Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Organization, Basis of Presentation and Summary of Significant Accounting Policies
General
American Midstream Partners, LP (the “Partnership”, “we”, “us”, or “our”) is a growth-oriented Delaware limited partnership that was formed on August 20, 2009 to own, operate, develop and acquire a diversified portfolio of midstream energy assets. The Partnership’s general partner, American Midstream GP, LLC (the “General Partner”), is
77%
owned by High Point Infrastructure Partners, LLC (“HPIP”) and
23%
indirectly owned by Magnolia Infrastructure Holdings, LLC, both of which are affiliates of ArcLight Capital Partners, LLC ("ArcLight"). Our capital accounts consist of notional General Partner units and units representing limited partner interests.
JPE Acquisition
On March 8, 2017, we completed the acquisition of JP Energy Partners LP (“JPE”), an entity controlled by ArcLight affiliates, in a unit-for-unit merger (“JPE Acquisition”). In connection with the transaction, we issued approximately
20.2 million
common units to holders of the JPE common and subordinated units, including
9.8 million
common units to ArcLight affiliates. In connection with the completion of the JPE Acquisition, we entered into a supplemental indenture pursuant to which the JPE Entities jointly and severally, fully and unconditionally, guarantee the
8.50%
Senior Notes (as defined below).
As both we and JPE were controlled by ArcLight affiliates, the acquisition represented a transaction among entities under common control. Although we are the legal acquirer, JPE was considered the acquirer for accounting purposes as ArcLight obtained control of JPE prior to obtaining control of us on April 15, 2013. As a result, we adjusted our historical financial statements to reflect ArcLight’s acquisition cost basis of their investment in us back to April 15, 2013. In addition, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results of JPE prior to the effective date of the JPE Acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of JPE at historical cost.
Disposition of Propane Business
On September 1, 2017, we completed the disposition of our Propane Marketing Services business the ("Propane Business") pursuant to the Membership Interest Purchase Agreement dated July 21, 2017, between AMID Merger LP, a wholly owned subsidiary of the Partnership, and SHV Energy N.V. As a result of the disposition of our Propane Business, we classified the results of operations of the Propane Business as discontinued operations. See Note 4 -
Discontinued Operations.
Nature of business
We provide critical midstream infrastructure that links producers of natural gas, crude oil, NGLs, condensate and specialty chemicals to numerous intermediate and end-use markets. Through our
five
reportable segments, (1) gas gathering and processing services, (2) liquid pipelines and services, (3) natural gas transportation services, (4) offshore pipelines and services and (5) terminalling services, we engage in the business of gathering, treating, processing, and transporting natural gas; gathering, transporting, storing, treating and fractionating NGLs; gathering, storing and transporting crude oil and condensates; storing specialty chemical products and selling refined products.
Most of our cash flow is generated from fee-based and fixed-margin arrangements for gathering, processing, transporting and treating natural gas and crude oil, firm capacity reservation charges, interruptible transportation charges, guaranteed firm storage contracts, throughput fees and other optional charges associated with ancillary services.
Our primary assets are strategically located in some of the most prolific onshore and offshore producing regions and key demand markets in the United States. Our gathering and processing assets are primarily located in (i) the Permian Basin of West Texas, (ii) the Cotton Valley/Haynesville Shale of East Texas, (iii) the Eagle Ford Shale of South Texas, (iv) the Bakken Shale of North Dakota, and (v) offshore in the Gulf of Mexico. Our natural gas transportation, offshore pipelines and terminal assets are in key demand markets in Alabama, Arkansas, Louisiana, Mississippi and Tennessee and in the Port of New Orleans in Louisiana and the Port of Brunswick in Georgia.
Basis of presentation
The financial statements and supplementary data, management’s discussion and analysis of financial condition and results of operations and certain selected financial data in our Form 10-K for the year ended December 31, 2016 (the “Annual Report”), as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2017, were recast by the Current Report on Form 8-K, dated September 18, 2017 (“Recast Form 8-K”). There have been no revisions or updates to any other sections of the Annual Report other than the revisions noted above.
The unaudited financial information included in this Quarterly Report has been prepared on the same basis as the audited consolidated financial statements included in the Recast Form 8-K, and recast to retrospectively reflect the change in classification of the Propane Business to discontinued operations for all periods presented. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of results expected for the full year. In the opinion of our management, such financial information reflects all adjustments necessary for a fair statement of the financial position and the results of operations for such interim periods in accordance with GAAP. All such adjustments are of a normal recurring nature. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.
Transactions between entities under common control
We have entered, and may enter, into transactions with ArcLight affiliates whereby we receive midstream assets or other businesses in exchange for cash or Partnership equity. We account for the net assets acquired at the affiliate's historical cost basis as the transactions are between entities under common control. In certain cases, our historical financial statements were revised to include the results attributable to the assets acquired from the later of June 2011 (the date Arclight affiliates obtained control of JPE) or the date the ArcLight affiliate obtained control of the assets acquired.
Summary of Significant Accounting Policies
Use of estimates
When preparing consolidated financial statements in conformity with GAAP, management must make estimates and assumptions based on information available at the time. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities as of the date of the financial statements. Estimates and assumptions are based on information available at the time such estimates and assumptions are made. Adjustments made with respect to the use of these estimates and assumptions often relate to information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. Estimates and assumptions are used in, among other things, i) estimating unbilled revenues, product purchases and operating and general and administrative costs, ii) developing fair value assumptions, including estimates of future cash flows and discount rates, iii) analyzing long-lived assets, goodwill and intangible assets for possible impairment, iv) estimating the useful lives of assets, and v) determining amounts to accrue for contingencies, guarantees and indemnifications. Actual results, therefore, could differ materially from estimated amounts.
Cash, cash equivalents and restricted cash
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value because of the short term to maturity of these investments.
From time to time we are required to maintain cash in separate accounts the use of which is restricted by the terms of our debt agreements, asset retirement obligations and contracted arrangements. Such amounts are included in
Restricted cash
in our unaudited condensed consolidated balance sheets.
Allowance for doubtful accounts
We establish provisions for losses on accounts receivable when we determine that we will not collect all or part of an outstanding balance. Collectability is reviewed regularly and an allowance is established or adjusted, as necessary, using the specific identification method, historical collection experience and the age of accounts receivable.
Investments in unconsolidated affiliates
We hold membership interests in entities that own and operate natural gas pipeline systems and NGL and crude oil pipelines in and around Louisiana, Alabama, Mississippi and the Gulf of Mexico. While we have significant influence over these entities, we do not control them and therefore, they are accounted for using the equity method and are reported in
Investment in unconsolidated affiliates
in the condensed consolidated balance sheets. We evaluate the recoverability of these investments on a regular basis and recognize impairment write downs if we determine a loss in value represents an other-than-temporary-decline. The unconsolidated affiliates that were determined to be variable interest entities (“VIE”) due to disproportionate economic interests and decision making rights were further evaluated under the VIE method of consolidation. In each case, we lack the power to direct the activities that most significantly impact the unconsolidated affiliate’s economic performance. Therefore, as we do not hold a controlling financial interest in these affiliates, we account for our related investments using the equity method. Additionally, our maximum exposure to loss related to each entity is limited to our equity investment as presented on the condensed consolidated balance sheets as of the balance sheet date. In each case, we are not obligated to absorb losses greater than our proportional ownership percentages. Our right to receive residual returns is not limited to any amount less than the ownership percentages. We also have a joint venture arrangement in which we and our partners share proportional ownership and responsibilities and receive returns in accordance with our ownership percentage.
Revenue recognition
We recognize revenue from the sale of commodities (e.g., natural gas, crude oil, NGLs, refined products or condensate) as well as from the provision of gathering, processing, transportation or storage services when all of the following criteria are met: i) persuasive evidence of an exchange arrangement exists, ii) delivery has occurred or services have been rendered, iii) the price is fixed or determinable, and iv) collectability is reasonably assured. We recognize revenue from the sale of commodities and the related cost of product sold on a gross basis for those transactions where we act as the principal and take title to commodities that are purchased for resale.
Revenue-related taxes collected from customers and remitted to taxing authorities, principally sales taxes, are presented on a net basis within the unaudited condensed consolidated statements of operations.
(2) New Accounting Pronouncements
Accounting Standards Issued Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “
Revenue from Contracts with Customers (Topic 606)”
, which amends the existing accounting guidance for revenue recognition. The update requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2015-14 was subsequently issued and deferred the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. From March 2016 to May 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations, as further clarification on principal versus agent considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing as further clarification on identifying performance obligations and the licensing implementation guidance and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, as clarifying guidance on specific narrow scope improvements and practical expedients. We are in the process of reviewing our various customer arrangements in order to determine the impact the new accounting guidance for revenue recognition will have on our consolidated financial statements and related disclosures. We also have engaged a third-party consulting firm to assist us with all the three phases of adoption of the new guidance (Impact Assessment, Convert and Implement). We are currently in the Convert phase and revenue streams have been determined. Certain preliminary testing has been performed to validate such streams. We will adopt the new standard on its effective date January 1, 2018 using the modified retrospective method of adoption.
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) "
Leases
", which supersedes the lease recognition requirements in ASC Topic 840, "Leases". Under ASU No. 2016-02 lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU No. 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited and early adoption by public entities is permitted. We are in the process of evaluating the impact of ASU 2016-02 on our consolidated financial statements as we will be required to reflect our various lease
obligations and associated asset use rights on our consolidated balance sheets. The adoption may also impact our debt covenant compliance and may require us to modify or replace certain of our existing information systems. We will adopt the guidance on its effective date January 1, 2019.
In August 2016, the FASB issued ASU No. 2016-15, “
Statement of Cash Flows (Topic 320): Classification of Cash Receipts and Cash Payments”
, which addresses eight specific cash flow issues with the objective of reducing the existing diversity of presentation and classification in the statement of cash flows. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal periods. The retrospective transition method of adoption is required unless it is impracticable. Early adoption is permitted, but only if all aspects are adopted in the same period. We are still evaluating the impact of this update on our consolidated statements of cash flows and the related disclosures. We will adopt the standard upon its effective date January 1, 2018.
In November 2016, the FASB issued ASU No. 2016-18, “
Statement of Cash Flows (Topic 230): Restricted Cash”
, which aims to improve the disclosure of the change during the period in total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. The update is effective beginning first quarter of 2018. Early adoption is permitted, but it must occur in the first interim period. Any adjustments required in early adoption of this update should be reflected as of the beginning of the fiscal year that includes the interim period and should be applied using a retrospective transition method to each period. We will adopt the standard on its effective date of January 1, 2018.
In January 2017, the FASB issued ASU No. 2017-01
, “Business Combinations (Topic 805): Clarifying the Definition of a Business”.
The guidance provides criteria for use in determining when to conclude an integrated “set of assets and activities (as defined in the original guidance) being acquired or disposed in a transaction is not a business. Where the criteria are not met, more stringent screening has been provided to define a set as a business without an output, as more narrowly defined within the guidance. ASU No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. Early adoption is permitted. We are still in the process of evaluating the guidance and can not determine the impact of this guidance on our consolidated financial statements and related disclosures. We will adopt ASU 2017-01 on its effective date of January 1, 2018.
In January 2017, the FASB issued ASU No. 2017-04
, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”
, in which the guidance on testing for goodwill was updated by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual and/or interim assessments are still required to be completed. Further, the guidance eliminates the requirement to assess reporting units with zero or negative carrying values, however, the carrying values for all reporting units must be disclosed. ASU No. 2017-04 is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We elected to early adopt the guidance in connection with our annual assessment to be performed in October 2017 using the required prospective method.
In May 2017, the FASB issued ASU No. 2017-09
, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting”
, to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Pursuant to this ASU, an entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified (if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification); (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in any interim period. This update should be applied prospectively to an award modified on or after the adoption date. We do not believe that the impact of this update on our consolidated financial statements and related disclosures will be material and will adopt the guidance on its effective date January 1, 2018.
(3) Acquisitions
JP Energy Partners LP
On March 8, 2017, we completed the acquisition of JPE, a legal entity controlled by ArcLight affiliates, in a unit-for-unit merger. In connection with the transaction, each JPE common or subordinated unit held by investors not affiliated with ArcLight was converted into the right to receive
0.5775
of a Partnership common unit, and each JPE common or subordinated unit held by ArcLight affiliates was converted into the right to receive
0.5225
of a Partnership common unit. We issued a total of
20.2 million
of common units to complete the acquisition, including
9.8
million common units to ArcLight affiliates.
As both we and JPE were controlled by ArcLight affiliates, the acquisition represented a transaction among entities under common control. Although we were the legal acquirer, JPE was considered the acquirer for accounting purposes as ArcLight obtained control of JPE prior to obtaining control of us on April 15, 2013. As a result, we adjusted our historical financial statements to reflect ArcLight’s acquisition cost basis of us back to April 15, 2013. In addition, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results of JPE prior to the effective date of the JPE acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of JPE at historical cost.
JPE owns, operates and develops a diversified portfolio of midstream energy assets which provide midstream infrastructure solutions for the growing supply of crude oil, refined products and NGLs, in the United States.
Viosca Knoll
On June 2, 2017, we acquired
100%
of the Viosca Knoll System (“Viosca Knoll”) from Genesis Energy, L.P. for total consideration of approximately
$32 million
in cash and have accounted for this acquisition as a business combination. The Viosca Knoll System serves producing fields located in the Main Pass, Mississippi Canyon and Viosca Knoll areas of the Gulf of Mexico and connects to several major delivery pipelines including the Partnership’s High Point and Destin pipelines. Viosca Knoll will provide greater East-West Gulf connectivity, through the connection of the High Point Gas Transmission system and the Destin Pipeline, both controlled by us. The Viosca Knoll acquisition was funded with the borrowings under the Partnership’s revolving credit facility, and Viosca Knoll was added to our Offshore pipeline and services segment.
The following table presents our aggregated allocation of the purchase price based on estimated fair values of assets and liabilities acquired (in thousands):
|
|
|
|
|
As of September 30, 2017
|
Purchase Price Allocation
|
Property, plant and equipment:
|
|
Pipelines and right-of-way
|
$
|
13,433
|
|
Equipment
|
18,853
|
|
Total property, plant and equipment
|
32,286
|
|
Liability
|
(286
|
)
|
Total cash consideration
|
$
|
32,000
|
|
The purchase price allocation is subject to the measurement period that ends at the earlier of twelve months from the date of acquisition or when all information becomes available. We have reallocated approximately
$3.3 million
from Intangibles to Property, plant and equipment since the initial purchase price allocation disclosed in the second quarter of 2017.
Panther
On August 8, 2017, the Partnership acquired
100%
of the interest in Panther Offshore Gathering Systems, LLC (“POGS”), Panther Pipeline, LLC (“PPL”) and Panther Operating Company, LLC (“POC”) from Panther Asset Management LLC (“Panther”) for approximately
$57.2 million
. The consideration included
$39.1 million
cash, funded from borrowings under the Partnership’s revolving credit facility, and common units representing limited partner interests in the Partnership, valued at
$12.5 million
based on unit value as of the acquisition date. Panther owns and operates more than
1,000
miles of oil and gas pipelines, primarily in Texas and Louisiana offshore state and federal waters. The underlying acquired assets are highly complementary to the Partnership’s core Gulf of Mexico assets as a substantial portion of Panther’s cash flows are generated by our joint ventures.
As part of the purchase of POGS, we acquired the outstanding interests in one of our equity investments, Main Pass Oil Gathering (“MPOG”), as well as the remaining equity interest in our consolidated subsidiary, American Panther, LLC (“AmPan”). As such, the Partnership now owns
100%
of MPOG and AmPan. We determined that the acquisition of the remaining interest in MPOG on August 8, 2017 resulted in a change in control and MPOG has been consolidated from the acquisition date. The effect was the Partnership’s previously held equity interest in MPOG was remeasured to fair value and the excess (approximately
$32.3 million
) of fair value over historical carrying value was recognized as a gain in Other income (expense) on the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2017.
For AmPan, which has historically been consolidated by the Partnership, the acquisition of Panther’s remaining interest resulted in the acquisition of a noncontrolling interest. Accordingly the excess of the fair value of the acquired interest (approximately
$28.3 million
) over the carrying value of the noncontrolling interest (approximately
$4.6 million
) has been reported as a distribution to unitholders.
PPL owns a
50%
undivided ownership interest in the Matagorda and the Brazoria County Gas systems which will be proportionally consolidated from the acquisition date. POC operates pipeline assets on behalf of both third parties and affiliates of the Partnership for a fee and will be fully consolidated by the Partnership.
The following table presents the aggregated preliminary allocation of the purchase price based on estimated fair values of Panther’s assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
|
Purchase Price Allocation
|
Fair value of acquired noncontrolling interest
|
$
|
28,298
|
|
Property, plant and equipment
|
16,870
|
|
Intangibles (customer relationships)
|
9,989
|
|
Net working capital, net of cash acquired
|
2,410
|
|
Other
|
2,975
|
|
Asset retirement obligation
|
$
|
(3,367
|
)
|
Total consideration
|
$
|
57,175
|
|
The purchase price allocation is subject to the measurement period that ends at the earlier of twelve months from the acquisition date or when all information becomes available.
The pro forma effect of our business acquisitions was immaterial to our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and the comparative periods, respectively, and therefore is not separately disclosed.
(4) Discontinued Operations
Disposition of Propane Business
On September 1, 2017, we completed the disposition of the Propane Business pursuant to the Membership Interest Purchase Agreement dated July 21, 2017, between AMID Merger LP, a wholly owned subsidiary of the Partnership, and SHV Energy N.V. Through the transaction, we divested
100%
of our Propane Business, including Pinnacle Propane’s
40
service locations; Pinnacle Propane Express’ cylinder exchange business and related logistic assets; and the Alliant Gas utility system. Prior to the sale, we moved the trucking business from the Propane Marketing Services segment to the Liquid Pipelines and Services segment. With the disposition of the Propane Business, we eliminated the Propane Marketing Services segment.
In connection with the transaction, we received approximately
$170 million
in cash, net of customary closing adjustments, and recorded a gain of approximately
$46.5 million
, net of
$2.5 million
of transaction costs. We have reported the results of our Propane Business, including the gain on sale, as discontinued operations in our unaudited condensed consolidated statements of operations for all periods presented.
The following tables summarize the financial information related to the Propane Business for the periods presented, as required by ASC 420 -
Discontinued Operations
.
Unaudited Condensed Consolidated Balance Sheet of the discontinued operation Propane Business (in thousands)
|
|
|
|
|
|
December 31, 2016
|
Total current assets of discontinued operations
|
$
|
22,727
|
|
Total noncurrent assets of discontinued operations
|
114,032
|
|
Total assets of discontinued operations
|
$
|
136,759
|
|
|
|
Total current liabilities of discontinued operations
|
$
|
14,319
|
|
Other long-term liabilities of discontinued operations
|
172
|
|
Total liabilities of discontinued operations
|
$
|
14,491
|
|
Unaudited Condensed Consolidated Statements of Operations of the discontinued operation Propane Business (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
(1)
|
Total revenue
|
$
|
20,458
|
|
|
$
|
27,756
|
|
|
$
|
87,615
|
|
|
$
|
103,718
|
|
Total operating expenses
|
22,489
|
|
|
30,158
|
|
|
92,196
|
|
|
96,003
|
|
Income (loss) from discontinued operations before taxes
|
(1,834
|
)
|
|
(2,310
|
)
|
|
(4,301
|
)
|
|
8,069
|
|
Income tax benefit (expense)
|
(15
|
)
|
|
—
|
|
|
(59
|
)
|
|
2
|
|
Income (loss) from discontinued operations
|
(1,849
|
)
|
|
(2,310
|
)
|
|
(4,360
|
)
|
|
8,071
|
|
Gain from the sale of discontinued operations
|
46,545
|
|
|
—
|
|
|
46,545
|
|
|
—
|
|
Partnership’s income (loss) from discontinued operations, including gain on sale.
|
$
|
44,696
|
|
|
$
|
(2,310
|
)
|
|
$
|
42,185
|
|
|
$
|
8,071
|
|
_____________________________________
(1)
Amounts for the nine months ended September 30, 2016 do not included the results of certain trucking and marketing assets of JPE in the Mid-Continent area (the “Mid Continent Business”), which were sold in the first quarter of 2016 and are classified as discontinued operations. The total revenue, total operating expenses and loss from discontinued operations related to the Mid Continent Business for the nine months ended September 30, 2016 were
$11.5 million
,
$12.0 million
and
$0.5 million
respectively.
Other selected unaudited financial information related to the Propane Business (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Depreciation and amortization
|
$
|
2,355
|
|
|
$
|
3,850
|
|
|
$
|
9,823
|
|
|
$
|
12,020
|
|
Capital expenditures
|
722
|
|
|
1,483
|
|
|
3,143
|
|
|
3,451
|
|
|
|
|
|
|
|
|
|
Other operating and investing non-cash items related to discontinued operations:
|
|
|
|
|
|
|
|
(Gain) loss on sales of assets, net
|
118
|
|
|
725
|
|
|
(55
|
)
|
|
2,064
|
|
Unrealized (gain) loss on derivatives contracts, net
|
(526
|
)
|
|
106
|
|
|
530
|
|
|
(628
|
)
|
(5) Inventory
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Crude oil
|
|
$
|
4,565
|
|
|
$
|
1,216
|
|
NGLs
|
|
232
|
|
|
288
|
|
Refined products
|
|
674
|
|
|
—
|
|
Materials, supplies and equipment
|
|
499
|
|
|
486
|
|
Total inventory
|
|
$
|
5,970
|
|
|
$
|
1,990
|
|
(6) Other Current Assets
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Prepaid insurance
|
$
|
1,428
|
|
|
$
|
9,702
|
|
Insurance receivables
|
3,728
|
|
|
1,624
|
|
Due from related parties
|
5,062
|
|
|
4,833
|
|
Other receivables
|
2,768
|
|
|
2,997
|
|
Risk management assets
|
1,827
|
|
|
469
|
|
Other assets
|
2,331
|
|
|
5,891
|
|
Total other current assets
|
$
|
17,144
|
|
|
$
|
25,516
|
|
(7) Risk Management Activities
We are exposed to certain market risks related to the volatility of commodity prices and changes in interest rates. To monitor and manage these market risks, we have established comprehensive risk management policies and procedures. We do not enter into derivative instruments for any purpose other than hedging commodity price risk, interest rate risk, and weather risk. We do not speculate using derivative instruments.
Commodity Derivatives
To manage the impact of the risks associated with changes in the market price of NGL purchases, crude oil, refined products and natural gas in our day-to-day business, we used a combination of fixed price swap and forward contracts.
Our forward contracts that qualify for the Normal Purchase Normal Sale (“NPNS”) exception under GAAP are recognized when the underlying physical transaction is delivered
.
In accordance with
ASC 815,
Derivatives and Hedging,
if it is determined that a transaction designated as NPNS no longer meets the scope exception, the fair value of the related contract is recorded on the balance sheet (as an asset or liability) and the difference between the fair value and the contract amount is immediately recognized through earnings. We measure our commodity derivatives at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations utilize indirectly observable (“Level 2”) inputs, including contractual terms and commodity prices observable at commonly quoted intervals.
The following table summarizes the net notional volumes of our outstanding commodity-related derivatives, excluding those contracts that qualified for the NPNS exception as of September 30, 2017 and December 31, 2016, none of which were designated as hedges for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Commodity Swaps
|
|
Volume
|
|
Maturity
|
|
Volume
|
|
Maturity
|
NGLs Fixed Price (gallons)
|
|
819,000
|
|
January 8, 2018
|
|
|
|
|
Crude Oil Fixed Price (barrels)
|
|
125,000
|
|
October 6, 2017 - December 7, 2017
|
|
—
|
|
—
|
Crude Oil Basis (barrels)
|
|
—
|
|
—
|
|
180,000
|
|
|
January 25, 2017-
March 25, 2017
|
Interest Rate Swaps
To manage the impact of the interest rate risk associated with our Credit Agreement, as defined in Note 13 -
Debt Obligations
, we enter into interest rate swaps from time to time, effectively converting a portion of the cash flows related to our long-term variable rate debt into fixed rate cash flows.
As of September 30, 2017 and December 31, 2016, we had a combined notional principal amount of
$650.0 million
of variable to fixed interest rate swap agreements. As of September 30, 2017, the maximum length of time over which we have hedged a portion of our exposure due to interest rate risk is through December 31, 2022.
The fair value of our interest rate swaps was estimated using a valuation methodology based upon forward interest rates and volatility curves as well as other relevant economic measures, if necessary. Discount factors may be utilized to extrapolate a forecast of future cash flows associated with long dated transactions or illiquid market points. The inputs, which represent Level 2 inputs in the valuation hierarchy, are obtained from independent pricing services and we have made no adjustments to those prices.
Weather Derivative
In the second quarter of 2017, we entered into a yearly weather derivative arrangement to mitigate the impact of potential unfavorable weather on our operations under which we could receive payments totaling up to
$30.0 million
in the event that a hurricane of certain strength passes through the areas identified in the derivative agreement. The weather derivative, which is accounted for using the intrinsic value method, was entered into with a single counterparty, and we were not required to post collateral.
We paid
$1.1 million
and
$1.0 million
in premiums during the
nine months ended
September 30, 2017
and
2016
, respectively. Premiums are amortized to
Direct operating expenses
on a straight-line basis over the
one
year term of the contract. Unamortized amounts associated with the weather derivatives were approximately
$0.8 million
and
$0.4 million
as of
September 30, 2017
and
December 31, 2016
, respectively, and are included in
Other current assets
on the unaudited condensed consolidated balance sheets.
The following table summarizes the fair values of our derivative contracts (before netting adjustments) included in the condensed consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Type
|
Balance Sheet Classification
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
Commodity swaps
|
Other current assets
|
|
$
|
267
|
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity swaps
|
Accrued expenses and other current liabilities
|
|
—
|
|
|
—
|
|
|
(653
|
)
|
|
(1
|
)
|
Commodity swaps
|
Other liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other current assets
|
|
1,041
|
|
|
|
|
|
|
|
Interest rate swaps
|
Risk management assets (long-term)
|
|
7,545
|
|
|
10,628
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
Accrued expenses and other current liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
|
Weather derivatives
|
Other current assets
|
|
$
|
786
|
|
|
$
|
429
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
9,639
|
|
|
$
|
11,169
|
|
|
$
|
(653
|
)
|
|
$
|
(254
|
)
|
The following tables present the fair value of our recognized derivative assets and liabilities on a gross basis and amounts offset in the condensed consolidated balance sheets that are subject to enforceable master netting arrangements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Risk Management Position
|
|
Netting Adjustments
|
|
Net Risk Management Position
|
Balance Sheet Classification
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
|
September 30,
2017
|
|
December 31, 2016
|
Other current assets
|
|
$
|
2,094
|
|
|
$
|
541
|
|
|
$
|
(267
|
)
|
|
$
|
(72
|
)
|
|
$
|
1,827
|
|
|
$
|
469
|
|
Risk management assets- long term
|
|
7,545
|
|
|
10,628
|
|
|
—
|
|
|
(1
|
)
|
|
7,545
|
|
|
10,627
|
|
Total assets
|
|
$
|
9,639
|
|
|
$
|
11,169
|
|
|
$
|
(267
|
)
|
|
$
|
(73
|
)
|
|
$
|
9,372
|
|
|
$
|
11,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
(653
|
)
|
|
$
|
(253
|
)
|
|
$
|
267
|
|
|
$
|
72
|
|
|
$
|
(386
|
)
|
|
$
|
(181
|
)
|
Other liabilities
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
$
|
(653
|
)
|
|
$
|
(254
|
)
|
|
$
|
267
|
|
|
$
|
73
|
|
|
$
|
(386
|
)
|
|
$
|
(181
|
)
|
For each of the
three and nine months ended
September 30, 2017
and
2016
the realized and unrealized gains (losses) associated with our commodity, interest rate and weather derivative instruments were recorded in our unaudited condensed consolidated statements of operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
Statement of Operations Classification
|
Realized
|
|
Unrealized
|
|
Realized
|
|
Unrealized
|
2017
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives, net
|
$
|
(51
|
)
|
|
$
|
(546
|
)
|
|
$
|
465
|
|
|
$
|
(498
|
)
|
Interest expense
|
51
|
|
|
221
|
|
|
(19
|
)
|
|
(1,790
|
)
|
Direct operating expenses
|
(278
|
)
|
|
—
|
|
|
(753
|
)
|
|
—
|
|
Total
|
$
|
(278
|
)
|
|
$
|
(325
|
)
|
|
$
|
(307
|
)
|
|
$
|
(2,288
|
)
|
2016
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives, net
|
$
|
(742
|
)
|
|
$
|
1,066
|
|
|
$
|
(1,432
|
)
|
|
$
|
(497
|
)
|
Interest expense
|
(75
|
)
|
|
2,109
|
|
|
(106
|
)
|
|
(1,934
|
)
|
Direct operating expenses
|
(257
|
)
|
|
—
|
|
|
(708
|
)
|
|
—
|
|
Total
|
$
|
(1,074
|
)
|
|
$
|
3,175
|
|
|
$
|
(2,246
|
)
|
|
$
|
(2,431
|
)
|
(8) Property, Plant and Equipment
Property, plant and equipment, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
(in years)
|
|
September 30,
2017
|
|
December 31,
2016
|
Land
|
Infinite
|
|
$
|
18,440
|
|
|
$
|
18,861
|
|
Construction in progress
|
N/A
|
|
81,133
|
|
|
128,519
|
|
Buildings and improvements
|
4 to 40
|
|
13,782
|
|
|
13,762
|
|
Transportation equipment
|
5 to 15
|
|
22,743
|
|
|
20,010
|
|
Processing and treating plants
|
8 to 40
|
|
141,334
|
|
|
120,977
|
|
Pipelines, compressors and right-of-way
|
3 to 40
|
|
958,004
|
|
|
804,815
|
|
Storage
|
3 to 40
|
|
146,473
|
|
|
146,408
|
|
Equipment
|
3 to 31
|
|
79,567
|
|
|
77,978
|
|
Total property, plant and equipment
|
|
|
1,461,476
|
|
|
1,331,330
|
|
Accumulated depreciation
|
|
|
(320,650
|
)
|
|
(264,722
|
)
|
Property, plant and equipment, net
|
|
|
$
|
1,140,826
|
|
|
$
|
1,066,608
|
|
At
September 30, 2017
and
December 31, 2016
, gross property, plant and equipment included
$314.8 million
and
$291.1 million
, respectively, related to our FERC regulated interstate and intrastate assets.
Depreciation expense totaled
$20.1 million
and
$17.8 million
for the
three months ended September 30, 2017
and
2016
, respectively, and
$56.9 million
and
$51.6 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
Capitalized interest was
$0.5 million
and
$0.7 million
for each of the
three months ended September 30, 2017
and
2016
, respectively and
$2.0 million
and
$1.7 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
(9) Goodwill and Intangible Assets
Goodwill consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Liquid Pipelines and Services
|
$
|
113,671
|
|
|
$
|
113,671
|
|
Terminalling Services
|
88,464
|
|
|
88,464
|
|
Total
|
$
|
202,135
|
|
|
$
|
202,135
|
|
Intangible assets, net, consists of customer relationships, dedicated acreage agreements, collaborative arrangements, noncompete agreements and trade names. These intangible assets have definite lives and are subject to amortization on a straight-line basis over their economic lives, currently ranging from approximately
5 years
to
44 years
.
Intangible assets, net, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
Customer relationships
|
$
|
116,345
|
|
|
$
|
(28,088
|
)
|
|
$
|
88,257
|
|
Customer contracts
|
94,693
|
|
|
(46,927
|
)
|
|
47,766
|
|
Dedicated acreage
|
53,350
|
|
|
(5,773
|
)
|
|
47,577
|
|
Collaborative arrangements
|
11,884
|
|
|
(1,203
|
)
|
|
10,681
|
|
Noncompete agreements
|
1,064
|
|
|
(1,064
|
)
|
|
—
|
|
Other
|
198
|
|
|
(23
|
)
|
|
175
|
|
Total
|
$
|
277,534
|
|
|
$
|
(83,078
|
)
|
|
$
|
194,456
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
Customer relationships
|
$
|
106,417
|
|
|
$
|
(23,245
|
)
|
|
$
|
83,172
|
|
Customer contracts
|
94,692
|
|
|
(33,228
|
)
|
|
61,464
|
|
Dedicated acreage
|
53,350
|
|
|
(4,439
|
)
|
|
48,911
|
|
Collaborative arrangements
|
11,884
|
|
|
(601
|
)
|
|
11,283
|
|
Noncompete agreements
|
1,063
|
|
|
(1,000
|
)
|
|
63
|
|
Other
|
198
|
|
|
(20
|
)
|
|
178
|
|
Total
|
$
|
267,604
|
|
|
$
|
(62,533
|
)
|
|
$
|
205,071
|
|
Amortization expense related to our intangible assets totaled
$5.1 million
and
$4.4 million
for the
three months ended September 30, 2017
and
2016
, respectively, and
$20.6 million
and
$13.3 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
(10) Investments in unconsolidated affiliates
Joint Venture with Targa Midstream Services, LLC
On August 8, 2017, we entered into a joint venture agreement with Targa Midstream Services, LLC (“Targa”) by which our previously wholly owned subsidiary Cayenne Pipeline, LLC (“Cayenne”) became the Cayenne joint venture between Targa and us (“Cayenne JV”). We received
$5.0 million
in cash in exchange for the sale of
50%
ownership interest in Cayenne to Targa. The sole asset of the joint venture is a natural gas pipeline which is being converted into a natural gas liquids pipeline. Both parties
will each have
50%
economic interests and
50%
voting rights, with Targa serving as the operator of the pipeline and the joint venture. The additional costs of conversion and associated construction are shared equally by us and Targa. By the end of the fourth quarter of 2017, the pipeline is expected to be operational.
Acquisition of additional ownership interest in Delta House
On September 29, 2017, we acquired an additional
15.5%
equity interest in
Class A units of Delta House FPS LLC (“FPS”)
and
Delta House Oil and Gas Lateral LLC (“Lateral”)
(collectively referred to as “Delta House”), from affiliates of ArcLight for total cash consideration of approximately
$125.4 million
.
FPS operates a semi-submersible floating production and processing system in the Gulf of Mexico. Lateral operates oil and natural gas lateral transportation facilities that receive and transport production from the FPS floating production system.
Post-closing, the Partnership and ArcLight indirectly own a
35.7%
and
23.3%
interest, respectively, in Delta House.
As our
15.5%
interest in Delta House was previously owned directly by ArcLight, we have accounted for our investment at our affiliate's carry-over basis resulting in
$49.8 million
recorded in
Investments in unconsolidated affiliates
in our unaudited condensed consolidated balance sheets, and as an investing activity within the related unaudited condensed consolidated statements of cash flows. The amount by which the total consideration exceeded the carry-over basis was
$75.6 million
and was recorded as a distribution to our general partner within the unaudited condensed consolidated statements of changes in partners’ capital and noncontrolling interests and a financing activity in the unaudited condensed consolidated statements of cash flows.
For the three and nine months ended September 30, 2017, the Partnership recorded
$12.5 million
and
$34.6 million
, respectively, in equity earnings from Delta House. The Partnership also received cash distributions of $
10.3 million
and
$26.2 million
for the three and nine months ended September 30, 2017, respectively. The excess of the cash distributions received over the earnings recorded from Delta House is classified as a return of capital within cash flows from investing activities in our condensed consolidated statements of cash flows.
The following table presents the activity in our equity method investments in unconsolidated affiliates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delta House
(1)
|
|
Emerald Transactions
(2)
|
|
|
|
|
|
|
|
FPS
|
|
OGL
|
|
Destin
|
|
Tri-States
|
|
Okeanos
|
|
Wilprise
|
|
MPOG
(4)
|
|
Cayenne JV
(3)
|
|
Total
|
Ownership % - 12/31/2016
|
20.1
|
%
|
|
20.1
|
%
|
|
49.7
|
%
|
|
16.7
|
%
|
|
66.7
|
%
|
|
25.3%
|
|
66.7%
|
|
-
|
|
|
Ownership % - 9/30/2017
|
35.7
|
%
|
|
35.7
|
%
|
|
49.7
|
%
|
|
16.7
|
%
|
|
66.7
|
%
|
|
25.3%
|
|
-
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016
|
$
|
64,483
|
|
|
$
|
25,450
|
|
|
$
|
110,882
|
|
|
$
|
55,022
|
|
|
$
|
27,059
|
|
|
$
|
4,944
|
|
|
$
|
4,147
|
|
|
$
|
—
|
|
|
$
|
291,987
|
|
Acquisitions
|
22,539
|
|
|
27,289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,363
|
)
|
|
—
|
|
|
47,465
|
|
Earnings in unconsolidated affiliates
|
23,994
|
|
|
10,589
|
|
|
6,243
|
|
|
3,394
|
|
|
5,706
|
|
|
493
|
|
|
(683
|
)
|
|
45
|
|
|
49,781
|
|
Contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,770
|
|
|
3,770
|
|
Distributions
|
(13,990
|
)
|
|
(12,183
|
)
|
|
(17,334
|
)
|
|
(4,359
|
)
|
|
(9,333
|
)
|
|
(677
|
)
|
|
(1,101
|
)
|
|
—
|
|
|
(58,977
|
)
|
Balances at September 30, 2017
|
$
|
97,026
|
|
|
$
|
51,145
|
|
|
$
|
99,791
|
|
|
$
|
54,057
|
|
|
$
|
23,432
|
|
|
$
|
4,760
|
|
|
$
|
—
|
|
|
$
|
3,815
|
|
|
$
|
334,026
|
|
___________________________________________________
(1)
Represents direct and indirect ownership interests in Class A units and common units.
(2)
Represents our Emerald equity method investments which were acquired in the second quarter of 2016.
(3)
We formed Cayenne JV effective August 8, 2017.
(4)
Beginning August 8, 2017, the Partnership consolidated MPOG. See Note 3 -
Acquisitions.
The following tables present the summarized combined financial information for our equity investments (amounts represent
100%
of investee financial information) (in thousands):
|
|
|
|
|
|
|
|
|
Balance Sheets
(1)
:
|
September 30, 2017
|
|
December 31, 2016
|
Current assets
|
$
|
100,400
|
|
|
$
|
120,167
|
|
Non-current assets
|
1,294,333
|
|
|
1,369,492
|
|
Current liabilities
|
139,217
|
|
|
133,085
|
|
Non-current liabilities
|
$
|
422,988
|
|
|
$
|
541,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
Statements of Operations
(1)
:
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
$
|
104,904
|
|
|
$
|
93,440
|
|
|
$
|
304,801
|
|
|
$
|
278,720
|
|
Gross profit
|
97,636
|
|
|
83,350
|
|
|
280,996
|
|
|
253,447
|
|
Net income
|
$
|
77,238
|
|
|
$
|
62,775
|
|
|
$
|
222,005
|
|
|
$
|
199,591
|
|
_____________________________________
(1)
MPOG was consolidated by us as of August 8, 2017, therefore the tables above do not include MPOG as of September 30, 2017 and for the three and nine months ended September 30, 2017.
(11) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Accrued interest
|
|
$
|
9,973
|
|
|
$
|
5,743
|
|
Taxes payable
|
|
7,052
|
|
|
1,186
|
|
Current portion of asset retirement obligation
|
|
6,416
|
|
|
6,499
|
|
Additional Blackwater acquisition consideration
|
|
5,000
|
|
|
5,000
|
|
Due to related parties
|
|
5,115
|
|
|
4,072
|
|
Royalties payable
|
|
3,548
|
|
|
3,926
|
|
Convertible preferred unit distributions
|
|
2,871
|
|
|
7,103
|
|
Legal accrual
|
|
2,783
|
|
|
—
|
|
Capital expenditures
|
|
4,032
|
|
|
14,274
|
|
Accrued operating expenses
|
|
2,938
|
|
|
—
|
|
Gas imbalances payable
|
|
1,860
|
|
|
1,098
|
|
Customer deposits
|
|
1,537
|
|
|
148
|
|
Employee compensation
|
|
1,505
|
|
|
8,438
|
|
Transaction costs
|
|
736
|
|
|
3,000
|
|
Other
|
|
12,139
|
|
|
12,234
|
|
Total accrued expenses and other current liabilities
|
|
$
|
67,505
|
|
|
$
|
72,721
|
|
(12) Asset Retirement Obligations
We record a liability for the fair value of asset retirement obligations and conditional asset retirement obligations (collectively referred to as “AROs”) that we can reasonably estimate, on a discounted basis, in the period in which the liability is incurred. Generally, the fair value of the liability is calculated using discounted cash flow techniques and based on internal estimates and assumptions related to (i) future retirement costs, (ii) future inflation rates, and (iii) credit-adjusted risk-free interest rates. Significant increases or decreases in the assumptions would result in a significant change to the fair value measurement.
Certain assets related to our Offshore Pipelines and Services segment have regulatory obligations to perform remediation, and in some instances, dismantlement and removal activities when the assets are abandoned. These AROs include varying levels of
activity including disconnecting inactive assets from active assets, cleaning and purging assets, and in some cases, completely removing the assets and returning the land to its original state. These assets have been in existence for many years and with regular maintenance will continue to be in service for many years to come. It is not possible to predict when demand for these transmission services will cease, however, we do not believe that such demand will cease for the foreseeable future. The majority of the current portion of our AROs is related to the retirement of the Midla pipeline discussed in Note 18
- Commitments and Contingencies
.
The following table presents activity in our asset retirement obligations for the
nine months ended September 30, 2017
(in thousands):
|
|
|
|
|
Non-current balance
|
$
|
44,363
|
|
Current balance
|
6,499
|
|
Balances at December 31, 2016
|
$
|
50,862
|
|
Additions
|
6,805
|
|
Expenditures
|
(697
|
)
|
Accretion expense
|
1,492
|
|
Balances at September 30, 2017
|
$
|
58,462
|
|
Less: current portion
|
6,416
|
|
Noncurrent asset retirement obligation
|
$
|
52,046
|
|
___________________________________________________
We are required to establish security against potential obligations relating to the abandonment of certain transmission assets that may be imposed on the previous owner by applicable regulatory authorities. We have deposited
$5.0 million
with a third party to secure our performance on these potential obligations. These deposits are included in
Restricted cash-long term
in our unaudited condensed consolidated balance sheets as of
September 30, 2017
and December 31, 2016.
(13) Debt Obligations
Our outstanding debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Revolving credit facility
|
$
|
709,652
|
|
|
$
|
888,250
|
|
8.50% Senior unsecured notes, due 2021
|
300,000
|
|
|
300,000
|
|
3.77% Senior secured notes, due 2031 (non-recourse)
|
58,649
|
|
|
60,000
|
|
Other debt
(2)
|
116
|
|
|
3,762
|
|
Total debt obligations
|
1,068,417
|
|
|
1,252,012
|
|
Unamortized debt issuance costs
(1)
|
(9,338
|
)
|
|
(11,036
|
)
|
Total debt
|
1,059,079
|
|
|
1,240,976
|
|
Less: Current portion, including unamortized debt issuance costs
|
(1,234
|
)
|
|
(5,438
|
)
|
Long term debt
|
$
|
1,057,845
|
|
|
$
|
1,235,538
|
|
___________________________
(1)
Unamortized debt issuance costs related to the revolving credit facility are included in our unaudited condensed consolidated balance sheets in
Other assets, net.
(2)
Other debt includes capital lease and miscellaneous long-term obligations, which are reported in
Current portion of debt
and
Other liabilities
line items on our unaudited condensed consolidated balance sheets.
Credit Facilities
Revolving Credit Facility
On March 8, 2017, we entered into the Second Amended and Restated Credit Agreement with Bank of America N.A., as Administrative Agent, Collateral Agent and L/C Issuer, Wells Fargo Bank, National Association, as Syndication Agent, and other lenders (the “Credit Agreement”) which increased our borrowing capacity from
$750.0 million
to
$900.0 million
and provided
for an accordion feature that will permit, subject to customary conditions, the borrowing capacity under the facility to be increased to a maximum of
$1.1 billion
. We can elect to have loans under our Credit Agreement bear interest either at a Eurodollar-based rate, plus a margin ranging from
2.00%
to
3.25%
depending on our total leverage ratio then in effect, or a base rate which is a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, plus
0.50%
, (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate”, or (iii) the Eurodollar Rate plus
1.00%
, plus a margin ranging from
1.00%
to
2.25%
depending on the total leverage ratio then in effect. We also pay a commitment fee of
0.50%
per annum on the undrawn portion of the revolving loan under the Credit Agreement, which matures on September 5, 2019.
The Credit Agreement contains certain financial covenants that are applicable as of the end of any fiscal quarter, including a consolidated total leverage ratio which requires our indebtedness not to exceed
5.00
times adjusted consolidated EBITDA (except for the fiscal quarters ended March 31, 2017, and the subsequent two quarters, at which time the covenant is increased to
5.50
times adjusted consolidated EBITDA), a consolidated secured leverage ratio which requires our secured indebtedness not to exceed
3.50
times adjusted consolidated EBITDA, and a minimum interest coverage ratio that requires our adjusted consolidated EBITDA to exceed consolidated interest charges by not less than
2.50
times. The letters of credit outstanding as of September 30, 2017 and December 31, 2016 were
$33.1 million
and
$7.4 million
, respectively.
As of
September 30, 2017
, our consolidated total leverage ratio was
4.68
and our interest coverage ratio was
4.41
, which were both in compliance with the related requirements of our Credit Agreement. Our ability to maintain compliance with the leverage and interest coverage ratios included in the Credit Agreement may be subject to, among other things, the timing and success of initiatives we are pursuing, which may include expansion capital projects, acquisitions or drop down transactions, as well as the associated financing for such initiatives.
The carrying value of amounts outstanding under our Credit Agreement approximates the related fair value, as interest charges vary with market rates conditions.
JPE Revolver
JPE had a
$275.0 million
revolving loan, which included a sub-limit of up to
$100.0 million
for letters of credit with Bank of America, N.A. (the “JPE Revolver”). The JPE Revolver was scheduled to mature on February 12, 2019, but on March 8, 2017, in connection with the closing of the JPE acquisition, the
$199.5 million
outstanding balance of the JPE Revolver was paid off in full and terminated.
For the
nine months ended September 30,
2017
and
2016
, the weighted average interest rate on borrowings under our Credit Agreement was approximately
4.85%
and
2.82%
, respectively.
8.50% Senior Unsecured Notes
On December 28, 2016, we and American Midstream Finance Corporation, our wholly-owned subsidiary (the “Issuers”), completed the issuance and sale of
$300 million
in aggregate principal amount of senior notes due 2021 (the “
8.50%
Senior Notes”). The
8.50%
Senior Notes are jointly and severally guaranteed by certain of our existing direct and indirect wholly owned subsidiaries that guarantee our Credit Agreement. The
8.50%
Senior Notes rank equal in right of payment with all existing and future senior indebtedness of the Issuers, and senior in right of payment to any future subordinated indebtedness of the Issuers. The
8.50%
Senior Notes were issued at par and provided approximately
$294.0 million
in proceeds, after deducting the initial purchasers' discount of
$6.0 million
. This amount was deposited into escrow pending completion of the JPE Acquisition and was included in
Restricted cash-long term
on our consolidated balance sheet as of December 31, 2016.
The
8.50%
Senior Notes will mature on December 15, 2021 with interest payable in cash semi-annually in arrears on June 15 and December 15, commencing June 15, 2017.
As of
September 30, 2017
, the fair value of the
8.50%
Senior Notes was
$310.2 million
. This estimate was based on similar private placement transactions along with changes in market interest rates which represent a Level 2 measurement.
3.77% Senior Secured Notes
On September 30, 2016, Midla Financing, LLC (“Midla Financing”), American Midstream (Midla) LLC (“Midla”), and Mid Louisiana Gas Transmission LLC (“MLGT and together with Midla, the “Note Guarantors”) entered into a Note Purchase and Guaranty Agreement (the “Note Purchase Agreement”) with certain institutional investors (the “Purchasers”) whereby Midla Financing issued
$60.0 million
in aggregate principal amount of
3.77%
Senior Notes (non-recourse) due June 30, 2031.
Midla Financing must maintain a debt service reserve account containing six months of principal and interest payments, and Midla Financing and the Note Guarantors (including any entities that become guarantors under the terms of the Note Purchase Agreement) are restricted from making distributions (a) until June 30, 2017, (b) unless the debt service coverage ratio is not less than, and is not projected for the following 12 calendar months to be less than,
1.20
:1.00, and (c) unless certain other requirements are met.
Net proceeds from the 3.77% Senior Notes are restricted and are used (1) to fund project costs incurred in connection with (a) the construction of the Midla-Natchez Line (b) the retirement of Midla’s existing 1920’s vintage pipeline (c) the move of our Baton Rouge operations to the MLGT system (d) the reconfiguration of the DeSiard compression system and all related ancillary facilities, (2) to pay transaction fees and expenses in connection with the issuance of the 3.77% Senior Notes, and (3) for other general corporate purposes of Midla Financing.
As of
September 30, 2017
, the fair value of the
3.77%
Senior Notes was
$55.4 million
. This estimate was based on similar private placement transactions along with changes in market interest rates which represent a Level 2 measurement.
(14) Convertible Preferred Units
Our convertible preferred units consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
Series C
|
|
Series D
|
|
Total
|
|
Units
|
$
|
|
Units
|
$
|
|
Units
|
$
|
|
$
|
December 31, 2016
|
10,107
|
|
$
|
181,386
|
|
|
8,792
|
|
$
|
118,229
|
|
|
2,333
|
|
$
|
34,475
|
|
|
$
|
334,090
|
|
Paid in kind unit distributions
|
429
|
|
6,645
|
|
|
—
|
|
2,844
|
|
|
—
|
|
—
|
|
|
9,489
|
|
September 30, 2017
|
10,536
|
|
$
|
188,031
|
|
|
8,792
|
|
$
|
121,073
|
|
|
2,333
|
|
$
|
34,475
|
|
|
$
|
343,579
|
|
Affiliates of our General Partner hold and participate in quarterly distributions on our convertible preferred units, with such distributions being made in cash, paid-in-kind units or a combination thereof, at the election of the Board of Directors of our General Partner. The convertible preferred unitholders have the right to receive cumulative distributions in the same priority and prior to any other distributions made in respect of any other partnership interests.
To the extent that any portion of a quarterly distribution on our convertible preferred units to be paid in cash exceeds the amount of cash available for such distribution, the amount of cash available will be paid to our convertible preferred unitholders on a pro rata basis while the difference between the distribution and the available cash will become arrearages and accrue interest until paid.
Series A-1 Convertible Preferred Units
On April 15, 2013, we, our General Partner and AIM Midstream Holdings entered into agreements with HPIP, pursuant to which HPIP acquired
90%
of our General Partner and all of our subordinated units from AIM Midstream Holdings and contributed the High Point System and
$15.0 million
in cash to us in exchange for
5,142,857
of our Series A-1 Units.
The Series A-1 Units receive distributions prior to distributions to our common unitholders. The distributions on the Series A-1 Units are equal to the greater of
$0.4125
per unit or the declared distribution to common unitholders. The Series A-1 Units may be converted into common units, subject to customary anti-dilutive adjustments, at the option of the unitholders on or any time after January 1, 2014. As of
September 30, 2017
, the conversion price is
$15.24
and the conversion ratio is 1 to
1.1483
.
Series A-2 Convertible Preferred Units
On March 30, 2015 and June 30, 2015, we entered into two Series A-2 Convertible Preferred Unit Purchase Agreements with Magnolia Infrastructure Partners ("Magnolia") an affiliate of HPIP pursuant to which we issued, in separate private placements, newly-designated Series A-2 Units (the “Series A-2 Units”) representing limited partnership interests in the Partnership. As a result, the Partnership issued a total of
2,571,430
Series A-2 Units for approximately
$45.0 million
in aggregate proceeds during the year ended December 31, 2015. The Series A-2 Units will participate in distributions of the Partnership along with common units in a manner identical to the existing Series A-1 Units (together with the Series A-2 Units, the "Series A Units"), with such distributions being made in cash or with paid-in-kind Series A Units at the election of the Board of Directors of our General Partner.
On July 27, 2015, we amended our Partnership Agreement to grant us the right (the “Call Right”) to require the holders of the Series A-2 Units to sell, assign and transfer all or a portion of the then outstanding Series A-2 Units to us for a purchase price of
$17.50
per Series A-2 Unit (subject to appropriate adjustment for any equity distribution, subdivision or combination of equity
interests in the Partnership). We may exercise the Call Right at any time, in connection with our or our affiliate’s acquisition of assets or equity from ArcLight Energy Partners Fund V, L.P., or one of its affiliates, for a purchase price in excess of
$100 million
. We may not exercise the Call Right with respect to any Series A-2 Units that a holder has elected to convert into common units on or prior to the date we have provided notice of our intent to exercise the Call Right, and we may also not exercise the Call Right if doing so would result in a default under any of our or our affiliates’ financing agreements or obligations. As of
September 30, 2017
, the conversion price is
$15.24
and the conversion ratio is 1 to
1.1483
.
As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series A-1 and A-2 Units have been classified as mezzanine equity in the condensed consolidated balance sheets.
Series C Convertible Preferred Units
On April 25, 2016, we issued
8,571,429
Series C Units to an ArcLight affiliate in connection with the purchase of membership interests in certain midstream entities.
The Series C Units have voting rights that are identical to the voting rights of the common units and will vote with the common units as a single class on an as converted basis, with each Series C Unit initially entitled to
one
vote for each common unit into which such Series C Unit is convertible. The Series C Units also have separate class voting rights on any matter, including a merger, consolidation or business combination, that adversely affects, amends or modifies any of the rights, preferences, privileges or terms of the Series C Units. The Series C Units are convertible in whole or in part into common units at any time. The number of common units into which a Series C Unit is convertible will be an amount equal to the sum of
$14.00
plus all accrued and accumulated but unpaid distributions, divided by the conversion price. The sale of the Series C Units was exempt from registration under Securities Act pursuant to Rule 4(a)(2) under the Securities Act.
In the event that we issue, sell or grant any common units or convertible securities at an indicative per common unit price that is less than
$14.00
per common unit (subject to customary anti-dilution adjustments), then the conversion price will be adjusted according to a formula to provide for an increase in the number of common units into which Series C Units are convertible. As of
September 30, 2017
, the conversion price is
$13.40
and the conversion ratio is 1 to
1.0448
.
In connection with the issuance of the Series C Units, we issued the holders a warrant to purchase up to
800,000
common units at an exercise price of
$7.25
per common unit (the "Series C Warrant"). The Series C Warrant is subject to standard anti-dilution adjustments and is exercisable for a period of
seven
years.
The fair value of the Series C Warrant was determined using a market approach that utilized significant inputs which are not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. The estimated fair value of
$4.41
per warrant unit was determined using a Black-Scholes model and the following significant assumptions: i) a dividend yield of
18%
, ii) common unit volatility of
42%
and iii) the
seven
-year term of the warrant to arrive at an aggregate fair value of
$4.5 million
.
As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series C Units have been classified as mezzanine equity in the condensed consolidated balance sheets.
Series D Convertible Preferred Units
On October 31, 2016, we issued
2,333,333
shares of our newly-designated Series D Units to an ArcLight affiliate at a price of
$15.00
per unit, less a
1.5%
closing fee, in connection with the Delta House transaction during the third quarter 2016. The related agreement provides that if any of the Series D Units remain outstanding on June 30, 2017 (the “ Series D Determination Date”), we will issue the holder of the Series D Units a warrant (the “Series D Warrant”) to purchase
700,000
common units representing limited partnership interests with an exercise price of
$22.00
per common unit. The fair value of the conditional Series D Warrant at the time of issuance was immaterial. On July 14, 2017, the Partnership entered into an amendment to the related agreement and Amendment No. 5 to the Partnership Agreement, pursuant to which the Series D Warrant Determination Date was extended to August 31, 2017.
The Series D Units are entitled to quarterly distributions payable in arrears equal to the greater of
$0.4125
and the cash distribution that the Series D Units would have received if they had been converted to common units immediately prior to the beginning of the quarter. The Series D Units also have separate class voting rights on any matter, including a merger, consolidation or business combination, that adversely affects, amends or modifies any of the rights, preferences, privileges or terms of the Series D Units. The Series D Units are convertible in whole or in part into common units at the election of the holder of the Series D Unit at any time after October 2, 2017. As of the date of issuance, the conversion rate for each Series D Unit was
one
-to-one (the “Conversion Rate”). As of
September 30, 2017
, the conversion price is
$14.83
and the conversion ratio is 1 to
1.0035
.
As conversion is at the option of the holder and redemption is contingent upon a future event which is outside the control of the Partnership, the Series D Units have been classified as mezzanine equity in the condensed consolidated balance sheets.
On October 2, 2017, AMID exercised its call right to repurchase all of the
2,333,333
outstanding Series D Units. As a result,
no
Series D Units are outstanding currently. See Note 22 -
Subsequent Events
.
Third Amendment to Partnership Agreement
On March 8, 2017, the Partnership executed Amendment No. 3 to our Fifth Amended and Restated Partnership Agreement (as amended, the “Partnership Agreement”), which amends the distribution payment terms of the Partnership’s outstanding Series A Preferred Units to provide for the payment of a number of Series A payment-in-kind (“PIK”) preferred units for the quarter (the “Series A Preferred Quarterly Distribution”) in which the JPE Acquisition is consummated (which is the quarter ended March 31, 2017) and each quarter thereafter equal to the quotient of (i) the greater of (a)
$0.4125
and (b) the "Series A Distribution Amount," as such term is defined in the Partnership Agreement, divided by (ii) the Series A Adjusted Issue Price, as such term is defined in the Partnership Agreement. However, in our General Partner’s discretion, which determination shall be made prior to the record date for the relevant quarter, the Series A Preferred Quarterly Distribution may be paid as a combination (x) an amount in cash up to the greater of (1)
$0.4125
and (2) the Series A Distribution Amount, and (y) a number of Series A Preferred Units equal to the quotient of (a) the remainder of (i) the greater of (I)
$0.4125
and (II) the Series A Distribution Amount less (ii) the amount of cash paid pursuant to clause (x), divided by (b) the Series A Adjusted Issue Price. This calculation results in a reduced Series A Preferred Quarterly Distribution, which was previously calculated under the Partnership Agreement using
$0.50
in place of
$0.4125
in the preceding calculations.
(15) Partners’ Capital
Our capital accounts are comprised of approximately
1.3%
notional General Partner interests and
98.7%
limited partner interests as of
September 30, 2017
. Our limited partners have limited rights of ownership as provided for under our Partnership Agreement and the right to participate in our distributions. Our General Partner manages our operations and participates in our distributions, including certain incentive distributions pursuant to the incentive distribution rights that are non-voting limited partner interests held by our General Partner. Pursuant to our Partnership Agreement, our General Partner participates in losses and distributions based on its interest. The General Partner’s participation in the allocation of losses and distributions is not limited and therefore, such participation can result in a deficit to its capital account. As such, allocation of losses and distributions, including distributions for previous transactions between entities under common control, has resulted in a deficit to the General Partner’s capital account included in our condensed consolidated balance sheets.
Outstanding Units
The following table presents unit activity (in thousands):
|
|
|
|
|
|
|
|
|
|
General
Partner Interest
|
|
Limited Partner Interest
|
Balances at December 31, 2016
|
|
680
|
|
|
51,351
|
|
LTIP vesting
|
|
—
|
|
|
460
|
|
Issuance of GP units
|
|
273
|
|
|
—
|
|
Issuance of common units
(1)
|
|
—
|
|
|
929
|
|
Balances at September 30, 2017
|
|
953
|
|
|
52,740
|
|
____________________________________
(1)
Including common units issued in connection with the Panther acquisition. See Note 3 -
Acquisitions
.
General Partner Units
In order to maintain the ownership percentage, we received proceeds of
$3.9 million
from our General Partner as consideration for the issuance of
272,811
additional notional General Partner units for the
nine months ended
September 30, 2017
. For the
nine months ended
September 30, 2016
, we received proceeds of
$1.9 million
for the issuance of
135,813
additional notional General Partner units.
Distributions
We made the following distributions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Series A Units
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
$
|
2,145
|
|
|
$
|
2,449
|
|
|
$
|
6,790
|
|
|
$
|
2,449
|
|
Accrued
|
|
4,105
|
|
|
4,806
|
|
|
4,105
|
|
|
4,806
|
|
Paid-in-kind units
|
|
1,924
|
|
|
2,152
|
|
|
6,838
|
|
|
6,623
|
|
|
|
|
|
|
|
|
|
|
Series C Units
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
3,627
|
|
|
1,302
|
|
|
10,880
|
|
|
1,302
|
|
Accrued
|
|
4,150
|
|
|
3,611
|
|
|
4,150
|
|
|
3,611
|
|
Paid-in-kind units
|
|
—
|
|
|
948
|
|
|
—
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
Series D Units
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
963
|
|
|
—
|
|
|
2,888
|
|
|
—
|
|
Accrued
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Limited Partner Units
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
21,345
|
|
|
24,874
|
|
|
67,648
|
|
|
76,656
|
|
|
|
|
|
|
|
|
|
|
General Partner Units
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
277
|
|
|
174
|
|
|
645
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
Summary
|
|
|
|
|
|
|
|
|
Cash Paid
|
|
28,357
|
|
|
28,799
|
|
|
88,851
|
|
|
82,782
|
|
Accrued
|
|
8,255
|
|
|
8,417
|
|
|
8,255
|
|
|
8,417
|
|
Paid-in-kind units
|
|
1,924
|
|
|
3,100
|
|
|
6,838
|
|
|
7,571
|
|
The fair value of the paid-in-kind distributions was determined using the market and income approaches, requiring significant inputs which are not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. Under the income approach, the fair value estimates for all periods presented were based on i) present value of estimated future contracted distributions, ii) option values ranging from
$0.88
per unit to
$3.39
per unit using a Black-Scholes model, iii) assumed discount rates ranging from
5.8%
to
10.0%
and iv) assumed growth rates of
1.0%
.
(16) Net Income (loss) per Limited Partner Unit
Net income (loss) is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages, after giving effect to distributions on our convertible preferred units and General Partner units, including incentive distribution rights. Unvested unit-based compensation awards that contain non-forfeitable rights to distributions (whether paid or unpaid) are classified as participating securities and are included in our computation of basic and diluted net limited partners' net income (loss) per common unit. Basic and diluted limited partners' net income (loss) per common unit is calculated by dividing limited partners' interest in net loss by the weighted average number of outstanding limited partner units during the period.
As discussed in Note 1, the JPE Acquisition was a combination between entities under common control. As a result, prior periods were retrospectively adjusted to furnish comparative information. Accordingly, the prior period earnings combining both entities were allocated among our General Partners and common unitholders assuming JPE units were converted into our common units in the comparative historical periods.
The calculation of basic and diluted limited partners' net income (loss) per common unit is summarized below (in thousands, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income (loss) from continuing operations
|
$
|
11,806
|
|
|
$
|
(5,488
|
)
|
|
$
|
(42,266
|
)
|
|
$
|
(35,414
|
)
|
Less: Net income attributable to noncontrolling interests
|
621
|
|
|
1,241
|
|
|
3,386
|
|
|
2,192
|
|
Net income (loss) from continuing operations attributable to the Partnership
|
11,185
|
|
|
(6,729
|
)
|
|
(45,652
|
)
|
|
(37,606
|
)
|
Less:
|
|
|
|
|
|
|
|
Distributions on Series A Units
|
4,105
|
|
|
4,806
|
|
|
12,472
|
|
|
13,879
|
|
Distributions on Series C Units
|
4,150
|
|
|
3,611
|
|
|
11,403
|
|
|
5,860
|
|
Distributions on Series D Units
|
—
|
|
|
—
|
|
|
1,925
|
|
|
—
|
|
General partner's distribution
|
287
|
|
|
174
|
|
|
763
|
|
|
2,375
|
|
General partner's share in undistributed loss
|
(210
|
)
|
|
(375
|
)
|
|
(1,729
|
)
|
|
(1,334
|
)
|
Net income (loss) from continuing operations attributable to Limited Partners
|
2,853
|
|
|
(14,945
|
)
|
|
(70,486
|
)
|
|
(58,386
|
)
|
Net income (loss) from discontinued operations attributable to Limited Partners
|
44,696
|
|
|
(2,310
|
)
|
|
42,185
|
|
|
7,532
|
|
Net income (loss) attributable to Limited Partners
|
$
|
47,549
|
|
|
$
|
(17,255
|
)
|
|
$
|
(28,301
|
)
|
|
$
|
(50,854
|
)
|
|
|
|
|
|
|
|
|
Weighted average number of common units used in computation of Limited Partners' net loss per common unit - basic and diluted
|
52,021
|
|
|
51,310
|
|
|
52,021
|
|
|
51,310
|
|
|
|
|
|
|
|
|
|
Limited Partners' net income (loss) from continuing operations per unit
|
$
|
0.05
|
|
|
$
|
(0.29
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
(1.14
|
)
|
Limited Partners' net income (loss) from discontinued operations per unit
|
0.86
|
|
|
(0.05
|
)
|
|
0.81
|
|
|
0.15
|
|
Limited Partners' net income (loss) per common unit
(1)
|
$
|
0.91
|
|
|
$
|
(0.34
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
(0.99
|
)
|
_____________________________________
(1)
Potential common unit equivalents are antidilutive for all periods presented and, as a result, have been excluded from the determination of diluted limited partners' net loss per common unit.
(17) Long-Term Incentive Plan
Our General Partner manages our operations and activities and employs the personnel who provide support to our operations. On November 19, 2015, the Board of Directors of our General Partner approved the Third Amended and Restated Long-Term Incentive Plan to, among other things, increase the number of common units authorized for issuance by
6,000,000
common units. On February 11, 2016, the unitholders approved the Third Amended and Restated Long-Term Incentive Plan (as amended and as currently in effect as of the date hereof, the “LTIP”). On March 9, 2017, an additional
312,716
common units were registered to be issued
pursuant to the American Midstream Partners, LP Amended and Restated 2014 Long-Term Incentive Plan, which were assumed by the Partnership, in relation to the converted JPE phantom units as part of the merger with JP Energy LP.
All such equity-based awards issued under the LTIP consist of phantom units, distribution equivalent rights (“DERs”) or option grants. DERs and options have been granted on a limited basis. Future awards may be granted at the discretion of the Compensation Committee and subject to approval by the Board of Directors of our General Partner.
Phantom Unit Awards.
Ownership in the phantom unit awards is subject to forfeiture until the vesting date. The LTIP is administered by the Compensation Committee of the Board of Directors of our General Partner, which at its discretion, may elect to settle such vested phantom units with a number of common units equivalent to the fair market value at the date of vesting in lieu of cash. Although our General Partner has the option to settle in cash upon the vesting of phantom units, our General Partner has not historically settled these awards in cash. Under the LTIP, phantom units typically vest over
3
-
4
years and do not contain any vesting requirements other than continued employment.
In December 2015, the Board of Directors of our General Partner approved a grant of
200,000
phantom units under the LTIP which contain DERs based on the extent to which our Series A Unitholders receive distributions in cash. These units will vest on the
three
year anniversary of the date of grant, subject to acceleration in certain circumstances.
The following table summarizes activity in our phantom unit-based awards for the
nine months ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-Average Grant Date Fair Value Per Unit
|
Outstanding units at December 31, 2016
|
|
1,558,835
|
|
|
$
|
6.98
|
|
Granted
|
|
2,000
|
|
|
11.20
|
|
Forfeited
|
|
(18,919
|
)
|
|
13.49
|
|
Vested
|
|
(570,038
|
)
|
|
11.13
|
|
Outstanding units at September 30, 2017
|
|
971,878
|
|
|
$
|
4.43
|
|
The fair value of our phantom units, which are subject to equity classification, is based on the fair value of our common units at the grant date. Compensation expenses related to these awards were $
0.8 million
and
$1.8 million
for the
three months ended September 30, 2017
and 2016, respectively, and were
$6.1 million
and
$4.3 million
for the
nine months ended September 30, 2017
and
2016
, respectively, and are included in
Corporate expenses and Direct operating expenses
in our unaudited condensed consolidated statements of operations and
Equity compensation expense
in our unaudited condensed consolidated statements of changes in partners’ capital and noncontrolling interests.
The total fair value of units at the time of vesting was
$9.4 million
and
$1.8 million
for the
nine months ended September 30, 2017
and
2016
, respectively.
(18) Commitments and Contingencies
Legal proceedings
We are not currently party to any pending litigation or governmental proceedings, other than ordinary routine litigation incidental to our business. While the ultimate impact of any proceedings cannot be predicted with certainty, our management believes that the resolution of any of our pending proceedings will not have a material adverse effect on our financial condition, results of operations or cash flows.
Environmental matters
We are subject to federal and state laws and regulations relating to the protection of the environment. Environmental risk is inherent to our operations, and we could, at times, be subject to environmental cleanup and enforcement actions. We attempt to manage this environmental risk through appropriate environmental policies and practices to minimize any impact our operations may have on the environment.
Regulatory matters
On October 8, 2014, Midla reached an agreement in principle with its customers regarding the interstate pipeline that traverses Louisiana and Mississippi in order to provide continued service to its customers while addressing safety concerns with the existing pipeline. On April 16, 2015, FERC approved the stipulation and agreement (the “Midla Agreement”) relating to the October 8, 2014 regulatory matter allowing Midla to retire the existing 1920’s pipeline and replace it with the Midla-Natchez Line to serve existing residential, commercial, and industrial customers. Under the Midla Agreement, customers not served by the new Midla-Natchez Line will be connected to other interstate or intrastate pipelines, other gas distribution systems, or offered conversion to propane service. On June 29, 2015, we filed with FERC for authorization to construct the Midla-Natchez pipeline, which was approved on December 17, 2015. Construction commenced in the second quarter of 2016, and services commenced on March 31, 2017. Under the Midla Agreement, Midla executed long-term agreements seeking to recover its investment in the Midla-Natchez Line.
Acquisition related costs
As part of the JPE Acquisition, management of JPE communicated to its employees a severance plan. The plan includes termination benefits in the form of severance and accelerated vesting of phantom units for employees who render service through their respective termination date. The remaining liability associated with these termination benefits was immaterial as of September 30, 2017.
(19) Related Party Transactions
To the extent applicable, our discussion below includes the nature of our relationship and activities that we had with our Related Parties, as defined and required by ASC 850 -
Related Party Disclosures,
in the three and nine months ended September 30, 2017 and comparative periods. Balances associated with our investments in unconsolidated affiliates are disclosed in Note 10 -
Investments in unconsolidated affiliates.
Blackwater Midstream Holdings, LLC
In December 2013, we acquired Blackwater Midstream Holdings, LLC (“Blackwater”) from an affiliate of ArcLight. The acquisition agreement included a provision whereby an ArcLight affiliate would be entitled to an additional
$5.0 million
of merger consideration based on Blackwater meeting certain operating targets. During the third quarter of 2016, we determined that it was probable the operating targets would be met in 2017 and recorded a
$5.0 million
accrued distribution to the ArcLight affiliate which is included in
Accrued expense and other current liabilities
in the accompanying unaudited condensed consolidated balance sheets.
General Partner
Employees of our General Partner are assigned to work for us or other affiliates of our General Partner. Where directly attributable, all compensation and related expenses for these employees are charged directly by our General Partner to our wholly-owned subsidiary, American Midstream, LLC, which, in turn, charges the appropriate subsidiary or affiliate. Our General Partner does not record any profit or margin on the expenses charged to us.
In connection with the JPE Acquisition closing during the first quarter of 2017, our General Partner agreed to provide quarterly financial support up to a maximum of
$25.0 million
. The financial support will continue for eight (
8
) consecutive quarters following the closing of the acquisition, or earlier, until
$25.0 million
in support has been provided. As of September 30, 2017, we have utilized the full
$25.0 million
of the financial support mentioned above.
Separate from the financial support described above, our General Partner also agreed to absorb
$9.6 million
corporate overhead expenses, which were incurred by us in the first quarter of 2017, and subsequently paid the amount in the second quarter of 2017. These two cash amounts, and the
$3.9 million
received related to the General Partner’s ownership percentage, totaled
$38.3 million
which was presented as part of the contribution line item on our unaudited condensed consolidated statements of cash flows. As of September 30, 2017 and December 31, 3016, we had
$4.7 million
and
$3.9 million
of account payables, respectively, due to our General Partner, which has been recorded in
Accrued expenses and other current liabilities
and relates primarily to compensation. This payable is generally settled on a quarterly basis related to the foregoing transactions.
Republic Midstream, LLC
Republic Midstream, LLC (“Republic”), is an entity owned by ArcLight in which we charge a monthly fee of approximately
$0.1 million
. The monthly fee reduced the
Corporate expenses
in the condensed consolidated statements of operations by
$0.4 million
and
$1.0 million
for three and nine months ended September 30, 2017, respectively, and
$0.2 million
and
$0.6 million
for the three and nine months ended September 30, 2016, respectively. As of
September 30,
2017, we had a receivable balance due from Republic of
$1.5 million
, which is included in the account
Receivables from related parties,
which is part of
Other current assets
in the condensed consolidated balance sheets.
Transactions with our unconsolidated affiliates
Destin and Okeanos
On November 1, 2016, we became operator of the Destin and Okeanos pipelines and entered into operating and administrative management agreements under which the affiliates pay a monthly fee for general and administrative services provided by us. In addition, the affiliates reimburse us for certain transition related expenses. For the
nine months ended September 30, 2017
, we recognized
$1.9 million
of management fee income. As of September 30, 2017 and December 31, 2016, we had an outstanding accounts receivable balance of
$1.0 million
and
$2.2 million
, respectively, which is recorded in
Receivables from related parties
and is part of
Other current assets
in the unaudited condensed consolidated balance sheets.
AmPan
AmPan was a
60%
-owned subsidiary of ours which was consolidated for financial reporting purposes. Panther was the
40%
non-controlling interest owner of AmPan. Pursuant to a related party agreement which began in the second quarter of 2016, POGS provided management services to AmPan in exchange for related fees, which in 2016 totaled
$0.8 million
of
Direct operating expenses
and
$0.4 million
of
Corporate expenses
in the unaudited condensed consolidated statements of operations. During January 1, 2017 to August 7, 2017, such management services totaled approximately
$1.5 million
of
Direct operating expenses
and
$0.3 million
of
Corporate expenses
in the unaudited condensed consolidated statements of operations. Effective August 8, 2017, AmPan and POGS became our wholly-owned subsidiaries. See Note 3 -
Acquisitions
.
JP Energy Development
JP Energy Development (“JP Development”), an affiliate owned by Arclight, had a pipeline transportation business that provided crude oil pipeline transportation services to JPE’s discontinued Mid-Continent Business. As a result of utilizing JP Development’s pipeline transportation services, JPE incurred pipeline tariff fees of
$0.4 million
for the six months ended June 30, 2016, which have been included in net loss from discontinued operations in the condensed consolidated statements of operations. As of December 31, 2015, we had a net receivable from JP Development of
$7.9 million
, primarily as the result of the prepayments made in 2014 for the crude oil pipeline transportation services to be provided by JP Development. We recovered these amounts in full on February 1, 2016.
On February 1, 2016, JPE sold certain trucking and marketing assets in the Mid-Continent area to JP Development in connection with JP Development’s sale of its GSPP pipeline assets to a third party. During the year ended December 31, 2016, JPE’s general partner agreed to absorb corporate overhead expenses incurred by us and not pass such expense through to us. We record non-cash contributions for these expenses in the quarters subsequent to when they were incurred, which was
$0.0 million
and
$4.0 million
for the three and nine months ended September 30, 2017, respectively, and
$3.5 million
and
$7.5 million
for the three and nine months ended September 30, 2016, respectively. JPE’s general partner agreed to absorb
$0.0 million
and
$5.0 million
of such corporate overhead expenses in the three and nine months ended September 30, 2016, respectively.
Purchases and sales of natural gas and crude oil with a related party
We enter into separate purchases and sales of natural gas and crude oil with a company whose chief financial officer is the brother of one of our executive officers. During the
three months ended September 30, 2017
and
2016
, we recognized revenue of
$3.7 million
and
$1.1 million
, respectively, and had purchases not related to receivables totaling
$1.1 million
, and
$1.2 million
, respectively. During the nine months ended September 30, 2017 and
2016
, we recognized revenue of
$6.2 million
and
$2.7 million
, respectively, and had purchases not related to receivables totaling
$3.7 million
and
$3.0 million
, respectively.
Capstone Ventures, LLC
Capstone Ventures, LLC (“Capstone”) is a marketing company where one of the Partnership’s employees is a partial, non-participating owner. During the
three months ended September 30, 2017
and
2016
, we recognized revenue of
$0.2 million
in both
periods. During the nine months ended September 30, 2017 and
2016
, we recognized revenue of
$0.7 million
and
$0.5 million
, respectively.
McCown Enterprises, LLC
McCown Enterprises, LLC (“HCLM”) is a marketing company where one of the Partnership’s employee has
50%
ownership. During the nine months ended September 30, 2017 and
2016
, we recognized revenue from HCLM of
$0.3 million
and
$0.2 million
, respectively.
(20) Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
Supplemental non-cash information
|
|
|
|
Investing
|
|
|
|
Increase (decrease) in accrued property, plant and equipment purchases
|
$
|
(15,112
|
)
|
|
$
|
4,597
|
|
Financing
|
|
|
|
Issuance of common units for the Panther acquisition
|
12,532
|
|
|
—
|
|
Contributions from an affiliate holding limited partner interests
|
4,000
|
|
|
7,500
|
|
Issuance of Series C Units and Warrant in connection with the Emerald Transactions
|
—
|
|
|
120,000
|
|
Accrued distributions on convertible preferred units
|
8,255
|
|
|
8,417
|
|
Paid-in-kind distributions on convertible preferred units
|
6,838
|
|
|
7,571
|
|
Cancellation of escrow units
|
—
|
|
|
6,817
|
|
Accrued distribution from unconsolidated affiliates
|
—
|
|
|
5,000
|
|
(21) Reportable Segments
Since the first quarter of 2017, as a result of the acquisition of JPE described in Note 1 -
Organization, Basis of Presentation and Summary of Significant Accounting Policies
,
we realigned the composition of our reportable segments. We restated the items of segment information as reported for the
three and nine months ended
September 30, 2016
to reflect this new segment adjustment.
On September 1, 2017, we sold the Propane Business, as described in Note 4 -
Discontinued Operations
. Prior to the sale, during July 2017, we moved the trucking business from the Propane Marketing Services segment to the Liquid Pipelines and Services segment. The prior periods were adjusted to reflect that change. With the disposition of the Propane Business, we eliminated the Propane Marketing Services segment. We have classified the results of our Propane Marketing Services segment, including the gain on sale, as discontinued operations in our condensed consolidated statements of operations for all periods presented.
Our operations are located in the United States and are organized into
five
reportable segments: 1) Gas Gathering and Processing Services, 2) Liquid Pipelines and Services, 3) Natural Gas Transportation Services, 4) Offshore Pipelines and Services and 5) Terminalling Services.
|
|
•
|
Gas Gathering and Processing Services
. Our Gas Gathering and Processing Services segment provides “wellhead-to-market” services to producers of natural gas and natural gas liquids, which include transporting raw natural gas from various receipt points through gathering systems, treating the raw natural gas, processing raw natural gas to separate the NGLs from the natural gas, fractionating NGLs, and selling or delivering pipeline-quality natural gas and NGLs to various markets and pipeline systems.
|
|
|
•
|
Liquid Pipelines and Services
. Our Liquid Pipelines and Services segment provides transportation, purchase and sales of crude oil from various receipt points including lease automatic customer transfer (“LACT”) facilities and deliveries to various markets.
|
|
|
•
|
Natural Gas Transportation Services
. Our Natural Gas Transportation Services segment transports and delivers natural gas from producing wells, receipt points, or pipeline interconnects for shippers and other customers,
|
which include local distribution companies (“LDCs”), utilities and industrial, commercial and power generation customers.
|
|
•
|
Offshore Pipelines and Services
. Our Offshore Pipelines and Services segment gathers and transports natural gas and crude oil from various receipt points to other pipeline interconnects, onshore facilities and other delivery points.
|
|
|
•
|
Terminalling Services
. Our Terminalling Services segment provides above-ground leasable storage operations at our marine terminals that support various commercial customers, including commodity brokers, refiners and chemical manufacturers to store a range of products and also includes crude oil storage in Cushing, Oklahoma and refined products terminals in Texas and Arkansas.
|
These segments are monitored separately by our chief operating decision maker (“CODM”) for performance and are consistent with our internal financial reporting. The CODM periodically reviews segment gross margin information for each segment to make business decisions. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations.
We define total segment gross margin as the sum of the segment gross margins for our Gas Gathering and Processing Services,
Liquid Pipelines and Services, Natural Gas Transportation Services, Offshore Pipelines and Services and Terminalling Services.
We define segment gross margin in our Gas Gathering and Processing Services segment as total revenue plus unconsolidated affiliate earnings less unrealized gains or plus unrealized losses on commodity derivatives, construction and operating management agreement income and the cost of natural gas, crude oil and NGLs and condensate purchased.
We define segment gross margin in our Liquid Pipelines and Services segment as total revenue plus unconsolidated affiliate earnings less unrealized gains or plus unrealized losses on commodity derivatives and the cost of crude oil purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.
We define segment gross margin in our Natural Gas Transportation Services segment as total revenue plus unconsolidated affiliate earnings less the cost of natural gas purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.
We define segment gross margin in our Offshore Pipelines and Services segment as total revenue plus unconsolidated affiliate earnings less the cost of natural gas purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.
We define segment gross margin in our Terminalling Services segment as total revenue less direct operating expense which includes direct labor, general materials and supplies and direct overhead.
A reconciliation from Total segment gross margin to Net income (loss) attributable to the Partnership for the periods presented is below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reconciliation of Segment Gross Margin to Net income (loss) attributable to the Partnership:
|
|
|
|
|
|
|
|
Gas Gathering and Processing Services segment gross margin
|
$
|
12,761
|
|
|
$
|
12,627
|
|
|
$
|
36,663
|
|
|
$
|
37,586
|
|
Liquid Pipelines and Services segment gross margin
|
7,808
|
|
|
7,600
|
|
|
21,209
|
|
|
23,829
|
|
Natural Gas Transportation Services segment gross margin
|
5,356
|
|
|
3,709
|
|
|
17,106
|
|
|
13,115
|
|
Offshore Pipelines and Services segment gross margin
|
29,312
|
|
|
24,126
|
|
|
80,738
|
|
|
57,947
|
|
Terminalling Services segment gross margin
(1)
|
8,509
|
|
|
10,731
|
|
|
30,429
|
|
|
31,760
|
|
Total segment gross margin (non-GAAP)
|
63,746
|
|
|
58,793
|
|
|
186,145
|
|
|
164,237
|
|
Less:
|
|
|
|
|
|
|
|
Direct operating expenses
(1)
|
17,274
|
|
|
14,695
|
|
|
47,316
|
|
|
45,999
|
|
Plus:
|
|
|
|
|
|
|
|
Gain (loss) on commodity derivatives, net
|
(597
|
)
|
|
324
|
|
|
(33
|
)
|
|
(1,929
|
)
|
Less:
|
|
|
|
|
|
|
|
Corporate expenses
|
27,083
|
|
|
22,103
|
|
|
84,570
|
|
|
60,945
|
|
Depreciation, amortization and accretion expense
|
26,781
|
|
|
22,668
|
|
|
78,834
|
|
|
65,937
|
|
(Gain) loss on sale of assets, net
|
(4,061
|
)
|
|
36
|
|
|
(4,064
|
)
|
|
297
|
|
Interest expense
|
17,759
|
|
|
5,830
|
|
|
51,037
|
|
|
24,723
|
|
Other (income) expense
|
(34,085
|
)
|
|
1
|
|
|
(32,248
|
)
|
|
(245
|
)
|
Other (income) expense, net
|
(139
|
)
|
|
(1,129
|
)
|
|
322
|
|
|
(1,773
|
)
|
Income tax expense
|
731
|
|
|
401
|
|
|
2,611
|
|
|
1,839
|
|
(Income) loss from discontinued operations, net of tax
|
(44,696
|
)
|
|
2,310
|
|
|
(42,185
|
)
|
|
(7,532
|
)
|
Net income attributable to noncontrolling interests
|
621
|
|
|
1,241
|
|
|
3,386
|
|
|
2,192
|
|
Net income (loss)
|
$
|
55,881
|
|
|
$
|
(9,039
|
)
|
|
$
|
(3,467
|
)
|
|
$
|
(30,074
|
)
|
_____________________________________
|
|
(1)
|
Direct operating expenses include Gas Gathering and Processing Services segment direct operating expenses of
$8.7 million
and
$7.9 million
, Liquid Pipelines and Services segment direct operating expenses of
$2.4 million
and
$2.6 million
, Natural Gas Transportation Services segment direct operating expenses of
$2.2 million
and
$1.3 million
and Offshore Pipelines and Services segment direct operating expenses of
$3.9 million
and
$2.9 million
for the
three months ended September 30, 2017
and
2016
, respectively. Direct operating expenses related to our Terminalling Services segment of
$3.4 million
and
$2.9 million
for the
three months ended September 30, 2017
and
2016
, respectively, are included within the calculation of Terminalling Services segment gross margin.
|
Other direct operating expenses include Gas Gathering and Processing Services segment direct operating expenses of
$24.8 million
and
$25.3 million
, Liquid Pipelines and Services segment direct operating expenses of
$7.1 million
and
$8.2 million
, Natural Gas Transportation Services segment direct operating expenses of
$5.4 million
and
$4.5 million
, and Offshore Pipelines and Services segment direct operating expenses of
$10.0 million
and
$8.0 million
for the
nine months ended September 30, 2017
and
2016
, respectively. Direct operating expenses related to our Terminalling Services segment of
$9.5 million
and
$7.9 million
for the
nine months ended September 30, 2017
and
2016
, respectively, are included within the calculation of Terminalling Services segment gross margin.
The following tables set forth our segment information for the
three and nine months ended
September 30, 2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
Gas Gathering and Processing Services
|
|
Liquid Pipelines and Services
|
|
Natural Gas Transportation Services
|
|
Offshore Pipelines and Services
|
|
Terminalling Services
|
|
Total
|
Revenue
|
$
|
37,287
|
|
|
$
|
87,022
|
|
|
$
|
11,131
|
|
|
$
|
14,360
|
|
|
$
|
13,087
|
|
|
$
|
162,887
|
|
Gain (loss) on commodity derivatives, net
|
(65
|
)
|
|
(532
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(597
|
)
|
Total revenue
|
37,222
|
|
|
86,490
|
|
|
11,131
|
|
|
14,360
|
|
|
13,087
|
|
|
162,290
|
|
Earnings in unconsolidated affiliates
|
—
|
|
|
1,317
|
|
|
—
|
|
|
15,510
|
|
|
—
|
|
|
16,827
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
24,492
|
|
|
80,510
|
|
|
5,692
|
|
|
558
|
|
|
1,146
|
|
|
112,398
|
|
Direct operating expenses
|
8,655
|
|
|
2,438
|
|
|
2,240
|
|
|
3,940
|
|
|
3,432
|
|
|
20,705
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
27,083
|
|
Depreciation, amortization and accretion expense
|
|
|
|
|
|
|
|
|
|
|
26,781
|
|
Gain on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
(4,061
|
)
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
182,906
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
17,759
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(34,085
|
)
|
Income from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
12,537
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
731
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
11,806
|
|
Income from discontinued operations, including gain on disposition (Note 4)
|
|
|
|
|
|
|
|
|
|
|
44,696
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
56,502
|
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
621
|
|
Net income attributable to the Partnership
|
|
|
|
|
|
|
|
|
|
|
$
|
55,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
$
|
12,761
|
|
|
$
|
7,808
|
|
|
$
|
5,356
|
|
|
$
|
29,312
|
|
|
$
|
8,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
Gas Gathering and Processing Services
|
|
Liquid Pipelines and Services
|
|
Natural Gas Transportation Services
|
|
Offshore Pipelines and Services
|
|
Terminalling Services
|
|
|
Total
|
Revenue
|
$
|
31,650
|
|
|
$
|
87,898
|
|
|
$
|
10,709
|
|
|
$
|
14,879
|
|
|
$
|
14,443
|
|
|
|
$
|
159,579
|
|
Gain (loss) on commodity derivatives, net
|
149
|
|
|
177
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
—
|
|
|
324
|
|
Total revenue
|
31,799
|
|
|
88,075
|
|
|
10,709
|
|
|
14,877
|
|
|
14,443
|
|
|
|
159,903
|
|
Earnings in unconsolidated affiliates
|
(1
|
)
|
|
650
|
|
|
—
|
|
|
9,819
|
|
|
—
|
|
|
|
10,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
18,477
|
|
|
80,372
|
|
|
6,994
|
|
|
570
|
|
|
836
|
|
|
|
107,249
|
|
Direct operating expenses
|
7,856
|
|
|
2,617
|
|
|
1,324
|
|
|
2,898
|
|
|
2,876
|
|
|
|
17,571
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
22,103
|
|
Depreciation, amortization and accretion expense
|
|
|
|
|
|
|
|
|
|
|
|
22,668
|
|
Loss on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
169,627
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
5,830
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
(5,087
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
(5,488
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
(2,310
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(7,798
|
)
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
1,241
|
|
Net loss attributable to the Partnership
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
$
|
12,627
|
|
|
$
|
7,600
|
|
|
$
|
3,709
|
|
|
$
|
24,126
|
|
|
$
|
10,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017
|
|
Gas Gathering and Processing Services
|
|
Liquid Pipelines and Services
|
|
Natural Gas Transportation Services
|
|
Offshore Pipelines and Services
|
|
Terminalling Services
|
|
Total
|
Revenue
|
$
|
111,001
|
|
|
$
|
253,590
|
|
|
$
|
34,966
|
|
|
$
|
41,330
|
|
|
$
|
47,544
|
|
|
$
|
488,431
|
|
Gain (loss) on commodity derivatives, net
|
(170
|
)
|
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33
|
)
|
Total revenue
|
110,831
|
|
|
253,727
|
|
|
34,966
|
|
|
41,330
|
|
|
47,544
|
|
|
488,398
|
|
Earnings in unconsolidated affiliates
|
—
|
|
|
3,886
|
|
|
—
|
|
|
45,895
|
|
|
—
|
|
|
49,781
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
74,261
|
|
|
236,896
|
|
|
17,630
|
|
|
6,487
|
|
|
7,612
|
|
|
342,886
|
|
Direct operating expenses
|
24,766
|
|
|
7,137
|
|
|
5,403
|
|
|
10,010
|
|
|
9,503
|
|
|
56,819
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
84,570
|
|
Depreciation, amortization and accretion expense
|
|
|
|
|
|
|
|
|
|
|
78,834
|
|
Gain on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
(4,064
|
)
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
559,045
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
51,037
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(32,248
|
)
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
(39,655
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
2,611
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
(42,266
|
)
|
Income from discontinued operations, including gain on disposition (Note 4)
|
|
|
|
|
|
|
|
|
|
|
42,185
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
3,386
|
|
Net loss attributable to the Partnership
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
$
|
36,663
|
|
|
$
|
21,209
|
|
|
$
|
17,106
|
|
|
$
|
80,738
|
|
|
$
|
30,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
Gas Gathering and Processing Services
|
|
Liquid Pipelines and Services
|
|
Natural Gas Transportation Services
|
|
Offshore Pipelines and Services
|
|
Terminalling Services
|
|
Total
|
Revenue
|
$
|
85,655
|
|
|
$
|
221,866
|
|
|
$
|
28,383
|
|
|
$
|
32,526
|
|
|
$
|
46,652
|
|
|
$
|
415,082
|
|
Gain (loss) on commodity derivatives, net
|
(716
|
)
|
|
(772
|
)
|
|
—
|
|
|
(5
|
)
|
|
(436
|
)
|
|
(1,929
|
)
|
Total revenue
|
84,939
|
|
|
221,094
|
|
|
28,383
|
|
|
32,521
|
|
|
46,216
|
|
|
413,153
|
|
Earnings in unconsolidated affiliates
|
—
|
|
|
1,658
|
|
|
—
|
|
|
27,855
|
|
|
—
|
|
|
29,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
47,344
|
|
|
199,111
|
|
|
15,245
|
|
|
2,429
|
|
|
6,583
|
|
|
270,712
|
|
Direct operating expenses
|
25,344
|
|
|
8,186
|
|
|
4,515
|
|
|
7,954
|
|
|
7,873
|
|
|
53,872
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
60,945
|
|
Depreciation, amortization and accretion expense
|
|
|
|
|
|
|
|
|
|
|
65,937
|
|
Loss on sale of assets, net
|
|
|
|
|
|
|
|
|
|
|
297
|
|
Total operating expenses
|
|
|
|
|
|
|
|
|
|
|
451,763
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
24,723
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
(245
|
)
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
(33,575
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
1,839
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
(35,414
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
7,532
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(27,882
|
)
|
Less: Net income attributable to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
2,192
|
|
Net loss attributable to the Partnership
|
|
|
|
|
|
|
|
|
|
|
$
|
(30,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
$
|
37,586
|
|
|
$
|
23,829
|
|
|
$
|
13,115
|
|
|
$
|
57,947
|
|
|
$
|
31,760
|
|
|
|
|
A reconciliation of total assets by segment to the amounts included in the condensed consolidated balance sheets follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
Segment assets:
|
|
|
|
Gas Gathering and Processing Services
|
$
|
416,498
|
|
|
$
|
530,889
|
|
Liquid Pipelines and Services
|
443,771
|
|
|
425,389
|
|
Offshore Pipelines and Services
|
544,895
|
|
|
400,193
|
|
Natural Gas Transportation Services
|
172,813
|
|
|
221,604
|
|
Terminalling Services
|
256,922
|
|
|
299,534
|
|
Other
(1)
|
188,308
|
|
|
334,953
|
|
Discontinued Operations
|
—
|
|
|
136,759
|
|
Total Assets
|
$
|
2,023,207
|
|
|
$
|
2,349,321
|
|
_____________________________________
(1)
Other assets not allocable to segments consist of corporate leasehold improvements and other miscellaneous assets.
(22) Subsequent Events
Series D Units Redemption
On October 2, 2017, pursuant to the terms of the Fifth Amended and Restated Agreement of Limited Partnership, as amended, of the Partnership, we exercised our call right to repurchase all of the
2,333,333
outstanding Series D Convertible Preferred Units representing limited partner interests in the Partnership (“Series D Units”) from Magnolia Infrastructure Holdings, LLC, an affiliate of ArcLight, for approximately
$37.0 million
in cash, which was funded through our existing revolver. After the closing date of such redemption, which occurred on October 2, 2017,
no
Series D Units remain outstanding.
Distribution
On
October 26, 2017
, we announced that the Board of Directors of our General Partner declared a quarterly cash distribution of
$0.4125
per common unit and preferred unit, Series A and Series C, for the quarter ended
September 30, 2017
, or
$1.65
per common unit on an annualized basis. The distribution is expected to be paid on
November 14, 2017
, to unitholders of record as of the close of business on
November 7, 2017
.
Acquisition of additional ownership interest in Destin
On October 27, 2017, American Midstream Emerald, LLC, a wholly-owned subsidiary of the Partnership, entered into a Purchase and Sale Agreement with Emerald Midstream, LLC, an ArcLight affiliate, to purchase an additional
17.0%
equity interest in Destin Pipeline Company, LLC (“Destin”) for total consideration of
$30.0 million
. With the acquisition, the Partnership will own a
66.67%
interest in Destin. The Destin pipeline is a FERC-regulated,
255
-mile natural gas transport system with total capacity of
1.2
Bcf/d.
Southcross Energy Partners, L.P. Merger
On October 31, 2017, we, our General Partner, our wholly owned subsidiary Cherokee Merger Sub LLC (“Merger Sub”), Southcross Energy Partners, L.P. (“SXE”), and Southcross Energy Partners GP, LLC (“SXE GP”), entered into an Agreement and Plan of Merger (the “SXE Merger Agreement”). Upon the terms and subject to the conditions set forth in the SXE Merger Agreement, SXE will merge with Merger Sub (the “SXE Merger”), with SXE continuing its existence under Delaware law as the surviving entity in the SXE Merger and wholly owned subsidiary of us. The acquisition is valued at approximately
$815 million
, including the repayment of estimated net debt of
$139 million
.
At the effective time of the SXE Merger (the “Effective Time”), each common unit of SXE (each, an “SXE Common Unit”) issued and outstanding or deemed issued and outstanding as of immediately prior to the Effective Time will be converted into the right to receive
0.160
(the “Exchange Ratio”) of a common unit (each, an “AMID Common Unit”) representing limited partner interests in us (the “Merger Consideration”), except for those SXE Common Units held by affiliates of SXE and SXE GP, which will be cancelled for no consideration. Each SXE Common Unit, Subordinated Unit (as defined in the SXE Merger Agreement) and Class B Convertible Unit (as defined in the SXE Merger Agreement) held by Southcross Holdings LP (“Holdings LP”) or any of its subsidiaries and the SXE Incentive Distribution Rights (as defined in the SXE Merger Agreement) outstanding immediately prior to the Effective Time will be cancelled in connection with the closing of the SXE Merger.
In connection with the SXE Merger Agreement, on October 31, 2017, we and our General Partner entered into a Contribution Agreement (the “SXE Contribution Agreement” and, together with the SXE Merger Agreement, the “SXE Transaction Agreements”) with Holdings LP. Upon the terms and subject to the conditions set forth in the SXE Contribution Agreement, Holdings LP will contribute its equity interests in its new wholly owned subsidiary (“SXH Holdings”), which will hold substantially all the current subsidiaries (Southcross Holdings Intermediary LLC, Southcross Holdings Guarantor GP LLC and Southcross Holdings Guarantor LP) and business of Holdings LP, to us and our General Partner in exchange for (i) the number of AMID Common Units with a value equal to
$185,697,148
, subject to certain adjustments for cash, indebtedness, working capital and transaction expenses contemplated by the SXE Contribution Agreement, divided by
$13.69
per AMID Common Unit, (ii)
4,500,000
AMID Preferred Units (as defined in the SXE Contribution Agreement), (iii) options to purchase
4,500,000
AMID Common Units (the “Options”), and (iv)
3,000
AMID GP Class D Units (as defined in the SXE Contribution Agreement) (the transactions contemplated thereby and the agreements ancillary thereto, the “SXE Contribution”). A portion of the consideration will be deposited into escrow in order to secure certain post-closing obligations of Holdings LP. Concurrently with the closing of the transaction, our agreement of limited partnership will be amended to reflect the issuance of AMID Preferred Units, and the GP LLC Agreement will be amended to reflect the issuance of such AMID GP Class D Units.
Acquisition of Trans-Union pipeline
On November 6, 2017, we announced the acquisition and closing of
100%
of the equity interests in Trans-Union Interstate Pipeline, LP (“Trans-Union”) from affiliates of ArcLight, for a total consideration of approximately
$48.0 million
. The
consideration consisted of approximately
$15.5 million
cash funded from borrowings under our revolving credit facility and the assumption of
$32.5 million
of non-recourse debt. Trans-Union owns a 42-mile, 30-inch diameter high-pressure FERC-regulated natural gas interstate pipeline with
546,000
MMbtu/day of maximum capacity. We believe that this acquisition represents a transaction among entities under common control. Accordingly we may have to recast our historical financial statements to reflect the accounts of Trans-Union from the date ArcLight obtained control.