0001104659-13-003442.txt : 20130118 0001104659-13-003442.hdr.sgml : 20130118 20130118163546 ACCESSION NUMBER: 0001104659-13-003442 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20121102 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20130118 DATE AS OF CHANGE: 20130118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NGL Energy Partners LP CENTRAL INDEX KEY: 0001504461 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 273427920 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-35172 FILM NUMBER: 13537936 BUSINESS ADDRESS: STREET 1: 6120 S. YALE STREET 2: SUITE 805 CITY: TULSA STATE: OK ZIP: 74136 BUSINESS PHONE: 918.481.1119 MAIL ADDRESS: STREET 1: 6120 S. YALE STREET 2: SUITE 805 CITY: TULSA STATE: OK ZIP: 74136 FORMER COMPANY: FORMER CONFORMED NAME: Silverthorne Energy Partners LP DATE OF NAME CHANGE: 20101028 8-K/A 1 a13-2931_18ka.htm AMENDMENT TO FORM 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 2, 2012

NGL ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)

Delaware		001-35172		27-3427920
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

6120 South Yale Avenue
Suite 805
Tulsa, Oklahoma 74136

(Address of principal executive offices) (Zip Code)

(918) 481-1119

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240-14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))

This Current Report on Form 8-K/A amends and supplements the Current Report on Form 8-K of NGL Energy Partners LP, filed with the Securities and Exchange Commission on November 7, 2012 (the “Form 8-K”), which reported under Item 2.01 the completion of a business combination with Pecos Gathering & Marketing, L.L.C. and its affiliated companies Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, and Striker Oilfield Services, LLC (collectively, “Pecos”). This amendment is filed to provide the financial statements of Pecos and the pro forma financial information of NGL Energy Partners LP for such transaction as required by Item 9.01. Except as set forth below, all Items of the previously filed Form 8-K are unchanged.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The audited combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of December 31, 2011 and for the three years then ended, and the unaudited condensed combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011, and the related notes, are filed as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K/A and incorporated herein by reference.

(b) Pro Forma Financial Information

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2012, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012, and the unaudited pro forma condensed consolidated statement of operations for the six months ended September 30, 2012 of NGL Energy Partners LP and the related notes are filed as Exhibit 99.3 to this Current Report on Form 8-K/A and incorporated herein by reference.

(d) Exhibits

Exhibit No.		Description

99.1		The audited combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of December 31, 2011 and for the three years then ended and the related notes

99.2		The unaudited condensed combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011 and the related notes

99.3		The unaudited pro forma condensed consolidated balance sheet as of September 30, 2012, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012, and the unaudited pro forma condensed consolidated statement of operations for the six months ended September 30, 2012 of NGL Energy Partners LP and the related notes

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	NGL ENERGY PARTNERS LP

	By:	NGL Energy Holdings LLC, its general partner

Date: January 18, 2013		By:	/s/ H. Michael Krimbill
			H. Michael Krimbill
			Chief Executive Officer and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description

99.1		The audited combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of December 31, 2011 and for the three years then ended and the related notes

99.2		The unaudited condensed combined financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC as of September 30, 2012 and for the nine months ended September 30, 2012 and 2011 and the related notes

99.3		The unaudited pro forma condensed consolidated balance sheet as of September 30, 2012, the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012, and the unaudited pro forma condensed consolidated statement of operations for the six months ended September 30, 2012 of NGL Energy Partners LP and the related notes

EX-99.1 2 a13-2931_1ex99d1.htm EX-99.1

Exhibit 99.1

INDEPENDENT AUDITORS’ REPORT

Members and Stockholders

Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC,
Blackhawk Gathering, Toro Operating Company, Inc., and
Striker Oilfield Services, LLC

Austin, Texas

We have audited the accompanying combined balance sheets of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, Toro Operating Company, Inc., and Striker Oilfield Services, LLC (the “Companies”) as of December 31, 2011 and 2010, and the related combined statements of income, changes in members’ and stockholders’ equity, and cash flows for each of the three years ended December 31, 2011, 2010, and 2009. These combined financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, Toro Operating Company, Inc., and Striker Oilfield Services, LLC at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years ended December 31, 2011, 2010, and 2009, in conformity with accounting principles generally accepted in the United States of America.

/s/ EKS&H, LLLP

January 14, 2013

Denver, Colorado

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Balance Sheets

	December 31,
	2011			2010

Assets

Current assets
Cash and cash equivalents	$	9,906,016		$	1,042,956
Accounts receivable	51,860,802			30,210,911
Inventory	1,348,826			799,619
Due from related parties	85,805			38,296
Prepaid expenses and other current assets	401,727			104,919
Total current assets	63,603,176			32,196,701
Non-current assets
Property, plant, and equipment, net of accumulated depreciation of $4,908,488 and $2,807,540 at December 31, 2011 and 2010, respectively	16,083,842			4,361,964
Land	230,253			277,656
Deposits - related party	250,000			250,000
Deposits	9,434			5,329
Total non-current assets	16,573,529			4,894,949
Total assets	$	80,176,705		$	37,091,650

Liabilities and Members’ and Stockholders’ Equity

Current liabilities
Line-of-credit	$	6,000,000		$	3,200,091
Accounts payable - crude oil purchases	32,974,766			15,953,689
Accounts payable	832,660			1,373,986
Accrued expenses	2,895,742			1,049,605
Due to related parties	12,000			30,348
Notes payable - current portion	4,861,915			1,246,460
Distributions payable	2,008,113			—
Total current liabilities	49,585,196			22,854,179
Non-current liabilities
Notes payable, less current portion	7,563,434			1,188,161
Total liabilities	57,148,630			24,042,340
Commitments and contingencies (Note 7)
Members’ and stockholders’ equity
Common stock, 30,000 shares authorized, 15,594 shares outstanding, par value $0.10	1,559			1,559
Additional paid-in capital	582,822			582,822
Retained earnings (accumulated deficit)	82,037			(76,155		)
Note receivable - member	(73,609		)	(140,156		)
Members’ equity	22,435,266			12,681,240
Total members’ and stockholders’ equity	23,028,075			13,049,310
Total liabilities and members’ and stockholders’ equity	$	80,176,705		$	37,091,650

See notes to combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Statements of Income

	Year Ended December 31,
	2011			2010			2009
Revenue
Crude oil sales	$	483,106,890		$	269,442,521		$	152,515,550
Crude oil hauling	14,834,234			263,911			—
Total revenue	497,941,124			269,706,432			152,515,550
Product expenses	471,703,255			257,064,193			143,344,684
Operating expenses
Transportation expenses	3,308,633			2,157,004			1,548,502
Personnel expenses	4,173,651			2,749,365			2,438,043
Equipment and facilities’ expenses	1,144,538			620,648			579,830
General and administrative expenses	1,866,536			1,155,757			1,361,973
Depreciation	2,100,948			931,547			807,415
Total operating expenses	12,594,306			7,614,321			6,735,763
Other (expense) income
Interest expense	(643,300		)	(386,487		)	(325,505		)
Interest income	2,195			7,670			7,862
Gain on sale of assets	—			149,981			73,223
Total other expense, net	(641,105		)	(228,836		)	(244,420		)
Net income	$	13,002,458		$	4,799,082		$	2,190,683

See notes to combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Statement of Changes in Members’ and Stockholders’ Equity

Years Ended December 31, 2011, 2010 and 2009

	Toro Operating, Inc.								Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, and Striker Oilfield Services, LLC
	Common Stock					Retained Earnings			Note						Total Members’ and
				Additional		(Accumulated			Receivable			Members’			Stockholders’
	Shares	Par Value		Paid-In Capital		Deficit)			Member			Equity			Equity
Balance - December 31, 2008	15,594	$	1,559	$	582,822	$	(115,399	)	$	—		$	7,595,733		$	8,064,715
Distributions	—	—		—		—			—			(1,027,000		)	(1,027,000		)
Net income	—	—		—		79,386			—			2,111,297			2,190,683
Balance - December 31, 2009	15,594	1,559		582,822		(36,013		)	—			8,680,030			9,228,398
Note receivable - Member	—	—		—		—			(140,156		)	—			(140,156		)
Contributions	—	—		—		—			—			250,000			250,000
Distributions	—	—		—		(30,000		)	—			(1,058,014		)	(1,088,014		)
Net (loss) income	—	—		—		(10,142		)	—			4,809,224			4,799,082
Balance - December 31, 2010	15,594	1,559		582,822		(76,155		)	(140,156		)	12,681,240			13,049,310
Payment on note receivable from member	—	—		—		—			66,547			—			66,547
Distributions	—	—		—		—			—			(3,090,240		)	(3,090,240		)
Net income	—	—		—		158,192			—			12,844,266			13,002,458
Balance - December 31, 2011	15,594	$	1,559	$	582,822	$	82,037		$	(73,609	)	$	22,435,266		$	23,028,075

See notes to combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Statements of Cash Flows

	For the Years Ended
	December 31,
	2011			2010			2009
Cash flows from operating activities
Net income	$	13,002,458		$	4,799,082		$	2,190,683
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	2,100,948			931,547			807,415
Gain on sale of assets	—			(149,981		)	(73,223		)
Loss (gain) on derivatives	127,450			(51,409		)	18,885
Changes in operating assets and liabilities
Accounts receivable	(21,520,215		)	(11,790,199		)	(10,261,006		)
Inventory	(549,207		)	(204,640		)	(392,474		)
Due to/from related parties, net	(65,857		)	(3,719		)	36,703
Prepaid expenses and other current assets	(300,914		)	(36,916		)	1,013,578
Accounts payable - crude oil purchases	17,021,077			6,884,931			6,714,113
Accounts payable	(541,326		)	139,813			984,586
Accrued expenses	1,846,137			535,847			131,694
Deferred revenue	—			—			(75,530		)
	(1,881,907		)	(3,744,726		)	(1,095,259		)
Net cash provided by operating activities	11,120,551			1,054,356			1,095,424
Cash flows from investing activities
Purchase of land, property, plant, and equipment	(1,043,832		)	(197,454		)	(166,957		)
Proceeds from disposal of assets	—			299,962			146,446
Cash flows from derivatives	(257,126		)	(174,875		)	(42,000		)
Net cash used in investing activities	(1,300,958		)	(72,367		)	(62,511		)
Cash flows from financing activities
Borrowings from line-of-credit	142,720,000			149,466,624			85,553,897
Payments on line-of-credit	(139,920,091		)	(147,630,430		)	(84,890,000		)
Payments on notes payable	(2,740,863		)	(1,066,995		)	(1,311,747		)
Net advance on note receivable - member	—			(200,000		)	—
Member contributions	—			250,000			—
Member distributions	(1,015,579		)	(1,028,170		)	(1,027,000		)
Net cash used in financing activities	(956,533		)	(208,971		)	(1,674,850		)
Net increase (decrease) in cash and cash equivalents	8,863,060			773,018			(641,937		)
Cash and cash equivalents - beginning of year	1,042,956			269,938			911,875
Cash and cash equivalents - end of year	$	9,906,016		$	1,042,956		$	269,938

(Continued on the following page)

See notes to combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Statements of Cash Flows

(Continued from the previous page)

Supplemental disclosure of cash flow information:

Cash paid for interest for the years ended December 31, 2011, 2010, and 2009 was $643,300, $386,476, and $325,505, respectively.

Supplemental disclosure of non-cash activity:

During the years ended December 31, 2011, 2010, and 2009, the Companies acquired equipment of $12,731,591, $2,121,572, and $363,006, respectively, with the issuance of long-term debt.

During 2011, the Companies distributed $66,547 that was used by one of the members to partially satisfy the note receivable balance due from the member (Note 8).

During 2010, the Companies distributed $59,844 that was used by one of the members to partially satisfy the note receivable balance due from the member (Note 8).

As of December 31, 2011, the Companies recorded distributions payable of $2,008,113 (Note 6).

See notes to combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies

Organization

Pecos Gathering and Marketing, LLC (“Pecos”) is a Colorado limited liability company (“LLC”) headquartered in Austin, Texas. Transwest Leasing, LLC (“Transwest”), Blackhawk Gathering, LLC (“Blackhawk”), and Toro Operating Company, Inc. (“Toro”) are all affiliated companies through common ownership. Striker Oilfield Services, LLC (“Striker”) is a Texas LLC that has common ownership with Pecos but with different ownership percentages among its members. Pecos, Transwest, Blackhawk, Toro, and Striker are collectively referred to as the “Companies” in the combined financial statements.

Operations

The Companies gather crude oil from producing leases in Texas and New Mexico and deliver it to truck unloading facilities. The truck unloading facilities are connected to common carrier pipelines or, in one case, with a direct company pipeline to a refinery. The Companies have crude oil treatment plants that treat and process crude oil to pipeline standards. The Companies lease trucks and trailers to related parties for the purpose of transporting and hauling oil. In south Texas, Striker operates primarily as a contract trucker for one significant customer and to a lesser extent buys and sells crude oil.

Principles of Combination

The accompanying combined financial statements include the accounts of Pecos, Transwest, Blackhawk, Toro, and Striker. All Companies are affiliated and controlled by common ownership. All intercompany accounts and transactions have been eliminated in combination.

Use of Estimates

The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Companies consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Companies continually monitor their positions with, and the credit quality of, the financial institutions with which they invest. As of the combined balance sheet date, and periodically throughout the year, the Companies have maintained balances in various operating accounts in excess of federally insured limits.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Accounts Receivable

The Companies consider accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been established. Management reviews account balances regularly, and if amounts become uncollectible, the uncollectible portion is recorded to bad debt expense.

Concentrations of Credit Risk

The Companies sell crude oil to two significant customers, Customer A, which operates a refinery at Big Springs, Texas, and Customer B at the Centurion pipeline in Midland and Andrews, Texas. As of December 31, 2011, Customer A and Customer B accounted for 67% and 33%, respectively, of accounts receivable. For the year ended December 31, 2011, Customer A and Customer B accounted for 62% and 35%, respectively, of total revenue. As of December 31, 2010, Customer A and Customer B accounted for 65% and 31%, respectively, of accounts receivable. For the year ended December 31, 2010, Customer A and Customer B accounted for 60% and 39%, respectively, of total revenue. For the year ended December 31, 2009, Customer A and Customer B accounted for 63% and 36%, respectively, of total revenue.

Inventory

Inventory consists of crude oil and is stated at the lower of cost or market, determined using the first-in, first-out method.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation on property, plant, and equipment is calculated utilizing the straight-line method over the estimated useful life, which ranges from three to fifteen years, net of an estimated salvage value of the property and equipment. The Companies periodically review the reasonableness of estimates regarding useful lives and salvage values of property, plant, and equipment based upon the Companies’ experience with similar assets and conditions in the used revenue equipment market. Future changes in useful life or salvage value estimates, or fluctuations in market value that are not reflected in the estimated salvage value, would have an effect on the Companies’ results of operations. Trucks and trailers are depreciated over a period of five years, facilities are depreciated over a period of fifteen years, and equipment is depreciated over a period of seven years.

Revenue Recognition

The Companies record revenue from the sales of crude oil when the product is delivered, title has transferred, and collection is reasonably assured. The Companies record revenue from the hauling of crude oil when the product is delivered and collection is reasonably assured.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Income Taxes

With the exception of Toro, the entities have elected to be treated as partnerships for income tax purposes. Accordingly, taxable income and losses from all entities, except Toro, are reported in the income tax returns of the respective members, and no provision for income taxes has been recorded in the Companies’ combined financial statements. Toro is taxed as a C corporation, and during the years ended December 31, 2011 and 2010, it had an immaterial amount of net taxable income. Toro’s current taxable income is also reduced due to the utilization of the remaining net operating loss carryforwards from prior years. Toro’s deferred tax assets and deferred tax liabilities are immaterial as of December 31, 2011 and 2010.

The Companies follow authoritative guidance on accounting for uncertainty in income taxes. With the exception of Toro, if taxing authorities were to disallow any tax positions taken by the Companies, the additional income taxes, if any, would be imposed on the members rather than the Companies. Tax positions taken by Toro are insignificant. Accordingly, there would only be a minimal impact on the Companies’ combined financial statements.

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. No interest or penalties have been assessed as of December 31, 2011, 2010, and 2009. The estimated returns for tax years subject to examination by tax authorities include 2007 and 2008 through the current period for state and federal tax reporting purposes, respectively.

Long-Lived Assets

The Companies review their long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Companies look primarily to the estimated undiscounted future cash flows in their assessment of whether or not long-lived assets have been impaired. The Companies did not record any impairments during the years ended December 31, 2011, 2010, and 2009.

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash, receivables, prepaids, notes receivable, accounts payable and accrued expenses, approximated fair value as of December 31, 2011 and 2010 because of the relatively short maturity of these instruments.

The carrying amounts of notes payable and debt issued approximate fair value as of December 31, 2011 and 2010 because interest rates on these instruments approximate market interest rates.

The brokerage margin account is recorded at fair value as discussed in Note 5.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments (continued)

The Companies disclose the fair value as determined for certain assets and liabilities and disclose how fair value is determined using a hierarchy for which these assets and liabilities are grouped, based on significant levels of inputs as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

Level 3: Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

Note 2 - Balance Sheet Disclosures

Property, plant, and equipment consist of the following:

	December 31,
	2011			2010
Trucks	$	11,907,676		$	2,980,700
Trailers	6,040,215			2,349,316
Facilities	1,485,844			1,031,528
Equipment	885,387			615,544
Other vehicles	581,409			175,684
Leasehold improvements	56,790			—
Computer equipment and software	35,009			16,732
	20,992,330			7,169,504
Less accumulated depreciation	(4,908,488		)	(2,807,540		)
	$	16,083,842		$	4,361,964

Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $2,100,948, $931,547, and $807,415, respectively.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 2 - Balance Sheet Disclosures (continued)

Accrued expenses consist of the following:

	December 31,
	2011		2010
Severance taxes payable	$	2,455,230	$	993,610
Other	440,512		55,995
	$	2,895,742	$	1,049,605

Note 3 - Line-of-Credit

On December 31, 2011, the Companies entered into a new credit agreement (the “Agreement”) with a bank. The Companies could have borrowed the lesser of the borrowing base as defined by the Agreement or $30,000,000. The borrowing base as of December 31, 2011 was $22,662,523. At December 31, 2011, the borrowings outstanding under this Agreement were $6,000,000. Borrowings accrued interest per annum equal to either the base rate advance or Eurodollar rate advance. The base rate advance was equal to the prime rate plus 2.75% (6.00% at December 31, 2011). The Eurodollar rate advance was based on the two-week, one-month, two-month, or three-month BBA LIBOR plus 4.00% (4.68% to 5.29% at December 31, 2011), as elected by the Companies and subject to certain restrictions. At December 31, 2011, all of the outstanding debt under the Agreement was based on the Eurodollar rate advance. All of the Companies’ assets were pledged as collateral with the exception of Transwest. However, all assets of Transwest were pledged as collateral against the Companies’ notes payable described in Note 4. The Agreement terminates and borrowings would have been due upon the occurrence of certain events or at the discretion of the lenders as defined in the Agreement. The Companies were required to meet certain financial covenants and were in compliance with all financial covenants at December 31, 2011.

As of December 31, 2010, the Companies had a line-of-credit agreement with Bank of America. At December 31, 2010, the borrowings outstanding under this Agreement were $3,200,091. Interest accrued at one-month LIBOR plus 2.75% (3.013% at December 31, 2010). The Companies were required to meet certain financial covenants and were in compliance with all covenants at December 31, 2010. During 2011, the Companies paid the outstanding balance of the line-of-credit.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 4 - Notes Payable

Notes payable consist of the following:

	December 31,
	2011			2011
The Companies have various note payable agreements to third-party banks for certain trucks and trailers. Interest rates on these agreements range from 3.96% to 5.90%. The maturity dates on the notes payable range from January 2012 to March 2015. The Transwest portion of the Companies’ assets are pledged as collateral, and there are guarantees by certain members of the Companies.	$	12,425,349		$	2,434,621
Less current portion	(4,861,915		)	(1,246,460		)
	$	7,563,434		$	1,188,161

Maturities of the notes payable are as follows:

Year Ending December 31,
2012	$	4,861,915
2013	4,640,705
2014	2,853,136
2015	69,593
	$	12,425,349

Note 5 - Derivatives

The Companies routinely enter into contracts for the purchase and sale of crude oil at future delivery dates. The Companies enter into these contracts with the expectation that they will result in physical delivery of crude oil. The Companies account for these contracts as normal purchases and normal sales. Under this accounting policy election, the contracts are not recorded at fair value at the balance sheet dates; instead, the purchase or sale is recorded at the contracted value once the delivery occurs.

The Companies’ crude oil purchase and sale contracts are priced based on various crude oil indices. These indices may vary in the type or location of crude oil, or in the timing of delivery within a given month. The Companies have entered into certain financial derivative contracts, which consist primarily of crude oil futures contracts, as hedges against the risk that changes in the different index prices would reduce the margins between the purchase and the sale transactions.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 5 - Derivatives (continued)

The Companies record these derivative contracts at fair value within accounts receivable on the combined balance sheets. The Companies value the derivative contracts using quoted prices in active markets for identical contracts and consider the fair value to be a Level 1 measurement in the fair value hierarchy. All of the contracts are maintained by a broker, and the Companies report these contracts, along with any related margin deposits, on a net basis on the combined balance sheets. The balance associated with these contracts, including related margin deposits, was $379,075 at December 31, 2011 and $249,399 at December 31, 2010, respectively.

The Companies report the realized and unrealized gains and losses associated with these derivative contracts within product expenses in the combined statements of income. These gains and losses consist of the following:

	For the Years Ended
	December 31,
	2011			2010		2009
Unrealized gain (loss)	$	122,700		$	38,860	$	8,600
Realized gain (loss)	(250,150		)	12,549		(27,485		)
Total	$	(127,450	)	$	51,409	$	(18,885	)

The Companies include net cash transfers to or from the brokerage account in investing cash flows in the combined statements of cash flows.

Note 6 - Members’ and Stockholders’ Equity

Individual capital accounts have been established based on the initial contribution to the Companies. Profits and losses are allocated to the members’ capital accounts based upon percentages of ownership in the Companies. Additional capital contributions may be made upon a unanimous vote of all members. The Companies’ operating agreements require available cash to be distributed at the end of each calendar year subject to certain limitations. As distributions made during the year ended December 31, 2011 were not pro rata with each member’s ownership interest, as of December 31, 2011, Pecos and Striker accrued distributions of $808,113 and $1,200,000, respectively, payable to one or more members. These balances are included in distributions payable and have been shown as a liability on the combined balance sheets.

Toro is the only affiliate with common stock. Each share of outstanding common stock is entitled to voting rights on matters affecting Toro.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 7 - Commitments and Contingencies

Letters-of-Credit

On December 1, 2011, the Companies issued a $6,650,000 letter-of-credit that has not been drawn upon. This letter-of-credit expires in one to three month increments and can be renewed at the end of each term. The letter-of-credit was issued to secure the amounts owed to one of the Companies’ crude oil suppliers. On June 1, 2012, the Companies issued a revision to this letter-of-credit for $4,950,000 to extend the letter-of-credit through July 31, 2012. The revised letters-of-credit have not had an impact on the Companies’ combined 2011 results of operations.

On June 1, 2012, the Companies issued a separate $3,000,000 letter-of-credit that has not been drawn upon. The letter-of-credit was issued to secure the amounts owed to one of the Companies’ crude oil suppliers. No amounts were recorded in conjunction with the issuance of this letter-of-credit, which is irrevocable until December 31, 2012. The letters-of-credit incur interest at 3.75% per annum plus issuing fees of $300 and a $75 cancellation fee.

Asset Retirement Obligation

The Companies are required to recognize the fair value of a liability for an asset retirement obligation when it is incurred (generally in the period in which they acquire, construct, or install an asset) if a reasonable estimate of fair value can be made. If a reasonable estimate cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of fair value can be made.

In order to determine fair value of such liability, the Companies must make certain estimates and assumptions, including, among other things, projected cash flows, a credit-adjusted risk-free interest rate, and an assessment of market conditions, that could significantly impact the estimated fair value of the asset retirement obligation. These estimates and assumptions are very subjective and can vary over time.

The Companies have determined that they are obligated by contractual or regulatory requirements to remove certain of their assets or perform other remediation of the sites where such assets are located upon the retirement of those assets. Determination of the amounts to be recognized is based upon numerous estimates and assumptions, including estimated settlement dates, future retirement costs, future inflation rates, and the credit-adjusted risk-free interest rates. However, the Companies do not believe the present value of such asset retirement obligations, under current laws and regulations, after taking into consideration the estimated lives of the Companies’ facilities, is material to their financial position or results of operations.

Litigation

In the normal course of business, the Companies are party to litigation from time to time. The Companies maintain insurance to cover certain actions and believe that resolution of such litigation will not have a material adverse effect on the Companies.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Combined Financial Statements

Note 8 - Related Party Transactions

In February 2010, the Companies entered into a note receivable agreement with a member for $200,000. The note was due February 2013 and had an interest rate of 2% per annum. During the years ended December 31, 2011 and 2010, the Companies’ distributions totaling $66,547 and $59,844, respectively, were applied to this member note receivable, which are reflected as non-cash distributions on the combined statements of cash flows. Subsequent to December 31, 2011, the remaining note receivable balance was collected.

During the year ended December 31, 2011, the Companies paid $170,000 in management fees to a related party, which is included in general and administrative expenses on the combined statements of income.

The Companies also have various related party receivables and payables outstanding. Receivables from related parties totaled $85,805 and $38,296 at December 31, 2011 and 2010, respectively. Payables due to related parties totaled $12,000 and $30,348 at December 31, 2011 and 2010, respectively. The Companies also have a $250,000 deposit with a related party at December 31, 2011 and 2010.

Note 9 - Subsequent Events

Midstream Operations, LLC (“Midstream”) was formed on January 1, 2012. Midstream is a management company that is owned by two of the Companies’ members and stockholders and allocates general and administrative overhead charges to the Companies. These allocated charges include salaries and office expenses.

On October 23, 2012, the Companies, including Midstream, entered into an Equity Purchase Agreement (the “NGL Agreement”) with NGL Energy Partners LP (“NGL”) to purchase all of the equity in Pecos, Transwest, Blackhawk, Striker, and Midstream, which closed November 2012. Under the NGL Agreement, NGL would also have first right of refusal to purchase one of the two properties owned by Toro. The Companies are also required to provide remediation for this property, as well as provide assistance and set-up of a new processing facility to be operated by NGL. As part of the NGL Agreement, the line-of-credit was paid in full as well as a portion of the notes payable.

The Companies have evaluated all subsequent events through January 14, 2013, which is the date the combined financial statements were available for issuance.

EX-99.2 3 a13-2931_1ex99d2.htm EX-99.2

Exhibit 99.2

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

Board of Directors, Members, and Stockholders

Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC,
Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro
Operating Company, Inc., and Striker Oilfield Services, LLC

Austin, Texas

We have reviewed the accompanying combined balance sheets of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC (the “Companies”) as of September 30, 2012 and 2011, and the related combined statements of income, changes in members’ and stockholders’ equity, and cash flows for the nine months ended September 30, 2012 and 2011. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the combined financial statements as a whole. Accordingly, we do not express such an opinion.

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal controls relevant to the preparation and fair presentation of the combined financial statements.

Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the combined financial statements. We believe that the results of our procedures provide a reasonable basis for our report.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying combined financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

The combined financial statements for the year ended December 31, 2011, were audited by us, and we expressed an unqualified opinion on them in our report dated January 14, 2013, but we have not performed any auditing procedures since that date.

/s/ EKS&H, LLLP

January 14, 2013

Denver, Colorado

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Combined Balance Sheets

(See Independent Accountants’ Review Report)

	September 30,		December 31
	2012		2011
	(unaudited)		(audited)
Assets

Current assets
Cash and cash equivalents	$	7,749,810	$	9,906,016
Accounts receivable	83,432,762		51,860,802
Inventory	1,531,145		1,348,826
Due from related parties	360,276		85,805
Prepaid expenses and other current assets	965,903		401,727
Total current assets	94,039,896		63,603,176
Non-current assets
Property, plant, and equipment, net of accumulated depreciation of $8,029,823 and $4,908,488, at September 30, 2012 and December 31, 2011, respectively	21,662,896		16,083,842
Land	236,453		230,253
Deposits - related party	—		250,000
Deposits	—		9,434
Total non-current assets	21,899,349		16,573,529
Total assets	$	115,939,245	$	80,176,705

Liabilities and Stockholders’ Equity

Current liabilities
Line of credit	$	5,000,000	$	6,000,000
Accounts payable - crude oil purchases	52,259,802		32,974,766
Accounts payable	1,837,789		832,660
Accrued expenses	4,680,551		2,895,742
Due to related parties	—		12,000
Notes payable - current portion	7,307,463		4,861,915
Distributions payable	—		2,008,113
Total current liabilities	71,085,605		49,585,196
Non-current liabilities
Long-term debt, less current portion	8,168,677		7,563,434
Total liabilities	79,254,282		57,148,630
Commitments and contingencies (Note 7)
Members’ and stockholders’ equity
Common stock, 30,000 shares authorized, 15,594 shares outstanding, par value $0.10	1,559		1,559
Additional paid-in capital	582,822		582,822
Retained earnings (accumulated deficit)	21,799		82,037
Note receivable - member	—		(73,609		)
Members’ equity	36,078,783		22,435,266
Total members’ and stockholders’ equity	36,684,963		23,028,075
Total liabilities and members’ and stockholders’ equity	$	115,939,245	$	80,176,705

See notes to unaudited combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Unaudited Combined Statements of Income

(See Independent Accountants’ Review Report)

	Nine Months Ended
	September 30,
	2012			2011
Revenues
Crude oil sales	$	637,163,966		$	337,620,173
Crude oil hauling	22,117,354			8,832,916
Rental revenue - related parties	51,032			—
Total revenues	659,332,352			346,453,089
Product expenses	625,771,712			330,479,968
Operating expenses
Transportation expenses	1,234,691			1,315,972
Personnel expenses	5,698,940			2,839,012
Equipment and facilities’ expenses	577,961			807,565
General and administrative expenses	1,641,151			1,344,730
Depreciation	3,283,939			1,345,324
Total operating expenses	12,436,682			7,652,603
Other (expense) income
Interest expense	(877,625		)	(421,448		)
Interest income	13,506			5,701
Loss on disposal of assets	(660		)	—
Total other expense, net	(864,779		)	(415,747		)
Net income	$	20,259,179		$	7,904,771

See notes to unaudited combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Unaudited Combined Statement of Changes in Members’ and Stockholders’ Equity

Nine Months Ended September 30, 2012

(See Independent Accountants’ Review Report)

	Toro Operating, Inc.								Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, and Striker Oilfield Services, LLC
	Common Stock			Additional Paid-In		Retained			Note Receivable			Members’			Total Stockholders’
	Shares	Par Value		Capital		Earnings			Members’			Equity			Equity
Balance - December 31, 2011	15,594	$	1,559	$	582,822	$	82,037		$	(73,609	)	$	22,435,266		$	23,028,075
Payment on note receivable from member	—	—		—		—			73,609			—			73,609
Distributions	—	—		—		—			—			(6,925,900		)	(6,925,900		)
Contributions	—	—		—		—			—			250,000			250,000
Net income (loss)	—	—		—		(60,238		)	—			20,319,417			20,259,179
Balance - September 30, 2012	15,594	$	1,559	$	582,822	$	21,799		$	—		$	36,078,783		$	36,684,963

See notes to unaudited combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Unaudited Combined Statements of Cash Flows

(See Independent Accountants’ Review Report)

	Nine Months Ended
	September 30,
	2012			2011
Cash flows from operating activities
Net income	$	20,259,179		$	7,904,771
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	3,283,939			1,345,324
Loss on sale of assets	660			—
Gain on derivatives	(582,129		)	(209,015		)
Changes in assets and liabilities
Accounts receivable	(30,989,831		)	(13,671,976		)
Inventory	(182,319		)	506,807
Due to/from related parties, net	(286,471		)	(78,748		)
Prepaid expenses and other current assets	(554,742		)	(71,455		)
Deposits	250,000			—
Accounts payable - crude oil purchases	19,285,036			8,432,609
Accounts payable	1,005,129			(868,615		)
Accrued expenses	1,784,809			963,119
	(6,985,919		)	(3,651,950		)
Net cash provided by operating activities	13,273,260			4,252,821
Cash flows from investing activities
Purchase of land, property, plant, and equipment	(1,779,592		)	(777,184		)
Proceeds from sale of property, plant, and equipment	444,802			—
Cash flows from derivatives	—			(257,126		)
Net cash used in investing activities	(1,334,790		)	(1,034,310		)
Cash flows from financing activities
Borrowings from line-of-credit	6,000,000			114,320,000
Payments on line-of-credit	(7,000,000		)	(113,020,000		)
Payments on notes payable	(4,484,272		)	(1,669,878		)
Member contributions	250,000			—
Member distributions	(8,860,404		)	(948,739		)
Net cash used in financing activities	(14,094,676		)	(1,318,617		)
Net (decrease) increase in cash and cash equivalents	(2,156,206		)	1,899,894
Cash and cash equivalents - beginning of period	9,906,016			1,042,956
Cash and cash equivalents - end of period	$	7,749,810		$	2,942,850

Supplemental disclosure of cash flow information:

Cash paid for interest for the nine months ended September 30, 2012 and 2011 was $877,625 and $421,448, respectively.

Supplemental disclosure of non-cash activity:

During the nine months ended September 30, 2012 and 2011, the Companies acquired equipment of $7,535,063 and $8,854,020, respectively, with the issuance of long-term debt.

During 2012, the Companies distributed $73,609, which was used by one of the Members to satisfy the note receivable balance due from the Member (Note 8).

During 2011, the Companies distributed $49,785, which was used by one of the Members to partially satisfy the note receivable balance due from the Member (Note 8).

See notes to unaudited combined financial statements.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Organization

Pecos Gathering and Marketing, LLC (“Pecos”) is a Colorado limited liability company (“LLC”) headquartered in Austin, Texas. Transwest Leasing, LLC (“Transwest”), Blackhawk Gathering, LLC (“Blackhawk”), Midstream Operations, LLC (“Midstream”), and Toro Operating Company, Inc. (‘Toro”) are all affiliated companies through common ownership. Striker Oilfield Services, LLC (“Striker”) is a Texas LLC that has common ownership with Pecos but with different ownership percentages among its members. Pecos, Transwest, Blackhawk, Midstream, Toro, and Striker are collectively referred to as the “Companies” in the combined financial statements.

Financial Statement Presentation

The Companies have prepared these unaudited interim combined financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission. In the Companies’ opinion, the unaudited interim combined financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the combined financial position as of September 30, 2012, the interim results of operations for the nine months ended September 30, 2012 and 2011, and cash flows for the nine months ended September 30, 2012. These interim statements have not been audited. The balance sheet as of December 31, 2011 was derived from the Companies’ audited combined financial statements. The interim combined financial statements contained herein should be read in conjunction with our audited combined financial statements, including the notes thereto, for the year ended December 31, 2011.

Operations

The Companies gather crude oil from producing leases in Texas and New Mexico and deliver it to truck unloading facilities. The truck unloading facilities are connected to common carrier pipelines or, in one case, to a direct company pipeline to a refinery. The Companies have crude oil treatment plants that treat and process crude oil to pipeline standards. The Companies lease trucks and trailers to related parties for the purpose of transporting and hauling oil. In South Texas, Striker operates primarily as a contract trucker for one significant customer and, to a lesser extent, buys and sells crude oil.

Principles of Combination

The accompanying combined financial statements include the accounts of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC. All Companies are affiliated and controlled by common ownership. All intercompany accounts and transactions have been eliminated in combination.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Companies considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Companies continually monitors its positions with, and the credit quality of, the financial institutions it invests with. As of the balance sheet date, and periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits.

Accounts Receivable

The Companies consider accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. Management reviews account balances regularly, and, if amounts become uncollectible, the uncollectible portion is recorded to bad debt expense.

Concentrations of Credit Risk

The Companies sell crude oil to two significant customers, Customer A, which operates a refinery in Big Springs, Texas, and Customer B, at the Centurion pipeline in Midland and Andrews, Texas. As of September 30, 2012, Customer A and Customer B accounted for 59% and 18%, respectively, of accounts receivable. As of December 31, 2011, Customer A and Customer B accounted for 67% and 33%, respectively, of accounts receivable. For the nine months ended September 30, 2012, Customer A and Customer B accounted for 57% and 19%, respectively, of total revenue. For the nine months ended September 30, 2011, Customer A and Customer B accounted for 60% and 35%, respectively, of total revenue.

Inventory

Inventory consists of crude oil and is stated at the lower of cost or market, determined using the first-in, first-out method.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Property, Plant, and Equipment

Revenue Recognition

Revenue on the rental of trucks and trailers is recognized on a straight-line basis over the term of the lease. The Companies’ standard lease agreements are non-cancelable operating leases and provide for monthly lease payments for three years.

Income Taxes

With the exception of Toro, the entities have elected to be treated as partnerships for income tax purposes. Accordingly, taxable income and losses from all entities, except for Toro, are reported in the income tax returns of the respective members, and no provision for income taxes has been recorded in the Companies’ combined financial statements. Toro is taxed as a C corporation, and during the nine months ended September 30, 2012, it had an immaterial amount of net taxable income. Toro’s current taxable income is also reduced due to the utilization of the remaining net operating loss carryforwards from prior years. Toro’s deferred tax assets and deferred tax liabilities are immaterial as of September 30, 2012.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 1 - Description of Business and Summary of Significant Accounting Policies (continued)

Income Taxes (continued)

Interest and penalties associated with tax positions are recorded in the period assessed as general and administrative expenses. No interest or penalties have been assessed as of September 30, 2012. The estimated returns for tax years subject to examination by tax authorities include 2007 and 2008 through the current period for state and federal tax reporting purposes, respectively.

Long-Lived Assets

The Companies review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Companies look primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. The Companies did not record any impairments during the nine months ended September 30, 2012 and 2011.

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, short-term investments, receivables, prepaids, notes receivable, accounts payable, and accrued expenses approximated fair value as of September 30, 2012 because of the relatively short maturity of these instruments.

The carrying amounts of notes payable and debt issued approximate fair value as of September 30, 2012 because interest rates on these instruments approximate market interest rates.

The brokerage margin account is recorded at fair value as discussed in Note 5.

Level 1: Quoted prices in active markets for identical assets or liabilities;

Level 2: Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

Level 3: Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 2 - Balance Sheet Disclosures

Property and equipment consist of the following:

	September 30,			December 31.
	2012			2011
Trucks	$	16,162,106		$	11,907,676
Trailers	9,392,446			6,040,215
Equipment	1,878,639			885,387
Facilities	1,564,205			1,485,844
Other vehicles	593,846			581,409
Leasehold improvements	55,232			56,790
Computer equipment and software	46,245			35,009
	29,692,719			20,992,330
Less accumulated depreciation	(8,029,823		)	(4,908,488		)
	$	21,662,896		$	16,083,842

Depreciation expense for the nine months ended September 30, 2012 and 2011 was $3,283,939 and $1,345,324, respectively.

Accrued expenses consist of the following:

	September 30,		December 31,
	2012		2011
Severance taxes payable	$	3,772,927	$	2,455,230
Other	907,624		440,512
	$	4,680,551	$	2,895,742

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 3 - Line-of-Credit

On December 13, 2011, the Companies entered into a new credit agreement (“Agreement”) with a bank. The Companies could have borrowed the lesser of the borrowing base, as defined by the Agreement, or $30,000,000. The borrowing base as of September 30, 2012 was $34,248,095. At September 30, 2012, there was $5,000,000 outstanding under this Agreement. Borrowings accrued interest per annum equal to either the base-rate advance or Eurodollar-rate advance. The base-rate advance was equal to the prime rate plus 2.75% (6.00% at September 30, 2012). The Eurodollar rate advance was based on the two-week, one-month, two-month, or three-month BBA LIBOR plus 4.00% (4.20% to 4.42% at September 30, 2012), as elected by the Companies and subject to certain restrictions. At September 30, 2012, all of the outstanding debt under the Agreement was based on the Eurodollar-rate advance. All of the Companies’ assets were pledged as collateral with the exception of Transwest. The assets of Transwest are pledged as collateral against the Companies’ notes payable described in Note 4. The Agreement terminates and borrowings were due upon the occurrence of certain events or at the discretion of the lenders, as defined in the Agreement. The Companies were required to meet certain financial covenants and were in compliance with all financial covenants at September 30, 2012.

Note 4 - Notes Payable

Notes payable consist of the following:

	September 30,			December 31
	2012			2011
The Companies have various note payable agreements to third-party banks for certain trucks and trailers. Interest rates on these agreements range from 3.82% to 5.90%. The maturity dates on the notes payable range from April 2013 to September 2015. The Transwest portion of the Companies’ assets are pledged as collateral, and there are guarantees by certain members and stockholders of the Companies.	$	15,476,140		$	12,425,349
Less current portion	(7,307,463		)	(4,861,915		)
	$	8,168,677		$	7,563,434

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 4 - Notes Payable (continued)

Maturities of the notes payable are as follows:

Year Ending December 31,
2012 (three months)	$	2,012,471
2013	7,087,231
2014	5,407,545
2015	968,893
	$	15,476,140

Note 5 - Derivatives

The Companies have entered into certain financial derivative contracts, which consist primarily of crude oil futures contracts. The Companies record these derivative contracts at fair value within accounts receivable on the condensed combined balance sheets. The Companies value the derivative contracts using quoted prices in active markets for identical contracts and considers the fair value to be a Level 1 measurement in the fair value hierarchy. All of the contracts are maintained by a broker, and the Companies report these contracts, along with any related margin deposits, on a net basis on the combined balance sheets. The balance associated with these contracts, including related margin deposits, was $961,205 at September 30, 2012 and $379,075 at December 31, 2011, respectively.

The Companies report the realized and unrealized gains and losses associated with these derivative contracts within other income (expense) in the combined statements of income. These gains and losses consist of the following:

	For the Nine Months Ended
	September 30,
	2012			2011
Unrealized gain (loss)	$	(79,480	)	$	(599,500	)
Realized gain (loss)	661,609			808,515
Total	$	582,129		$	209,015

The Companies include net cash transfers to or from the brokerage account in investing cash flows in the combined statements of cash flows.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 6 - Members’ and Stockholders’ Equity

Toro is the only affiliate with common stock. Each share of outstanding common stock is entitled to voting rights on matters affecting Toro.

Note 7 - Commitments and Contingencies

Letters-of-Credit

On December 1, 2011, the Companies issued a $6,650,000 letter-of-credit that has not been drawn upon. This letter-of-credit expires in one- to three-month increments and can be renewed at the end of each term. The letter-of-credit was issued to secure the amounts owed to one of the Companies’ crude oil suppliers. On June 1, 2012, the Companies issued a revision to this letter-of-credit for $4,950,000 to extend the letter-of-credit through July 31, 2012. The revised letter-of-credit has not had an impact on the Companies’ combined 2011 results of operations.

The letters-of-credit incur interest at 3.75% per annum plus issuing fees of $300 and a $75 cancellation fee.

Asset Retirement Obligations

In order to determine fair value of such liability, the Companies must make certain estimates and assumptions including, among other things, projected cash flows, a credit-adjusted risk-free interest rate, and an assessment of market conditions that could significantly impact the estimated fair value of the asset retirement obligation. These estimates and assumptions are very subjective and can vary over time.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 7 - Commitments and Contingencies (continued)

Asset Retirement Obligations (continued)

The Companies have determined that they are obligated by contractual or regulatory requirements to remove certain of their assets or perform other remediation of the sites where such assets are located upon the retirement of those assets. Determination of the amounts to be recognized is based upon numerous estimates and assumptions, including estimated settlement dates, future retirement costs, future inflation rates, and the credit-adjusted risk-free interest rates. However, the Companies do not believe the present value of such asset retirement obligations, under current laws and regulations, after taking into consideration the estimated lives of the Companies facilities, is material to their financial position or results of operations.

Litigation

Note 8 - Related Party Transactions

In February 2010, the Companies entered into a note receivable agreement with a member for $200,000. The note was due February 2013 and had an interest rate of 2% per annum. During the nine-month period ended September 30, 2012, distributions totaling $73,609 were applied to this member note receivable, which are reflected as non-cash distributions on the combined statement of cash flows. During the nine-month period ended September 30, 2012, the note was paid off.

During the nine-month periods ended September 30, 2012 and 2011, the Companies paid $153,000 and $119,000, respectively, in management fees to a related party, which is included in general and administrative expenses on the combined statements of income.

The Companies also have various related party receivables outstanding totaling $360,276 at September 30, 2012. There were no related party payables outstanding as of September 30, 2012.

PECOS GATHERING AND MARKETING, LLC, TRANSWEST LEASING, LLC, BLACKHAWK GATHERING, LLC, MIDSTREAM OPERATIONS, LLC, TORO OPERATING COMPANY, INC., AND STRIKER OILFIELD SERVICES, LLC

Notes to Unaudited Combined Financial Statements

(See Independent Accountants’ Review Report)

Note 9 - Subsequent Events

On October 23, 2012, the Companies entered into an Equity Purchase Agreement (the “NGL Agreement”) with NGL Energy Partners LP (“NGL”) to purchase all of the equity in Pecos, Transwest, Blackhawk, Striker, and Midstream, which closed November 2012. Under the NGL Agreement, NGL would also have first right of refusal to purchase one of the two properties owned by Toro. The Companies are also required to provide remediation for this property, as well as provide assistance and set-up of a new processing facility to be operated by NGL. As part of the NGL Agreement, the line-of-credit was paid in full, as well as a portion of the notes payable.

The Companies have evaluated all subsequent events through January 14, 2013, which is the date the unaudited combined financial statements were available for issuance.

EX-99.3 4 a13-2931_1ex99d3.htm EX-99.3

Exhibit 99.3

NGL ENERGY PARTNERS LP AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

Introduction

The following represents the unaudited pro forma condensed consolidated balance sheet of NGL Energy Partners LP (“we”, “NGL” or “the Partnership”) as of September 30, 2012 and the unaudited pro forma condensed consolidated statements of operations for the year ended March 31, 2012 and for the six months ended September 30, 2012.

On November 2, 2012, we completed an acquisition of Pecos Gathering & Marketing, L.L.C. and its affiliated companies Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, and Striker Oilfield Services, LLC (collectively, “Pecos”) pursuant to an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Pecos and the owners of Pecos. We acquired all of the limited liability company membership interests of Pecos in exchange for approximately $134.6 million of cash, which included payments made to the selling owners and payments made to retire certain liabilities of Pecos. The purchase price may be subject to further adjustment under the terms of the Equity Purchase Agreement, including with respect to refinements to the estimated value of the acquired working capital.

In connection with the closing of the acquisition of Pecos, we entered into a Call Agreement (the “Call Agreement”) with the former owners of Pecos (the “Call Parties”) pursuant to which the Call Parties agreed to purchase at least $45,000,000 (or at their option, up to $60,000,000) of common units of the Partnership in a private placement following the consummation of the Pecos acquisition. On November 13, 2012, the Call Parties purchased 1,834,414 common units of the Partnership for an aggregate call price of $45.0 million pursuant to the Call Agreement.

On November 1, 2012, we entered into a Facility Increase Agreement to increase the commitments under our revolving credit facility from $645 million to $695 million.

The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2012 gives pro forma effect to the business combination with Pecos, the sale of common units pursuant to the Call Agreement, and the entry into the Facility Increase Agreement, as if such events had occurred on September 30, 2012. The accompanying unaudited pro forma condensed consolidated statements of operations for the year ended March 31, 2012 and for the six months ended September 30, 2012 give pro forma effect to these events as if such events had occurred on April 1, 2011.

On June 19, 2012, we completed a business combination with High Sierra Energy, LP and High Sierra Energy GP, LLC (collectively, “High Sierra”). High Sierra’s assets included water discharge, recycling, and disposal facilities, two crude oil terminals, a fleet of leased rail cars, and a fleet of trucks. We paid $93.8 million of cash, net of cash acquired, and issued 18,018,468 common units to acquire High Sierra Energy, LP. We also paid $97.4 million of cash to retire long-term debt of High Sierra Energy, LP and to settle certain other of High Sierra Energy, LP’s obligations. Our general partner acquired High Sierra Energy GP, LLC by paying $50 million of cash and issuing equity. Our general partner then contributed its ownership interests in High Sierra Energy GP, LLC to us, in return for which we paid our general partner $50 million of cash and issued 2,685,042 common units to our general partner.

On June 19, 2012, we entered into a new revolving credit agreement (the “Credit Agreement”) with a syndicate of banks. Also on June 19, 2012, we entered into a Note Purchase Agreement whereby we issued $250 million of notes payable in a private placement (the “Senior Notes”). We used the proceeds from the issuance of the Senior Notes and borrowings under the Credit Agreement to repay existing debt and to fund the acquisition of High Sierra.

The accompanying condensed consolidated statements of operations for the six months ended September 30, 2012 and the year ended March 31, 2012 give pro forma effect to our combination with High Sierra and our issuance of Senior Notes as if such events had occurred on April 1, 2011.

The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012 also gives pro forma effect to the following business combinations that occurred during the year ended March 31, 2012, as if such business combinations had occurred on April 1, 2011:

· On October 3, 2011, we completed a business combination transaction with E. Osterman Propane, Inc., its affiliated companies and members of the Osterman family (collectively, “Osterman”), whereby we acquired retail propane operations in the northeastern United States. We issued 4,000,000 common units and paid $94.9 million, net of cash acquired, in exchange for the assets and operations of Osterman. The agreement also contemplated a post-closing payment of $4.8 million for certain specified working capital items, which was paid in November 2012.

· On November 1, 2011, we completed a business combination transaction with SemStream, L.P. (“SemStream”), whereby we acquired SemStream’s wholesale natural gas liquids supply and marketing operations and its 12 natural gas liquids terminals. We issued 8,932,031 common units and paid $91 million in exchange for the assets and operations of SemStream, including working capital.

· On January 3, 2012, we completed a business combination transaction with seven companies associated with Pacer Propane Holding, L.P. (collectively, ‘Pacer”), whereby we acquired retail propane operations, primarily in the western United States. We issued 1,500,000 common units and paid $32.2 million in exchange for the assets and operations of Pacer, including working capital. We also assumed $2.7 million of long-term debt in the form of non-compete agreements.

· On February 3, 2012, we completed a business combination transaction with North American Propane, Inc. (“North American”), whereby we acquired retail propane and distillate operations in the northeastern United States. We paid $69.8 million in exchange for the assets and operations of North American, including working capital.

The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012 also gives pro forma effect to our initial public offering in May 2011, as if the initial public offering had occurred on April 1, 2011.

Pro Forma Financial Statements

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and should be read in conjunction with the following:

· The audited historical financial statements of NGL Energy Partners LP included in our Annual Report on Form 10-K for the year ended March 31, 2012;

· The unaudited condensed consolidated financial statements of NGL Energy Partners LP included in our Quarterly Reports on Form 10-Q for the three months ended June 30, 2012 and September 30, 2012;

· The audited and unaudited historical financial statements of Pecos Gathering and Marketing, LLC, Transwest Leasing, LLC, Blackhawk Gathering, LLC, Midstream Operations, LLC, Toro Operating Company, Inc., and Striker Oilfield Services, LLC included in this Form 8-K/A;

· The audited and unaudited historical financial statements of High Sierra Energy GP, LLC included in our Current Report on Form 8-K/A filed on September 4, 2012;

· The audited and unaudited historical financial statements of Osterman included in our Form 8-K/A filed on December 19, 2011;

· The audited and unaudited historical financial statements of SemStream included in our Form 8-K/A filed on December 23, 2011;

· The audited historical financial statements of Pacer included in our Form 8-K/A filed on March 19, 2012;

· The audited historical financial statements of North American included in our Form 8-K/A filed on April 20, 2012; and

· The audited historical financial statements of Osterman, the unaudited historical financial statements of SemStream, and the unaudited historical financial statements of North American included in our Form 8-K filed on November 20, 2012.

The unaudited pro forma condensed consolidated financial statements include the following:

· The unaudited pro forma condensed consolidated balance sheet of NGL Energy Partners LP as of September 30, 2012 as if the combination transaction with Pecos, the Facility Increase Agreement, and the sale of common units pursuant to the Call Agreement occurred on September 30, 2012;

· The unaudited pro forma condensed consolidated statement of operations of NGL Energy Partners LP for the year ended March 31, 2012 as if the combination transactions with Osterman, SemStream, Pacer, North American, High Sierra, and Pecos, the related changes to our credit agreements, the sale of common units pursuant to the Call Agreement, and our initial public offering, had occurred on April 1, 2011; and,

· The unaudited pro forma condensed consolidated statement of operations of NGL Energy Partners LP for the six months ended September 30, 2012 as if the combination transactions with High Sierra and Pecos, the related changes to our credit agreements, and the sale of common units pursuant to the Call Agreement, had occurred on April 1, 2011.

The historical results of operations of High Sierra and Pecos included in the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012 represent the results of their operations for the year ended December 31, 2011.

The following unaudited pro forma condensed consolidated financial statements are based on certain assumptions and do not purport to be indicative of the results that actually would have been achieved if the events described above had occurred on the dates indicated. Moreover, they do not project NGL’s results of operations for any future date or period.

The accompanying unaudited pro forma condensed consolidated statements of operations reflect depreciation and amortization estimates which are preliminary, as our identification of the assets and liabilities acquired, and the fair value determinations thereof, for the High Sierra, Pecos, Pacer, and North American business combinations have not been completed. The fair value estimates reflected in the accompanying unaudited pro forma condensed consolidated statements of operations are based on the best estimates available at this time. There is no guarantee that the preliminary fair value estimates, and consequently the unaudited pro forma condensed consolidated statements of operations, will not change. To the extent that the final acquisition accounting results in an increased allocation of goodwill recorded, this amount would not be subject to amortization, but would be subject to annual impairment testing. To the extent the final acquisition accounting results in a decrease to the preliminary computation of goodwill done for the purpose of preparing these unaudited pro forma statements of operations, the amount would be subject to depreciation or amortization, which would result in a decrease to the estimated pro forma income reflected in the accompanying unaudited pro forma condensed consolidated statements of operations. We will complete the final acquisition accounting for the Pacer and North American combinations prior to filing our Form 10-Q for the quarter ended December 31, 2012. We will complete the final acquisition accounting for the High Sierra combination prior to filing our Form 10-K for the year ended March 31, 2013. We will complete the final acquisition accounting for the Pecos combination prior to filing our Form 10-Q for the quarter ended September 30, 2013.

NGL ENERGY PARTNERS LP

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of September 30, 2012

(U.S. Dollars in Thousands)

	Historical NGL			Historical Pecos		Pro Forma Adjustments				NGL Pro Forma
	September 30,			September 30,					Note	September 30,
	2012			2012		Pecos			2	2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	26,009		$	7,750	$	(5,525	)	(a)	$	28,234
Accounts receivable	385,494			83,433		(9,729		)	(a)	459,198
Receivables from affiliates	3,238			360		(360		)	(a)	3,238
Inventories	264,556			1,531		372			(a)	266,459
Prepaid expenses and other current assets	57,000			966		713			(a)	58,679
Total current assets	736,297			94,040		(14,529		)	(a)	815,808

PROPERTY, PLANT AND EQUIPMENT, net	425,641			21,899		(348		)	(a)	447,192
GOODWILL	515,881			—		56,887			(a)	572,768
INTANGIBLE ASSETS, net	345,942			—		38,754			(a)	384,696
OTHER NONCURRENT ASSETS	5,658			—		—				5,658
Total assets	$	2,029,419		$	115,939	$	80,764			$	2,226,122

LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	419,750		$	54,098	$	(3,447	)	(a)	$	470,401
Accrued expenses and other payables	68,724			4,681		(3,663		)	(a)	69,742
Advance payments received from customers	74,814			—		—				74,814
Payables to affiliates	11,780			—		—				11,780
Current maturities of long-term debt	78,033			12,307		(9,582		)	(a)	80,758
Total current liabilities	653,101			71,086		(16,692		)		707,495

LONG-TERM DEBT, net of current maturities	569,903			8,168		89,096			(a)	667,167
OTHER NONCURRENT LIABILITIES	2,599			—		—				2,599

PARTNERS’ EQUITY:
General Partner	(51,052		)	—		45			(a)	(51,007		)
Limited Partners -
Common units	839,977			—		45,000			(a)	884,977
Subordinated units	11,784			—		—				11,784
Accumulated other comprehensive income	28			—		—				28
Noncontrolling interests	3,079			—		—				3,079
Total partners’ equity	803,816			—		45,045				848,861
Equity of combined businesses	—			36,685		(36,685		)	(b)	—
Total liabilities and partners’ equity	$	2,029,419		$	115,939	$	80,764			$	2,226,122

See accompanying notes.

NGL ENERGY PARTNERS LP

Unaudited Pro Forma Condensed Consolidated

Statement of Operations

For the Year Ended March 31, 2012

(U.S. Dollars in Thousands, Except Unit and Per Unit Amounts)

(Page 1 of 3)

				Historical			Historical														Preliminary
	Historical			Osterman			SemStream														Pro Forma
	NGL			Six Months			Seven Months			Pro Forma Adjustments											NGL
	Year ended			Ended			Ended						Note				Note	Offering		Note	To Page 2
	March 31, 2012			Sept. 30, 2011			Oct. 31, 2011			Osterman			2	SemStream			2	Transaction		2	of 3
REVENUES:
Retail propane	$	199,334		$	32,625		$	—		$	—			$	—			$	—		$	231,959
Natural gas liquids logistics	1,111,139			—			408,097			—				(25,340		)	(h)	—			1,493,896
Crude oil logistics	—			—			—			—				—				—			—
Water services	—			—			—			—				—				—			—
Other	—			—			—			—				—				—			—
	1,310,473			32,625			408,097			—				(25,340		)		—			1,725,855

COST OF SALES:
Retail propane	130,142			20,669			—			—				—				—			150,811
Natural gas liquids logistics	1,086,881			—			403,563			—				(25,340		)	(h)	—			1,465,104
Crude oil logistics	—			—			—			—				—				—			—
Water services	—			—			—			—				—				—			—
	1,217,023			20,669			403,563			—				(25,340		)		—			1,615,915

OPERATING COSTS AND EXPENSES:
Operating and general and administrative	63,309			12,313			9,862			(772		)	(c)	(736		)	(i)	—			83,976
Depreciation and amortization	15,111			1,701			2,213			1,793			(d)	1,106			(j)	—			21,924

Operating Income (Loss)	15,030			(2,058		)	(7,541		)	(1,021		)		(370		)		—			4,040

OTHER INCOME (EXPENSE):
Interest expense	(7,620		)	(22		)	(1,732		)	(1,710		)	(e)	(895		)	(k)	476		(m)	(11,503		)
Other, net	1,055			334			2,152			—				—				—			3,541

Income (Loss) from continuing operations before income taxes	8,465			(1,746		)	(7,121		)	(2,731		)		(1,265		)		476			(3,922		)

INCOME TAX PROVISION (BENEFIT)	601			238			—			(238		)	(f)	—				—			601

Income (loss) from continuing operations	7,864			(1,984		)	(7,121		)	(2,493		)		(1,265		)		476			(4,523		)

LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER	(8		)							4			(g)	8			(l)	—			4

LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	12			—			—			—				—				—			12

INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS	$	7,868		$	(1,984	)	$	(7,121	)	$	(2,489	)		$	(1,257	)		$	476		$	(4,507	)

Basic and diluted earnings per unit from continuing operations (Note 3) -
Common	$	0.32
Subordinated	$	0.58

Weighted average units outstanding -
Common	15,169,983
Subordinated	5,175,384

See accompanying notes and continuation on Page 2 of 3.

NGL ENERGY PARTNERS LP

Unaudited Pro Forma Condensed Consolidated

Statement of Operations

For the Year Ended March 31, 2012

(U.S. Dollars in Thousands, Except Unit and Per Unit Amounts)

(Page 2 of 3)

	Preliminary			Historical			Historical											Preliminary
	Pro Forma			Pacer			North American											Pro Forma
	NGL			Nine Months			Nine Months			Pro Forma Adjustments								NGL
	From Page 1			Ended			Ended						Note				Note	To Page 3
	of 3			Dec. 31, 2011			Dec. 31, 2011			Pacer			2	North American			2	of 3
REVENUES:
Retail propane	$	231,959		$	26,487		$	64,231		$	—			$	—			$	322,677
Natural gas liquids logistics	1,493,896			—			—			—				—				1,493,896
Crude oil logistics	—			—			—			—				—				—
Water services	—			—			—			—				—				—
Other	—			—			—			—				—				—
	1,725,855			26,487			64,231			—				—				1,816,573

COST OF SALES:
Retail propane	150,811			17,452			46,557			—				—				214,820
Natural gas liquids logistics	1,465,104			—			—			—				—				1,465,104
Crude oil logistics	—			—			—			—				—				—
Water services	—			—			—			—				—				—
	1,615,915			17,452			46,557			—				—				1,679,924

OPERATING COSTS AND EXPENSES:
Operating and general and administrative	83,976			6,694			18,964			(850		)	(n)	(1,588		)	(q)	107,196
Depreciation and amortization	21,924			974			3,766			1,536			(o)	(422		)	(r)	27,778

Operating Income (Loss)	4,040			1,367			(5,056		)	(686		)		2,010				1,675

OTHER INCOME (EXPENSE):
Interest expense	(11,503		)	(99		)	(3,921		)	(753		)	(p)	2,030			(s)	(14,246		)
Other, net	3,541			57			(49		)	—				—				3,549

Income (Loss) from continuing operations before income taxes	(3,922		)	1,325			(9,026		)	(1,439		)		4,040				(9,022		)

INCOME TAX PROVISION (BENEFIT)	601			—			(8,357		)	—				8,357			(t)	601

Income (loss) from continuing operations	(4,523		)	1,325			(669		)	(1,439		)		(4,317		)		(9,623		)

LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER	4									—				5			(u)	9

LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	12			—			—			—				—				12

INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS	$	(4,507	)	$	1,325		$	(669	)	$	(1,439	)		$	(4,312	)		$	(9,602	)

See accompanying notes and continuation on Page 3 of 3.

NGL ENERGY PARTNERS LP

Unaudited Pro Forma Condensed Consolidated

Statement of Operations

For the Year Ended March 31, 2012

(U.S. Dollars in Thousands, Except Unit and Per Unit Amounts)

(Page 3 of 3)

	Preliminary			Historical			Historical											NGL
	Pro Forma			High Sierra			Pecos											Pro Forma
	NGL			Year			Year			Pro Forma Adjustments								Year
	From			Ended			Ended						Note				Note	Ended
	Page 2 of 3			Dec. 31, 2011			Dec. 31, 2011			High Sierra			2	Pecos			2	March 31, 2012
REVENUES:
Retail propane	$	322,677		$	—		$	—		$	—			$	—			$	322,677
Natural gas liquids logistics	1,493,896			1,121,025			—			(18,184		)	(v)	—				2,596,737
Crude oil logistics	—			1,804,365			497,941			1,553			(v)	127			(z)	2,303,986
Water services	—			57,033			—			366			(v)	—				57,399
Other	—			4,315			—			—				—				4,315
	1,816,573			2,986,738			497,941			(16,265		)		127				5,285,114

COST OF SALES:
Retail propane	214,820			—			—			—				—				214,820
Natural gas liquids logistics	1,465,104			1,101,612			—			(18,184		)	(v)	—				2,548,532
Crude oil logistics	—			1,748,820			471,703			1,553			(v)	127			(z)	2,222,203
Water services	—			5,578			—			366			(v)	—				5,944
	1,679,924			2,856,010			471,703			(16,265		)		127				4,991,499

OPERATING COSTS AND EXPENSES:
Operating and general and administrative	107,196			70,656			10,493			310			(v)	—				188,655
Depreciation and amortization	27,778			21,066			2,101			2,274			(w)	4,727			(A)	57,946

Operating Income (Loss)	1,675			39,006			13,644			(2,584		)		(4,727		)		47,014

OTHER INCOME (EXPENSE):
Interest expense	(14,246		)	(10,043		)	(643		)	(8,927		)	(x)	(2,759		)	(B)	(36,618		)
Other, net	3,549			3,336			1			310			(v)	—				7,196

Income (Loss) from continuing operations before income taxes	(9,022		)	32,299			13,002			(11,201		)		(7,486		)		17,592

INCOME TAX PROVISION (BENEFIT)	601			(903		)	—			—				—				(302		)

Income (loss) from continuing operations	(9,623		)	33,202			13,002			(11,201		)		(7,486		)		17,894

LOSS (INCOME) FROM CONTINUING OPERATIONS ALLOCATED TO GENERAL PARTNER	9									(20		)	(y)	(5		)	(C)	(16		)

LOSS (INCOME) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	12			(2,365		)	—			—				—				(2,353		)

INCOME (LOSS) FROM CONTINUING OPERATIONS ATTRIBUTABLE TO PARENT EQUITY ALLOCATED TO LIMITED PARTNERS	$	(9,602	)	$	30,837		$	13,002		$	(11,221	)		$	(7,491	)		$	15,525

Basic and diluted earnings per unit from continuing operations (Note 3) -
Common																		$	0.29
Subordinated																		$	0.29

Weighted average units outstanding -
Common																		47,201,831
Subordinated																		5,919,346

See accompanying notes.

NGL ENERGY PARTNERS LP

Unaudited Pro Forma Condensed Consolidated

Statement of Operations

For the Six Months Ended September 30, 2012

(U.S. Dollars in Thousands, Except Unit and Per Unit Amounts)

	Historical			High														NGL
	NGL			Sierra			Pecos											Pro Forma
	Six Months			Two Months			Six Months			Pro Forma Adjustments								Six Months
	Ended			Ended			Ended			High			Note				Note	Ended
	Sept. 30, 2012			May 31, 2012			Sept. 30, 2012			Sierra			2	Pecos			2	Sept. 30, 2012
REVENUES:
Retail propane	$	116,211		$	—		$	—		$	—			$	—			$	116,211
Natural gas liquids logistics	541,985			114,837			—			9,600			(D)	—				666,422
Crude oil logistics	784,538			419,703			455,485			(7,934		)	(D)	(284		)	(I)	1,651,508
Water services	17,751			15,038			—			(3,849		)	(D)	—				28,940
Other	1,461			805			—			—				—				2,266
Total Revenues	1,461,946			550,383			455,485			(2,183		)		(284		)		2,465,347

COST OF SALES:
Retail propane	67,107			—			—			—				—				67,107
Natural gas liquids logistics	512,328			123,712			—			9,600			(D)	—				645,640
Crude oil logistics	770,570			403,755			421,930			(7,934		)	(D)	(284		)	(I)	1,588,037
Water services	2,670			1,149			—			(3,849		)	(D)	—				(30		)
Total Cost of Sales	1,352,675			528,616			421,930			(2,183		)		(284		)		2,300,754

OPERATING COSTS AND EXPENSES:
Operating and general and administrative	83,172			16,913			16,497			(4,728		)	(E)	—				111,854
Depreciation and amortization	22,588			3,835			2,345			55			(F)	1,070			(J)	29,893
Operating Income (Loss)	3,511			1,019			14,713			4,673				(1,070		)		22,846

OTHER INCOME (EXPENSE):
Interest expense	(12,492		)	(2,178		)	(615		)	(712		)	(G)	(1,086		)	(K)	(17,083		)
Loss on early extinguishment of debt	(5,769		)	—			—			—				—				(5,769		)
Other, net	658			150			9			—				—				817
Income (Loss) from continuing operations before income taxes	(14,092		)	(1,009		)	14,107			3,961				(2,156		)		811

INCOME TAX PROVISION	536			829			—			—				—				1,365

Net Income (Loss) from continuing operations	(14,628		)	(1,838		)	14,107			3,961				(2,156		)		(554		)

Net (Income) Loss from continuing operations Allocated to General Partner	(789		)							(2		)	(H)	(12		)	(L)	(803		)

Net (Income) Loss from continuing operations Attributable to Noncontrolling Interests	51			(34		)	—			—				—				17

Net Income (Loss) from continuing operations Attributable to Parent Equity Allocated to Limited Partners	$	(15,366	)	$	(1,872	)	$	14,107		$	3,959			$	(2,168	)		$	(1,340	)

Basic and Diluted Earnings (Loss) Per Common Unit	$	(0.37	)															$	(0.03	)

Basic and Diluted Earnings (Loss) per Subordinated Unit	$	(0.38	)															$	(0.03	)

Basic and Diluted Weighted average units outstanding:
Common	35,730,492																	47,201,831
Subordinated	5,919,346																	5,919,346

See accompanying notes.

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation

See “— Introduction” for more information regarding the basis of presentation for our unaudited pro forma condensed consolidated financial statements.

Note 2 — Pro Forma Adjustments

Our unaudited pro forma condensed consolidated financial statements reflect the impact of the following pro forma adjustments:

Balance Sheet as of September 30, 2012

The historical condensed consolidated balance sheet of NGL as of September 30, 2012 includes the consolidation of Osterman, SemStream, Pacer, North American, and High Sierra and reflects the impact of the June 2012 credit facility refinancing and the June 2012 issuance of Senior Notes.

Pecos Combination

(a) Represents the consideration paid in the combination and the preliminary acquisition accounting based on the following estimate of the fair values of the assets acquired and liabilities assumed (in thousands):

Cash	$	2,180
Accounts receivable	73,704
Inventory	1,903
Other current assets	1,679
Property, plant and equipment:
Vehicles and related equipment (5 years)	19,193
Other (5 years)	2,358
Amortizable intangible assets:
Customer relationships (15 years)	37,754
Trade names (indefinite life)	1,000
Goodwill	56,887
Accounts payable	(50,651		)
Accrued expenses	(1,018		)
Notes payable	(10,365		)
Total consideration paid	$	134,624

The purchase price consists of the following (in thousands):

Cash paid, net of cash received pursuant to Call Agreement	$	89,624
Value of common units issued pursuant to Call Agreement	45,000
Total consideration paid	$	134,624

The pro forma adjustment includes the sale of common units pursuant to the Call Agreement and also includes net borrowings of $89.6 million under our credit facility to fund the acquisition. The pro forma adjustment includes a contribution or $45,000 from our general partner to maintain its 0.1% interest in the Partnership.

We did not acquire Toro Operating Company, Inc., (“Toro”) although Toro is included in the combined balance sheet of Pecos as of September 30, 2012. The assets, liabilities, and operations of Toro were not material to the combined financial statements of Pecos.

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

(b) Reflects the elimination of the historical net equity of Pecos as of September 30, 2012.

Statement of Operations for the Year Ended March 31, 2012

Osterman Combination Transaction Adjustments

(d) Reflects the increase in historical depreciation and amortization expense of the Osterman long-lived assets based on the fair value of the assets contributed in the Osterman combination. The fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the combination is summarized below (in thousands):

Depreciable property, plant and equipment:
Tanks and other retail propane equipment (15-20 years)	$	47,160
Vehicles (5-20 years)	7,699
Buildings (30 years)	3,829
Other equipment (3-5 years)	732

Amortizable intangible assets:
Customer relationships (20 years)	54,500
Non-compete agreements (7 years)	700

(e) Represents the additional interest expense resulting from the advances of $96.0 million from our acquisition facility to finance the Osterman combination at the interest rate in effect on LIBOR option borrowings at December 31, 2011 of 3.56%. A change in interest rate of 0.125% would result in a change of approximately $60,000 in pro forma interest expense for the year ended March 31, 2012.

(f) Represents the elimination of the historical income tax provision for Osterman.

(g) Represents the general partner’s 0.1% share of the losses of Osterman after the effect of the pro forma adjustments.

SemStream Combination Transaction Adjustments

(h) Represents the elimination of sales between NGL and SemStream.

(i) Reflects the elimination of expenses incurred directly in connection with our combination with SemStream.

(j) Reflects the increase in historical depreciation and amortization expense of the SemStream long-lived assets based on the fair value of the assets contributed in the SemStream combination. The fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the combination is summarized below (in thousands):

Depreciable property, plant and equipment:
Tanks and terminals (20-30 years)	$	41,434
Vehicles and rail cars (5 years)	470
Other (5 years)	3,326

Amortizable intangible assets:
Customer relationships (8-15 years)	31,950
Rail car leases (1-4 years)	1,008

(k) Represents the additional interest expense from the advances from our acquisition and working capital

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

facilities (advances of $10.0 million and $83.0 million, respectively) to finance the SemStream combination at the interest rate in effect on LIBOR option borrowings at December 31, 2011 of 3.56% for acquisition facility borrowings and 3.31% for working capital facility borrowings for the estimated period in which advances would have been outstanding (five months for the working capital facility). A change in the interest rate of 0.125% would result in an increase in the pro forma adjustment for interest expense of approximately $33,000 for the year ended March 31, 2012.

(l) Represents the general partner’s 0.1% share of the losses of SemStream after the effect of the pro forma adjustments.

Offering Transaction Adjustment

(m) Reflects the elimination of our historical interest expense on the amount borrowed under our acquisition credit facility to finance a previous business combination which was paid using the proceeds from our initial public offering.

Pacer Combination Transaction Adjustments

(n) Reflects the elimination of expenses incurred directly by us and by Pacer in connection with our combination with Pacer.

(o) Reflects the increase in historical depreciation and amortization expense of the Pacer long-lived assets based on the estimated fair value of the assets contributed in the Pacer combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the long-lived assets is 7.98%. An increase in the estimated fair value of long-lived assets of $1 million would result in approximately $80,000 of additional pro forma depreciation and amortization expense for the year ended March 31, 2012. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the combination is summarized below (in thousands):

Depreciable property, plant and equipment:
Tanks and other retail propane equipment (15 years)	$	11,200
Vehicles (5 years)	5,000
Buildings (30 years)	2,300
Other equipment (3-5 years)	200

Amortizable intangible assets:
Customer relationships (15 years)	21,980

(p) Represents the additional interest expense resulting from the advances from our acquisition and working capital facilities (advances of $27.8 million and $4.4 million, respectively) to finance the Pacer combination at the actual interest rate in effect on LIBOR option borrowings at December 31, 2011 of 3.56% for acquisition facility borrowings and 3.31% for working capital facility borrowings for the estimated period in which the advances would have been outstanding (three months for the working capital facility). A change in the interest rate of 0.125% would result in a change of approximately $27,000 in pro forma interest expense. The pro forma adjustment also includes imputed interest expense on long-term debt in the form of non-compete agreements.

North American Combination Transaction Adjustments

(q) Reflects the elimination of expenses incurred directly by us in connection with our combination with North American.

(r) Reflects the decrease in historical depreciation and amortization expense of the North American long-lived assets based on the estimated fair value of the assets acquired in the North American combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

of the long-lived assets is 9.17%. An increase in the estimated fair value of long-lived assets of $1 million would result in approximately $92,000 of additional annual pro forma depreciation and amortization expense. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the combination is summarized below (in thousands):

Depreciable property, plant and equipment:
Tanks and other equipment (15 years)	$	27,100
Vehicles (5 years)	9,000
Buildings (30 years)	2,200
Other equipment (3-5 years)	500

Amortizable intangible assets:
Customer relationships (15 years)	9,800

(s) Represents the elimination of interest expense incurred by North American on its historical credit facilities, partially offset by additional interest expense resulting from the advances from our acquisition facility of $69.8 million to finance the North American combination at the interest rate in effect on LIBOR option borrowings at December 31, 2011 of 3.56%. A change in the interest rate of 0.125% would result in a change of approximately $66,000 in pro forma interest expense.

(t) Reflects the elimination of the historical income tax provision of North American.

(u) Represents the general partner’s 0.1% share of the losses of North American after the effect of the pro forma adjustments.

High Sierra Combination Transaction Adjustments

(v) Reflects a reclassification of gains/losses on commodity derivatives recorded by High Sierra from revenues to cost of sales and a reclassification of bad debt expense from other expense to general and administrative expense, to be consistent with NGL’s classification of these gains/losses.

(w) Reflects an increase in historical depreciation and amortization expense of the High Sierra long-lived assets based on the estimated fair value of the assets acquired in the business combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 7.8%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $78,000 to pro forma depreciation and amortization expense for the year ended March 31, 2012. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the merger is summarized below (in thousands):

Depreciable property, plant and equipment:
Transportation vehicles and equipment (5 years)	$	12,160
Facilities and equipment (20 years)	70,409
Buildings and improvements (20 years)	29,800
Software (5 years)	2,700
Amortizable intangible assets:
Customer relationships (15 years)	174,100
Lease contracts (1-6 years)	10,500

(x) Reflects the addition of pro forma interest expense on Senior Notes issued to finance the $244.2 million of merger consideration that was paid in cash (exclusive of cash acquired), at a rate of 6.65%, net of the elimination of the historical interest expense of High Sierra (exclusive of letter of credit fees). A change in the interest rate of 0.125% would result in a change of approximately $305,000 in pro forma interest expense.

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

(y) Represents the general partner’s 0.1% share of the High Sierra income after the effect of the pro forma adjustments.

Pecos Combination Transaction Adjustments

(z) Reflects a reclassification of losses on commodity derivatives recorded by Pecos from revenues to cost of sales, to be consistent with NGL’s classification of derivative gains/losses.

(A) Reflects the increase in depreciation and amortization expense of the Pecos long-lived assets based on the estimated fair value of the assets acquired in the business combination. The pro forma average annual depreciation and amortization and amortization rate based on the estimated fair value and useful lives if the depreciable and amortizable long-lived assets is 11.5%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $115,000 to pro forma depreciation and amortization expense for the year ended March 31, 2012. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the merger is summarized below (in thousands):

Property, plant and equipment:
Vehicles and related equipment (5 years)	$	19,193
Other (5 years)	2,358

Amortizable intangible assets:
Customer relationships (15 years)	37,754

(B) Represents the additional interest expense resulting from the advances of $89.6 million from our acquisition facility to finance the Pecos combination at the interest rate in effect on LIBOR option borrowings at September 30, 2012 of 3.22%. A change in the interest rate of 0.125% would result in a change of approximately $112,000 in pro forma interest expense for the year ended March 31, 2012.

Statement of Operations for the Six Months Ended September 30, 2012

High Sierra Combination Transaction Adjustments

(D) Reflects a reclassification of gains/losses on commodity derivatives recorded by High Sierra from revenues to cost of sales, to be consistent with NGL’s classification of derivative gains/losses.

(E) Reflects the elimination of expenses incurred directly by us and by High Sierra in connection with our combination with High Sierra.

(F) Reflects an increase in historical depreciation and amortization expense of the High Sierra long-lived assets based on the estimated fair value of the assets acquired in the business combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 7.8%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $39,000 to pro forma depreciation and amortization expense for the six months ended September 30, 2012. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the merger is summarized below (in thousands):

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

Depreciable property, plant and equipment:
Transportation vehicles and equipment (5 years)	$	12,160
Facilities and equipment (20 years)	70,409
Buildings and improvements (20 years)	29,800
Software (5 years)	2,700
Amortizable intangible assets:
Customer relationships (15 years)	174,100
Lease contracts (1-6 years)	10,500

(G) Reflects the addition of pro forma interest expense on Senior Notes issued to finance the $244.2 million of merger consideration that was paid in cash, at a rate of 6.65%, net of the elimination of the historical interest expense of High Sierra (exclusive of letter of credit fees). A change in the interest rate of 0.125% would result in a change of approximately $51,000 in pro forma interest expense.

(H) Represents the general partner’s 0.1% share of the High Sierra income after the effect of the pro forma adjustments.

Pecos Combination Transaction Adjustments

(I) Reflects a reclassification of gains on commodity derivatives recorded by Pecos from revenues to cost of sales, to be consistent with NGL’s classification of derivative gains/losses.

(J) Reflects an increase in historical depreciation and amortization expense of the Pecos long-lived assets based on the estimated fair value of the assets acquired in the business combination. The pro forma average annual depreciation and amortization rate based on the estimated fair value and useful lives of the depreciable and amortizable long-lived assets is 11.5%. An increase in the current estimated fair value of the depreciable and amortizable long-lived assets of $1 million would result in an increase of approximately $58,000 to pro forma depreciation and amortization expense for the six months ended September 30, 2012. The estimated fair value of depreciable property, plant and equipment and amortizable intangible assets acquired in the merger is summarized below (in thousands):

Property, plant and equipment:
Vehicles and related equipment (5 years)	$	19,193
Other (5 years)	2,358

Amortizable intangible assets:
Customer relationships (15 years)	37,754

(K) Represents the additional interest expense resulting from advances of $89.6 million from our acquisition facility to finance the Pecos combination at the interest rate in effect on LIBOR option borrowings at September 30, 2012 of 3.22%. A change in the interest rate of 0.125% would result in a change of approximately $56,000 in pro forma interest expense for the six months ended September 30, 2012.

(L) Represents the general partner’s 0.1% share of the Pecos income after the effect of the pro forma adjustments.

Note 3 — Pro Forma Earnings Per Unit From Continuing Operations

Our income for financial statement presentation and partners’ capital purposes is allocated to our general partner and limited partners in accordance with their respective ownership interests, and in accordance with our partnership agreement after giving effect to priority income allocations for incentive distributions, if any, to our general partner, the holders of the incentive distribution rights pursuant to our partnership agreement, which are declared and paid following the close of each

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

quarter. These incentive distributions could result in less income allocable to the common and subordinated unitholders.

For purposes of computing pro forma basic and diluted income per common and subordinated unit, we have assumed that no restrictions on distributions apply during the periods presented. Any earnings in excess of distributions are allocated to our general partner and limited partners based on their respective ownership interests.

The pro forma earnings per unit have been computed based on earnings or losses allocated to the limited partners after deducting the total earnings allocated to the general partner. The pro forma weighted-average units outstanding in the table below represent the number of units outstanding after the business combinations with High Sierra and Pecos, which includes units issued in the business combinations during the year ended March 31, 2012, and also includes 750,000 common units issued in a business combination in May 2012 and 516,978 units issued in a business combination during October 2012. For the pro forma earnings per unit computation, we have assumed that all units outstanding after the Pecos merger were outstanding during the entire year ended March 31, 2012 and the six months ended September 30, 2012. The subordinated limited partner units were issued in May 2011 in connection with our initial public offering. For the pro forma earnings per unit computation, we have assumed that the subordinated units were outstanding during the entire year ended March 31, 2012. The pro forma basic and diluted earnings per unit are equal, as there were no dilutive units during the year ended March 31, 2012 or the six months ended September 30, 2012.

Earnings per unit are computed as follows (dollars in thousands, except unit and per unit information):

	Year Ended				Six Months Ended
	March 31, 2012				September 30, 2012
			Pro					Pro
	Historical		Forma		Historical			Forma

Net income from continuing operations attributable to parent equity	$	7,876	$	15,541	$	(14,577	)	$	(537	)

General partner share of income from continuing operations	8		16		789			803

Income from continuing operations allocated to limited partners	$	7,868	$	15,525	$	(15,366	)	$	(1,340	)
Common unitholders	$	4,859	$	13,795	$	(13,112	)	$	(1,191	)
Subordinated unitholders	$	3,009	$	1,730	$	(2,254	)	$	(149	)

Basic and diluted earnings per unit from continuing operations —
Common unitholders	$	0.32	$	0.29	$	(0.37	)	$	(0.03	)
Subordinated unitholders	$	0.58	$	0.29	$	(0.38	)	$	(0.03	)

Weighted average units outstanding —
Common	15,169,983		47,201,831		35,730,492			47,201,831
Subordinated	5,175,384		5,919,346		5,919,346			5,919,346

Note 4 — Long-Term Debt

Our historical and pro forma long-term debt as of September 30, 2012 are as follows (in thousands):

NGL ENERGY PARTNERS LP

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements - Continued

	Historical		Pro Forma
Working capital facility	$	124,000	$	124,000
Expansion capital facility	262,000		351,624
Senior Notes	250,000		250,000
Other	11,936		22,301
	$	647,936	$	747,925

Less - Current maturities	78,033		80,758
Long-term debt	$	569,903	$	667,167

Note 5 — Partners’ Equity

Outstanding general and limited partner units on a historical and pro forma basis at September 30, 2012 are as follows:

	Historical	Pro Forma
General partner notional units	50,821	53,174
Limited partner -
Common units	44,850,439	47,201,831
Subordinated units	5,919,346	5,919,346

Note 6 — Other Income

Other income of SemStream in the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012 includes the receipt of approximately $2 million of proceeds from a class-action litigation settlement. This non-recurring income is not excluded from pro forma income as it does not result directly from the SemStream combination. We do not expect to realize similar income in the future.

Other income of High Sierra in the unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2012 includes a gain of $4.2 million related to the settlement of a contingency associated with a historical acquisition, which is partially offset by a loss of $2.2 million related to the settlement of a contingency associated with the sale of a business. These non-recurring items are not excluded from pro forma income as they do not result directly from the High Sierra combination.