continue to create more financial flexibility going forward. We believe that our anticipated cash flows from operations and the borrowing capacity under the ABL Facility will be sufficient to meet our liquidity needs. Our borrowing needs vary during the year due in part to the seasonal nature of certain businesses within our Liquids Logistics segment. Our greatest working capital borrowing needs generally occur during the period of June through December, when we are building our natural gas liquids inventories in anticipation of the butane blending and heating seasons. Our working capital borrowing needs generally decline during the period of January through 77 March, when the cash inflows from our Liquids Logistics segment are the greatest. In addition, our working capital borrowing needs vary with changes in commodity prices. A significant increase in commodity prices could drive up our working capital demands and limit our ability to continue to delever our balance sheet and restrict our financial flexibility. To protect our liquidity and leverage, we entered into hedges that mitigate this exposure during the time of our fiscal year when we are building inventory. Cash Management We manage cash by utilizing a centralized cash management program that concentrates the cash assets of our operating subsidiaries in joint accounts for the purposes of providing financial flexibility and lowering the cost of borrowing, transaction costs and bank fees. Our centralized cash management program provides that funds in excess of the daily needs of our operating subsidiaries are concentrated, consolidated or otherwise made available for use by other entities within our consolidated group. All of our wholly-owned operating subsidiaries participate in this program. Under the cash management program, depending on whether a participating subsidiary has short-term cash surpluses or cash requirements, we provide cash to the subsidiary or the subsidiary provides cash to us. Short-Term Liquidity Our principal sources of short-term liquidity consist of cash flows from our operations and borrowings under our ABL Facility, which we believe will provide liquidity to operate our business, manage our working capital requirements and repay current maturities. The ABL Facility commitments are $600.0 million which includes a sub-limit for letters of credit of $250.0 million. At March 31, 2023, $138.0 million had been borrowed under the ABL Facility and we had letters of credit outstanding of approximately $152.0 million. The ABL Facility is scheduled to mature at the earliest of (a) February 4, 2026 or (b) 91 days prior to the earliest maturity date in respect to any of our indebtedness in an aggregate principal amount of $50.0 million or greater, if such indebtedness is outstanding at such time, subject to certain exceptions. For additional information related to our ABL Facility, see Note 7 to our consolidated financial statements included in this Annual Report. As of March 31, 2023, our current assets exceeded our current liabilities by approximately $182.3 million. Long-Term Financing We expect to fund our longer-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or the sale of assets. Senior Secured Notes On February 4, 2021, we issued $2.05 billion of 2026 Senior Secured Notes in a private placement. The 2026 Senior Secured Notes bear interest at 7.50%, which is payable on February 1 and August 1 of each year, beginning on August 1, 2021. The 2026 Senior Secured Notes mature on February 1, 2026. Senior Unsecured Notes The senior unsecured notes include the 6.125% senior unsecured notes due 2025 (“2025 Notes”), which mature on March 1, 2025 and the 2026 Notes, which mature on April 15, 2026 (collectively, the “Senior Unsecured Notes”). Repurchases During the year ended March 31, 2023, we repurchased $272.3 million of the 2023 Notes and $12.5 million of the 2026 Notes at a cumulative cash cost of $275.9 million (excluding payments of accrued interest). 78 Redemptions On February 23, 2023, we called the remaining 2023 Notes for redemption. The aggregate outstanding principal amount was $203.4 million. On March 30, 2023, registered holders of the 2023 Notes received a redemption payment equal to 100% of the principal amount of the 2023 Notes, plus all accrued and unpaid interest as of the redemption date. As of March 1, 2023, we have the right to redeem all or a portion of the outstanding 2025 Notes at 100% of the principal amount plus accrued and unpaid interest. As of April 15, 2024, we will have the right to redeem all or a portion of the outstanding 2026 Notes at 100% of the principal amount plus accrued and unpaid interest. Other Long-term Debt On October 29, 2020, we entered into an equipment loan for $45.0 million which bears interest at a rate of 8.6% and is secured by certain of our barges and towboats. The equipment loan was paid off on March 30, 2023 when we sold our marine assets (see Note 17 to our consolidated financial statements included in this Annual Report). For additional information related to our long-term debt, see Note 7 to our consolidated financial statements included in this Annual Report. Capital Expenditures, Acquisitions and Other Investments The following table summarizes expansion and maintenance capital expenditures (which excludes additions for tank bottoms and linefill and has been prepared on the accrual basis), acquisitions and other investments for the periods indicated. Capital Expenditures Other Year Ended March 31, Expansion (1) Maintenance Acquisitions Investments (2) (in thousands) 2023 $ 79,091 $ 61,649 $ — $ 88 2022 $ 75,554 $ 59,468 $ — $ 350 2021 $ 90,920 $ 28,787 $ (901) $ 963 (1) Amount for the year ended March 31, 2021 includes $18.2 million of transactions classified as acquisitions of assets. (2) Amounts relate to contributions made to unconsolidated entities. Capital expenditures for the year ending March 31, 2024 are expected to be $125 million. Distributions Declared The board of directors of our GP decided to temporarily suspend all distributions in order to deleverage our balance sheet until we meet the 4.75 to 1.00 total leverage ratio set forth within the indenture of the 2026 Senior Secured Notes. This resulted in the suspension of the quarterly common unit distributions, which began with the quarter ended December 31, 2020, and all preferred unit distributions, which began with the quarter ended March 31, 2021. The board of directors of our GP expects to evaluate the reinstatement of the common unit and all preferred unit distributions in due course, taking into account a number of important factors, including our leverage, liquidity, the sustainability of cash flows, upcoming debt maturities, capital expenditures and the overall performance of our businesses. See further discussion of our cash distribution policy in Part II, Item 5–“Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities” included in this Annual Report. Contractual Obligations Our contractual obligations primarily consist of purchase commitments, outstanding debt principal and interest obligations, lease obligations, pipeline commitments, asset retirement obligations and other commitments. Purchase Commitments Our fixed-price and index-price commodity purchase commitments result from contracts we have entered into for which we expect the parties to physically settle and deliver the inventory in future periods. As of March 31, 2023, our purchase 79 commitments totaled $7.7 billion, with $5.4 billion due within one year. See Note 8 to our consolidated financial statements included in this Annual Report for information regarding our commodity purchase commitments and timing of our expected purchase commitments payments. Debt Principal and Interest Obligations As of March 31, 2023, our aggregate principal amount of outstanding debt was $2.9 billion, with nothing due within one year. Our interest obligation on the debt was $588.6 million, with $213.0 million due within one year, based on our outstanding balances and interest rates as of March 31, 2023. See Note 7 to our consolidated financial statements included in this Annual Report for information regarding our outstanding debt principal and interest obligations and timing of our expected debt principal and interest payments. Operating Lease Obligations As of March 31, 2023, our undiscounted operating lease obligation was $121.4 million, with $40.8 million due within one year. See Note 15 to our consolidated financial statements included in this Annual Report for information regarding our lease obligations and timing of our expected lease payments. Pipeline Commitments Our pipeline commitments are noncancelable agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on their pipelines. As of March 31, 2023, our future minimum throughput payments were $53.6 million, with $26.9 million due within one year. See Note 8 to our consolidated financial statements included in this Annual Report for information regarding our pipeline commitments and timing of our expected pipeline commitments payments. Asset Retirement Obligations We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement or removal activities when the assets are retired. As of March 31, 2023, our asset retirement obligations were $35.2 million, of which we expect to settle $0.3 million during the next fiscal year. See Note 8 to our consolidated financial statements included in this Annual Report for information regarding our asset retirement obligations and timing of our expected asset retirement obligations payments. Other Commitments We have noncancelable agreements for product storage, railcar spurs and real estate. As of March 31, 2023, our commitment obligations were $22.1 million, with $10.3 million due within one year. See Note 8 to our consolidated financial statements included in this Annual Report for information regarding our other commitments and timing of our expected commitment payments. Cash Flows The following table summarizes the sources (uses) of our cash flows from continuing operations for the periods indicated: Year Ended March 31, Cash Flows Provided by (Used in): 2023 2022 2021 (in thousands) Operating activities, before changes in operating assets and liabilities $ 447,024 $ 342,362 $ 295,301 Changes in operating assets and liabilities (1,838) (136,516) 10,462 Operating activities-continuing operations $ 445,186 $ 205,846 $ 305,763 Investing activities-continuing operations $ 64,188 $ (212,408) $ (221,493) Financing activities-continuing operations $ (507,765) $ 5,555 $ (100,376) Operating Activities-Continuing Operations. The seasonality of our Liquids Logistics segment has a significant effect on our cash flows from operating activities. Increases in natural gas liquids prices typically reduce our operating cash flows due to higher cash requirements to fund increases in inventories and decreases in natural gas liquids prices typically increase our 80 operating cash flows due to lower cash requirements to fund increases in inventories. In our Liquids Logistics segment, we typically experience operating losses or lower operating income during our first and second quarters, or the six months ending September 30, as a result of lower volumes of natural gas liquids sales and when we are building our inventory levels for the upcoming butane blending and heating seasons, which generally begin in late fall, under normal demand conditions, and run through February or March. We borrow under the revolving credit facility to supplement our operating cash flows during the periods in which we are building inventory. Our operations, and as a result our cash flows, are also impacted by positive and negative movements in commodity prices, which cause fluctuations in the value of inventory, accounts receivable and payables, due to increases and decreases in revenues and cost of sales. The increase in net cash provided by operating activities during the year ended March 31, 2023 was due primarily to fluctuations in working capital, particularly accounts receivable, inventory and accounts payable, during the year ended March 31, 2023 and increased earnings from operations. The decrease in net cash provided by operating activities during the year ended March 31, 2022 was due primarily to fluctuations in the value of accounts receivable and accounts payable, increased inventory valuations and higher interest expense during the year ended March 31, 2022. Investing Activities-Continuing Operations . Net cash provided by investing activities was $64.2 million during the year ended March 31, 2023, compared to net cash used in investing activities of $212.4 million during the year ended March 31, 2022. The decrease in net cash used in investing activities was due primarily to: • a $206.5 million decrease in payments to settle derivatives; and • a $75.6 million increase in proceeds received from the sale of certain assets and businesses primarily related to the sale of our marine assets and certain saltwater disposal assets in March 2023 and the sale of our interest in Sawtooth in June 2021 (see Note 2, Note 4 and Note 17 to our consolidated financial statements included in this Annual Report). These decreases in net cash used in investing activities were partially offset by an increase in capital expenditures from $142.4 million (includes payment of amounts accrued as of March 31, 2021) during the year ended March 31, 2022 to $147.8 million (includes payment of amounts accrued as of March 31, 2022) during the year ended March 31, 2023 due primarily to the timing of the expenditures in our Water Solutions segment. Net cash used in investing activities was $212.4 million during the year ended March 31, 2022, compared to net cash used in investing activities of $221.5 million during the year ended March 31, 2021. The decrease in net cash used in investing activities was due primarily to: • a decrease in capital expenditures from $186.8 million (includes payment of amounts accrued as of March 31, 2020) during the year ended March 31, 2021 to $142.4 million (includes payment of amounts accrued as of March 31, 2021) during the year ended March 31, 2022 due primarily to fewer expansion projects in our Water Solutions segment; and • a $36.2 million increase in proceeds received from the sale of certain assets and businesses primarily related to the sale of our interest in Sawtooth in June 2021 and the sale of certain permits, land and a saltwater disposal facility to a third-party during the year ended March 31, 2021 (see Note 4 and Note 17 to our consolidated financial statements included in this Annual Report). These decreases in net cash used in investing activities were partially offset by a $71.7 million increase in payments to settle derivatives. Financing Activities-Continuing Operations. Net cash used in financing activities was $507.8 million during the year ended March 31, 2023, compared to net cash provided by financing activities of $5.6 million during the year ended March 31, 2022. The increase in net cash used in financing activities was due primarily to: • an increase of $396.1 million paid in cash to repurchase a portion of our Senior Unsecured Notes and redeem the remaining outstanding 2023 Notes during the year ended March 31, 2023; • a decrease of $90.0 million in borrowings on the revolving credit facility (net of repayments) during the year ended March 31, 2023; and • payments on other long-term debt of $43.3 million on the outstanding balance on our equipment loan and a prepayment premium as we sold our marine assets in March 2023 (see Note 17 to our consolidated financial statements included in this Annual Report). 81 These increases in net cash used in financing activities were partially offset by: • a decrease of $9.6 million in debt issuance costs for the revolving credit facility during the year ended March 31, 2023; and • a decrease of $5.0 million in payments on other long-term debt as the Sawtooth credit agreement was paid off and terminated prior to us selling our ownership interest in Sawtooth in June 2021. Net cash provided by financing activities was $5.6 million during the year ended March 31, 2022, compared to net cash used in financing activities of $100.4 million during the year ended March 31, 2021. The decrease in net cash used in financing activities was due primarily to: • an increase of $1.6 billion in borrowings on the revolving credit facilities (net of repayments) during the year ended March 31, 2022; • the repayment and termination of our $250.0 million term credit agreement in February 2021; • a decrease of $144.6 million in distributions paid to our GP and common unitholders, preferred unitholders and noncontrolling interest owners during the year ended March 31, 2022 due primarily to the reduction and subsequent suspension of the quarterly common unit and preferred unit distributions; • $93.4 million in contingent consideration payments during the year ended March 31, 2021 due to installment payments related to the Mesquite Disposals Unlimited, LLC acquisition; • a make-whole fee of $55.6 million related to the termination of our term credit agreement in February 2021; • a decrease of $50.6 million in debt issuance costs related to the termination of our term credit agreement and the issuance of the 2026 Senior Secured Notes in February 2021; and • a decrease of $32.6 million paid in cash to repurchase a portion of our Senior Unsecured Notes during the year ended March 31, 2022. These decreases in net cash used in financing activities were partially offset by: • $2.05 billion in proceeds from the issuance of the 2026 Senior Secured Notes during the year ended March 31, 2021; and • proceeds of $45.0 million for an equipment loan that is secured by certain of our barges and towboats during the year ended March 31, 2021. Supplemental Guarantor Information NGL Energy Partners LP (parent) and NGL Energy Finance Corp. are co-issuers of the Senior Unsecured Notes (see Note 7 to our consolidated financial statements included in this Annual Report). Certain of our wholly owned subsidiaries (“Guarantor Subsidiaries”) have, jointly and severally, fully and unconditionally guaranteed the Senior Unsecured Notes. The guarantees are senior unsecured obligations of each Guarantor Subsidiary and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor Subsidiary, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor Subsidiary. The guarantee of our Senior Unsecured Notes by each Guarantor Subsidiary is subject to certain automatic customary releases, including in connection with the sale, disposition or transfer of all of the capital stock, or of all or substantially all of the assets, of such Guarantor Subsidiary to one or more persons that are not us or a restricted subsidiary, the exercise of legal defeasance or covenant defeasance options, the satisfaction and discharge of the indentures governing our Senior Unsecured Notes, the designation of such Guarantor Subsidiary as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the indentures governing our Senior Unsecured Notes, the release of such Guarantor Subsidiary from its guarantee under our revolving credit facility, the liquidation or dissolution of such Guarantor Subsidiary or upon the consolidation, merger or transfer of all assets of the Guarantor Subsidiary to us or another Guarantor Subsidiary in which the Guarantor Subsidiary dissolves or ceases to exist (collectively, the “Releases”). The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. We are not restricted from making investments in the Guarantor Subsidiaries and there are no significant restrictions on the ability of the Guarantor Subsidiaries to make distributions to NGL Energy Partners LP (parent). None of the assets of the Guarantor Subsidiaries (other than the investments in non-guarantor subsidiaries) are restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended. 82 The rights of holders of our Senior Unsecured Notes against the Guarantor Subsidiaries may be limited under the U.S. Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. As permitted under Rule 13-01(a)(4)(vi) of Regulation S-K, we have excluded summarized financial information for the Partnership because the assets, liabilities, and results of operations of NGL Energy Partners LP (parent), NGL Energy Finance Corp. and the Guarantor Subsidiaries are not materially different than the corresponding amounts in our consolidated financial statements, and we believe that such summarized financial information would be repetitive and would not provide incremental value to investors. Environmental Legislation See Part I, Item 1–“Business–Government Regulation–Greenhouse Gas Regulation” for a discussion of proposed environmental legislation and regulations that, if enacted, could result in increased compliance and operating costs. However, at this time we cannot predict the structure or outcome of any future legislation or regulations or the eventual cost we could incur in compliance. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements that are applicable to us, see Note 2 to our consolidated financial statements included in this Annual Report. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with GAAP requires the selection and application of appropriate accounting principles to the relevant facts and circumstances of our operations and the use of estimates made by management. We have identified the following more critical judgment areas in the application of our accounting policies that are most important to the portrayal of our consolidated financial position and results of operations. The application of these accounting policies, which requires subjective or complex judgments regarding estimates and projected outcomes of future events, and changes in these accounting policies, could have a material effect on our consolidated financial statements. Impairment of Goodwill The goodwill relating to each of our reporting units is tested for impairment annually as well as when an event or change in circumstances indicates an impairment may have occurred. For each reporting unit, we perform a qualitative assessment of relevant events and circumstances about the likelihood of goodwill impairment. If it is deemed more likely than not that the fair value of the reporting unit is less than its carrying value, we calculate the fair value of the reporting unit. Otherwise, further testing is not required. The qualitative assessment is based on reviewing several factors, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other entity specific events (for example, changes in management) or other events such as selling or disposing of a reporting unit. The determination of a reporting unit’s fair value is predicated on our assumptions regarding the future economic prospects of the reporting unit. Such assumptions include (i) discrete financial forecasts for the assets contained within the reporting unit, which rely on management’s estimates of operating margins, (ii) long-term growth rates for cash flows beyond the discrete forecast period, (iii) appropriate discount rates and (iv) estimates of the cash flow multiples to apply in estimating the market value of our reporting units. An estimate of the sensitivity to changes in underlying assumptions of a fair value calculation is not practicable, given the numerous assumptions that can materially affect our estimates. If the fair value of the reporting unit (including its inherent goodwill) is less than its carrying value, an impairment loss is recognized to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value, limited to the total amount of goodwill for the reporting unit. If future results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. During the year ended March 31, 2021, we recorded a goodwill impairment of $237.8 million. We did not record a goodwill impairment during the years ended March 31, 2023 and 2022. See Note 5 to our consolidated financial statements included in this Annual Report for a further discussion of our goodwill impairment assessment. Impairment of Long-Lived Assets We evaluate the carrying value of our long-lived assets (property, plant and equipment and amortizable intangible assets) for potential impairment when events and circumstances warrant such a review. A long-lived asset group is considered 83 impaired when the anticipated undiscounted future cash flows from the use and eventual disposition of the asset group is less than its carrying value. Individual assets are grouped at the lowest level for which the related identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimates of future net cash flows include estimating future volumes, future margins or tariff rates, future operating costs and other estimates and assumptions consistent with our business plans as well as external factors such as industry and economic trends. An estimate of the sensitivity to changes in underlying assumptions of a fair value calculation is not practicable, given the numerous assumptions that can materially affect our estimates. If the carrying value is not recoverable, an impairment loss is measured as the excess of the asset’s carrying value over its estimated fair value. When we cease to use an acquired trade name, we test the trade name for impairment using the relief from royalty method and we begin amortizing the trade name over its estimated useful life as a defensive asset. If future results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. See Note 4 and Note 6 to our consolidated financial statements included in this Annual Report for a further discussion of our impairments of long-lived assets. We evaluate our investments in unconsolidated entities for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the fair value of such investment may have experienced a decline to less than its carrying value and the decline is other than temporary. Depreciation and Amortization Methods and Estimated Useful Lives of Property, Plant and Equipment and Intangible Assets Depreciation and amortization expense is the systematic write-off of the cost of our property, plant and equipment (net of residual or salvage value, if any) and the cost of our amortizable intangible assets to the results of operations for the quarterly and annual periods during which the assets are used. We depreciate our property, plant and equipment and amortize the majority of our intangible assets using the straight-line method, which results in our recording depreciation and amortization expense evenly over the estimated life of the individual asset. The estimate of depreciation and amortization expense requires us to make assumptions regarding the useful economic lives and residual values of our assets. When we acquire and place our property, plant and equipment in service or acquire intangible assets, we develop assumptions about the useful economic lives and residual values of such assets that we believe to be reasonable; however, circumstances may develop that could require us to change these assumptions in future periods, which would change our depreciation and amortization expense prospectively and have a material impact on our results of operations. Examples of such circumstances include changes in laws and regulations that limit the estimated economic life of an asset, changes in technology that render an asset obsolete, changes in expected salvage values or changes in customer attrition rates. See Note 2, Note 4 and Note 6 to our consolidated financial statements included in this Annual Report for a further discussion. Derivative Financial Instruments We record all derivative financial instrument contracts at fair value in our consolidated balance sheets except for normal purchase and normal sale transactions that are expected to result in physical delivery. Changes in the fair value are recorded within revenue (for sales contracts) or cost of sales (for purchase contracts) in our consolidated statements of operations. We determine the fair value of our exchange traded derivative financial instruments utilizing publicly available prices, and for non-exchange traded derivative financial instruments, we utilize pricing models for similar instruments including publicly available prices and forward curves generated from a compilation of data gathered from third parties. Actual amounts could vary materially from estimated fair values due to changes in market prices. In addition, changes in the methods or assumptions used to determine the fair value of our derivative financial instruments could have a material effect on our consolidated financial statements. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk to see the impact of a 10% increase in the underlying commodity value and Note 2 and Note 10 to our consolidated financial statements included in this Annual Report for a further discussion of our derivative financial instruments. Revenue Recognition Our Water Solutions segment has certain long-term contracts with customers that include variable consideration that must be estimated at contract inception and re-assessed at each reporting period. Total consideration for these arrangements is recognized as revenue over the applicable contract period and is based on our measure of satisfaction of our corresponding performance obligation, and the difference in timing of revenue recognition and billings results in contract assets and liabilities. The estimated performance obligation over the life of a contract includes significant judgments by management including volume and forecasted production information. Changes in these assumptions or a contract modification could have a material effect on the amount of variable consideration recognized as revenue. See Note 14 to our consolidated financial statements included in this Annual Report for a further discussion of our revenue recognition policies. 84 Asset Retirement Obligations We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement or removal activities when the assets are retired. Our largest asset retirement obligations involve the abandonment or removal of pipelines and saltwater and freshwater disposal wells. We are required to recognize the fair value of a liability for an asset retirement obligation if a reasonable estimate of fair value can be made. In order to determine the fair value of such a liability, we must make certain estimates and assumptions including, among other things, projected cash flows, the estimated timing of retirement, a credit-adjusted risk-free interest rate, and an assessment of market conditions, which could significantly impact the estimated fair value of the asset retirement obligation. Most of these retirement obligations are many years, or decades, in the future and the contracts and regulations often have vague descriptions of what removal practices and criteria must be met when the removal event actually occurs. These estimates and assumptions are very subjective and can vary over time. Our consolidated balance sheet at March 31, 2023 includes a liability of $35.2 million related to asset retirement obligations, which is reported within other noncurrent liabilities. In addition to the obligations described above, we may be obligated to remove facilities or perform other remediation upon retirement of certain other assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminable. We will record an asset retirement obligation for these assets in the periods in which settlement dates are reasonably determinable. Acquisitions Fair values of assets acquired and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal. Estimating fair values can be complex and subject to significant business judgment. We must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria, including assets that were not previously recorded by the acquired entity. The estimates most commonly involve property, plant and equipment and intangible assets, including those with indefinite lives. The estimates also include the fair value of contracts including commodity purchase and sale agreements, storage contracts, and transportation contracts. The judgments made in the determination of the estimated fair value assigned to the assets acquired, the liabilities assumed and any noncontrolling interest in the investee, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. While we believe we have made reasonable assumptions to calculate the fair value, if future results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. For a business combination, the excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually. Pursuant to GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination. Inventories Our inventories consist of crude oil, natural gas liquids, diesel, ethanol and biodiesel. Our inventories are valued at the lower of cost or net realizable value, with cost determined using either the weighted-average cost or the first in, first out (FIFO) methods, including the cost of transportation and storage, and with net realizable value defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. In performing this analysis, we consider fixed-price forward commitments. At the end of each fiscal year, we also perform a “lower of cost or net realizable value” analysis; if the cost basis of the inventories would not be recoverable based on the net realizable value at the end of the year, we reduce the book value of the inventories to the recoverable amount. When performing this analysis during interim periods within a fiscal year, accounting standards do not require us to record a lower of cost or net realizable value write-down if we expect the net realizable value to recover by our fiscal year end. The net realizable values of these commodities change on a daily basis as supply and demand conditions change. We are unable to control changes in the net realizable value of these commodities and are unable to determine whether write-downs will be required in future periods.