NGL Energy Partners LP 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview NGL Energy Partners LP, a Delaware master limited partnership (“we,” “us,” “our,” or the “Partnership”), is a diversified midstream energy partnership that transports, treats, recycles and disposes of produced and flowback water generated as part of the energy production process as well as transports, stores, markets and provides other logistics services for crude oil and liquid hydrocarbons. NGL Energy Holdings LLC serves as our general partner (“GP”). At March 31, 2024, 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 Denver-Julesburg (“DJ”) Basin in Colorado and the Eagle Ford Basin in Texas. With a system that handled approximately 884.6 million barrels of produced water across its areas of operation during the year ended March 31, 2024, we believe that we are the largest independent produced water transportation and disposal company in the United States. The opportunity to generate revenue in our Water Solutions segment 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 Delaware and Eagle Ford 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 $231.3 million during the year ended March 31, 2024, compared to operating income of $198.9 million during the year ended March 31, 2023. 54 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 and storage tanks. 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 2024 $ 67.12 $ 93.68 $ 83.17 2023 $ 66.74 $ 122.11 $ 75.67 2022 $ 58.65 $ 123.70 $ 100.28 We believe volatility in commodity prices will continue, and our ability to adjust to and manage this volatility may impact our financial results. Our Crude Oil Logistics segment generated operating income of $52.1 million during the year ended March 31, 2024, compared to operating income of $81.5 million during the year ended March 31, 2023. 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 23 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 also own a propane pipeline 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. 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. 55 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 2024 $ 0.49 $ 0.91 $ 0.78 $ 0.53 $ 0.97 $ 0.84 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 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 2024 $ 0.58 $ 1.14 $ 0.98 2023 $ 0.85 $ 1.65 $ 0.92 2022 $ 0.78 $ 2.01 $ 1.71 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 Barrel Year Ended March 31, Low High At Period End 2024 $ 83.15 $ 124.53 $ 115.97 2023 $ 86.06 $ 179.60 $ 113.42 2022 $ 81.95 $ 154.67 $ 133.96 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 Barrel Year Ended March 31, Low High At Period End 2024 $ 93.76 $ 146.22 $ 109.86 2023 $ 109.41 $ 215.69 $ 112.40 2022 $ 74.44 $ 186.37 $ 155.03 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 $2.5 million during the year ended March 31, 2024, compared to operating income of $66.6 million during the year ended March 31, 2023. Other Developments Global Pandemic, International Conflicts and Market Update Since March 2020, and throughout the last three 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, the current conflict between Israel and Hamas that began in October 2023 and conflicts involving Iran and its proxy forces. While we have seen continued recovery in commodity prices since the beginning of the pandemic, there is still volatility that we expect to continue at least for the near-term and possibly longer, due to these conflicts. This volatility could result in economic recession or depression and negatively impact future prices for crude 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, we may also see higher costs of operating our assets and executing on our capital projects in fiscal year 2025. In an effort to curb inflation, the U.S. Federal Reserve raised interest rates during fiscal year 56 2023, in May 2023 and most recently in July 2023. If the U.S. Federal Reserve implements additional increases, costs under our variable-rate debt and preferred units will increase (see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk–Interest Rate Risk” included in this Annual Report on Form 10-K (“Annual Report”)). 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 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, and with our unique positioning outside of the affected areas, we have the ability to grow our asset base. Regulatory Developments On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted a new set of rules that require a wide range of climate-related disclosures, including material climate-related risks, information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition, Scope 1 and Scope 2 greenhouse gas emissions on a phased-in basis by certain larger registrants when those emissions are material and the filing of an attestation report covering the same, and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC ’s new climate rules, which have been consolidated and will be heard in the U.S. Court of Appeals for the Eighth Circuit. On April 4, 2024, the SEC issued an order staying the final rules until judicial review is complete. Consolidated Results of Operations The following table summarizes our consolidated statements of operations for the periods indicated: Year Ended March 31, 2024 2023 2022 (in thousands) Revenues $ 6,956,571 $ 8,694,904 $ 7,947,915 Cost of sales 5,966,794 7,650,024 7,139,312 Operating expenses 305,185 313,725 285,535 General and administrative expense 121,881 71,818 63,546 Depreciation and amortization 266,523 273,621 288,720 Loss on disposal or impairment of assets, net 115,936 86,888 94,254 Revaluation of liabilities 2,680 9,665 (6,495) Operating income 177,572 289,163 83,043 Equity in earnings of unconsolidated entities 4,120 4,120 1,400 Interest expense (269,923) (275,445) (271,640) (Loss) gain on early extinguishment of liabilities, net (55,281) 6,177 1,813 Other income, net 2,793 28,748 2,254 (Loss) income before income taxes (140,719) 52,763 (183,130) Income tax expense (2,405) (271) (971) Net (loss) income (143,124) 52,492 (184,101) Less: Net income attributable to noncontrolling interests (631) (1,106) (655) Net (loss) income attributable to NGL Energy Partners LP $ (143,755) $ 51,386 $ (184,756) 57 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 commodity price volatility, demand fluctuations, acquisitions, dispositions and other transactions. Debt Refinancing On February 2, 2024, we closed a debt refinancing transaction of $2.9 billion consisting of a private offering of $2.2 billion of senior secured notes and also entered into a new seven-year $700.0 million senior secured term loan “B” credit facility (“Term Loan B”). The net proceeds from these transactions were used to (i) fund the redemption, and related discharge of the indentures governing our existing 7.5% senior secured notes due 2026 (“2026 Senior Secured Notes”) as well as our 6.125% senior unsecured notes due 2025 (“2025 Notes”) and 7.5% senior unsecured notes due 2026 (“2026 Notes”) (collectively, the “Senior Unsecured Notes”), including any applicable premiums and accrued and unpaid interest, (ii) to pay fees and expenses in connection therewith, (iii) to repay borrowings under the $600.0 million asset-based revolving credit facility (“ABL Facility”) and (iv) to the extent of any remaining net proceeds, for general corporate purposes. In addition, we amended the ABL Facility. See Note 7 to our consolidated financial statements included in this Annual Report and “–Liquidity, Sources of Capital and Capital Resource Activities” for a further discussion of these transactions. Repurchase and/or Redemption of Senior Secured Notes and Senior Unsecured Notes During the three months ended March 31, 2024, we repurchased and/or redeemed all $2.1 billion of our outstanding 2026 Senior Secured Notes and $280.7 million of the 2025 Notes. On February 2, 2024, we deposited $331.9 million with the trustee for the redemption of the 2026 Notes. See Note 7 to our consolidated financial statements included in this Annual Report for a further discussion of the repurchases and redemptions. Dispositions We completed several dispositions during the years ended March 31, 2024, 2023 and 2022. These transactions impact the comparability of our results of operations between our current and prior fiscal years. See Note 17 to our consolidated financial statements included in this Annual Report for a discussion of dispositions that occurred during the current and prior fiscal years. 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 ABL 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–General”). Subsequent Events See Note 18 to our consolidated financial statements included in this Annual Report for a discussion of transactions that occurred subsequent to March 31, 2024. 58 Segment Operating Results for the Years Ended March 31, 2024 and 2023 Water Solutions The following table summarizes the operating results of our Water Solutions segment for the periods indicated. Year Ended March 31, 2024 2023 Change (in thousands, except per barrel and per day amounts) Revenues: Water disposal service fees $ 572,972 $ 524,689 $ 48,283 Sale of recovered crude oil 107,367 120,705 (13,338) Recycled water 9,785 13,841 (4,056) Other revenues 40,694 37,803 2,891 Total revenues 730,818 697,038 33,780 Expenses: Cost of sales-excluding impact of derivatives 10,146 9,737 409 Derivative loss 1,148 4,363 (3,215) Operating expenses 212,052 212,115 (63) General and administrative expenses 5,417 8,722 (3,305) Depreciation and amortization expense 214,480 207,081 7,399 Loss on disposal or impairment of assets, net 53,639 46,431 7,208 Revaluation of liabilities 2,680 9,665 (6,985) Total expenses 499,562 498,114 1,448 Segment operating income $ 231,256 $ 198,924 $ 32,332 Produced water processed (barrels per day) Delaware Basin 2,123,337 2,042,777 80,560 Eagle Ford Basin 142,374 119,458 22,916 DJ Basin 150,426 150,619 (193) Other Basins 740 14,483 (13,743) Total 2,416,877 2,327,337 89,540 Recycled water (barrels per day) 84,212 118,847 (34,635) Total (barrels per day) 2,501,089 2,446,184 54,905 Skim oil sold (barrels per day) (1) 3,992 3,764 228 Service fees for produced water processed ($/barrel) (2) $ 0.65 $ 0.62 $ 0.03 Recovered crude oil for produced water processed ($/barrel) (2) $ 0.12 $ 0.14 $ (0.02) Operating expenses for produced water processed ($/barrel) (2) $ 0.24 $ 0.25 $ (0.01) (1) During the three months ended March 31, 2023, 34,380 barrels of skim oil were stored and were sold during the year ended March 31, 2024. (2) Total produced water barrels processed during the years ended March 31, 2024 and 2023 were 884,576,981 and 849,477,938, respectively. These amounts do not include 63,968,944 barrels and 36,143,594 barrels for the years ended March 31, 2024 and 2023, respectively, related to payments received from producers for committed volumes not delivered, as discussed further below. Water Disposal Service Fee Revenues. The increase was due primarily to an increase in produced water volumes processed from contracted customers mainly in the Delaware Basin, increased fees from new contracts and higher fees charged for interruptible spot volumes. There was also 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. In addition, in July 2023, we entered into a transaction in which a portion of the total consideration received was allocated to revenue due to the termination of a minimum volume water disposal contract (see Note 17 to our consolidated financial statements included in this Annual Report). Recovered Crude Oil Revenues. The decrease was due primarily to lower realized crude oil prices received from the sale of skim oil barrels, partially offset by an increase in skim oil barrels sold as a result of higher skim oil recovered from increased produced water processed. In addition, during the current fiscal year we sold 34,380 barrels of skim oil that were stored as of March 31, 2023 due to tighter pipeline specifications. 59 Recycled Water Revenues. Revenue from recycled water includes the sale of produced water and recycled water for use in our customers’ completion activities. The decrease was due primarily to lower recycled water volumes related to timing of water to be used in completions. 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, booster operating fees and generator rentals. The increase was due primarily to higher reimbursements from construction projects, booster operating fees and generator rentals, higher land surface use revenues and higher lease revenue from certain surface use and compensation agreements. These increases were partially offset by lower water pipeline revenues due to the expiration of certain pipeline commitment revenue in December 2022 and lower sales of brackish non-potable water related to the timing of our customers transitioning from brackish non-potable water to recycled water. Cost of Sales-Excluding Impact of Derivatives . The increase was due primarily to costs incurred that will be reimbursed by producers for generator and fuel costs at various booster stations. In addition, we incurred increased trucking expenses for skim oil sales during the year ended March 31, 2024. These increases were partially offset by lower recycling costs due to a decrease in recycling activity and lower 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, 2024, we had $0.4 million of net unrealized losses on derivatives and $0.8 million of net realized losses on derivatives. 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. Operating and General and Administrative Expenses . The decrease was due primarily to lower chemical expense due to purchasing fewer chemicals and using chemicals more efficiently, lower overhead costs, lower generator rental expense due to renting fewer generators and lower severance taxes due to a decrease in revenue from recovered crude oil and a severance tax refund in September 2023 related to prior periods. These decreases were partially offset by higher operating expenses due to increased produced water volumes processed. Depreciation and Amortization Expense . The increase was due primarily to depreciation of newly developed facilities and infrastructure, partially offset by certain long-term assets being fully amortized or impaired during the fiscal years ended March 31, 2023 and 2024. Loss on Disposal or Impairment of Assets, Net . During the year ended March 31, 2024, we recorded a net loss of $37.5 million primarily related to the write down of the value of certain saltwater disposal wells as well as the abandonment of certain capital projects and the retirement of certain assets, a net loss of $17.6 million primarily related to the sale of certain assets and an impairment of $2.4 million for certain leases due to underutilization of certain freshwater wells. In addition, we recorded a gain of $3.9 million from insurance recoveries for certain saltwater disposal facilities and boosters damaged in a prior period. 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. Revaluation of Liabilities. During the years ended March 31, 2024 and 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. 60 Crude Oil Logistics The following table summarizes the operating results of our Crude Oil Logistics segment for the periods indicated: Year Ended March 31, 2024 2023 Change (in thousands, except per barrel amounts) Revenues: Crude oil sales $ 1,597,238 $ 2,376,434 $ (779,196) Crude oil transportation and other sales 59,373 96,978 (37,605) Total revenues (1) 1,656,611 2,473,412 (816,801) Expenses: Cost of sales-excluding impact of derivatives 1,514,370 2,274,089 (759,719) Derivative loss (gain) 7,367 (14,565) 21,932 Operating expenses 39,004 50,154 (11,150) General and administrative expenses 3,780 4,547 (767) Depreciation and amortization expense 36,922 46,577 (9,655) Loss on disposal or impairment of assets, net 3,094 31,086 (27,992) Total expenses 1,604,537 2,391,888 (787,351) Segment operating income $ 52,074 $ 81,524 $ (29,450) Crude oil sold (barrels) 20,068 25,497 (5,429) Crude oil transported on owned pipelines (barrels) 25,611 27,714 (2,103) Crude oil storage capacity - owned and leased (barrels) (2) 5,232 5,232 — Crude oil storage capacity leased to third-parties (barrels) (2) 2,250 1,501 749 Crude oil inventory (barrels) (2) 573 684 (111) Crude oil sold ($/barrel) $ 79.591 $ 93.204 $ (13.613) Cost per crude oil sold ($/barrel) (3) $ 75.462 $ 89.190 $ (13.728) Crude oil product margin ($/barrel) (3) $ 4.129 $ 4.014 $ 0.115 (1) Revenues include $0.5 million and $8.6 million of intersegment sales during the years ended March 31, 2024 and 2023, respectively, that are eliminated in our consolidated statements of operations. (2) Information is presented as of March 31, 2024 and March 31, 2023, respectively. (3) Cost and product margin per barrel excludes the impact of derivatives. Crude Oil Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to lower sales volumes due to lower production on acreage dedicated to us in the DJ Basin during the year ended March 31, 2024, compared to the year ended March 31, 2023 and a decrease in crude oil prices year over year. Crude oil product margin from the sale of crude oil decreased from $102.3 million for the year ended March 31, 2023 to $82.9 million during the year ended March 31, 2024, primarily due to lower volumes and lower crude oil prices year over year. The lower crude oil prices resulted in lower contracted rates with certain producers, compared to the prior year when the contracted rates were higher due to the higher crude oil prices. We also realized lower contract differentials on certain other sales contracts. Crude oil product margin per barrel increased during the year ended March 31, 2024, compared to the year ended March 31, 2023, due to the sale of lower priced inventory into a market in which prices were increasing during certain periods of 2024. Whereas during the year ended March 31, 2023, we were selling higher priced inventory into a market in which prices were generally declining throughout the fiscal year. Crude oil product margin calculations does not include gain and losses from derivatives that may offset the movement in the physical margin. Derivative Loss (Gain). Our cost of sales during the year ended March 31, 2024 included $58.4 million of net realized gains on derivatives, driven by decreasing crude oil prices, and $65.8 million of net unrealized losses on derivatives. The amounts in the previous sentence for the year ended March 31, 2024 included net realized gains of $60.9 million and net unrealized losses of $61.4 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, 2023 61 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 in the previous sentence for the year ended March 31, 2023 includes 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. Crude Oil Transportation and Other Sales. The decrease was primarily due to the sale of our marine assets on March 30, 2023, and lower pipeline tariff revenue due to the assignment of our commitment on a third-party pipeline. During the year ended March 31, 2024, physical volumes on the Grand Mesa Pipeline averaged approximately 70,000 barrels per day, compared to approximately 76,000 barrels per day for the year ended March 31, 2023. Lower contracted volumes were shipped on the Grand Mesa Pipeline due to lower production on acreage dedicated to us in the DJ Basin. Operating and General and Administrative Expenses . The decrease was primarily due to the sale of our marine assets on March 30, 2023. Additionally, the current year benefited from lower incentive compensation expense, as well as lower repairs and maintenance expense on leased rail cars returned to the lessor in the prior year. Depreciation and Amortization Expense. The decrease was primarily due to the sale of our marine assets on March 30, 2023, lower depreciation expense due to certain of our railcar assets becoming fully depreciated during the year ended March 31, 2024 and the impairment of certain terminal assets in the prior year, which lowered their depreciable base. Loss on Disposal or Impairment of Assets, Net . During the year ended March 31, 2024, we recorded a net loss of $3.1 million primarily due to the retirement or sale of certain assets. 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. 62 Liquids Logistics The following table summarizes the operating results of our Liquids Logistics segment for the periods indicated: Year Ended March 31, 2024 2023 Change (in thousands, except per gallon amounts) Refined products: Sales-excluding impact of derivatives $ 2,192,783 $ 2,554,084 $ (361,301) Cost of sales-excluding impact of derivatives 2,168,481 2,512,748 (344,267) Derivative loss 110 1,255 (1,145) Product margin 24,192 40,081 (15,889) Propane: Sales 739,591 1,161,129 (421,538) Cost of sales-excluding impact of derivatives 692,649 1,103,786 (411,137) Derivative loss 2,463 11,642 (9,179) Product margin 44,479 45,701 (1,222) Butane: Sales 628,685 773,633 (144,948) Cost of sales-excluding impact of derivatives 587,307 776,845 (189,538) Derivative loss (gain) 2,771 (22,976) 25,747 Product margin 38,607 19,764 18,843 Other products: Sales-excluding impact of derivatives 958,291 1,025,733 (67,442) Cost of sales-excluding impact of derivatives 955,259 970,176 (14,917) Derivative (gain) loss (11,360) 24,483 (35,843) Product margin 14,392 31,074 (16,682) Service: Sales 14,151 14,218 (67) Cost of sales 1,379 1,603 (224) Product margin 12,772 12,615 157 Expenses: Operating expenses 54,129 51,456 2,673 General and administrative expenses 7,537 7,571 (34) Depreciation and amortization expense 10,372 13,301 (2,929) Loss on disposal or impairment of assets, net 59,923 10,283 49,640 Total expenses 131,961 82,611 49,350 Segment operating income $ 2,481 $ 66,624 $ (64,143) 63 Year Ended March 31, 2024 2023 Change (in thousands, except per gallon amounts) Natural gas liquids and refined products storage capacity - owned and leased (gallons) (1) 130,441 160,329 (29,888) Refined products sold (gallons) 817,634 769,151 48,483 Refined products sold ($/gallon) $ 2.682 $ 3.321 $ (0.639) Cost per refined products sold ($/gallon) (2) $ 2.652 $ 3.267 $ (0.615) Refined products product margin ($/gallon) (2) $ 0.030 $ 0.054 $ (0.024) Refined products inventory (gallons) (1) 1,872 1,003 869 Propane sold (gallons) 811,035 1,018,937 (207,902) Propane sold ($/gallon) $ 0.912 $ 1.140 $ (0.228) Cost per propane sold ($/gallon) (2) $ 0.854 $ 1.083 $ (0.229) Propane product margin ($/gallon) (2) $ 0.058 $ 0.057 $ 0.001 Propane inventory (gallons) (1) 35,177 48,379 (13,202) Butane sold (gallons) 537,015 539,658 (2,643) Butane sold ($/gallon) $ 1.171 $ 1.434 $ (0.263) Cost per butane sold ($/gallon) (2) $ 1.094 $ 1.440 $ (0.346) Butane product margin (loss) ($/gallon) (2) $ 0.077 $ (0.006) $ 0.083 Butane inventory (gallons) (1) 17,790 17,409 381 Other products sold (gallons) 379,077 391,723 (12,646) Other products sold ($/gallon) $ 2.528 $ 2.619 $ (0.091) Cost per other products sold ($/gallon) (2) $ 2.520 $ 2.477 $ 0.043 Other products product margin ($/gallon) (2) $ 0.008 $ 0.142 $ (0.134) Other products inventory (gallons) (1) 20,112 12,893 7,219 (1) Information is presented as of March 31, 2024 and March 31, 2023, respectively. (2) Cost and product margin (loss) per gallon excludes the impact of derivatives. Refined Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, during the year ended March 31, 2024 were primarily due to a decrease in sales prices during the current year due to lower commodity prices. This decrease was partially offset by an increase in volumes, as we have added new supply and customer contracts in certain markets. Refined Products product margins, excluding the impact of derivatives, for the year ended March 31, 2024 decreased from the year ended March 31, 2023 due primarily to the higher margins generated in the prior year due to higher demand in several markets experiencing tighter supply. These supply issues returned to normal in the current year as supply issues were resolved and the supply/demand balance was restored. Refined Products Derivative Loss. Our Refined Products product margin during the year ended March 31, 2024 included realized losses of $0.1 million and the year ended March 31, 2023 included realized losses of $1.3 million. Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due to lower propane volumes and lower prices during the year ended March 31, 2024. Propane volumes decreased during the year ended March 31, 2024 due to the sale of three natural gas liquids terminals, the loss of a certain supply contract, lower performing natural gas liquids terminals being idled and a focus on more profitable markets and customers. Also, demand was lower during the year ended March 31, 2024 due to the warmer than normal winter. Propane product margins, excluding the impact of derivatives, decreased during the year ended March 31, 2024 primarily due to lower volumes and lower prices. Propane Derivative Loss. Our cost of propane sales included $4.6 million of net unrealized gains on derivatives and $7.0 million of net realized losses on derivatives during the year ended March 31, 2024. During the year ended March 31, 2023, our cost of propane sales included $6.9 million of net unrealized losses on derivatives and $4.7 million of net realized losses on 64 derivatives. Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to lower butane prices. The decrease was also due to lower volumes during the first six months of the year ended March 31, 2024 as a result of weak spot demand, weak export demand and a change in strategy by a significant customer. These decreases were partially offset by strong blending demand from October 2023 through February 15, 2024. Butane product margins, excluding the impact of derivatives, increased during the year ended March 31, 2024, as compared to the year ended March 31, 2023, primarily due to higher demand for butane blending which has tightened up the butane supply, causing sales differentials to increase. Also, in the prior year, we were 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. Butane Derivative Loss (Gain). Our cost of butane sales during the year ended March 31, 2024 included $3.2 million of net unrealized losses on derivatives and $0.5 million of net realized gains on derivatives. Our cost of butane sales included $3.9 million of net unrealized gains on derivatives and $19.1 million of net realized gains on derivatives during the year ended March 31, 2023. Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales and cost of sales, excluding the impact of derivatives, were due primarily to the decrease in market prices during the year ended March 31, 2024 as compared to the year ended March 31, 2023. Market prices for biodiesel decreased due to the United States Environmental Protection Agency (“EPA”) final renewable fuels standards (“RFS”) mandate which lowered the required amount of biodiesel to be blended, thus increasing the amount of supply in the market. The decrease was also the result of lower natural gasoline volumes due to the loss of certain supply contracts. These decreases were partially offset by increased sales of asphalt due to increased supply. Other products sales product margins, excluding the impact of derivatives, decreased during the year ended March 31, 2024 due to the increased supply of biodiesel in the market due to the EPA’s final RFS mandate, which lowered biodiesel and renewable identification numbers prices and delivery of biodiesel contracts entered into in the prior year, when prices were higher, for delivery in the current period when prices were declining. Other Products Derivative (Gain) Loss. Our derivatives of other products included $11.5 million of net realized gains on derivatives and $0.1 million unrealized losses on derivatives during the year ended March 31, 2024. Our derivatives of other products during the year ended March 31, 2023 included $24.6 million of net realized losses on derivatives and $0.1 million of unrealized gains on derivatives. Service Sales and Cost of Sales. The sales include storage, terminaling and transportation services income. Sales during the year ended March 31, 2024 remained consistent with the year ended March 31, 2023 but cost of sales decreased due to lower third-party costs. Operating and General and Administrative Expenses. The increase was due to higher incentive compensation due to improved margins in certain of our businesses year over year. Depreciation and Amortization Expense. The decrease was due to a customer relationship intangible asset being fully amortized as of June 30, 2023. Loss on Disposal or Impairment of Assets, Net. During the year ended March 31, 2024, we recorded a goodwill impairment loss of $69.2 million in our Wholesale/Terminal reporting unit (see Note 5 to our consolidated financial statements included in this Annual Report). In addition, we recorded a net gain of $8.5 million due to the sale of three natural gas liquids terminals and we recorded a net gain of $0.8 million related to the retirement or sale of certain other assets. 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. 65 Corporate and Other The operating loss within “Corporate and Other” includes the following components for the periods indicated: Year Ended March 31, 2024 2023 Change (in thousands) Cost of sales Derivative (gain) loss $ (937) $ 1,181 $ (2,118) Expenses: General and administrative expenses 105,147 50,978 54,169 Depreciation and amortization expense 4,749 6,662 (1,913) Gain on disposal or impairment of assets, net (720) (912) 192 Total expenses 109,176 56,728 52,448 Operating loss $ (108,239) $ (57,909) $ (50,330) Cost of Sales - Derivative (Gain) Loss. Our cost of sales during the year ended March 31, 2024 included $0.2 million of net realized losses on derivatives and $1.2 million of net unrealized gains on derivatives. We entered into economic hedges to protect our liquidity positions and leverage from a significant increase in commodity prices that drive our working capital demands, as we experienced in the prior fiscal year, thus impacting our ability to reduce absolute indebtedness until commodity prices weakened. There were no open hedge positions that would impact cost of sales as of March 31, 2024. General and Administrative Expenses . The increase during the year ended March 31, 2024 relates primarily to the increase in our accrual related to the LCT Capital, LLC (“LCT”) legal matter from $2.5 million to $36.0 million (see Note 8 to our consolidated financial statements included in this Annual Report), and the write-off of $14.2 million of legal costs related to the LCT legal matter that were originally allocated to the GP (see Note 12 to our consolidated financial statements included in this Annual Report). In addition, we also incurred increased business insurance expense as we paid the insurance company to be released from any future supplementary calls on our indemnity policy related to our former crude marine business (which we sold on March 30, 2023), increased insurance premiums and a reduction in our corporate overhead allocation to the other business segments. These increases were partially offset by a decrease in equity-based incentive compensation as our final service award vested on November 15, 2023. Depreciation and Amortization Expense. The decrease during the year ended March 31, 2024 was due to software that became fully depreciated during the year ended March 31, 2024. Gain on Disposal or Impairment of Assets, Net. During the year ended March 31, 2024, we sold an airplane for a gain of $0.7 million. 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 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 of $4.1 million during the year ended March 31, 2024 consisted primarily of earnings from certain membership interests related to specific land and water services operations and earnings from another entity due to a gain recognized on the sale of an airplane during the three months ended December 31, 2023 (see Note 12 to our consolidated financial statements included in this Annual Report). Equity in earnings of unconsolidated entities of $4.1 million during the year ended March 31, 2023 consisted primarily of earnings from certain membership interests related to specific land and water services operations and a loss from our interest in an aircraft company. 66 Interest Expense The following table summarizes the components of our consolidated interest expense for the periods indicated: Year Ended March 31, 2024 2023 Change (in thousands) Senior secured notes $ 160,088 $ 153,750 $ 6,338 Senior unsecured notes 40,829 76,288 (35,459) ABL Facility 15,645 17,111 (1,466) Term Loan B 11,275 — 11,275 Other indebtedness 26,900 11,559 15,341 Total debt interest expense 254,737 258,708 (3,971) Amortization of debt issuance costs 15,701 16,737 (1,036) Unrealized gain on interest rate swap (515) — (515) Total interest expense $ 269,923 $ 275,445 $ (5,522) The debt interest expense decreased $4.0 million during the year ended March 31, 2024 primarily due to the repurchase of the 7.5% senior unsecured notes due 2023 (“2023 Notes”) throughout the prior year and the redemption of the remaining 2023 Notes on March 31, 2023. In addition, we repurchased a portion of the outstanding 2025 Notes during the three months ended June 30, 2023. Also, in the prior year, we had an accrual of the settlement of a claim for the failure to pay interest on royalty payments. These decreases were partially offset by $26.1 million of interest accrued related to the LCT legal matter (see Note 8 to our consolidated financial statements included in this Annual Report) and an increase due to higher interest rates on the new debt instruments. (Loss) Gain on Early Extinguishment of Liabilities, Net Loss on early extinguishment of liabilities, net was $55.3 million during the year ended March 31, 2024, compared to a gain on early extinguishment of liabilities, net of $6.2 million during the year ended March 31, 2023. During the year ended March 31, 2024, the net loss (inclusive of debt issuance costs written off) primarily relates to the call premium of $38.4 million paid for the early extinguishment of the outstanding 2026 Senior Secured Notes, the write-off of debt issuance costs and other expenses related to the repurchase/redemption of the 2026 Senior Secured Notes and Senior Unsecured Notes during the fiscal year. During the year ended March 31, 2023, the net gain (inclusive of debt issuance costs written off) primarily related to the early extinguishment of a portion of the outstanding Senior Unsecured Notes partially offset by the write-off of debt issuance costs. 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. See Note 7 to our consolidated financial statements included in this Annual Report for a further discussion of the debt instruments repurchased and redeemed. Other Income, Net Other income, net of $2.8 million during the year ended March 31, 2024 consisted primarily of interest income on loan receivables (see Note 2 to our consolidated financial statements included in this Annual Report for a further discussion) and cash on hand, income from the settlement of a dispute and income from excess distributions received from an equity method investee (see Note 2 to our consolidated financial statements included in this Annual Report for a further discussion). Other income, net of $28.7 million during the year ended March 31, 2023 consisted primarily of a 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 $2.4 million during the year ended March 31, 2024, compared to income tax expense of $0.3 million during the year ended March 31, 2023. 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 $0.6 million during the year ended March 31, 2024, compared to $1.1 million during the 67 year ended March 31, 2023. The decrease of $0.5 million during the year ended March 31, 2024 was due primarily to lower income from certain water solutions operations during the year ended March 31, 2024. 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, 34,380 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. These amounts do not include 36,143,594 barrels and 25,653,729 barrels for the years ended March 31, 2023 and 2022, respectively, related to payments received from producers for committed volumes not delivered, as discussed further below. 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 68 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. 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. 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 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. 69 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 sales 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 and Cost of Sales-Excluding Impact of Derivatives. The decrease in sales 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 sales, 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. The increase in cost of sales, excluding the impact of derivatives, 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. Crude oil product margin from the sale of crude oil decreased 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. 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 in the previous sentence 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 70 included $115.7 million of net realized losses on derivatives, driven by increasing crude oil prices, and $23.7 million of net unrealized gains on derivatives. The amounts in the previous sentence for the year ended March 31, 2022 include 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 Transportation and Other Sales. 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. 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. 71 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-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 (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 (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 products: Sales -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: Sales (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 72 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 sales 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 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. 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. Propane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales 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 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 73 opposite situation and were replacing our inventory when prices were rising. Propane Derivative Loss (Gain). Our cost of propane 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 propane sales included $2.0 million of net unrealized gains on derivatives and $18.5 million of net realized gains on derivatives. Butane Sales and Cost of Sales-Excluding Impact of Derivatives. The decreases in sales 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 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. 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. Other Products Sales and Cost of Sales-Excluding Impact of Derivatives. The increases in sales 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 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. Other Products Derivative Loss. Our derivatives of other products included $24.6 million of net realized losses on derivatives and $0.1 million of 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. Service Sales and Cost of Sales. The sales include storage, terminaling and transportation services income. The decrease during the year ended March 31, 2023 was due to the disposition of Sawtooth Caverns, LLC (“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. 74 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 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) ABL 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 75 statements included in this Annual Report and an increase in the ABL Facility interest rates in the current year. The increases in the current year were offset by lower interest expense resulting from repurchases of a portion of our Senior Unsecured Notes. 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 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. 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, revaluation of liabilities and other. We also include in Adjusted EBITDA certain inventory valuation adjustments related to certain refined products businesses within our Liquids Logistics segment as discussed below. EBITDA and Adjusted EBITDA should not be considered as alternatives to net (loss) income, (loss) income 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. Other than for 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 76 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 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 differed from period to period depending on the current crude oil price and future estimated crude oil price which were valued utilizing third-party market quoted prices. We recognized 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 hedged each month through the term of this transaction. This representation aligns with management’s evaluation of the transaction. The derivative instrument positions we entered into related to the CMA Differential Roll expired as of December 31, 2023, and we have not entered into any new derivative instrument positions related to the CMA Differential Roll. The following table reconciles net (loss) income to EBITDA and Adjusted EBITDA for the periods indicated: Year Ended March 31, 2024 2023 2022 (in thousands) Net (loss) income $ (143,124) $ 52,492 $ (184,101) Less: Net income attributable to noncontrolling interests (631) (1,106) (655) Net (loss) income attributable to NGL Energy Partners LP (143,755) 51,386 (184,756) Interest expense 270,004 275,505 271,689 Income tax expense 2,405 271 971 Depreciation and amortization 266,287 273,544 287,943 EBITDA 394,941 600,706 375,847 Net unrealized losses (gains) on derivatives 63,762 (50,438) (14,977) CMA Differential Roll net losses (gains) (1) (71,285) 3,547 67,738 Inventory valuation adjustment (2) (3,419) (7,795) 8,409 Lower of cost or net realizable value adjustments 1,337 (11,534) 10,862 Loss on disposal or impairment of assets, net 115,555 86,872 94,059 Loss (gain) on early extinguishment of liabilities, net 55,281 (6,177) (1,851) Equity-based compensation expense 1,098 2,718 (1,052) Revaluation of liabilities (3) 2,680 9,665 (6,495) Other (4) 50,131 5,111 9,976 Adjusted EBITDA $ 610,081 $ 632,675 $ 542,516 (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 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. (4) Amounts represent accretion expense for asset retirement obligations, unrealized gains/losses on marketable securities and expenses incurred related to legal and advisory costs associated with acquisitions and dispositions, including the accrued judgment related to the LCT legal matter, excluding interest (see Note 8 to our consolidated financial statements included in this Annual Report), and the write-off of the legal costs related to the LCT legal matter that were originally allocated to the GP (see Note 12 to our consolidated financial statements included in this Annual Report). Also, the amount for the year ended March 31, 2023 includes the write off of an asset acquired in a prior period acquisition and the amounts for the years ended March 31, 2023 and 2022 include non-cash operating expenses related to our Grand Mesa Pipeline. 77 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, 2024 2023 2022 (in thousands) Depreciation and amortization per EBITDA table $ 266,287 $ 273,544 $ 287,943 Intangible asset amortization recorded to cost of sales (260) (274) (281) Depreciation and amortization attributable to unconsolidated entities (686) (783) (768) Depreciation and amortization attributable to noncontrolling interests 1,182 1,134 1,826 Depreciation and amortization per consolidated statements of operations $ 266,523 $ 273,621 $ 288,720 Depreciation and amortization per EBITDA table $ 266,287 $ 273,544 $ 287,943 Amortization of debt issuance costs recorded to interest expense 15,701 16,737 16,960 Amortization of royalty expense recorded to operating expense 247 247 247 Depreciation and amortization attributable to unconsolidated entities (686) (783) (768) Depreciation and amortization attributable to noncontrolling interests 1,182 1,134 1,826 Depreciation and amortization per consolidated statements of cash flows $ 282,731 $ 290,879 $ 306,208 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, 2024 2023 2022 (in thousands) Interest expense per EBITDA table $ 270,004 $ 275,505 $ 271,689 Interest expense attributable to unconsolidated entities (81) (60) (65) Interest expense attributable to noncontrolling interests — — 16 Interest expense per consolidated statements of operations $ 269,923 $ 275,445 $ 271,640 The following tables reconcile operating income (loss) to Adjusted EBITDA by segment for the periods indicated. Year Ended March 31, 2024 Water Solutions Crude Oil Logistics Liquids Logistics Corporate and Other Consolidated (in thousands) Operating income (loss) $ 231,256 $ 52,074 $ 2,481 $ (108,239) $ 177,572 Depreciation and amortization 214,480 36,922 10,372 4,749 266,523 Amortization recorded to cost of sales — — 260 — 260 Net unrealized losses (gains) on derivatives 385 65,786 (1,230) (1,179) 63,762 CMA Differential Roll net losses (gains) — (71,285) — — (71,285) Inventory valuation adjustment — — (3,419) — (3,419) Lower of cost or net realizable value adjustments — — 1,337 — 1,337 Loss (gain) on disposal or impairment of assets, net 53,639 3,094 59,923 (720) 115,936 Equity-based compensation expense — — — 1,098 1,098 Other income, net 1,110 105 12 1,566 2,793 Adjusted EBITDA attributable to unconsolidated entities 4,393 — (12) 124 4,505 Adjusted EBITDA attributable to noncontrolling interest (1,821) — — — (1,821) Revaluation of liabilities 2,680 — — — 2,680 Other 2,186 191 230 47,533 50,140 Adjusted EBITDA $ 508,308 $ 86,887 $ 69,954 $ (55,068) $ 610,081 78 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 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 2,894 203 1,933 95 5,125 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) 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 925 9,064 (65) 63 9,987 Adjusted EBITDA $ 341,958 $ 146,147 $ 96,564 $ (42,153) $ 542,516 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 the ABL Facility, issuing long-term notes, common and/or preferred units, loans from financial institutions, asset securitizations or asset sales. We expect our primary cash outflows to be related to capital expenditures, interest and repayment of debt maturities and distributions. On February 2, 2024, we closed a debt refinancing transaction of $2.9 billion. The refinancing consisted of a private offering of $2.2 billion of senior secured notes, which includes $900.0 million of 8.125% senior secured notes due 2029 (“2029 Senior Secured Notes”) and $1.3 billion of 8.375% senior secured notes due 2032 (“2032 Senior Secured Notes”). We also entered into a new seven-year $700.0 million Term Loan B. The net proceeds from these transactions were used to (i) to fund the redemption, and related discharge of the indentures governing our existing 2025 Notes, 2026 Notes and 2026 Senior Secured Notes, including any applicable premiums and accrued and unpaid interest (as discussed further below), (ii) to pay fees and expenses in connection therewith, (iii) to repay borrowings under the ABL Facility and (iv) to the extent of any remaining net proceeds, for general corporate purposes. 79 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 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 have in the past and may in the future enter into economic hedges that mitigate this exposure when we are building inventory. There were no open hedge positions as of March 31, 2024. 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 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 the ABL Facility, which we believe will provide liquidity to operate our business, manage our working capital requirements and repay current maturities. On February 2, 2024, we amended the ABL Facility to, among other things, (i) extend the maturity to the earliest of (a) February 2, 2029 and (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, subject to certain exceptions, (ii) provide for a sub-limit of $200.0 million for letters of credit and a $200.0 million incremental facility, subject to the receipt of commitments from lenders and customary borrowing conditions, (iii) modify the applicable margin for loans under the ABL Facility based on a secured overnight financing rate (“SOFR”) or the alternative base rate to provide for a 0.25% decrease based on our consolidated net leverage ratio, and (iv) provide for a mandatory prepayment under the ABL Facility while any loans are outstanding under the ABL Facility if aggregate “excess cash” (as defined in the ABL Facility) exceeds $50.0 million, subject to certain exceptions. The commitments under the ABL Facility are $600.0 million. At March 31, 2024, there were no borrowings under the ABL Facility and we had letters of credit outstanding of approximately $99.5 million. For additional information related to the ABL Facility and the amendment, see Note 7 to our consolidated financial statements included in this Annual Report. As of March 31, 2024, our current assets exceeded our current liabilities by approximately $201.6 million. Long-Term Financing We expect to fund our long-term financing requirements by issuing long-term notes, common units and/or preferred units, loans from financial institutions, asset securitizations or asset sales. New Senior Secured Notes On February 2, 2024, we closed on our private offering of $900.0 million of 2029 Senior Secured Notes that mature on February 15, 2029 and $1.3 billion of 2032 Senior Secured Notes that mature on February 15, 2032. Interest on the new senior secured notes will be paid quarterly on February 15, May 15, August 15 and November 15 of each year, beginning on May 15, 2024. 80 Term Loan B On February 2, 2024,we entered into a new seven-year $700.0 million Term Loan B. The Term Loan B will mature on February 2, 2031 and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.0% of the original principal amount beginning with the fiscal quarter ending June 30, 2024, with the balance payable on maturity. 2026 Senior Secured Notes On January 19, 2024, we delivered notice to the holders of our 2026 Senior Secured Notes that we intend to redeem all of the existing 2026 Senior Secured Notes at 101.875% of the principal amount, together with accrued and unpaid interest. On February 6, 2024, we redeemed all of the outstanding 2026 Senior Secured Notes for total consideration of $2.1 billion, which included the payment of accrued interest and unpaid interest of $2.1 million and a call premium of $38.4 million. Senior Unsecured Notes On January 19, 2024, we delivered notice to the holders of the 2025 Notes and the 2026 Notes that we intend to redeem all of the outstanding notes for each series at 100% of the principal amount, together with accrued and unpaid interest. On February 20, 2024, we redeemed all of the outstanding 2025 Notes for total consideration of $288.8 million, which included the payment of accrued and unpaid interest of $8.1 million. On February 2, 2024, we deposited $331.9 million with the trustee for the redemption of the 2026 Notes, which included the payment of accrued and unpaid interest of $12.0 million. As we met the requirements of discharge under an indenture dated February 4, 2021, we no longer have this liability as of March 31, 2024. 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, maintenance and other non-cash 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 Maintenance Other (1) Acquisitions (2) Investments (3) (in thousands) 2024 $ 99,533 $ 54,854 $ 15,680 $ — $ 258 2023 $ 79,091 $ 61,649 $ — $ — $ 88 2022 $ 75,554 $ 59,468 $ — $ — $ 350 (1) Amount for the year ended March 31, 2024 includes $9.2 million of equipment and other assets received in connection with contracts with customers and $6.4 million for a transaction classified as an acquisition of assets. See Note 17 to our consolidated financial statements included in this Annual Report for information regarding the acquisition of assets. (2) There were no acquisitions during the years ended March 31, 2024, 2023 or 2022. (3) Amounts relate to contributions made to unconsolidated entities. Capital expenditures for the year ending March 31, 2025 are expected to be approximately $210 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 for the 2026 Senior Secured Notes. As a result, quarterly common unit distributions were suspended beginning with the quarter ended December 31, 2020 and preferred unit distributions were suspended beginning with the quarter ended March 31, 2021. On February 6, 2024, the board of directors of our GP declared a cash distribution of 50% of the outstanding distribution arrearages through December 31, 2023 to the holders of the Class B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class B Preferred Units”), the Class C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Class C Preferred Units”) and the 9.00% Class D Preferred Units (“Class D Preferred Units”). The 81 total distribution of $178.3 million was made on February 27, 2024 to the holders of record at the close of trading on February 16, 2024. On April 4, 2024, the board of directors of our GP declared a cash distribution of 55.4% of the outstanding distribution arrearages through the quarter ended March 31, 2024 to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units. The total distribution of $120.0 million was made on April 18, 2024 to the holders of record at the close of trading on April 12, 2024. On April 9, 2024, the board of directors of our GP declared a cash distribution to fully pay the remaining distribution arrearages and interest to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units. The total distribution of $98.1 million was made on April 25, 2024 to the holders of record at the close of trading on April 19, 2024. As of April 25, 2024, all preferred unit distributions in arrears have been paid. The board of directors of our GP expects to evaluate the reinstatement of the common 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. For further discussion of the distributions, see Note 9 to our consolidated financial statements included in this Annual Report. Contractual Obligations Our contractual obligations primarily consist of purchase commitments, outstanding debt principal and interest obligations, operating 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, 2024, our purchase commitments totaled $5.5 billion, with $4.7 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, 2024, our aggregate principal amount of outstanding debt was $2.9 billion, with $7.0 million due within one year. Our interest obligation on the debt was $1.7 billion, with $258.1 million due within one year, based on our outstanding balances and interest rates as of March 31, 2024. 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, 2024, our undiscounted operating lease obligation was $131.2 million, with $38.4 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 commitment is a noncancelable agreement with a crude oil pipeline operator, which guarantee us minimum monthly shipping capacity on the pipeline. As of March 31, 2024, our future minimum throughput payments were $30.4 million, which is due within one year. See Note 8 to our consolidated financial statements included in this Annual Report for information regarding our pipeline commitment and timing of our expected pipeline commitment payments. 82 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, 2024, our asset retirement obligations were $56.6 million, of which we expect to settle $1.2 million during fiscal year 2025. 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, capital projects and real estate. As of March 31, 2024, our commitment obligations were $55.7 million, with $34.8 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. LCT Legal Judgment On May 28, 2024, the Supreme Court of Delaware affirmed the jury verdict and remanded the case back to the trial court to re-calculate the amount of the pre- and post-judgment interest accrual. As of March 31, 2024, we accrued $ 62.1 million related to this matter, of which approximately $ 26.1 million represents interest accrued through March 31, 2024 and $ 0.1 million of costs awarded to the plaintiff. Interest will continue to accrue until the amount of the judgment is paid. We expect to pay the amount of the judgment, costs and interest related to this matter by June 30, 2024. See Note 8 to our consolidated financial statements included in this Annual Report for further information regarding this matter. Cash Flows The following table summarizes the sources (uses) of our cash flows for the periods indicated: Year Ended March 31, Cash Flows Provided by (Used in): 2024 2023 2022 (in thousands) Operating activities, before changes in operating assets and liabilities $ 324,993 $ 447,024 $ 342,362 Changes in operating assets and liabilities 51,171 (1,838) (136,516) Operating activities $ 376,164 $ 445,186 $ 205,846 Investing activities $ (83,761) $ 64,188 $ (212,408) Financing activities $ (258,925) $ (507,765) $ 5,555 Operating Activities. The decrease in net cash provided by operating activities during the year ended March 31, 2024 was due primarily to fluctuations in working capital, particularly accounts receivable and accounts payable, due to lower crude oil volumes and prices, and inventory due to decreased sales and purchases of natural gas liquids, and decreased earnings from operations. 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. Investing Activities . Net cash used in investing activities was $83.8 million during the year ended March 31, 2024, compared to net cash provided by investing activities of $64.2 million during the year ended March 31, 2023. The increase in net cash used in investing activities was due primarily to: • an $88.4 million decrease in proceeds received due to higher 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 compared to lower proceeds received from the sale of certain saltwater disposal assets and the sale of three natural gas liquids terminals during the year ended March 31, 2024 (see Note 17 to our consolidated financial statements included in this Annual Report); • a $55.5 million increase in payments to settle derivatives; and 83 • an increase in capital expenditures from $147.8 million (includes payment of amounts accrued as of March 31, 2022) during the year ended March 31, 2023 to $152.3 million (includes payment of amounts accrued as of March 31, 2023) during the year ended March 31, 2024 due primarily to the timing of the expenditures in our Water Solutions segment. 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. Financing Activities. Net cash used in financing activities was $258.9 million during the year ended March 31, 2024, compared to net cash used in financing activities of $507.8 million during the year ended March 31, 2023. The decrease in net cash used in financing activities was due primarily to: • $2.9 billion in proceeds from the issuance of the 2029 Senior Secured Notes, 2032 Senior Secured Notes and Term Loan B during the year ended March 31, 2024; 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). These decreases in net cash used in financing activities were partially offset by: • an increase of $2.3 billion paid in cash to repurchase a portion of our 2025 Notes and redeem the remaining outstanding 2025 Notes, 2026 Notes and 2026 Senior Secured Notes during the year ended March 31, 2024; • an increase of $177.9 million in distributions paid to our preferred unitholders and noncontrolling interest owners during the year ended March 31, 2024 due primarily to distributions to the holders of the Class B Preferred Units, the Class C Preferred Units and the Class D Preferred Units during the year ended March 31, 2024; • a decrease of $160.0 million in borrowings on the ABL Facility (net of repayments) during the year ended March 31, 2024; and • an increase of $49.9 million in debt issuance costs for the 2029 Senior Secured Notes, 2032 Senior Secured Notes, Term Loan B and ABL Facility during the year ended March 31, 2024. 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 ABL 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). 84 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 ABL 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. 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, 2024, we recorded a goodwill impairment of $69.2 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 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 85 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 estimated useful 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 estimated useful 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. All changes in the fair value of our physical contracts that do not qualify as normal purchases and normal sales and settlements (whether cash transactions or non-cash mark-to-market adjustments) are reported either within revenue (for sales contracts) or cost of sales (for purchase contracts) in our consolidated statements of operations, regardless of whether the contract is physically or financially settled, and within cash flows from operations in our consolidated statements of cash flows. The change in the fair value of our interest rate swap is recorded as a net gain or loss within interest expense in our consolidated statement of operations and within cash flows from operations in our consolidated statements of cash flows. 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–Commodity Price Risk” for the impact of a 10% increase in the underlying commodity value, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk–Interest Rate Risk” for the impact of a 10% increase in the underlying interest rate swap 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 86 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. 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 asset 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, 2024 includes a liability of $56.6 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 the 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 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. 87