Shares of midstream master limited partnership NGL Energy Partners (NGL -3.31%) plunged 15.4% before 11 a.m. EDT today, and later recouped some of its losses. The stock, though, was till down 9% at 2 p.m., as the market reacted strongly to the energy company's first-quarter earnings report released on Aug. 9 after market close.
NGL Energy delivered stupendous growth on its top line as crude oil prices rallied, but the market wasn't impressed. There's a valid reason why.
Note these numbers from NGL Energy's fiscal 2022 Q1 earnings report (all changes year over year):
- Revenue: Up 76% to $1.49 billion.
- Operating loss: Up more than sixfold to $69 million.
- Earnings (loss) per share: Loss of $1.23 a share, versus a loss of 0.44 per share in the same quarter last year.
The massive loss despite the surge in revenue didn't sit well with investors.
NGL Energy's water solutions segment – also its largest -- was the star performer, as the company processed nearly 1.7 million barrels of water per day, up 22% year over year thanks to higher production. NGL Energy is a diversified midstream energy partnership that transports, recycles, and disposes "produced water," which is the water produced as a byproduct of oil and gas extraction. With crude oil prices recovering sharply this year and oil and gas companies resuming production, demand for NGL Energy's services remained high.
Higher sales from NGL Energy's crude oil logistics segment though, which purchases crude oil and resells or markets them to refineries, failed to convert to profitability as the company booked losses on its hedges thanks to rising oil prices.
Its liquids logistics segment reported larger losses on seasonally weak demand for refined products and propane and the absence of a contribution from Sawtooth Caverns, a natural gas liquids and refined products storage facility that NGL Energy sold in June for $70 million.
In fact, NGL Energy incurred a big loss on the Sawtooth sale, which is why its total operating loss rocketed to $69 million during the quarter. Otherwise, NGL Energy would have probably ended Q1 with a lower operating loss versus last year given the strong growth in revenue from all three of its segments.
For the full year, NGL Energy expects to generate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $570 million and $600 million, representing a solid 31% jump over 2020.
That might sound encouraging, but NGL Energy has a big problem: a humongous debt load that has only grown in size over the years. With the company barely generating cash flows and paying out a substantial chunk in interest expenses, so much so that it even suspended its dividend last year, NGL Energy is one of the few energy stocks you'd want to avoid, as there are far better energy stocks to invest in right now.