Commitments and Contingencies

12 Months Ended

Mar. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Legal Contingencies

In August 2015, LCT Capital, LLC (“LCT”) filed a lawsuit against NGL Energy Holdings LLC (the “GP”) and the Partnership seeking payment for investment banking services relating to the purchase of TransMontaigne Inc. and related assets in July 2014. After pre-trial rulings, LCT was limited to pursuing claims of (i) quantum meruit (the value of the services rendered by LCT) and (ii) fraudulent misrepresentation against the defendants. Following a jury trial conducted in Delaware state court from July 23, 2018 through August 1, 2018, the jury returned a verdict consisting of an award of $4.0 million for quantum meruit and $29.0 million for fraudulent misrepresentation, subject to statutory interest. On December 5, 2019, in response to the defendants’ post-trial motion, the Court issued an Order overturning the jury’s damages award and ordering the case to be set for a damages-only trial (the “December 5th Order”). Both parties filed applications with the trial court asking the trial court to certify the December 5th Order for interlocutory, immediate review by the Appellate Court. On January 7, 2020, the Supreme Court of Delaware (“Supreme Court”) entered an Order accepting an interlocutory appeal of various issues relating to both the quantum meruit and fraudulent misrepresentation verdicts. The Supreme Court heard oral arguments of the parties on November 4, 2020, took the matters presented under advisement and on January 28, 2021, issued a ruling that (a) LCT is not entitled to “benefit-of-the-bargain” damages on its fraud claim; (b) LCT is not entitled to receive fraudulent misrepresentation damages separate from its quantum meruit damages; (c) the trial court abused its discretion when it ordered a new trial on damages relating to LCT’s claim of fraudulent misrepresentation; and (d) the trial court properly ordered a new trial on LCT’s claim of quantum meruit damages. The date for the new trial, to be limited to the quantum meruit claim, has been set by the trial court for November 7, 2022. Any allocation of the ultimate verdict award, if any, between the GP and the Partnership will be

made by the board of directors of our general partner once all information is available to it and after the new trial, any post-trial and/or any appellate process has concluded and the verdict is final as a matter of law. As of March 31, 2022, we have accrued $2.5 million related to this matter.

We are party to various other claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of our management, the ultimate resolution of these claims, legal actions, and complaints, after consideration of amounts accrued, insurance coverage, and other arrangements, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, the outcome of such matters is inherently uncertain, and estimates of our liabilities may change materially as circumstances develop.

Environmental Matters

At March 31, 2022, we have an environmental liability, measured on an undiscounted basis, of $1.8 million, which is recorded within accrued expenses and other payables in our consolidated balance sheet. Our operations are subject to extensive federal, state, and local environmental laws and regulations. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in our business, and there can be no assurance that we will not incur significant costs. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, could result in substantial costs. Accordingly, we have adopted policies, practices, and procedures in the areas of pollution control, product safety, occupational health, and the handling, storage, use, and disposal of hazardous materials designed to prevent material environmental or other damage, and to limit the financial liability that could result from such events. However, some risk of environmental or other damage is inherent in our business.

Asset Retirement Obligations

We have contractual and regulatory obligations at certain facilities for which we have to perform remediation, dismantlement, or removal activities when the assets are retired. Our liability for asset retirement obligations is discounted to present value. To calculate the liability, we make estimates and assumptions about the retirement cost and the timing of retirement. Changes in our assumptions and estimates may occur as a result of the passage of time and the occurrence of future events. The following table summarizes changes in our asset retirement obligation, which is reported within other noncurrent liabilities in our consolidated balance sheets (in thousands):


Balance at March 31, 2020	$	18,416
Liabilities incurred	7,952
Liabilities associated with disposed assets (1)	(22)

Accretion expense	1,733
Balance at March 31, 2021	28,079
Liabilities incurred	1,865

Liabilities associated with disposed assets (2)	(1,716)

Accretion expense	1,713
Balance at March 31, 2022	$	29,941

(1) Relates to the sale of certain permits, land and saltwater disposal facility (see Note 17).

(2) Relates primarily to the disposition of Sawtooth (see Note 17) as well as the sale of certain water disposal wells.

In addition to the obligations described above, we may be obligated to remove facilities or perform other remediation upon retirement of certain other assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminable. We will record an asset retirement obligation for these assets in the periods in which settlement dates are reasonably determinable.

Pipeline Capacity Agreements

We have noncancelable agreements with crude oil pipeline operators, which guarantee us minimum monthly shipping capacity on their pipelines. As a result, we are required to pay the minimum shipping fees if actual shipments are less than our allotted capacity. Under certain agreements we have the ability to recover minimum shipping fees previously paid if our shipping volumes exceed the minimum monthly shipping commitment during each month remaining under the agreement, with some contracts containing provisions that allow us to continue shipping up to six months after the maturity date of the contract in order to recapture previously paid minimum shipping delinquency fees. We currently have an asset recorded in prepaid

expenses and other current assets and in other noncurrent assets in our consolidated balance sheet for minimum shipping fees paid in both the current and previous periods that are expected to be recovered in future periods by exceeding the minimum monthly volumes (see Note 2).

The following table summarizes future minimum throughput payments under these agreements at March 31, 2022 (in thousands):


Year Ending March 31,
2023	$	35,314
2024	35,410
2025	30,897
Total	$	101,621

Sales and Purchase Contracts

We have entered into product sales and purchase contracts for which we expect the parties to physically settle and deliver the inventory in future periods.

At March 31, 2022, we had the following commodity purchase commitments:


	Crude Oil (1)			Natural Gas Liquids
	Value		Volume (in barrels)	Value		Volume (in gallons)
	(in thousands)
Fixed-Price Commodity Purchase Commitments:
2023	$	188,915	1,815	$	15,619	14,280
2024	—		—	4,588		6,048
Total	$	188,915	1,815	$	20,207	20,328

Index-Price Commodity Purchase Commitments:
2023	$	3,875,415	42,808	$	1,428,476	999,240
2024	2,269,526		29,188	20,314		26,327
2025	1,654,300		22,775	—		—
2026	687,824		10,410	—		—
Total	$	8,487,065	105,181	$	1,448,790	1,025,567

(1) Our crude oil index-price purchase commitments exceed our crude oil index-price sales commitments (presented below) due primarily to our long-term purchase commitments for crude oil that we purchase and ship on the Grand Mesa Pipeline. As these purchase commitments are deliver-or-pay contracts, whereby our counterparty is required to pay us for any volumes not delivered, we have not entered into corresponding long-term sales contracts for volumes we may not receive.

At March 31, 2022, we had the following commodity sale commitments:


	Crude Oil			Natural Gas Liquids
	Value		Volume (in barrels)	Value		Volume (in gallons)
	(in thousands)
Fixed-Price Commodity Sale Commitments:
2023	$	187,058	1,839	$	53,795	46,853
2024	—		—	7,844		9,692
2025	—		—	46		50
Total	$	187,058	1,839	$	61,685	56,595

Index-Price Commodity Sale Commitments:
2023	$	3,093,185	32,502	$	720,695	420,793
2024	837,815		10,248	1,074		842
2025	777,060		10,220	—		—
2026	28,698		390	—		—
Total	$	4,736,758	53,360	$	721,769	421,635

We account for the contracts shown in the tables above using the normal purchase and normal sale election. Under this accounting policy election, we do not record the physical contracts at fair value at each balance sheet date; instead, we record the purchase or sale at the contracted value once the delivery occurs. Contracts in the tables above may have offsetting derivative contracts (described in Note 10) or inventory positions (described in Note 2).

Certain other forward purchase and sale contracts do not qualify for the normal purchase and normal sale election. These contracts are recorded at fair value in our consolidated balance sheet and are not included in the tables above. These contracts are included in the derivative disclosures in Note 10, and represent $52.0 million of our prepaid expenses and other current assets and $23.0 million of our accrued expenses and other payables at March 31, 2022.

Other Commitments

We have noncancelable agreements for product storage, railcar spurs and real estate. The following table summarizes future minimum payments under these agreements at March 31, 2022 (in thousands):


Year Ending March 31,
2023	$	12,092
2024	8,204
2025	3,257
2026	1,195
2027	1,182
Thereafter	5,502
Total	$	31,432

As part of the acquisition of Hillstone Environmental Partners, LLC (“Hillstone”), we assumed an obligation to pay a quarterly subsidy payment in the event that specified volumetric thresholds are not exceeded at a third-party facility. This agreement expires on December 31, 2022. During the years ended March 31, 2022, 2021 and 2020, we recorded $2.1 million, $2.6 million and $0.8 million, respectively, within operating expense in our consolidated statements of operations. At March 31, 2022, the range of potential payments we could be obligated to make pursuant to the subsidy agreement could be from $0.0 million to $2.4 million.