NGL Energy Partners LP: A Turnaround Story with 2026 Growth Catalysts

The energy sector remains a volatile arena, but NGL Energy Partners LP (NGL) has emerged as a compelling turnaround story, leveraging operational discipline, strategic asset sales, and a pipeline of growth initiatives to position itself for sustained stability and income generation. Despite sector-wide risks, NGL's structured path to reducing debt, securing cash flows via its LEX II pipeline's MVC-backed contracts, and its dominance in produced water solutions argue for its value as a long-term holding for income-focused investors. Here's why NGL deserves a closer look.

Operational Efficiency: A Turnaround in Motion

NGL's financial turnaround is undeniable. After reporting a loss of $157.7 million in fiscal 2024, the company swung to income from continuing operations of $65.0 million in fiscal 2025. The key driver: operational efficiency.

The Water Solutions segment—its crown jewel—delivered record Adjusted EBITDA of $542.0 million in 2025, a 6.6% year-over-year increase. This growth was fueled by higher produced water volumes (up 8.6% to 2.63 million barrels per day) and cost discipline. By optimizing chemical use and maintenance, NGL reduced its per-barrel operating cost to $0.23, a 4% improvement from 2023 levels.

The LEX II pipeline expansion, completed in 2024, played a pivotal role. This 27-mile, 30-inch pipeline increased disposal capacity from 140,000 to 500,000 barrels per day, while its minimum volume commitment (MVC) contract with an investment-grade producer guaranteed cash flows. This structure not only stabilized revenue but also reduced geographic concentration risk by diversifying disposal routes in the Delaware Basin.

Balance Sheet Resilience: Debt Reduction and Liquidity

NGL's turnaround isn't just about top-line growth—it's also about debt reduction and balance sheet strength. The company raised $270 million from strategic asset sales, including non-core terminals and railcars, using proceeds to repay debt and bolster liquidity.

As of March 2025, total liquidity stood at $385.7 million, with no meaningful debt maturities until February 2029. This extended maturity profile, combined with covenant compliance, provides a buffer against market swings.

While long-term debt increased slightly to $2.96 billion from $2.84 billion in 2024, the strategic use of proceeds to repay borrowings under its ABL facility (fully repaid by May 2025) underscores management's focus on liquidity. The balance sheet is no longer a liability—it's a foundation for future growth.

Water Solutions Dominance: The Undervalued Growth Engine

NGL's water solutions segment is its crown jewel, and its valuation remains underappreciated. The segment's Adjusted EBITDA grew 8.7% when adjusting for sold assets, with LEX II's scalability enabling NGL to capture rising demand for produced water disposal.

The MVC-backed LEX II pipeline is a cash flow machine. By securing acreage dedication from a creditworthy producer, NGL ensures predictable volumes even during sector downturns. This is critical in an industry where commodity prices and production levels can fluctuate sharply.

Looking ahead, management has guided 2026 EBITDA of $615–$625 million, slightly above 2025's adjusted results. This confidence stems from:
1. LEX II's scalability: The pipeline's 500,000-barrel/day capacity is fully contracted, with incremental opportunities as Delaware Basin production grows.
2. Disciplined capital allocation: $60 million in growth capex will focus on reducing volatility, while $45 million in maintenance capex ensures infrastructure reliability.
3. Spot pricing leverage: NGL's ability to command higher fees for interruptible volumes in tight markets adds margin flexibility.

Risks and the Margin of Safety

No investment is without risk. NGL faces headwinds:
- Sector volatility: Oil price declines or production cuts could reduce produced water volumes.
- Execution risk: Capital projects, like LEX II's full expansion, require flawless execution to meet timelines.
- Debt overhang: While manageable, the $2.96 billion debt load remains a vulnerability in a severe downturn.

However, these risks are mitigated by NGL's structured path to stability:
- The MVC-backed cash flows and reduced debt maturities until 2029 provide a safety net.
- Asset sales have already reduced leverage, and EBITDA growth targets are achievable given the LEX II tailwinds.

Investment Thesis: A Buy for Income Investors

NGL's valuation remains compelling. At current levels, the stock trades at a 1.2x EV/EBITDA multiple, below historical averages for midstream energy companies. While the sector's volatility creates short-term uncertainty, NGL's focus on cash flow predictability and asset-light growth makes it a safer bet than many peers.

For income investors, the $0.125 quarterly distribution (covering 60% of DCF in 2025) is sustainable given the balance sheet improvements. The 2026 guidance suggests further upside, with potential for distribution growth as EBITDA stabilizes.

Recommendation: Buy NGL for a diversified energy portfolio. The combination of operational turnaround, balance sheet resilience, and water solutions dominance creates a margin of safety that outweighs near-term sector risks.

In a market of uncertainty, NGL offers a rare blend of recovery and growth—a story worth betting on.