General
The following discussion and analysis includes information management believes is relevant to understand and assess our financial condition and results of operations. This section should be read together with our consolidated financial statements, accompanying notes and risk factors contained in this report.
Overview
We are a master limited partnership formed by our parent to be its principle provider of fuel storage and transportation services. OnJuly 1, 2015 , we completed our IPO, and, in addition to the interests ofBlendStar , obtained the assets and liabilities of the ethanol storage and leased railcar assets contributed by our parent in a transfer between entities under common control. We also entered into long-term, fee-based commercial agreements for storage and transportation services withGreen Plains Trade , which are supported by minimum volume or take-or-pay capacity commitments. Our profitability is dependent on the volume of ethanol and other fuels handled at our facilities and the amount of railcar volumetric capacity we are able to provide. Our long-term, fee-based commercial agreements generate stable, predictable cash flows supported by minimum volume or take-or-pay capacity commitments. Information about our business, properties and strategy can be found under Item 1 - Business and a description of our risk factors can be found under Item 1A - Risk Factors.
Industry Factors Affecting our Results of Operations
According to the EIA, domestic ethanol production averaged 1.0 million barrels per day in 2022, which was 1% higher than the 0.99 million barrels per day in 2021. Refiner and blender input volume increased 1% to 884 thousand barrels per day for 2022, compared with 875 thousand barrels per day in 2021. Gasoline demand decreased 0.2 million barrels per day, or 3%, in 2022 compared to the prior year.U.S. domestic ethanol ending stocks increased by approximately 3.2 million barrels compared to the prior year, or 15%, to 24.6 million barrels as ofDecember 31, 2022 . As of this filing, according to Prime the Pump, there were approximately 2,923 retail stations selling E15 in 31 states, up from 2,555 at the beginning of the year, and approximately 386 suppliers at 113 pipeline terminal locations now offering E15 to wholesale customers.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports throughNovember 30, 2022 , were approximately 1,277 mmg, up 13% from 1,126 mmg for the same period of 2021.Canada was the largest export destination forU.S. ethanol, accounting for 36% of domestic ethanol export volume, driven in part by their national clean fuel standard.South Korea ,Netherlands ,India and theUnited Kingdom accounted for 12%, 8%, 7% and 5%, respectively, ofU.S. ethanol exports. We currently estimate that net ethanol exports will range from 1.1 to 1.3 billion gallons in 2023, based on historical demand from a variety of countries and certain countries that seek to improve their air quality, reduce greenhouse gas emissions through low carbon fuel programs and eliminate MTBE from their own fuel supplies. The recent strengthening of theU.S. Dollar relative to other currencies has the potential to adversely impact theU.S. ethanol competitiveness in the global market, which could also impact domestic ethanol prices. Legislation and Regulation We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other products we handle. Over the years, various bills and amendments have been proposed in theHouse and Senate , which would eliminate the RFS entirely, eliminate the corn based ethanol portion of the mandate, and make it more difficult to sell fuel blends with higher levels of ethanol. Bills have also been introduced to require higher levels of octane blending, and require car manufacturers to produce vehicles that can operate on higher ethanol blends. We believe it is unlikely that any of these bills will become law in the currentCongress . In addition, the manner in which theEPA administers the RFS and related regulations can have a significant impact on the actual amount of ethanol and other biofuels blended into the domestic fuel supply. 30
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Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol, biodiesel and renewable diesel demand in theU.S. Biofuel policies are influenced by concerns for the environment, diversifying the fuel supply, and reducing the country's dependence on foreign oil. Consumer acceptance of FFVs and higher ethanol blends in non-FFVs may be necessary before ethanol can achieve further growth inU.S. surface transportation fleet market share. In addition, expansion of clean fuel programs in other states and countries, or a national low carbon fuel standard, could increase the demand for ethanol and other biofuels, depending on how they are structured. The Inflation Reduction Act of 2022, which was signed into law onAugust 16, 2022 , is a sweeping policy that could have many potential impacts on both our and our parent's business which we are continuing to evaluate. The legislation (1) created a new Clean Fuel Production Credit, section 45Z of the Internal Revenue Code, which runs from 2025 to 2027 of$1.00 per gallon, which could impact our parent's fuel ethanol, depending on the level of greenhouse gas reduction for each gallon; (2) created a new tax credit for sustainable aviation fuel of$1.25 to$1.75 per gallon, depending on the greenhouse gas reduction for each gallon, that could possibly involve some of our parent's low carbon ethanol through an alcohol to jet pathway, depending on the life cycle analysis model being used (this credit expires after 2024 and shifts to the 45Z Clean Fuel Production Credit, where it qualifies for$1.75 per gallon); (3) expanded the carbon capture and sequestration credit, section 45Q of the Internal Revenue Code, to$85 for each ton of carbon sequestered, which could impact our parent's carbon capture partnership and other potential carbon capture investments, though it cannot be claimed in conjunction with the 45Z Clean Fuel Production Credit, which could prove to be more valuable; (4) extended the biodiesel tax credit which could impact our parent's renewable corn oil values, as this co-product serves as a low-carbon feedstock for renewable diesel and biomass based diesel production (this credit expires after 2024 and shifts to the 45Z Clean Fuel Production credit, where all non sustainable aviation fuels qualify for up to$1.00 per gallon); (5) funded biofuel refueling infrastructure by$500 million , which could impact the availability of higher level ethanol blended fuel; (6) increased funding for working lands conservation programs for farmers by$20 billion ; and (7) provided credits for the production and purchase of electric vehicles, which could impact the amount of internal combustion engines built and sold longer term, and by extension impact the demand for liquid fuels including ethanol. There are numerous additional clean energy credits included in this law, including investment tax credits for construction of clean energy infrastructure, that could impact our and our parent's overall competitiveness. The RFS sets a floor for biofuels use inthe United States . When the RFS was established in 2010, the required volume of conventional, or corn-based, ethanol to be blended with gasoline was to increase each year until it reached 15 billion gallons in 2015, which left theEPA to address existing limitations in both supply and demand. As ofDecember 31, 2022 , theEPA has proposed RVOs for 2023, 2024 and 2025, setting the implied conventional ethanol levels at 15.25 billion gallons for each year, inclusive of 250 million gallons of supplemental volume in 2023 to reflect a court-ordered remand of a previously lowered RVO. TheEPA also proposed a modest increase in biomass based diesel volumes over the three years, with a large increase in advanced biofuels for 2024 and 2025, which they expect to be fulfilled by e-RINs for electric vehicles. TheEPA has agreed to a consent decree from theU.S. District Court for D.C . to finalize an RVO for 2023 (and possibly 2024 and 2025) byJune 14, 2023 . Under the RFS, RINs and SREs are important tools impacting supply and demand. TheEPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use in each annual RVO based on their percentage of total production of domestic transportation fuel sales. Obligated parties use RINs to show compliance with the RFS mandated volumes. Ethanol producers assign RINs to each gallon of renewable fuel they produce and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs can affect the price of ethanol in certain markets and can influence purchasing decisions by obligated parties. Of note, the RIN mechanism for proposed e-RINs could vary from the traditional process. As it relates to SREs, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition theEPA for a SRE which, if approved, waives their portion of the annual RVO requirements. TheEPA , through consultation with theDOE and theUSDA can grant them a full or partial waiver, or deny it outright within 90 days of submittal. TheEPA granted significantly more of these waivers for the 2016, 2017 and 2018 reporting years than they had in prior years, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, theEPA effectively reduced the RFS mandated volumes for those compliance years by those amounts respectively, and as a result RIN values declined significantly. In the waning days of the previous administration, theEPA approved three additional SREs, reversing one denial from 2018 and granting two from 2019. A total of 88 SREs were granted under the previous administration, erasing a total of 4.3 billion gallons of potential blending demand. TheEPA , under the current administration, reversed the three SREs issued in the final weeks of the previous administration, and in conjunction with the RVO rulemaking for 2020, 2021 and 2022, denied all pending SREs, a stance they have reiterated in the proposed 2023, 2024, and 2025 RVO rulemaking. There are multiple on-going legal challenges to how theEPA has handled SREs and RFS rulemakings. 31
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The One-Pound Waiver, which was extended inMay 2019 to allow E15 to be sold year-round to all vehicles model year 2001 and newer, was challenged in an action filed inFederal District Court for the D.C. Circuit . OnJuly 2, 2021 , theCircuit Court vacated theEPA 's rule so the future of summertime, defined asJune 1 to September 15 , sales of E15 is uncertain. TheSupreme Court declined to hear a challenge to this ruling. OnApril 12, 2022 , the President announced that he has directed theEPA to issue an emergency waiver to allow for the continued sale of E15 during the summer months, and that the temporary waiver should be extended as long as the gasoline supply emergency lasts. As of this filing, E15 is sold year-round at approximately 2,923 stations in 31 states. InOctober 2019 , theWhite House directed theUSDA andEPA to move forward with rulemaking to expand access to higher blends of biofuels. This includes funding for infrastructure, labeling changes and allowing E15 to be sold through E10 infrastructure. TheUSDA rolled out the Higher Blend Infrastructure Incentive Program in the summer of 2020, providing competitive grants to fuel terminals and retailers for installing equipment for dispensing higher blends of ethanol and biodiesel. InDecember 2021 , theUSDA announced it would administer another infrastructure grant program. The Inflation Reduction Act, signed into law in 2022, provided for an additional$500 million inUSDA grants for biofuel infrastructure from 2022 to 2031, though all the funds could be awarded in the first few years of the program. Government actions abroad can significantly impact the demand forU.S. ethanol. InSeptember 2017 ,China's National Development and Reform Commission , theNational Energy Agency and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020.China , the number three importer ofU.S. ethanol in 2016, imported negligible volumes during 2018 and 2019 due to a 30% tariff onU.S. ethanol, which increased to 70% in early 2018. There is no assurance thatChina's joint plan to expand blending to 10% will be carried to fruition, nor that it will lead to increased imports ofU.S. ethanol in the near term. Ethanol is included as an agricultural commodity under the "Phase I" agreement withChina , wherein they were to purchase upwards of$40 billion in agricultural commodities from theU.S. in both 2020 and 2021. According to theU.S. Department of Agriculture Foreign Agricultural Service ,China purchased 32 mmg ofU.S. ethanol in 2020, 100 mmg in 2021, and throughNovember 2022 had imported less than 500,000 gallons. InBrazil , the Secretary of Foreign Trade had issued a tariff rate quota which expired in December of 2020. Exports toBrazil were 186 mmg in 2020 and 69 mmg in 2021, and throughNovember 2022 had imported 60 million gallons. OnDecember 28, 2022 ,Brazil extended an import tariff exemption toU.S. ethanol throughMarch 2023 . Our parent's exports also face tariffs, rate quotas, countervailing duties, and other hurdles in theEuropean Union ,India ,Peru ,Colombia and elsewhere, which limits the ability to compete in some markets. We believe some countries are using the COVID-19 crisis as justification for raising duties on imports ofU.S. ethanol, or blocking imports entirely. InJanuary 2020 , the updated North American Free Trade Agreement, known as the United States Mexico Canada Agreement or USMCA was signed. The USMCA went into effect onJuly 1, 2020 and maintains the duty free access ofU.S. agricultural commodities, including ethanol, intoCanada andMexico . According to theU.S. Department of Agriculture , exports toCanada were 454 mmg and exports toMexico were 66 mmg throughNovember 2022 .
Environmental and Other Regulation
Our operations are subject to environmental regulations, including those that govern the handling and release of ethanol, crude oil and other liquid hydrocarbon materials. Compliance with existing and anticipated environmental laws and regulations may increase our overall cost of doing business, including capital costs to construct, maintain, operate, and upgrade equipment and facilities. Our business may also be impacted by government policies, such as tariffs, duties, subsidies, import and export restrictions and outright embargos. Our parent employs maintenance and operations personnel at each of its facilities, which are regulated by theOccupational Safety and Health Administration . TheU.S. ethanol industry relies heavily on tank cars to deliver its product to market. In 2015, the DOT finalized the Enhanced Tank Car Standard and Operational Controls for High-Hazard and Flammable Trains, or DOT specification 117, which established a schedule to retrofit or replace older tank cars that carry crude oil and ethanol, braking standards intended to reduce the severity of accidents and new operational protocols. The deadline for compliance with DOT specification 117 isMay 1, 2023 . The rule may increase our lease costs for railcars over the long term, which will in turn result in an increase in the fees we charge for railcar capacity. Additionally, existing railcars may be out of service for a period of time while upgrades are made, tightening supply in an industry that is highly dependent on railcars to transport product. We intend to strategically manage our leased railcar fleet to comply with the new regulations and have commenced transition of our fleet to DOT 117 compliant railcars. As ofDecember 31, 2022 , approximately 87% of our railcar fleet was DOT 117 compliant. We anticipate that our entire railcar fleet will be DOT 117 compliant by the 2023 deadline. 32
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Our Parent's Production Levels
Our parent's operating margins are sensitive to commodity price fluctuations, particularly for corn, ethanol, renewable corn oil, distillers grains, Ultra High Protein, and natural gas, which are impacted by factors that are outside of its control, including weather conditions, corn yield, changes in domestic and global ethanol supply and demand, government programs and policies and the price of crude oil, gasoline and substitute fuels. Our parent uses various financial instruments to manage and reduce its exposure to price variability. Our parent's operating margins influence its production levels, which in turn affects the volume of ethanol we store, throughput and transport. During periods of commodity price variability or compressed margins, our parent may slow down or temporarily idle operations at certain ethanol plants. Slowing production increases the ethanol yield per bushel of corn, optimizing cash flow in lower margin environments. In 2022, our parent's ethanol facilities maintained an average utilization rate of approximately 91% of capacity, compared with 77% of capacity for the prior year.
Our parent's quarterly actual production, daily average production capacity and utilization are highlighted in the following chart:
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Financial Condition and Results of Operations of Our Parent
Our parent guaranteesGreen Plains Trade's obligations under our storage and throughput agreement and rail transportation service agreements, which account for a substantial portion of our revenues. Any change in our parent's business or financial strategy, or event that negatively impacts its financial condition, results of operations or cash flows may materially and adversely affect our financial condition, results of operations or cash flows. For additional information, please refer to Item 1A - Risk Factors.
Availability of Railcars
The long-term growth of our business depends on the availability of railcars, which we currently lease, to transport ethanol and other fuels on reasonable terms. Railcars may become unavailable due to increased demand, maintenance or other logistical constraints. Railcar shortages caused by increased demand for rail transportation or changes in regulatory standards that apply to railcars could negatively impact our business and our ability to grow. 33
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How We Evaluate Our Operations
Our management uses a variety of GAAP and non-GAAP financial and operating metrics, including among others, throughput volume and capacity, operations and maintenance expense, adjusted EBITDA and distributable cash flow. Management views each of these metrics as important factors to evaluate our operating results and measure profitability.
Throughput Volume and Capacity
Our revenues are dependent on the volume of ethanol and other fuels we store, throughput, or transport at our ethanol storage and fuel terminal facilities, and the capacity that is used to transport ethanol and other fuels by railcars. These volumes are affected by our parent's operating margins at its ethanol production plants as well as the overall supply and demand for ethanol and other fuels in markets served directly or indirectly by our assets.Green Plains Trade is obligated to meet minimum volume or take-or-pay capacity commitments under our commercial agreements. Our results of operations may be impacted by our parent's use of our assets in excess of its minimum volume commitments, and our ability to capture incremental volumes or capacity fromGreen Plains Trade or third parties, retainGreen Plains Trade as a customer, enter into contracts with new customers and increase volume commitments.
Operations and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operations and maintenance expenses. Our expenses are relatively stable across a broad range of storage, throughput and transportation volumes and usage, but can fluctuate from period to period depending on maintenance activities and growth. We manage our expenses by scheduling maintenance activities over time to avoid significant variability in our cash flows.
Adjusted EBITDA and Distributable Cash Flow
Adjusted EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs, plus adjustments for transaction costs related to acquisitions or financing transactions, unit-based compensation expense, net gains or losses on asset sales, and our proportional share of EBITDA adjustments of our equity method investee. Distributable cash flow is defined as adjusted EBITDA less interest paid or payable, income taxes paid or payable, maintenance capital expenditures, which are defined under our partnership agreement as cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain our operating capacity or operating income, and our proportional share of distributable cash flow adjustments of our equity method investee. We believe the presentation of adjusted EBITDA and distributable cash flow provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA and distributable cash flow are supplemental financial measures that we use to assess our financial performance. However, these presentations are not made in accordance with GAAP. The GAAP measure most directly comparable with adjusted EBITDA and distributable cash flow is net income. Since adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of adjusted EBITDA and distributable cash flow may not be comparable with similarly titled measures of other companies, diminishing its utility. Adjusted EBITDA and distributable cash flow should not be considered in isolation or as alternatives to net income or any other measure of financial performance presented in accordance with GAAP to analyze our results. 34
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Table of Contents Year Ended December 31, 2022 2021 2020 Reconciliations to Non-GAAP Financial Measures: Net income $ 40,650 $ 40,362 $ 41,147 Interest expense (1) 5,924 7,392 8,513 Income tax expense 81 188 212 Depreciation and amortization 4,093 3,737 3,806 Transaction costs - 5 25 Unit-based compensation expense 240 279 320 Proportional share of EBITDA adjustments of equity method investee (2) 180 184 181 Adjusted EBITDA 51,168 52,147 54,204 Interest paid or payable (5,924) (6,392) (8,513) Income taxes paid or payable (81) (188) (137) Maintenance capital expenditures (584) (139) (181) Distributable cash flow (3) $ 44,579
$ 45,428 $ 45,373
Distributions declared (4) $ 42,808 $ 26,425 $ 11,361 Coverage ratio 1.04 x 1.72 x 3.99 x (1) Includes$1.0 million in unamortized debt issuance costs written off upon extinguishment of debt for the year endedDecember 31, 2021 . (2) Represents our proportional share of depreciation and amortization of our equity method investee. (3) Distributable cash flow does not include adjustments for the principal payments on the term loan of$1.0 million during the year endedDecember 31, 2022 , and mandatory principal payments of$50.0 million , and$30.0 million during the year endedDecember 31, 2021 and 2020, respectively. (4) Distributions declared for the applicable period and paid in the subsequent quarter.
Components of Revenues and Expenses
Revenues. Our revenues consist primarily of fee-based commercial agreements for receiving, storing, transferring and transporting ethanol and other fuels.
For more information about these charges and the services covered by these agreements, please refer to Note 15 - Related Party Transactions to the consolidated financial statements in this report.
Operations and Maintenance Expenses. Our operations and maintenance expenses consist primarily of lease expenses related to our transportation assets, labor expenses, outside contractor expenses, insurance premiums, repairs and maintenance expenses and utility costs. These expenses also include fees for certain management, maintenance and operational services to support our facilities, trucks and leased railcar fleet allocated by our parent under our operational services and secondment agreement. General and Administrative Expenses. Our general and administrative expenses consist primarily of allocated employee salaries, incentives and benefits, office expenses, professional fees for accounting, legal, and consulting services, and other costs allocated by our parent. Our general and administrative expenses include direct monthly charges for the management of our assets and certain expenses allocated by our parent under our omnibus agreement for general corporate services, such as treasury, accounting, human resources and legal services. These expenses are charged or allocated to us based on the nature of the expense and our proportionate share of employee time or capital expenditures. For more information about fees we reimburse our parent for services received, please read Note 15 - Related Party Transactions to the consolidated financial statements in this report.
Other Income (Expense). Other income (expense) includes interest earned, interest expense and other non-operating items.
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Income from Equity Method Investee. Income from equity method investee consists of the income or loss associated with our 50% ownership in the NLR joint venture.
For the commercial agreements, operational services and secondment agreement and the omnibus agreement in their entirety and any subsequent amendments required to be filed, please refer to Item 15 - Exhibits, Financial Statement Schedules.
Results of Operations
Comparability of our Financial Results
The following summarizes certain events that affect the comparability of our operating results over the course of the past three years:
•OnMarch 22, 2021 , our parent closed on the sale of its ethanol plant located inOrd, Nebraska toGreenAmerica Biofuels Ord LLC . Correspondingly, the partnership's storage assets located adjacent to theOrd plant were sold to Green Plains for$27.5 million , along with the transfer of associated railcar operating leases.
•On
A discussion regarding our financial condition and results of operations for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 , can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onFebruary 18, 2022 .
Selected Financial Information and Operating Data
The following table reflects selected financial information (in thousands):
Year Ended December 31, 2022 2021 2020 Revenues Storage and throughput services$ 46,257 $ 46,953 $ 48,603 Rail transportation services 21,557 19,198 21,496 Terminal services 8,148 8,156 8,506 Trucking and other 3,805 4,145 4,740 Total revenues 79,767 78,452 83,345 Operating expenses Operations and maintenance (excluding depreciation and amortization reflected below) 25,158 23,061 26,125 General and administrative 4,498 4,412 4,206 Depreciation and amortization 4,093 3,737 3,806 Total operating expenses 33,749 31,210 34,137 Operating income$ 46,018 $ 47,242 $ 49,208 36
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The following table reflects selected operating data (in mmg, except railcar capacity billed): Year Ended December 31, 2022 2021 2020 Product volumes Storage and throughput services 875.6 754.5 796.4 Terminal services: Affiliate 106.1 84.3 102.9 Non-affiliate 92.7 103.2 103.6 198.8 187.5 206.5 Railcar capacity billed (daily avg. mmg) 73.1 69.8 80.6
Year Ended
Revenues
Consolidated revenues increased$1.3 million for the year endedDecember 31, 2022 , compared with the year endedDecember 31, 2021 . Railcar transportation services revenue increased$2.4 million primarily due to an increase in railcar volumetric capacity and associated fees. Storage and throughput services revenue decreased$0.7 million primarily due to a reduction in contracted minimum volume commitments as a result of the sale of our parent'sOrd ethanol plant in the first quarter of 2021. Trucking and other revenue decreased$0.3 million primarily as a result of lower non-affiliate freight volume. Terminal services revenue remained consistent with the prior year.
Operations and Maintenance Expenses
Operations and maintenance expenses increased
General and Administrative Expenses
General and administrative expenses increased$0.1 million in 2022 compared with 2021, primarily due to an increase in costs allocated by our parent under the Secondment Agreement. Distributable Cash Flow
Distributable cash flow decreased
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities. We expect operating cash flows will be sufficient to meet our liquidity needs. We consider opportunities to repay or refinance our debt, depending on market conditions, as part of our normal course of doing business. Our ability to meet our debt service obligations and other capital requirements depends on our future operating performance, which is subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. We plan to utilize a combination of operating cash, refinancing and other strategic actions, to repay debt obligations as they come due.
Distributions to Unitholders
Quarterly distributions are made from available cash within 45 days after the end of each calendar quarter, assuming we have available cash. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by our general partner plus all or any portion of the cash on hand resulting from working capital 37
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borrowings made subsequent to the end of that quarter. For more information, see Note 11 - Partners' Equity to the consolidated financial statements in this report.
The table below summarizes the quarterly cash distributions for the periods presented: Quarterly Three Months Ended Declaration Date Record Date Payment Date Distribution December 31, 2022 January 19, 2023 February 3, 2023 February 10, 2023 $ 0.4550 September 30, 2022 October 20, 2022 November 4, 2022 November 14, 2022 0.4550 June 30, 2022 July 21, 2022 August 5, 2022 August 12, 2022 0.4500 March 31, 2022 April 21, 2022 May 6, 2022 May 13, 2022 0.4450 December 31, 2021 January 20, 2022 February 4, 2022 February 11, 2022 0.4400 September 30, 2021 October 19, 2021 November 5, 2021 November 12, 2021 0.4350 June 30, 2021 July 22, 2021 August 6, 2021 August 13, 2021 0.1200 March 31, 2021 April 22, 2021 May 7, 2021 May 14, 2021 0.1200 December 31, 2020 January 21, 2021 February 5, 2021 February 12, 2021 0.1200 September 30, 2020 October 15, 2020 November 6, 2020 November 13, 2020 0.1200 June 30, 2020 July 16, 2020 July 31, 2020 August 7, 2020 0.1200 March 31, 2020 April 16, 2020 May 1, 2020 May 8, 2020 0.1200 Cash Flows
On
Net cash provided by operating activities were$46.0 million and$47.8 million in 2022 and 2021, respectively. Cash flows from operating activities benefited from distributions of$0.6 million and$1.5 million from NLR in 2022 and 2021, respectively. Cash flows from investing activities decreased$26.8 million in 2022 compared with 2021, primarily as a result of theOrd disposition in the first quarter of 2021. Net cash used in financing activities was$43.5 million in 2022, compared with$59.4 million in 2021. The overall decrease was due to larger principal payments made on our term loan in 2021, partially offset by an increase in cash distributions in 2022.
Capital Resources
We incurred capital expenditures of$0.6 million and$0.7 million in 2022 and 2021, respectively. Expenditures in 2022 were associated with various upgrades at our ethanol storage plants andBirmingham unit train terminal, and expenditures in 2021 were primarily due to upgrades at ourWood River storage facility. We received distributions from our NLR joint venture in the amount of$1.2 million and$1.5 million during the years endedDecember 31, 2022 and 2021, respectively. We did not make any equity method investee contributions in 2022 and we do not anticipate making significant equity contributions to NLR in 2023. We expect to receive future distributions from NLR as excess cash becomes available.
Term Loan Facility
OnJuly 20, 2021 , we entered into an Amended and Restated Credit Agreement ("Amended Credit Facility") to our existing credit facility with funds and accounts managed byBlackRock andTMI Trust Company as administrative agent. The Amended Credit Facility reduced the total amount available to$60.0 million , extended the maturity fromDecember 31, 2021 toJuly 20, 2026 , and converted the balance to a term loan. The term loan does not require any principal payments; however, we have the option to prepay$1.5 million per quarter. As ofDecember 31, 2022 , the term loan had a balance of$59.0 million and an interest rate of 12.77%. Under the terms of the Amended Credit Facility, BlackRock purchased the outstanding balance of the existing notes from the previous lenders. Interest on the term loan is based on three-month LIBOR plus 8.00%, with a 0% LIBOR floor, and is payable on the 15th day of each March, June, September and December, during the term, with the first interest payment having occurredSeptember 15, 2021 . Financial covenants of the Amended Credit Facility include a maximum consolidated 38
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leverage ratio of 2.5x and a minimum consolidated debt service coverage ratio of 1.10x. The Amended Credit Facility is secured by substantially all of the assets of the partnership. OnFebruary 11, 2022 , the Amended Credit Facility was modified to allowGreen Plains Partners and its affiliates to repurchase outstanding notes. At that time, we purchased$1.0 million of the outstanding notes from accounts and funds managed by BlackRock and subsequently retired the notes, reducing the term loan balance to$59.0 million .
During the year ended
The administrator of LIBOR ceased publication of the one-week and two-month LIBOR settings immediately following the LIBOR publication onDecember 31, 2021 , and announced that the remainingU.S. dollar LIBOR settings, including the three-month LIBOR, will cease immediately following the LIBOR publication onJune 30, 2023 . We use three-month LIBOR as a reference rate for our term loan. It is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will be established by the applicable phase out dates. We may need to amend our credit facility to determine the interest rate to replace LIBOR. The potential effect of any such event on interest expense cannot yet be determined.
For more information related to our debt, see Note 8 - Debt to the consolidated financial statements in this report.
Effects of Inflation
While inflation has increased relative to recent years, we do not expect it to have a material impact on our future results of operations. However, inflation has and may continue to impact the interest rate environment in which we operate resulting in a higher cost of capital. See Item 7A below for additional information related to interest rate risk.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires that we use estimates that affect the reported assets, liabilities, revenues, expenses and related disclosures for contingent assets and liabilities. We base our estimates on experience and assumptions we believe are proper and reasonable. While we regularly evaluate the appropriateness of these estimates, actual results could differ materially from our estimates. The following accounting policies, in particular, may be impacted by judgments, assumptions and estimates used to prepare our consolidated financial statements.
Impairment of
Our goodwill consists of amounts related to our predecessor's acquisition of its fuel terminal and distribution business. We review goodwill at the reporting unit level for impairment at least annually, as ofOctober 1 , or more frequently when events or changes in circumstances indicate that impairment may have occurred. We estimate the amount and timing of projected cash flows that will be generated by an asset over an extended period of time when we review our long-lived assets and goodwill. Circumstances that may indicate impairment include a decline in future projected cash flows, a decision to suspend plant operations for an extended period of time, sustained decline in our market capitalization or market prices for similar assets or businesses, or a significant adverse change in legal or regulatory matters or business climate. Significant management judgment is required to determine the fair value of our long-lived assets and goodwill and measure impairment, which includes projected cash flows. Fair value is determined by using various valuation techniques, including discounted cash flow models, sales of comparable properties and third-party independent appraisals. Changes in estimated fair value could result in an impairment of the asset. We performed an annual goodwill assessment as ofOctober 1, 2022 using a qualitative assessment. Our assessment included consideration of the operating results and cash flows of theBlendStar reporting unit. We also considered current regulatory and business matters associated withBlendStar , as well as the market capitalization of the partnership. Our assessment resulted in no goodwill impairment for the year endedDecember 31, 2022 .
Please refer to Note 7 -
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Leases
We lease certain facilities, parcels of land, and railcars. Our leases are accounted for as operating leases in accordance with guidance in ASC 842, Leases, with lease expense recognized on a straight-line basis over the lease term. The term of the lease may include options to extend or terminate the lease when it is reasonably certain that we will exercise one of those options. For leases with initial terms greater than 12 months, we record operating lease right-of-use assets and corresponding operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet. Operating lease right-of-use assets represent our right to control an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. These assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date to determine the present value of future payments. We record operating lease revenue as part of our operating lease agreements for storage and throughput services, rail transportation services, and certain terminal services. In addition, we may sublease certain of our railcars to third parties on a short-term basis. These subleases are classified as operating leases, with the associated sublease revenue recognized on a straight-line basis over the lease term. Please refer to Note 14 - Commitments and Contingencies to the consolidated financial statements for further details on operating lease expense and revenue. Please refer to Note 3 - Revenue to the consolidated financial statements for further details on the operating lease agreements in which we are a lessor.
Recent Accounting Pronouncements
For information related to recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements in this report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations and Commitments
In addition to debt, our material future obligations include certain lease agreements associated with our railcar fleet. Aggregate minimum lease payments under these operating lease agreements for future fiscal years as ofDecember 31, 2022 totaled$52.1 million , with$16.2 million payable in the next twelve months. Refer to Note 14 - Commitments and Contingencies included in the notes to consolidated financial statements for more information.
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