Krimbill building up NGL Energy Partners following success at Heritage

February 9, 2012 By    

A familiar figure from propane’s past has found his way back into the business, and for the last three years he has been assembling a team of veteran leaders who today comprise Tulsa, Okla.-based NGL Energy Partners, the industry’s fifth major public company.

Back before Michael Krimbill chose to launch a propane-industry comeback, life was much simpler, he says. The former head of Heritage Propane and an officer at Energy Transfer Partners left the industry in 2007, taking some time off and venturing into different businesses. He developed some real estate and invested in a bank on the West Coast.

But Krimbill saw the vast potential for another business opportunity in propane, “an opportunity to buy some assets to create the base business and add to that through acquisitions,” he says. And the synergy among the parties he sought for his team couldn’t be denied.

“He was the straw who stirred the drink on this,” says Steve Tuttle, president of the company’s Midstream Division.

NGL Energy Partners was formed in October 2010 from a merger between Illinois propane retailer Hicksgas and Tulsa midstream and wholesale company NGL Supply. Originally known as Silverthorne Energy Partners, the company went public last May known as NGL Energy Partners and listed as “NGL” on the New York Stock Exchange with an opening price of $21 a share.

Ironically, Krimbill’s return to the propane industry coincided with the exodus of Heritage Propane, the company he helped launch in 1989, take public in 1996 and merge with Energy Transfer Partners in 2004. AmeriGas Propane announced its acquisition of Heritage last November, and the transaction closed last month. While those two majors were consolidating and AmeriGas was beefing up its rank as the nation’s largest propane retailer, another was in its infancy and enjoying a growth spurt.

“Frankly, we’ve done much better and we’ve been able to grow faster with high-quality businesses than we ever would have modeled,” says Krimbill, the CEO, whose company has gone from 350 employees to about 730 in eight months. “We got it all done, and it’s worked better than we hoped for.”

Time frame
Krimbill dismisses the down economy as a barrier to launching a new company, saying instead that he’s found “starting things up in a really boom time is not the wisest thing because the multiples people are paying get to be very high. I always thought you counter the crowd. In a tougher time, there are more opportunities with better returns.”

Mark Alexander, the former CEO of Suburban Propane, once said the industry needs more consolidation among the majors. Krimbill holds a different philosophy and a belief that it makes more financial and business sense for majors to acquire independent companies and not one another.

“If you believe the MLPs are the price leaders in the market and have the highest margins then what you really want to do is merge and acquire the independents who are underpricing the MLPs,” Krimbill says. “So our goal is to work with the independents, the regionals and mom-and-pops, to blend into those regions where we’re not overpriced in the marketplace. If you’re overpriced, you start losing customers.”

The reputation that Krimbill built in his 17 years with Heritage was invaluable in lifting the venture off the ground, company officials say, because he had the respect of financial institutions and the parties he wanted to merge. He and co-investors Brad Atkinson, also a former Heritage Propane executive, and Jay Hatfield were able to secure the necessary financing at the outset, including a $200 million credit facility from Wells Fargo.

“When he and Jim Bertelsmeyer formed Heritage, they made the banks a lot of money during the process of growing Heritage from virtually nothing into a large retailer that ultimately merged with Energy Transfer,” Tuttle says of Krimbill. “The company prospered, and that brought added value for the banks, shareholders and everybody involved. That’s what allowed him to open the doors on this MLP, to get the financing necessary and get it public at a time when it was difficult to do, because people knew he had the experience doing it. They wanted to hitch their wagon to him again.”

NGL Energy Partners’ growth strategy is based on acquisitions, and the company has made several noteworthy moves that have been the foundation of its early success. Atkinson specialized in acquisitions during his time with Heritage and is fulfilling the same role with NGL Energy Partners as the vice president of business development.

David Eastin is another key part of the senior management team. The former president of Canada’s Superior Propane became an investor and accepted the position of executive vice president of midstream. Eastin, who will help grow the midstream and wholesale divisions, “is one of the long-term key guys here,” Tuttle says. “In public companies you have to plan for succession. He will continue to get increasing roles of leadership.”

The recruiting trail
Krimbill didn’t want the new MLP to be a pure retail propane play. He also wanted a midstream and wholesale component that would help meet the developing shale plays for years to come.

NGL Supply was a privately held natural gas liquids wholesale and terminaling company in business since 1967. It had three midstream terminals and recently had added a retail propane segment of about 15 million gallons.

When Krimbill approached NGL Supply in 2009 about his plan to merge the companies and take them public, the credit markets were lousy and the banks were not loaning money, Tuttle says.

Tuttle and business partner Brian Pauling were running the company, though they had sold a majority interest in it to private equity firm Denham Capital Management in 2002. So, in addition to Krimbill selling Tuttle and Pauling on the proposal, Denham had to be convinced that it would see value versus another exit strategy.

“Mike pulled it off and got us to agree to the merger with the idea of filing our S-1 and fulfilling all of the SEC requirements,” Tuttle says. “He had to get a credit facility sufficient to do the acquisitions to grow this company. He did it under difficult credit circumstances.”

Since the merger, the Midstream Division, headed by Tuttle and Pauling, the division’s COO, has grown from the original three terminals to 18 as a result of NGL Energy Partners acquiring SemStream L.P. and North American Propane. Tuttle says NGL Energy Partners is putting an emphasis on its Midstream Division – gas gathering, processing, transportation, storage and perhaps a crude oil component.

Krimbill agrees. “The reason is, as you grow you want to have an investment grade rating from the rating agencies,” he says. “To get there, retail propane needs to be 25 percent or less of your total business. You need to grow your midstream. It takes longer to put in place, but it has higher rates of return.”

Getting personal
NGL Supply and family-owned Hicksgas in Roberts, Ill., had a personal and professional relationship, with NGL supplying the third-generation company’s retail propane operation. And Hicksgas ownership had formed a relationship over the years with Krimbill and Atkinson at Heritage.

For Krimbill to follow through on his vision, he needed a strong retail component, which Hicksgas provided with its 35 million annual gallons.

Hicksgas owners and brothers Shawn and Todd Coady weren’t looking to sell the company, though they received plenty of offers. They did, however, begin to think about succession planning and where the business should be in the next five to 10 years. It didn’t look like the fourth generation would enter the business and the Coadys wanted to see it continue.

The company’s size also presented a challenge to its future. To show meaningful growth required sizeable acquisitions and for Hicksgas to step out of its traditional marketplace in Illinois and Indiana – a risky venture.

“If continuing to grow is difficult in our traditional marketplace and the fourth generation is not coming in, how do we keep this moving forward?” Shawn Coady wondered. “We didn’t like the thought of just selling the business” out of fear employees would be cut and stores shuttered. Plus, the Coadys weren’t ready to retire and bid farewell to an industry and its people.

“We knew Mike and Brad for 20-plus years, and when they retired from Heritage they kept in contact,” Coady says. “They called me and talked about the possibility of putting together another propane MLP. After talking to them, I logically understood where they were going. It solved a lot of problems my family was looking at.”

Hicksgas believed the new entity needed strong midstream and wholesale infrastructure supply sides to the business, which NGL Supply provided. And it helped that NGL Supply and Hicksgas had built a longstanding family relationship spanning several decades.

“It probably took us about four months to get the family rallied behind it,” Coady adds. “This was not the easiest market to get the businesses financed in. Even though the parties were committed, we really needed to make sure we had commitments from the banks and the underwriters who were willing to take this entity public at some point. Steve at NGL and my family had our own financing to run our businesses, but it’s not Wall Street-level financing or a public-company structure. That’s what Mike has done and what he’s good at.”

In the end, Coady decided the merger “was a way to keep the business intact, expand it and provide opportunities that we couldn’t have just as a large regional independent,” he says. “It really provided some business diversity for both companies, and it also nicely provided additional markets for both businesses.”

The merger is unique, Coady adds, in that all parties that came together have known one another for decades, and they have similar cultural and business backgrounds.

Shawn Coady now serves as the co-president and COO of the Retail Division with Todd Coady and says NGL Energy Partners’ retail component plays out like a utility-based investment. It offers a nice, steady business that, although weather cyclical, can keep cash flowing annually.

“Everyone knows the retail component is a mature industry. It’s limited,” Shawn Coady says. “We expect retail to be a good, solid piece of what we’re doing moving forward, but from what the industry is doing right now there is more growth on the midstream side because it is not a mature industry, especially taking on the shale plays.”

Coady compares the company’s mind-set for its Retail Division to that of an independent. “We want to run a retail propane company that has the economies of scale of a major but with the mind-set of an independent,” he says. “We don’t want to get so big that we can’t run those markets the way they need to be run locally.”

Local, familiar feel
Those local operations have been put in the hands of former, reputable independents that NGL Energy Partners acquired in a flurry late last year.

New England-based Osterman Propane provides a solid East Coast footprint, with former owner Vincent Osterman now running NGL Energy Partners’ eastern retail operations. Pacer Propane in the Pacific Northwest does the same for the West. And between Hicksgas and NGL Supply’s retail operation of Propane Central in Kansas, NGL Energy Partners has the Midwest covered. (NGL Supply’s Georgia-based retail operation Brantley Gas was also part of the merger.)

“The goal was to be East Coast to West Coast, have good weather diversity and be in primarily the northern half of the U.S.,” Coady says. “Our footprint has now been established, and our goal is to build out and off the existing footprint,” which the company did already this year by acquiring North American Propane, adding about 50,000 customers and 18 million gallons in the Northeast and mid-Atlantic.

Since it went public last May, NGL Energy Partners has raised its retail volume from 50 million gallons to more than 100 million, and it stands as the nation’s eighth-largest propane retailer. It ranked 12th on last year’s list as Silverthorne Energy Partners.

Customers using those gallons in and around their homes and businesses continue to see the familiar name of their local retail propane supplier, as NGL Energy Partners believes in retaining the names of most of the propane companies it buys. The same is true for its wholesale division, known as NGL Supply, which sold 575 million gallons last year.

“Basically we keep the same management, they run the businesses and we’re providing financial resources for them to grow their business,” says Tuttle, referring to the acquired retail operations. “We prefer to keep the goodwill associated to market where we bought them because that’s part of what we paid for.”

In the photo above: The NGL Energy Partners management team includes, from left, (front) Michael Krimbill, CEO; Shawn Coady, co-president and COO, Retail Division; (back) Steve Tuttle, president, Midstream Division; Brian Pauling, COO, Midstream Division; Todd Coady, co-president, Retail Division; Craig Jones, CFO; and Sharra Straight, vice president and controller.

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at or 216-706-3748.

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