Noble Midstream Partners LP
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per unit amounts, unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2018
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2017
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2018
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2017
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Revenues
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Midstream Services — Affiliate
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$
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66,924
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$
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54,117
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$
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131,187
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$
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104,431
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Midstream Services — Third Party
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13,469
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3,666
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24,829
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3,666
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Crude Oil Sales — Third Party
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41,578
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—
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63,688
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—
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Total Revenues
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121,971
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57,783
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219,704
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108,097
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Costs and Expenses
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Cost of Crude Oil Sales
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40,012
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—
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61,451
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—
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Direct Operating
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18,393
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14,293
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35,541
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25,694
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Depreciation and Amortization
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16,371
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2,472
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27,700
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4,921
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General and Administrative
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4,980
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3,452
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15,422
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6,194
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Total Operating Expenses
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79,756
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20,217
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140,114
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36,809
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Operating Income
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42,215
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37,566
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79,590
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71,288
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Other (Income) Expense
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Interest Expense, Net of Amount Capitalized
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1,681
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100
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2,714
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367
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Investment Income
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(4,091
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)
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(1,641
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)
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(6,959
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)
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(2,706
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)
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Total Other Income
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(2,410
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)
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(1,541
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)
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(4,245
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)
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(2,339
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)
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Income Before Income Taxes
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44,625
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39,107
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83,835
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73,627
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State Income Tax Provision
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183
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—
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257
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—
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Net Income
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44,442
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39,107
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83,578
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73,627
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Less: Net Income Attributable to Noncontrolling Interests
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7,858
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7,515
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7,633
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17,693
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Net Income Attributable to Noble Midstream Partners LP
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36,584
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31,592
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75,945
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55,934
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Less: Net Income Attributable to Incentive Distribution Rights
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1,134
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92
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1,953
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92
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Net Income Attributable to Limited Partners
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$
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35,450
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$
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31,500
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$
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73,992
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$
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55,842
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Net Income Attributable to Limited Partners Per Limited Partner Unit
—
Basic and Diluted
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Common Units
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$
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0.90
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$
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0.98
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$
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1.87
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$
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1.75
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Subordinated Units
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$
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0.90
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$
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0.98
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$
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1.87
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$
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1.75
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Weighted Average Limited Partner Units Outstanding
—
Basic
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Common Units
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23,686
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16,127
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23,684
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16,015
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Subordinated Units
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15,903
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15,903
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15,903
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15,903
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Weighted Average Limited Partner Units Outstanding
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Diluted
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Common Units
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23,700
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16,137
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23,699
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16,024
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Subordinated Units
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15,903
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15,903
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15,903
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15,903
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The accompanying notes are an integral part of these financial statements.
Noble Midstream Partners LP
Consolidated Statements of Cash Flows
(in thousands, unaudited)
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Six Months Ended June 30,
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2018
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2017
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Cash Flows From Operating Activities
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Net Income
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$
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83,578
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$
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73,627
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Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
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Depreciation and Amortization
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27,700
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4,921
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Income from Equity Method Investee, Net of Dividends
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(1,278
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)
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(405
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)
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Unit-Based Compensation
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714
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333
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Other Adjustments for Noncash Items Included in Income
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329
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191
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Changes in Operating Assets and Liabilities, Net of Assets Acquired and Liabilities Assumed
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Increase in Accounts Receivable
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(4,874
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)
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(5,423
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)
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Increase in Accounts Payable
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3,241
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1,409
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Other Operating Assets and Liabilities, Net
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(4,338
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)
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(126
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Net Cash Provided by Operating Activities
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105,072
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74,527
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Cash Flows From Investing Activities
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Additions to Property, Plant and Equipment
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(409,059
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)
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(109,449
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Black Diamond Acquisition, Net of Cash Acquired
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(650,131
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)
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—
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Additions to Investments
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(119
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)
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(68,485
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)
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Distributions from Cost Method Investee
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715
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474
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Net Cash Used in Investing Activities
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(1,058,594
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)
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(177,460
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)
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Cash Flows From Financing Activities
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Distributions to Noncontrolling Interests
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(3,529
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)
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(19,452
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)
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Contributions from Noncontrolling Interests
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515,622
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29,330
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Borrowings Under Revolving Credit Facility
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610,000
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195,000
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Repayment of Revolving Credit Facility
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(165,000
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)
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(5,000
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)
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Proceeds from Equity Offering, Net of Cash Offering Costs
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—
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138,089
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Distribution to Noble for Contributed Assets
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—
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(245,000
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)
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Distributions to Unitholders
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(40,913
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)
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(26,848
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)
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Revolving Credit Facility Amendment Fees and Other
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(1,987
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)
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(982
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)
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Net Cash Provided by Financing Activities
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914,193
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65,137
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Decrease in Cash, Cash Equivalents, and Restricted Cash
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(39,329
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)
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(37,796
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)
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Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
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55,531
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57,421
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Cash, Cash Equivalents, and Restricted Cash at End of Period
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$
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16,202
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$
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19,625
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The accompanying notes are an integral part of these financial statements.
Noble Midstream Partners LP
Consolidated Statement of Changes in Equity
(in thousands, unaudited)
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Partnership
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Common Units
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Subordinated Units
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General Partner
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Noncontrolling Interests
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Total
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December 31, 2017
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$
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642,616
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$
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(168,136
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)
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$
|
520
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$
|
141,230
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$
|
616,230
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Net Income
|
44,268
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|
29,724
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|
1,953
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7,633
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83,578
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Contributions from Noncontrolling Interests
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—
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—
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—
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515,622
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515,622
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Distributions to Noncontrolling Interests
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—
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—
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—
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(3,529
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)
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(3,529
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)
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Distributions to Unitholders
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(23,683
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)
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(15,891
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)
|
(1,339
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)
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—
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(40,913
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)
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Black Diamond Equity Ownership Promote Vesting
(1)
|
3,946
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|
3,047
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—
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(6,993
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)
|
—
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Unit-Based Compensation
|
714
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|
—
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—
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|
—
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|
714
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|
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Other
|
(31
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)
|
—
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—
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—
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(31
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)
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|
June 30, 2018
|
$
|
667,830
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$
|
(151,256
|
)
|
$
|
1,134
|
|
$
|
653,963
|
|
$
|
1,171,671
|
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The accompanying notes are an integral part of these financial statements.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Organization and Nature of Operations
Organization
Noble Midstream Partners LP (the Partnership, we, us or our) is a growth-oriented Delaware master limited partnership formed in December 2014 by our sponsor, Noble Energy, Inc. (Noble or Parent), to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Our current focus areas are the Denver-Julesburg Basin (DJ Basin) in Colorado and the Southern Delaware Basin position of the Permian Basin (Delaware Basin) in Texas.
Partnership Assets
Our assets consist of ownership interests in certain development companies (DevCos) which serve specific areas and integrated development plan (IDP) areas and consist of the following:
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DevCo
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Areas Served
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NBLX Dedicated Service
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Current Status of Asset
|
NBLX Ownership
|
Noncontrolling Interest
(1)
|
|
Colorado River DevCo LP
|
Wells Ranch IDP (DJ Basin)
East Pony IDP (DJ Basin)
All Noble DJ Basin Acreage
|
Crude Oil Gathering
Natural Gas Gathering
Water Services
Crude Oil Gathering
Crude Oil Treating
|
Operational
Operational
Operational
|
100%
|
N/A
|
|
San Juan River DevCo LP
|
East Pony IDP (DJ Basin)
|
Water Services
|
Operational
|
25%
|
75%
|
|
Green River DevCo LP
|
Mustang IDP (DJ Basin)
|
Crude Oil Gathering
Natural Gas Gathering
Water Services
|
Operational
|
25%
|
75%
|
|
Laramie River DevCo LP
(2)
|
Greeley Crescent IDP (DJ Basin)
|
Crude Oil Gathering
Water Services
|
Operational
|
100%
|
N/A
|
|
Blanco River DevCo LP
|
Delaware Basin
|
Crude Oil Gathering
Natural Gas Gathering
Produced Water Services
|
Operational
|
40%
|
60%
|
|
Gunnison River DevCo LP
|
Bronco IDP (DJ Basin)
|
Crude Oil Gathering
Water Services
|
Future Development
|
5%
|
95%
|
|
Trinity River DevCo LLC
(3)
|
Delaware Basin
|
Crude Oil Transmission
Natural Gas Compression
|
Operational
|
100%
|
N/A
|
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(1)
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The noncontrolling interest represents Noble’s retained ownership interest in each DevCo.
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(2)
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Our interest in Black Diamond Gathering LLC (Black Diamond) is owned through Laramie River DevCo LP. See
Note
2. Basis of Presentation
and
Note
3. Acquisition
.
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(3)
|
Our interest in the Advantage Joint Venture (defined below) is owned through Trinity River DevCo LLC.
|
Additionally, we own a
3.33%
ownership interest (the White Cliffs Interest) in White Cliffs Pipeline L.L.C. as well as a
50%
interest in Advantage Pipeline, L.L.C. (the Advantage Joint Venture).
Nature of Operations
Through our ownership interests in the DevCos, we operate and own interests in the following assets, some of which are currently under construction:
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•
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crude oil gathering systems;
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•
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natural gas gathering systems and compression units;
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•
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crude oil treating facilities;
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•
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produced water collection, gathering, and cleaning systems; and
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•
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fresh water storage and delivery systems.
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We generate revenues primarily by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. Additionally, we purchase and sell crude oil to customers at various delivery points on our gathering systems.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 2. Basis of Presentation
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying consolidated financial statements at
June 30, 2018
and
December 31, 2017
and for the
three and six months ended June 30,
2018
and
2017
contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and partners’ equity for such periods. Operating results for the
three and six months ended June 30,
2018
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2018
. We have no items of other comprehensive income; therefore, our net income is identical to our comprehensive income.
Variable Interest Entities
Our consolidated financial statements include our accounts and the accounts of the DevCos, each of which we control as general partner. All intercompany balances and transactions have been eliminated upon consolidation. We have determined that the partners with equity at risk in each of the DevCos lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact their economic performance; therefore, each DevCo is considered a variable interest entity, or VIE. Through our
100%
ownership interest in Noble Midstream Services, LLC, a Delaware limited liability company which owns controlling interests in each of the DevCos, we have the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate each of the DevCos in our financial statements. A substantial portion of the financial statement activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. Although our investment in the Advantage Joint Venture is owned through Trinity River DevCo LLC, all financial statement activity associated with our investment is captured within the Investments and Other reportable segment.
See Note
9. Segment Information
.
On January 31, 2018, Black Diamond, an entity formed by Black Diamond Gathering Holdings LLC (the Noble Member), a wholly-owned subsidiary of Noble Midstream Partners LP, and Greenfield Midstream, LLC (the Greenfield Member), completed the acquisition of all of the issued and outstanding limited liability company interests in Saddle Butte Rockies Midstream, LLC and certain affiliates (collectively, Saddle Butte) from Saddle Butte Pipeline II, LLC (Seller). The acquisition of Saddle Butte will be referred to as the Black Diamond Acquisition.
See Note
3. Acquisition
. Our consolidated financial statements include the accounts of Black Diamond, which we control. We have determined that the partners with equity at risk in Black Diamond lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact their economic performance. Therefore, Black Diamond is considered a VIE. Through our majority representation on the Black Diamond company board of directors as well as our responsibility as operator of the acquired system, we have the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate Black Diamond in our financial statements.
Accounting for Investments
We use the equity method of accounting for our investment in the Advantage Joint Venture, as we do not control, but do exert significant influence over its operations. We use the cost method of accounting for our White Cliffs Interest as we have virtually no influence over its operations and financial policies.
Noncontrolling Interests
We present our consolidated financial statements with a noncontrolling interest section representing Noble’s retained ownership of our DevCos as well as Greenfield Member’s ownership of Black Diamond.
Black Diamond Equity Ownership Promote Vesting
In accordance with the limited liability company agreement of Black Diamond, Noble Member received an equity ownership promote. The capital accounts for Noble Member and Greenfield Member at June 30, 2018 do not equal their agreed equity ownership interests due to the funding structure of the total Black Diamond Acquisition purchase price.
See Note
3. Acquisition
.
The limited liability company agreement of Black Diamond requires special allocations of gross income to balance the ratio of each member’s capital account to their agreed equity ownership interest over time. The special allocations are accounted for as equity transactions between the Partnership and a subsidiary with no gain or loss recognized.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Intangible Assets
Our intangible assets are comprised of customer contracts and related relationships acquired in the Black Diamond Acquisition and recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Amortization is calculated using the straight-line method, which reflects the pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. The amortization of intangible assets is included in depreciation and amortization expense in our consolidated statements of operations. Intangible assets with finite useful lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
See Note
3. Acquisition
and
Note
6. Intangible Assets
.
Goodwill
As of
June 30, 2018
, our consolidated balance sheet includes goodwill of
$111.1 million
. This goodwill resulted from the Black Diamond Acquisition and represents the excess of the consideration paid over fair value of the net identifiable assets of the acquired business. All of our goodwill is assigned to the Gathering Systems reportable segment. Our reportable segments represent our reporting units.
See Note
3. Acquisition
and
Note
9. Segment Information
.
Goodwill is not amortized to earnings but is qualitatively assessed for impairment. We will assess goodwill for impairment annually during the third quarter, or more frequently as circumstances require, at the reporting unit level. If, based on our qualitative procedures, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform the two-step goodwill impairment test. The two-step goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. See Recently Issued Accounting Standards – Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, below, for newly issued accounting guidance regarding future goodwill impairment testing.
Crude Oil Inventory
Our crude oil inventory consists of crude oil that has been purchased at the wellhead. Our crude oil inventory is stated at the lower of cost or net realizable value.
Fair Value Measurements
We measure assets and liabilities requiring fair value presentation and disclose such amounts according to the quality of valuation inputs under the fair value hierarchy. The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature and maturity of the instruments and use Level 1 inputs.
State Income Tax
We are not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. As taxes are generally borne by our partners through the allocation of taxable income, we do not record deferred taxes related to the aggregate difference in the basis of our assets for financial and tax reporting purposes. During third quarter 2017, we commenced operations in the Delaware Basin and are subject to a Texas margin tax. The tax due is based on an entity’s apportioned taxable margin. We recorded a de minimis state income tax provision for the three and six months ended June 30, 2018.
Supplemental Cash Flow Information
We accrued
$106.0 million
and
$54.5 million
related to capital expenditures for projects in progress as of
June 30, 2018
and
June 30, 2017
, respectively.
Concentration of Credit Risk
For the three and
six months ended June 30, 2018
,
55%
and
60%
, respectively, of our revenues are from Noble and its affiliates. For the three and
six months ended June 30, 2017
,
94%
and
97%
, respectively, of our revenues are from Noble and its affiliates.
Recently Adopted Accounting Standards
Clarifying the Definition of a Business
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-01 (ASU 2017-01): Business Combinations - Clarifying the Definition of a Business. ASU 2017-01 assists in determining whether certain transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment provides a screen to be applied to the fair value of an acquisition or disposal to evaluate whether the assets in question are simply assets or if they meet the definition of a business. If the screen is not met, no further evaluation is needed. If the screen is met, certain steps are subsequently taken to make the determination. We adopted ASU 2017-01 in the first quarter of 2018 and have applied the guidance to the Black Diamond Acquisition.
Statement of Cash Flows – Restricted Cash
In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18): Statement of Cash Flows - Restricted Cash. We adopted ASU 2016-18 in the first quarter of 2018, using the retrospective method. ASU 2016-18 requires that restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows, but has no other impacts on our results of operations, financial condition or cash flows.
Topic 606, Revenue from Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates
Topic 606, Revenue from Contracts with Customers
(ASC 606). We adopted ASC 606 on January 1, 2018, using the modified retrospective method. See our Revenue Recognition discussion below.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Recently Issued Accounting Standards
Leases
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02):
Leases.
The standard requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. ASU 2016-02 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued Accounting Standards Update No. 2018-01 (ASU 2018-01):
Land Easement Practical Expedient for Transition to Topic 842
, to provide an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued Accounting Standards Update No. 2018-10 (ASU 2018-10):
Codification Improvements to Topic 842, Leases
, to clarify application of certain aspects of the standard and to remove inconsistencies within the guidance. Furthermore, in July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11):
Leases (Topic 842): Targeted Improvements
, which provides for another transition method, in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (i.e. comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases)). The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted.
In the normal course of business, we enter into lease agreements and land easements to support our operations and may lease water-related, field-related and other assets. We will adopt the new standard on the effective date of January 1, 2019. Although we continue to assess the impact of the standard on our consolidated financial statements, we believe adoption and implementation will result in an increase in assets and liabilities as well as additional disclosures. We do not expect a material impact on our consolidated statement of operations. We have developed and are executing a project plan, which includes contract review and assessment, as well as evaluation of our systems, processes and internal controls. In addition, we plan to implement new lease accounting software.
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04):
Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment,
to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, with an impairment charge being recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU 2017-04 and have not yet determined if we will early adopt.
Reconciliation of Total Cash
We define total cash as cash, cash equivalents and restricted cash. The following table provides a reconciliation of total cash:
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Six Months Ended June 30,
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(in thousands)
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2018
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|
2017
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|
Cash and Cash Equivalents at Beginning of Period
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$
|
18,026
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|
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$
|
57,421
|
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Restricted Cash at Beginning of Period
(1)
|
37,505
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|
|
—
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Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
|
$
|
55,531
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|
|
$
|
57,421
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|
|
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Cash and Cash Equivalents at End of Period
|
$
|
16,202
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|
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$
|
19,625
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Restricted Cash at End of Period
|
—
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|
|
—
|
|
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Cash, Cash Equivalents, and Restricted Cash at End of Period
|
$
|
16,202
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|
|
$
|
19,625
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|
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(1)
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Restricted cash represents the amount held in escrow at December 31, 2017 for the Black Diamond Acquisition.
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Revenue Recognition
We generate revenues by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. Also, we purchase and sell crude oil to customers at various delivery points on our gathering systems. We adopted ASC 606 on January 1, 2018, using the modified retrospective method. Under ASC 606, performance obligations are the unit of account and generally represent distinct goods or services that are promised to customers. The adoption of ASC 606 did not have an impact on the recognition, measurement and presentation of our revenues and expenses.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Performance Obligations
For gathering crude oil and natural gas, treating crude oil, delivering and storing fresh water, and collecting, cleaning and disposing of produced water, our performance obligations are satisfied over time using volumes delivered to measure progress. We record revenue related to the volumes delivered at the contract price at the time of delivery.
We began generating revenue from crude oil sales during first quarter
2018
upon closing of the Black Diamond Acquisition. Black Diamond engages in the purchase and sale of crude oil. For our crude oil sales, each unit sold is generally considered a distinct good and the related performance obligation is generally satisfied at a point in time (i.e. at the time control of the crude oil is transferred to the customer). We recognize revenue from the sale of crude oil when our contracted performance obligation to deliver crude oil is satisfied and control of the crude oil is transferred to the customer. This usually occurs when the crude oil is delivered to the location specified in the contract and the title and risks of rewards and ownership are transferred to the customer.
Transaction Price Allocated to Remaining Performance Obligations
The majority of our revenue agreements have a term greater than one year, and as such we have utilized the practical expedient in ASC 606, which states that we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our revenue agreements, each delivery generally represents a separate performance obligation; therefore, future volumes delivered are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
The remainder of our revenue agreements, which relate to agreements with third parties, are short-term in nature with a term of one year or less. We have utilized an additional practical expedient in ASC 606 which exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of an agreement that has an original expected duration of one year or less.
Contract Balances
Under our revenue agreements, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional. As such, our revenue agreements do not give rise to contract assets or liabilities under ASC 606.
The following is a summary of our types of revenue agreements:
Crude Oil Gathering
Under our crude oil gathering agreements, we receive a volumetric fee per barrel (Bbl) for the crude oil gathering services we provide.
Natural Gas Gathering
Under our natural gas gathering agreements, we receive a volumetric fee per the contracted unit of measure for the natural gas gathering services we provide.
Produced Water Services
Under our produced water services agreements, we receive a fee for collecting, cleaning or otherwise disposing of water produced from operating crude oil and natural gas wells in the dedication area. The fee is comprised of a volumetric component for services we provide directly and a pass through component for services we provide through contracts with third parties.
Fresh Water Services
Under our fresh water services agreements, we receive a fee for delivering fresh water. The fee is comprised of a volumetric component for services we provide directly and a pass through component for services we provide through contracts with third parties. The cost of storing the fresh water is included in the delivery fee.
Crude Oil Treating
Under our crude oil treating agreements, we receive a monthly fee for the crude oil treating services we provide based on each well operated by Noble that is producing in paying quantities that is not connected to our crude oil gathering systems during such month.
Crude Oil Purchase and Sale
Under our commodity purchase and sale agreements, we purchase and sell crude oil to customers at various delivery points on our gathering systems. For purchase and sale transactions with the same counterparty, the purchase and sale is settled at the contractual price index on a net basis. We account for these transactions on a net basis, in accordance with ASC 845,
Non-Monetary Exchanges
. We record the residual fee as gathering revenue in our consolidated statements of operations. For purchase and sale transactions with different counterparties, we purchase the crude oil at market-based prices and sell the crude oil to a different counterparty at market-based prices. Market-based pricing is based on the price index applicable for the location of the sale. We account for these transactions on a gross basis.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 3. Acquisition
On January 31, 2018, Black Diamond completed the Black Diamond Acquisition for approximately
$638.5 million
in cash. Noble Member and Greenfield Member each funded its share of the purchase price, approximately
$319.9 million
and
$318.6 million
, respectively, through contributions to Black Diamond. Noble Member funded its share of the purchase price through a combination of cash on hand and borrowings under its revolving credit facility.
See Note
7. Long-Term Debt
.
In addition to the payment to the Seller, Black Diamond, through an additional contribution from Greenfield Member, paid PDC Energy, Inc. (PDC Energy) approximately
$24.1 million
to expand PDC Energy’s acreage dedication as well as extend the duration of the acreage dedication by
five years
. In accordance with the limited liability company agreement of Black Diamond, Noble Member is to receive a
54.4%
equity ownership interest in Black Diamond and Greenfield Member is to receive a
45.6%
equity ownership interest in Black Diamond. Noble Member’s agreed equity ownership includes a
4.4%
equity ownership promote which will vest only after Noble Member is allocated an amount of gross revenue equal to the contributions by Greenfield Member in excess of their agreed equity ownership interest.
We serve as the operator of the Black Diamond system. We acquired a large-scale integrated gathering system located in the DJ Basin with approximately
160
miles of pipeline in operation and delivery capacity of approximately
300
MBbl/d as well as approximately
141,000
dedicated acres from six customers under fixed-fee arrangements.
In connection with the Black Diamond Acquisition, we have incurred acquisition and integration costs of
$7.2 million
during the
six months ended June 30, 2018
. Our acquisition and integration costs include consulting, advisory, legal, transition services and other fees. All acquisition and integration costs were expensed and are included in general and administrative expense in our consolidated statements of operations.
Purchase Price Allocation
The transaction has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total Black Diamond Acquisition purchase price to the assets acquired and the liabilities assumed based on the fair value at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.
Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities, including any goodwill, may be revised as appropriate.
The following table sets forth our preliminary purchase price allocation:
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(in thousands)
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Cash Consideration
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$
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638,529
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PDC Energy Payment
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24,120
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Current Liabilities Assumed
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18,259
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Total Purchase Price and Liabilities Assumed
|
$
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680,908
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Cash
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$
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12,518
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Accounts Receivable
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10,661
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Other Current Assets
|
1,058
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Property, Plant and Equipment
|
205,766
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Intangible Assets
(1)
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339,760
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Fair Value of Identifiable Assets
|
569,763
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Implied Goodwill
(2)
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111,145
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Total Asset Value
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$
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680,908
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(2)
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Based upon the preliminary purchase price allocation, we have recognized
$111.1 million
of goodwill, all of which is assigned to the Gathering Systems reportable segment. As a result of the acquisition, we expect to realize certain synergies which may result from our operation of the Black Diamond system.
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The results of operations attributable to Black Diamond are included in our consolidated statements of operations beginning on February 1, 2018. Revenues of
$76.4 million
and pre-tax net loss of
$9.7 million
from Black Diamond were generated from
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
February 1, 2018 to
June 30, 2018
and revenues of
$49.6 million
and pre-tax net loss of
$5.5 million
from Black Diamond were generated during the three months ended June 30, 2018.
Pro Forma Results
The following pro forma consolidated financial information was derived from the historical financial statements of the Partnership and Saddle Butte and gives effect to the acquisition as if it had occurred on January 1, 2017. The pro forma results of operations do not include any cost savings or other synergies that may result from the Black Diamond Acquisition or any estimated costs that have been or will be incurred by us to integrate the acquired assets. The pro forma consolidated financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the acquisition taken place on January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.
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Three Months Ended June 30,
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Six Months Ended June 30,
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(in thousands, except per share amounts)
|
2018
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2017
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|
2018
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|
2017
|
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Revenues
|
$
|
121,971
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|
|
$
|
78,016
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|
$
|
230,216
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$
|
158,275
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|
|
Net Income
|
44,442
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|
|
32,688
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|
|
81,092
|
|
|
61,915
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|
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Net Income Attributable to Noble Midstream Partners LP
|
$
|
36,584
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|
|
$
|
27,159
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|
|
$
|
74,279
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|
$
|
47,682
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Net Income Attributable to Limited Partners Per Limited Partner Unit
—
Basic and Diluted
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Common Units
|
$
|
0.90
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|
|
$
|
0.85
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|
|
$
|
1.83
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|
|
$
|
1.49
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Subordinated Units
|
$
|
0.90
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|
|
$
|
0.85
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|
|
$
|
1.83
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|
|
$
|
1.49
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Note 4. Transactions with Affiliates
Revenues
We derive a substantial portion of our revenues from commercial agreements with Noble. Revenues generated from commercial agreements with Noble and its affiliates consist of the following:
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Three Months Ended June 30,
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Six Months Ended June 30,
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(in thousands)
|
2018
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2017
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2018
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|
2017
|
|
Crude Oil, Natural Gas and Produced Water Gathering
|
$
|
46,871
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$
|
32,328
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$
|
89,895
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$
|
60,737
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Fresh Water Delivery
|
19,074
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|
20,348
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|
39,358
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|
40,667
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Crude Oil Treating
|
979
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|
|
1,169
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|
|
1,934
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|
|
2,436
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Other
|
—
|
|
|
272
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|
|
—
|
|
|
591
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Total Revenues — Affiliate
|
$
|
66,924
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|
|
$
|
54,117
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$
|
131,187
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|
|
$
|
104,431
|
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Expenses
General and administrative expense consists of the following:
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|
Three Months Ended June 30,
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Six Months Ended June 30,
|
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(in thousands)
|
2018
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|
2017
|
|
2018
|
|
2017
|
|
General and Administrative Expense
—
Affiliate
|
$
|
1,894
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|
|
$
|
1,713
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|
|
$
|
3,705
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|
|
$
|
3,425
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|
|
General and Administrative Expense
—
Third Party
|
3,086
|
|
|
1,739
|
|
|
11,717
|
|
|
2,769
|
|
|
Total General and Administrative Expense
|
$
|
4,980
|
|
|
$
|
3,452
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|
|
$
|
15,422
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|
|
$
|
6,194
|
|
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 5. Property, Plant and Equipment
Property, plant and equipment, at cost, is as follows:
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(in thousands)
|
June 30, 2018
|
|
December 31, 2017
|
|
Crude Oil, Natural Gas and Produced Water Gathering Systems and Facilities
|
$
|
954,329
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|
|
$
|
451,275
|
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|
Fresh Water Delivery Systems
|
78,232
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|
76,745
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Crude Oil Treating Facilities
|
20,099
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|
|
20,099
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|
|
Construction-in-Progress
(1)
|
279,171
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|
|
157,920
|
|
|
Total Property, Plant and Equipment, at Cost
|
1,331,831
|
|
|
706,039
|
|
|
Accumulated Depreciation and Amortization
|
(58,414
|
)
|
|
(44,271
|
)
|
|
Property, Plant and Equipment, Net
|
$
|
1,273,417
|
|
|
$
|
661,768
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|
|
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(1)
|
Construction-in-progress at
June 30, 2018
includes
$256.6 million
in gathering system projects,
$11.6 million
in fresh water delivery system projects and
$11.0 million
in equipment for use in future projects. Construction-in-progress at
December 31, 2017
includes
$157.4 million
in gathering system projects and
$0.5 million
in fresh water delivery system projects.
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Note 6. Intangible Assets
Our intangible assets as of
June 30, 2018
are comprised of customer contracts and relationships from the Black Diamond Acquisition and were recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The customer contracts we acquired are long-term, fixed-fee contracts for the purchase and sale of crude oil.
See Note
2. Basis of Presentation
for further discussion of our crude oil purchase and sale revenue agreements. Fair value was calculated using the multi-period excess earnings method under the income approach for the existing customers. This valuation method is based on first forecasting gross profit for the existing customers and then applying expected attrition rates. The operating cash flows were calculated by determining the costs required to generate gross profit from the existing customers. The key assumptions include overall gross profit growth, attrition rate of existing customers over time and the discount rate. We utilize the straight-line method of amortization for intangible assets with finite lives. The amortization period is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. The estimated economic benefit was determined by assessing the life of the assets related to the contracts and relationships, likelihood of renewals, competitive factors, regulatory or legal provisions and maintenance costs.
Our intangible assets are as follows:
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|
|
|
|
|
|
June 30, 2018
|
|
|
Useful Life
|
|
Intangible Assets, Gross
(in thousands)
|
|
Accumulated Amortization
(in thousands)
|
|
Intangible Assets, Net
(in thousands)
|
|
Customer Contracts and Relationships
|
7-13 years
(1)
|
|
$
|
339,760
|
|
|
$
|
13,275
|
|
|
$
|
326,485
|
|
|
|
|
|
(1)
|
The weighted average useful life of our customer contracts and customer relationships is
11
years.
|
Estimated future amortization expense related to the intangible assets at
June 30, 2018
is as follows:
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|
(in thousands)
|
|
|
Remainder of 2018
|
$
|
16,283
|
|
|
2019
|
32,301
|
|
|
2020
|
32,390
|
|
|
2021
|
32,301
|
|
|
2022
|
32,301
|
|
|
Thereafter
|
180,909
|
|
|
Total
|
$
|
326,485
|
|
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 7. Long-Term Debt
Revolving Credit Facility
We maintain a revolving credit facility to fund working capital and to finance acquisitions and expansion capital expenditures. On January 31, 2018, in connection with the closing of the Black Diamond Acquisition, we entered into an amendment to increase the capacity on our revolving credit facility from
$350 million
to
$530 million
. On March 9, 2018, we entered into an additional amendment to extend the maturity of the facility to
March 9, 2023
and increase the borrowing capacity to
$800 million
. The borrowing capacity on our revolving credit facility may be increased by up to an additional
$350 million
subject to certain conditions including compliance with the covenants contained in the credit agreement and requisite commitments from existing or new lenders.
As of
December 31, 2017
and
June 30, 2018
, there was
$85 million
and
$530 million
, respectively, outstanding under our revolving credit facility. During the
six months ended June 30, 2018
, borrowings under our revolving credit facility were primarily used to fund portions of our construction activities and the Black Diamond Acquisition.
Borrowings under the revolving credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the greater of the federal funds rate or the overnight bank funding rate, plus
0.5%
and (3) the LIBOR for an interest period of one month plus
1.00%
; or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period.
As of
December 31, 2017
and
June 30, 2018
, our weighted average annual interest rate was
2.75%
and
3.25%
, respectively. The unused portion of the revolving credit facility is subject to a commitment fee. Commitment fees began to accrue beginning on the date we entered into the revolving credit facility. As of
December 31, 2017
and
June 30, 2018
, the commitment fee rate was
0.2%
. Unamortized debt issuance costs totaled
$1.4 million
and
$3.1 million
as of
December 31, 2017
and
June 30, 2018
, respectively.
The revolving credit facility requires us to comply with certain financial covenants as of the end of each fiscal quarter. We were in compliance with such covenants as of
June 30, 2018
.
Certain lenders that are a party to the credit agreement have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending or commercial banking services for us for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.
Subsequent Event
On July 31, 2018, we entered into a three year senior unsecured term loan credit facility (Term Credit Agreement) that permits aggregate borrowings of up to
$500 million
. Proceeds from the Term Credit Agreement will be used to repay a portion of the outstanding borrowings under our revolving credit facility, pay fees and expenses in connection with the Term Credit Agreement transactions and for working capital, capital expenditures, acquisitions and other purposes of the Partnership.
Borrowings under the Term Credit Agreement will bear interest at a rate equal to, at our option, either (1) a base rate plus an applicable margin between
0.00%
and
0.50%
per annum or (2) a Eurodollar rate plus an applicable margin between
1.00%
and
1.50%
per annum.
The Term Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default that are substantially the same as those contained in our revolving credit facility. Upon the occurrence and during the continuation of an event of default under the Term Credit Agreement, the lenders may declare all amounts outstanding under the Term Credit Agreement to be immediately due and payable and exercise other remedies as provided by applicable law.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 8. Asset Retirement Obligations
Asset retirement obligations consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our infrastructure assets. Changes in asset retirement obligations are as follows:
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|
|
|
|
|
(in thousands)
|
Six Months Ended June 30, 2018
|
|
Asset Retirement Obligations, Beginning Balance
|
$
|
10,416
|
|
|
Liabilities Incurred
|
4,878
|
|
|
Accretion Expense
(1)
|
282
|
|
|
Asset Retirement Obligations, Ending Balance
|
$
|
15,576
|
|
|
|
|
|
(1)
|
Accretion expense is included in depreciation and amortization
expense in the consolidated statements of
operations.
|
Liabilities incurred were primarily related to the completion of Central Gathering Facilities (CGFs) in the Delaware Basin. During 2018, we completed the Coronado, Collier and Billy Miner Train II CGFs.
With respect to property, plant and equipment acquired in the Black Diamond Acquisition, it is our practice and current intent to maintain these assets and continue to make improvements as warranted. As a result, we believe that these assets have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time; therefore, no asset retirement obligations have been recorded for these assets as of
June 30, 2018
.
Note 9. Segment Information
We manage our operations by the nature of the services we offer. Our reportable segments comprise the structure used to make key operating decisions and assess performance. We are organized into the following reportable segments: Gathering Systems (crude oil, natural gas, and produced water gathering, crude oil treating, and crude oil sales), Fresh Water Delivery, and Investments and Other. We often refer to the services of our Gathering Systems and Fresh Water Delivery reportable segments collectively as our midstream services.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Summarized financial information concerning our reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Gathering Systems
(1) (2)
|
|
Fresh Water Delivery
(1)
|
|
Investments and Other
(1) (3)
|
|
Consolidated
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
Midstream Services — Affiliate
|
|
$
|
47,850
|
|
|
$
|
19,074
|
|
|
$
|
—
|
|
|
$
|
66,924
|
|
|
Midstream Services — Third Party
|
|
10,368
|
|
|
3,101
|
|
|
—
|
|
|
13,469
|
|
|
Crude Oil Sales — Third Party
|
|
41,578
|
|
|
—
|
|
|
—
|
|
|
41,578
|
|
|
Total Revenues
|
|
99,796
|
|
|
22,175
|
|
|
—
|
|
|
121,971
|
|
|
Income (Loss) Before Income Taxes
|
|
29,066
|
|
|
18,434
|
|
|
(2,875
|
)
|
|
44,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
Midstream Services — Affiliate
|
|
$
|
33,769
|
|
|
$
|
20,348
|
|
|
$
|
—
|
|
|
$
|
54,117
|
|
|
Midstream Services — Third Party
|
|
—
|
|
|
3,666
|
|
|
—
|
|
|
3,666
|
|
|
Total Revenues
|
|
33,769
|
|
|
24,014
|
|
|
—
|
|
|
57,783
|
|
|
Income (Loss) Before Income Taxes
|
|
22,343
|
|
|
18,872
|
|
|
(2,108
|
)
|
|
39,107
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
Midstream Services — Affiliate
|
|
$
|
91,829
|
|
|
$
|
39,358
|
|
|
$
|
—
|
|
|
$
|
131,187
|
|
|
Midstream Services — Third Party
|
|
17,826
|
|
|
7,003
|
|
|
—
|
|
|
24,829
|
|
|
Crude Oil Sales — Third Party
|
|
63,688
|
|
|
—
|
|
|
—
|
|
|
63,688
|
|
|
Total Revenues
|
|
173,343
|
|
|
46,361
|
|
|
—
|
|
|
219,704
|
|
|
Income (Loss) Before Income Taxes
|
|
59,894
|
|
|
35,937
|
|
|
(11,996
|
)
|
|
83,835
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
Midstream Services — Affiliate
|
|
$
|
63,764
|
|
|
$
|
40,667
|
|
|
$
|
—
|
|
|
$
|
104,431
|
|
|
Midstream Services — Third Party
|
|
—
|
|
|
3,666
|
|
|
—
|
|
|
3,666
|
|
|
Total Revenues
|
|
63,764
|
|
|
44,333
|
|
|
—
|
|
|
108,097
|
|
|
Income (Loss) Before Income Taxes
|
|
42,326
|
|
|
35,475
|
|
|
(4,174
|
)
|
|
73,627
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,625,130
|
|
|
$
|
79,574
|
|
|
$
|
159,761
|
|
|
$
|
1,864,465
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
593,590
|
|
|
$
|
68,178
|
|
|
$
|
167,990
|
|
|
$
|
829,758
|
|
|
|
|
|
(1)
|
A substantial portion of the financial statement activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. Although our investment in the Advantage Joint Venture is owned through Trinity River DevCo LLC, all financial statement activity associated with our investment is captured within the Investments and Other reportable segment. As our DevCos represent VIEs, see the above reportable segments for our VIEs impact to the consolidated financial statements.
|
|
|
|
|
(2)
|
Our goodwill resulted from the Black Diamond Acquisition and represents the excess of the consideration paid over fair value of the net identifiable assets of the acquired business. All of our goodwill is assigned to the Gathering Systems reportable segment.
|
|
|
|
|
(3)
|
The Investments and Other segment includes our investments in the Advantage Joint Venture and White Cliffs Interest, all general Partnership activity not attributable to our DevCos.
|
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Note 10. Partnership Distributions
Our partnership agreement requires that, within
45 days
after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date. The following table details the distributions paid in respect of the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
(in thousands)
|
|
|
|
|
|
Limited Partners
|
|
|
|
Period
|
Record Date
|
Distribution Date
|
Distribution per Limited Partner Unit
|
Common Unitholders
(1)
|
Subordinated Unitholders
|
Holder of IDRs
|
Total
|
|
Q4 2016
(2)
|
February 6, 2017
|
February 14, 2017
|
$
|
0.4333
|
|
$
|
6,891
|
|
$
|
6,891
|
|
$
|
—
|
|
$
|
13,782
|
|
|
Q1 2017
|
May 8, 2017
|
May 16, 2017
|
$
|
0.4108
|
|
$
|
6,533
|
|
$
|
6,533
|
|
$
|
—
|
|
$
|
13,066
|
|
|
Q2 2017
|
August 7, 2017
|
August 14, 2017
|
$
|
0.4457
|
|
$
|
8,909
|
|
$
|
7,088
|
|
$
|
92
|
|
$
|
16,089
|
|
|
Q3 2017
|
November 6, 2017
|
November 13, 2017
|
$
|
0.4665
|
|
$
|
9,330
|
|
$
|
7,418
|
|
$
|
223
|
|
$
|
16,971
|
|
|
Q4 2017
|
February 5, 2018
|
February 12, 2018
|
$
|
0.4883
|
|
$
|
11,566
|
|
$
|
7,765
|
|
$
|
520
|
|
$
|
19,851
|
|
|
Q1 2018
|
May 7, 2018
|
May 14, 2018
|
$
|
0.5110
|
|
$
|
12,103
|
|
$
|
8,126
|
|
$
|
819
|
|
$
|
21,048
|
|
|
|
|
|
(1)
|
Distributions to common unitholders does not include distribution equivalent rights on units that vested under the Noble Midstream Partners LP 2016 Long-Term Incentive Plan (the LTIP).
|
|
|
|
|
(2)
|
The distribution for the fourth quarter 2016 is comprised of
$0.3925
per unit for the fourth quarter 2016 and
$0.0408
per unit for the
10
-day period beginning on the closing of the initial public offering on September 20, 2016 and ending on September 30, 2016.
|
Incentive Distribution Rights
Noble currently holds Incentive Distribution Rights (IDRs) that entitle it to receive increasing percentages, up to a maximum of
50%
, of the available cash we distribute from operating surplus in excess of
$0.4313
per unit per quarter. The maximum distribution of
50%
does not include any distributions that Noble may receive on Common Units or Subordinated Units that it owns.
Cash Distributions
On July 26, 2018, the board of directors of Noble Midstream GP LLC (our general partner) declared a quarterly cash distribution of
$0.5348
per unit. The distribution will be paid on August 13 2018, to unitholders of record on August 6, 2018. Also on August 13, 2018, a cash incentive distribution of
$1.1 million
will be made to Noble related to its IDRs, based upon the level of distribution paid per Common and Subordinated Unit.
Note 11. Net Income Per Limited Partner Unit
Our net income is attributed to limited partners, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions paid to Noble, the holder of our IDRs. The Common and Subordinated unitholders represent an aggregate 100% limited partner interest in us. Pursuant to our partnership agreement, to the extent that the quarterly distributions exceed certain target levels, Noble, as the holder of our IDRs, is entitled to receive certain incentive distributions that will result in more net income proportionately being allocated to Noble than to the holders of Common Units and Subordinated Units.
Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include Common Units, Subordinated Units and IDRs.
Basic and diluted net income per limited partner Common Unit and Subordinated Unit is computed by dividing the respective limited partners’ interest in net income for the period by the weighted-average number of Common Units and Subordinated Units outstanding for the period. Diluted net income per limited partner Common Unit and Subordinated Unit reflects the potential dilution that could occur if agreements to issue Common Units, such as awards under the LTIP, were settled or converted into Common Units. When it is determined that potential Common Units resulting from an award should be included in the diluted net income per limited partner Common and Subordinated Unit calculation, the impact is reflected by applying the treasury stock method.
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)
Our calculation of net income per limited partner Common and Subordinated Unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Net Income Attributable to Noble Midstream Partners LP
|
$
|
36,584
|
|
|
$
|
31,592
|
|
|
$
|
75,945
|
|
|
$
|
55,934
|
|
|
Less: Net Income Attributable to Incentive Distribution Rights
|
1,134
|
|
|
92
|
|
|
1,953
|
|
|
92
|
|
|
Net Income Attributable to Limited Partners
|
$
|
35,450
|
|
|
$
|
31,500
|
|
|
$
|
73,992
|
|
|
$
|
55,842
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Units
|
$
|
21,210
|
|
|
$
|
15,862
|
|
|
$
|
44,268
|
|
|
$
|
28,033
|
|
|
Net Income Attributable to Subordinated Units
|
14,240
|
|
|
15,638
|
|
|
29,724
|
|
|
27,809
|
|
|
Net Income Attributable to Limited Partners
|
$
|
35,450
|
|
|
$
|
31,500
|
|
|
$
|
73,992
|
|
|
$
|
55,842
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Limited Partners Per Limited Partner Unit — Basic and Diluted
|
|
|
|
|
|
|
|
|
Common Units
|
$
|
0.90
|
|
|
$
|
0.98
|
|
|
$
|
1.87
|
|
|
$
|
1.75
|
|
|
Subordinated Units
|
$
|
0.90
|
|
|
$
|
0.98
|
|
|
$
|
1.87
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Limited Partner Units Outstanding — Basic
|
|
|
|
|
|
|
|
|
Common Units
|
23,686
|
|
|
16,127
|
|
|
23,684
|
|
|
16,015
|
|
|
Subordinated Units
|
15,903
|
|
|
15,903
|
|
|
15,903
|
|
|
15,903
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Limited Partner Units Outstanding — Diluted
|
|
|
|
|
|
|
|
|
Common Units
|
23,700
|
|
|
16,137
|
|
|
23,699
|
|
|
16,024
|
|
|
Subordinated Units
|
15,903
|
|
|
15,903
|
|
|
15,903
|
|
|
15,903
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive Restricted Units
|
27
|
|
|
7
|
|
|
21
|
|
|
6
|
|
Note 12. Commitments and Contingencies
Legal Proceedings
We may become involved in various legal proceedings in the ordinary course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we will regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our combined financial condition, results of operations or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a narrative about our business from the perspective of our management. Our MD&A is presented in the following major sections:
MD&A is our analysis of the Partnership’s financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2017. It contains forward-looking statements including, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. We do not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the our disclosures in Item 3 of this report under the heading: “Disclosure Regarding Forward-Looking Statements.”
EXECUTIVE OVERVIEW
Overview
We are a growth-oriented Delaware master limited partnership formed in December 2014 by our Parent, Noble, to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Our current areas of focus are in the DJ Basin in Colorado and the Delaware Basin in Texas. We currently provide crude oil, natural gas, and water-related midstream services through long-term, fixed-fee contracts, as well as purchase and sell crude oil to customers at various delivery points on our gathering systems. Our business activities are conducted through three reportable segments: Gathering Systems (crude oil, natural gas and produced water gathering, crude oil treating, and crude oil sales), Fresh Water Delivery, and Investments and Other.
We are Noble’s primary vehicle for its midstream operations in the onshore United States (U.S.). We believe that our diverse midstream infrastructure assets and our relationship with Noble position us as a leading midstream service provider.
Significant Results
The following discussion highlights significant operating and financial results for
second
quarter
2018
.
Significant Operating Highlights Included:
|
|
|
|
•
|
average crude oil gathering volumes of
150,589
Bbl/d, an increase of
180%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
average natural gas gathering volumes of
268,087
MMBtu/d, an increase of
69%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
average produced water gathered volumes of
86,412
Bbl/d, an increase of
585%
as compared with
second
quarter 2017; and
|
|
|
|
|
•
|
completed construction of the Collier and Billy Miner Train II CGFs in the Delaware Basin.
|
Significant Financial Highlights Included:
|
|
|
|
•
|
net income of
$44.4 million
, an increase of
14%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
net income attributable to the Partnership of
$36.6 million
, an increase of
16%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
net cash provided by operating activities of
$105.1 million
, an increase of
41%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
declared a distribution of
$0.5348
per unit, an increase of 20% above the second quarter 2017 distribution per unit;
|
|
|
|
|
•
|
Adjusted EBITDA (non-GAAP financial measure) of
$64.4 million
, an increase of
54%
as compared with
second
quarter 2017;
|
|
|
|
|
•
|
Adjusted EBITDA (non-GAAP financial measure) attributable to the Partnership of
$48.7 million
an increase of
44%
as compared with
second
quarter 2017; and
|
|
|
|
|
•
|
distributable cash flow (non-GAAP financial measure) of
$39.9 million
, an increase of
31%
as compared with
second
quarter 2017.
|
OPERATING OUTLOOK
2018 Capital Investment Program
We have revised our capital investment program to accommodate a gross investment level of approximately $530 million to $550 million. The investment level attributable to the Partnership remains $270 million to $285 million. Approximately 70% of the net capital budget was spent in the first half of the year completing major projects for our customers. The revised capital investment program reflects new customer additions in the DJ and Delaware Basins as well as higher spending on infrastructure for Noble within the Delaware Basin and Mustang IDP area, partially offset by lower capital expenditures within the Greeley Crescent IDP area. We will continue to evalua
te the level of capital spending throughout the year based on the following factors, among others, and their effect on project financial returns:
|
|
|
|
•
|
pace of our customers’ development;
|
|
|
|
|
•
|
operating and construction costs and our ability to achieve material supplier price reductions;
|
|
|
|
|
•
|
impact of new laws and regulations on our business practices;
|
|
|
|
|
•
|
indebtedness levels; and
|
|
|
|
|
•
|
availability of financing or other sources of funding.
|
We plan to fund our investment program with cash on hand, cash generated from operations, borrowings under our revolving credit facility and, if necessary, the issuance of additional equity or debt securities.
Regulatory Update
During the first six months of 2018, the U.S. Administration imposed import tariffs of 25% on steel products and 10% on aluminum products, as well as quantitative restrictions on imports of steel and/or aluminum products from Argentina, Brazil, and South Korea (Australia has been exempted from the imposition of tariffs and implementation of quotas). Key U.S. trading partners have threatened to retaliate, or already have retaliated, against imports of U.S.-origin goods and have initiated litigation at the World Trade Organization.
The U.S. oil and gas industry relies on steel for drilling and completion of new wells as well as constructing pipelines and gathering facilities. Much of the steel required is in the form of specialty steel products, manufactured to exact specifications, and may not be available domestically in sufficient quantities.
Implementation of these tariffs will likely increase prices for specialty and other products used in various aspects of upstream, midstream and downstream activities. Furthermore, the tariffs and quantitative restrictions may cause disruption in the energy industry’s supply chain, resulting in delay or cessation of drilling efforts, postponement or cancellation of new inter-state or intra-state pipeline projects, which the industry relies on to transport its increasing U.S. onshore oil and gas production to market
.
In addition, countries subject to the tariffs have threatened to retaliate with tariffs on U.S. products, potentially resulting in escalating trade disputes between the U.S. and certain of its trade partners. Trade and/or tariff disputes could result in increased costs or shortages of materials and supplies the industry relies on to produce, process and transport its oil and gas production. Moreover, trade and/or tariff disputes, could have negative impacts on the U.S. and global economies overall and result in less demand for our services.
Dedication and Commercial Update
We secured additional long-term dedications for Black Diamond, representing more than 200 wells across approximately 17,000 incremental acres. The additional dedications come from an existing third party customer on the system as well as a new third-party customer and increase total acreage dedicated to the system by 12% to approximately 158,000 acres. Activity on the acreage is expected to commence in late 2018.
We also received a third party producer
’s
activity set and development plan for approximately 13,000 acres dedicated to us in Reeves County for crude oil, natural gas, and produced water gathering services. Services will be provided through the Blanco River DevCo and are expected to commence by the end of 2018.
Development Project Updates
Blanco River DevCo LP
We completed and brought online the Collier and Billy Miner Train II CGFs. We now have five CGFs online in the Delaware Basin. Our combined crude oil and natural gas gathering capacity now totals 115 thousand barrels of oil equivalent per day, including 90 thousand barrels of crude oil per day (MBbl/d) and 150 million cubic feet of gas per day.
Trinity River DevCo LLC
We expanded the capacity of the Advantage pipeline to 200 MBbl/d from 150 MBbl/d.
Green River DevCo LP
We completed the crude oil, natural gas and produced water spec gathering system in the the Mustang IDP area during the third quarter. We connected five wells to the system at the end of the quarter and delivered fresh water to two completion crews.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics, each as described in more detail below, to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include:
|
|
|
|
•
|
operating costs and expenses;
|
|
|
|
|
•
|
Adjusted EBITDA (non-GAAP financial measure);
|
|
|
|
|
•
|
distributable cash flow (non-GAAP financial measure); and
|
RESULTS OF OPERATIONS
Results of operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Revenues
|
|
|
|
|
|
|
|
|
Midstream Services — Affiliate
|
$
|
66,924
|
|
|
$
|
54,117
|
|
|
$
|
131,187
|
|
|
$
|
104,431
|
|
|
Midstream Services — Third Party
|
13,469
|
|
|
3,666
|
|
|
24,829
|
|
|
3,666
|
|
|
Crude Oil Sales — Third Party
|
41,578
|
|
|
—
|
|
|
63,688
|
|
|
—
|
|
|
Total Revenues
|
121,971
|
|
|
57,783
|
|
|
219,704
|
|
|
108,097
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Cost of Crude Oil Sales
|
40,012
|
|
|
—
|
|
|
61,451
|
|
|
—
|
|
|
Direct Operating
|
18,393
|
|
|
14,293
|
|
|
35,541
|
|
|
25,694
|
|
|
Depreciation and Amortization
|
16,371
|
|
|
2,472
|
|
|
27,700
|
|
|
4,921
|
|
|
General and Administrative
|
4,980
|
|
|
3,452
|
|
|
15,422
|
|
|
6,194
|
|
|
Total Operating Expenses
|
79,756
|
|
|
20,217
|
|
|
140,114
|
|
|
36,809
|
|
|
Operating Income
|
42,215
|
|
|
37,566
|
|
|
79,590
|
|
|
71,288
|
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
Interest Expense, Net of Amount Capitalized
|
1,681
|
|
|
100
|
|
|
2,714
|
|
|
367
|
|
|
Investment Income
|
(4,091
|
)
|
|
(1,641
|
)
|
|
(6,959
|
)
|
|
(2,706
|
)
|
|
Total Other Income
|
(2,410
|
)
|
|
(1,541
|
)
|
|
(4,245
|
)
|
|
(2,339
|
)
|
|
Income Before Income Taxes
|
44,625
|
|
|
39,107
|
|
|
83,835
|
|
|
73,627
|
|
|
State Income Tax Provision
|
183
|
|
|
—
|
|
|
257
|
|
|
—
|
|
|
Net Income
|
44,442
|
|
|
39,107
|
|
|
83,578
|
|
|
73,627
|
|
|
Less: Net Income Attributable to Noncontrolling Interests
|
7,858
|
|
|
7,515
|
|
|
7,633
|
|
|
17,693
|
|
|
Net Income Attributable to Noble Midstream Partners LP
|
$
|
36,584
|
|
|
$
|
31,592
|
|
|
$
|
75,945
|
|
|
$
|
55,934
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
(1)
Attributable to Noble Midstream Partners LP
|
$
|
48,659
|
|
|
$
|
33,880
|
|
|
$
|
102,936
|
|
|
$
|
60,381
|
|
|
|
|
|
|
|
|
|
|
|
Distributable Cash Flow
(1)
of Noble Midstream Partners LP
|
$
|
39,857
|
|
|
$
|
30,336
|
|
|
$
|
87,187
|
|
|
$
|
54,561
|
|
Throughput and Crude Oil Sales Volumes
The amount of revenue we generate primarily depends on the volumes of crude oil, natural gas and water for which we provide midstream services as well as the crude oil volumes we sell to customers. These volumes are affected primarily by the level of drilling and completion activity by our customers in our areas of operations, and by changes in the supply of and demand for crude oil, natural gas and NGLs in the markets served directly or indirectly by our assets.
Our customers
’
willingness to engage in drilling and completion activity is determined by a number of factors, the most important of which are the prevailing and projected prices of crude oil and natural gas, the cost to drill and operate a well, expected well performance, the availability and cost of capital, and environmental and government regulations. We generally expect the level of drilling to positively correlate with long-term trends in commodity prices. Similarly, production levels nationally and regionally generally tend to positively correlate with drilling activity.
Our customers have dedicated acreage to us based on the services we provide. Our commercial agreements with Noble provide that, in addition to our existing dedicated acreage, any future acreage that is acquired by Noble in the IDP areas, and that is not subject to a pre-existing third-party commitment, will be included in the dedication to us for midstream services, including gathering and treating.
Throughput and crude oil sales volumes related to our Gathering Systems and Fresh Water Delivery reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Colorado River DevCo LP (Wells Ranch IDP and East Pony IDP)
(1)
|
|
|
|
|
|
|
|
|
Crude Oil Gathering Volumes (Bbl/d)
|
65,289
|
|
|
53,763
|
|
|
65,910
|
|
|
49,025
|
|
|
Natural Gas Gathering Volumes (MMBtu/d)
|
217,202
|
|
|
158,216
|
|
|
212,551
|
|
|
152,355
|
|
|
Produced Water Gathering Volumes (Bbl/d)
|
20,829
|
|
|
12,609
|
|
|
18,537
|
|
|
10,841
|
|
|
Fresh Water Delivery Volumes (Bbl/d)
|
1,116
|
|
|
113,824
|
|
|
51,219
|
|
|
93,935
|
|
|
|
|
|
|
|
|
|
|
|
San Juan River DevCo LP (East Pony IDP)
(1)
|
|
|
|
|
|
|
|
|
Fresh Water Delivery Volumes (Bbl/d)
|
—
|
|
|
20,067
|
|
|
—
|
|
|
37,759
|
|
|
|
|
|
|
|
|
|
|
|
Green River DevCo LP (Mustang IDP)
(1)
|
|
|
|
|
|
|
|
|
Crude Oil Gathering Volumes (Bbl/d)
|
108
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
Natural Gas Gathering Volumes (MMBtu/d)
|
172
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
Produced Water Gathering Volumes (Bbl/d)
|
236
|
|
|
—
|
|
|
119
|
|
|
—
|
|
|
Fresh Water Delivery Volumes (Bbl/d)
|
112,379
|
|
|
—
|
|
|
67,437
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Blanco River DevCo LP (Delaware Basin)
(1)
|
|
|
|
|
|
|
|
|
Crude Oil Gathering Volumes (Bbl/d)
|
21,506
|
|
|
—
|
|
|
17,978
|
|
|
—
|
|
|
Natural Gas Gathering Volumes (MMBtu/d)
|
48,743
|
|
|
—
|
|
|
44,248
|
|
|
—
|
|
|
Produced Water Gathering Volumes (Bbl/d)
|
59,682
|
|
|
—
|
|
|
42,927
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Laramie River DevCo LP (Greeley Crescent IDP)
(1)
|
|
|
|
|
|
|
|
|
Crude Oil Sales Volumes (Bbl/d)
|
7,075
|
|
|
—
|
|
|
5,604
|
|
|
—
|
|
|
Crude Oil Gathering Volumes (Bbl/d)
|
63,686
|
|
|
—
|
|
|
56,183
|
|
|
—
|
|
|
Natural Gas Gathering Volumes (MMBtu/d)
|
1,970
|
|
|
—
|
|
|
1,489
|
|
|
—
|
|
|
Produced Water Gathering Volumes (Bbl/d)
|
5,665
|
|
|
—
|
|
|
5,222
|
|
|
—
|
|
|
Fresh Water Delivery Volumes (Bbl/d)
|
46,379
|
|
|
50,326
|
|
|
45,132
|
|
|
25,302
|
|
|
|
|
|
|
|
|
|
|
|
Trinity River DevCo LLC (Delaware Basin)
(1)
|
|
|
|
|
|
|
|
|
Natural Gas Compression Volumes (MMBtu/d)
|
30,468
|
|
|
—
|
|
|
25,632
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total Gathering Systems
|
|
|
|
|
|
|
|
|
Crude Oil Sales Volumes (Bbl/d)
|
7,075
|
|
|
—
|
|
|
5,604
|
|
|
—
|
|
|
Crude Oil Gathering Volumes (Bbl/d)
|
150,589
|
|
|
53,763
|
|
|
140,125
|
|
|
49,025
|
|
|
Natural Gas Gathering Volumes (MMBtu/d)
|
268,087
|
|
|
158,216
|
|
|
258,375
|
|
|
152,355
|
|
|
Barrels of Oil Equivalent (Boe/d)
|
184,959
|
|
|
74,047
|
|
|
173,250
|
|
|
68,558
|
|
|
Produced Water Gathering Volumes (Bbl/d)
|
86,412
|
|
|
12,609
|
|
|
66,805
|
|
|
10,841
|
|
|
Natural Gas Compression Volumes (MMBtu/d)
|
30,468
|
|
|
—
|
|
|
25,632
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total Fresh Water Delivery
|
|
|
|
|
|
|
|
|
Fresh Water Delivery Volumes (Bbl/d)
|
159,874
|
|
|
184,217
|
|
|
163,788
|
|
|
156,996
|
|
Revenues
Revenues from our Gathering System and Fresh Water Delivery reportable segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2018
|
|
2017
|
|
Increase (Decrease) From Prior Year
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Crude Oil, Natural Gas and Produced Water Gathering
—
Affiliate
|
$
|
46,871
|
|
|
$
|
32,328
|
|
|
45
|
%
|
|
Crude Oil, Natural Gas and Produced Water Gathering — Third Party
|
9,767
|
|
|
—
|
|
|
N/M
|
|
|
Fresh Water Delivery
—
Affiliate
|
19,074
|
|
|
20,348
|
|
|
(6
|
)%
|
|
Fresh Water Delivery — Third Party
|
3,101
|
|
|
3,666
|
|
|
(15
|
)%
|
|
Crude Oil Treating
—
Affiliate
|
979
|
|
|
1,169
|
|
|
(16
|
)%
|
|
Crude Oil Sales — Third Party
|
41,578
|
|
|
—
|
|
|
N/M
|
|
|
Other — Affiliate
|
—
|
|
|
272
|
|
|
N/M
|
|
|
Other — Third Party
|
601
|
|
|
—
|
|
|
N/M
|
|
|
Total Revenues
|
$
|
121,971
|
|
|
$
|
57,783
|
|
|
111
|
%
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
Crude Oil, Natural Gas and Produced Water Gathering
—
Affiliate
|
$
|
89,895
|
|
|
$
|
60,737
|
|
|
48
|
%
|
|
Crude Oil, Natural Gas and Produced Water Gathering — Third Party
|
16,337
|
|
|
—
|
|
|
N/M
|
|
|
Fresh Water Delivery
—
Affiliate
|
39,358
|
|
|
40,667
|
|
|
(3
|
)%
|
|
Fresh Water Delivery — Third Party
|
7,003
|
|
|
3,666
|
|
|
91
|
%
|
|
Crude Oil Treating — Affiliate
|
1,934
|
|
|
2,436
|
|
|
(21
|
)%
|
|
Crude Oil Sales — Third Party
|
63,688
|
|
|
—
|
|
|
N/M
|
|
|
Other — Affiliate
|
—
|
|
|
591
|
|
|
N/M
|
|
|
Other — Third Party
|
1,489
|
|
|
—
|
|
|
N/M
|
|
|
Total Revenues
|
$
|
219,704
|
|
|
$
|
108,097
|
|
|
103
|
%
|
N/M Amount is not meaningful
Revenues Trend Analysis
Revenues
increased
during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases were primarily attributable to:
|
|
|
|
•
|
an increase in gathering revenues due to the commencement of gathering services in the Greeley Crescent IDP area and Delaware Basin subsequent to second quarter 2017;
|
|
|
|
|
•
|
an increase in fresh water delivery revenues due to well completion activity by Noble in the Mustang IDP area;
|
|
|
|
|
•
|
the commencement of crude oil sales upon closing of the Black Diamond Acquisition during first quarter 2018; and
|
|
|
|
|
•
|
an increase in gathering revenues in the Wells Ranch and East Pony IDP areas due to an increase in the number of wells connected to the gathering systems subsequent to second quarter 2017;
|
partially offset by:
|
|
|
|
•
|
a decrease in fresh water delivery revenues due to well completion activity by Noble in the Wells Ranch and East Pony IDP areas.
|
Costs and Expenses
Costs and expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2018
|
|
2017
|
|
Increase from Prior Year
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Cost of Crude Oil Sales
|
$
|
40,012
|
|
|
$
|
—
|
|
|
N/M
|
|
|
Direct Operating
|
18,393
|
|
|
14,293
|
|
|
29
|
%
|
|
Depreciation and Amortization
|
16,371
|
|
|
2,472
|
|
|
562
|
%
|
|
General and Administrative
|
4,980
|
|
|
3,452
|
|
|
44
|
%
|
|
Total Operating Expenses
|
$
|
79,756
|
|
|
$
|
20,217
|
|
|
294
|
%
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
Cost of Crude Oil Sales
|
$
|
61,451
|
|
|
$
|
—
|
|
|
N/M
|
|
|
Direct Operating
|
35,541
|
|
|
25,694
|
|
|
38
|
%
|
|
Depreciation and Amortization
|
27,700
|
|
|
4,921
|
|
|
463
|
%
|
|
General and Administrative
|
15,422
|
|
|
6,194
|
|
|
149
|
%
|
|
Total Operating Expenses
|
$
|
140,114
|
|
|
$
|
36,809
|
|
|
281
|
%
|
N/M Amount is not meaningful
Costs and Expenses Trend Analysis
Cost of Crude Oil Sales
Cost of crude oil sales is recorded within our Gathering Systems reportable segment. The purchase and sale of crude oil commenced upon closing of the Black Diamond Acquisition during first quarter 2018.
Direct Operating
Direct operating expense
increased
during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases in direct operating expense by reportable segment were as follows:
Gathering Systems
Gathering Systems direct operating expense increased during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases were primarily attributable to an increase in gathering systems and facilities operating expense associated with the CGFs in the Delaware Basin that were completed subsequent to
second
quarter
2017
and an increase in facilities operating expenses associated with the facilities acquired in the Black Diamond Acquisition.
Fresh Water Delivery
Fresh Water Delivery direct operating expense decreased during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The decrease during
second
quarter
2018
as compared with
second
quarter
2017
was primarily attributable to decreased volumes and decreased third party services resulting from the timing of well completion activity by Noble in the Wells Ranch and East Pony IDP areas. The decrease during the first six months of 2018 as compared with the first six months of 2017 was primarily attributable to decreased use of third party services to complete fresh water delivery services.
Depreciation and Amortization
Depreciation and amortization expense increased during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases in depreciation and amortization expenses by reportable segment were as follows:
Gathering Systems
Gathering Systems depreciation and amortization expense increased during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases were due, in part, to assets placed in service after June 30, 2017. Assets placed in service were associated with the expansion of the Wells Ranch CGF and gathering system, construction of the Greeley Crescent gathering system, construction of the Delaware Basin CGFs, and assets acquired in the Black Diamond Acquisition. Additionally, depreciation and amortization expense includes the amortization of intangible assets that consist of customer contracts and relationships acquired in the Black Diamond Acquisition.
Fresh Water Delivery
Fresh Water Delivery depreciation and amortization expense remained consistent during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017.
General and Administrative Expense
General and administrative expense is recorded within our Investments and Other reportable segment. General and administrative expense
increased
during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increase is due primarily to legal and financial advisory transaction expenses associated with the Black Diamond Acquisition. Transaction expenses associated with the Black Diamond Acquisition during second quarter 2018 and the first six months of 2018 were approximately
$1.3 million
and
$7.2 million
, respectively.
Other (Income) Expense Trend Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2018
|
|
2017
|
|
Increase from Prior Year
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Other (Income) Expense
|
|
|
|
|
|
|
Interest Expense
|
$
|
4,143
|
|
|
$
|
711
|
|
|
483
|
%
|
|
Capitalized Interest
|
(2,462
|
)
|
|
(611
|
)
|
|
303
|
%
|
|
Interest Expense, Net
|
1,681
|
|
|
100
|
|
|
1,581
|
%
|
|
Investment Income
|
(4,091
|
)
|
|
(1,641
|
)
|
|
149
|
%
|
|
Total Other (Income) Expense
|
$
|
(2,410
|
)
|
|
$
|
(1,541
|
)
|
|
56
|
%
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
Other (Income) Expense
|
|
|
|
|
|
|
Interest Expense
|
$
|
6,664
|
|
|
$
|
978
|
|
|
581
|
%
|
|
Capitalized Interest
|
(3,950
|
)
|
|
(611
|
)
|
|
546
|
%
|
|
Interest Expense, Net
|
2,714
|
|
|
367
|
|
|
640
|
%
|
|
Investment Income
|
(6,959
|
)
|
|
(2,706
|
)
|
|
157
|
%
|
|
Total Other (Income) Expense
|
$
|
(4,245
|
)
|
|
$
|
(2,339
|
)
|
|
81
|
%
|
N/M Amount is not meaningful
Interest Expense, Net
Interest expense is recorded within our Investments and Other reportable segment. Interest expense represents interest incurred in connection with our revolving credit facility. Our interest expense includes interest on outstanding balances and commitment fees on the undrawn portion of our revolving credit facility as well as the non-cash amortization of origination fees. A portion of the interest expense is capitalized based upon construction-in-progress activity during the year.
See Note
5. Property, Plant and Equipment
for our Construction-in-Progress balances as of
June 30, 2018
and
December 31, 2017
.
Interest expense and capitalized interest
increased
during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increases were due to increased outstanding balances on our revolving credit facility as our revolving credit facility was utilized to fund portions of our construction activities and the Black Diamond Acquisition as well as a higher interest rate during second quarter 2018 and the first six months of 2018.
Investment Income
Investment income is recorded within our Investments and Other reportable segment. Investment income
increased
during
second
quarter
2018
as compared with
second
quarter
2017
and during the first six months of 2018 as compared with the first six months of 2017. The increase was primarily due to earnings from our investment in the Advantage Joint Venture.
State Income Tax Provision
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Due to our operations in the Delaware Basin, we are subject to a Texas margin tax. Our operations commenced during the third quarter of 2017 and we have recorded de minimis state income tax provisions during each period subsequent to commencement.
Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA should not be considered an alternative to net income, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, our Adjusted EBITDA may not be comparable to similar measures of other companies in our industry.
For a reconciliation of Adjusted EBITDA to its most comparable measures calculated and presented in accordance with GAAP, see
Reconciliation of Non-GAAP Financial Measures, below.
We define Adjusted EBITDA as net income (loss) before income taxes, net interest expense, depreciation and amortization, transaction expenses, and unit-based compensation. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
|
|
|
|
•
|
our operating performance as compared with those of other companies in the midstream energy industry, without regard to financing methods, historical cost basis or capital structure;
|
|
|
|
|
•
|
the ability of our assets to generate sufficient cash flow to make distributions to our partners;
|
|
|
|
|
•
|
our ability to incur and service debt and fund capital expenditures; and
|
|
|
|
|
•
|
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
|
We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.
Distributable Cash Flow (Non-GAAP Financial Measure)
Distributable cash flow should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow excludes some, but not all, items that affect net income or net cash provided by operating activities, and these measures may vary from those of other companies. As a result, our distributable cash flow may not be comparable to similar measures of other companies in our industry.
For a a reconciliation of distributable cash flow to its most comparable measures calculated and presented in accordance with GAAP, see
—
Reconciliation of Non-GAAP Financial Measures, below.
We define distributable cash flow as Adjusted EBITDA less estimated maintenance capital expenditures and cash interest paid. Distributable cash flow does not reflect changes in working capital balances. Our partnership agreement requires us to distribute all available cash on a quarterly basis, and distributable cash flow is one of the factors used by the board of directors of our general partner to help determine the amount of cash that is available to our unitholders for a given period. Therefore, we believe distributable cash flow provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. Distributable cash flow should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
The following tables present reconciliations of Adjusted EBITDA and distributable cash flow from net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Reconciliation from Net Income
|
|
|
|
|
|
|
|
|
Net Income and Comprehensive Income
|
$
|
44,442
|
|
|
$
|
39,107
|
|
|
$
|
83,578
|
|
|
$
|
73,627
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
16,371
|
|
|
2,472
|
|
|
27,700
|
|
|
4,921
|
|
|
Interest Expense, Net of Amount Capitalized
|
1,681
|
|
|
100
|
|
|
2,714
|
|
|
367
|
|
|
State Income Tax Provision
|
183
|
|
|
—
|
|
|
257
|
|
|
—
|
|
|
Transaction and Integration Expenses
|
1,280
|
|
|
—
|
|
|
7,249
|
|
|
—
|
|
|
Unit-Based Compensation
|
393
|
|
|
206
|
|
|
714
|
|
|
333
|
|
|
Adjusted EBITDA
|
64,350
|
|
|
41,885
|
|
|
122,212
|
|
|
79,248
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Attributable to Noncontrolling Interests
|
15,691
|
|
|
8,005
|
|
|
19,276
|
|
|
18,867
|
|
|
Adjusted EBITDA Attributable to Noble Midstream Partners LP
|
48,659
|
|
|
33,880
|
|
|
102,936
|
|
|
60,381
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Cash Interest Paid
|
4,030
|
|
|
593
|
|
|
6,437
|
|
|
768
|
|
|
Maintenance Capital Expenditures
|
4,772
|
|
|
2,951
|
|
|
9,312
|
|
|
5,052
|
|
|
Distributable Cash Flow
of Noble Midstream Partners LP
|
$
|
39,857
|
|
|
$
|
30,336
|
|
|
$
|
87,187
|
|
|
$
|
54,561
|
|
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA and Distributable Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Reconciliation from Net Cash Provided by Operating Activities
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
$
|
59,469
|
|
|
$
|
42,302
|
|
|
$
|
105,072
|
|
|
$
|
74,527
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Interest Expense, Net of Amount Capitalized
|
1,681
|
|
|
100
|
|
|
2,714
|
|
|
367
|
|
|
Changes in Operating Assets and Liabilities
|
228
|
|
|
(826
|
)
|
|
5,971
|
|
|
4,140
|
|
|
Transaction and Integration Expenses
|
1,280
|
|
|
—
|
|
|
7,249
|
|
|
—
|
|
|
Change in Income Tax Payable
|
183
|
|
|
—
|
|
|
257
|
|
|
—
|
|
|
Other Adjustments
|
1,509
|
|
|
309
|
|
|
949
|
|
|
214
|
|
|
Adjusted EBITDA
|
64,350
|
|
|
41,885
|
|
|
122,212
|
|
|
79,248
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Attributable to Noncontrolling Interests
|
15,691
|
|
|
8,005
|
|
|
19,276
|
|
|
18,867
|
|
|
Adjusted EBITDA Attributable to Noble Midstream Partners LP
|
48,659
|
|
|
33,880
|
|
|
102,936
|
|
|
60,381
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Cash Interest Paid
|
4,030
|
|
|
593
|
|
|
6,437
|
|
|
768
|
|
|
Maintenance Capital Expenditures
|
4,772
|
|
|
2,951
|
|
|
9,312
|
|
|
5,052
|
|
|
Distributable Cash Flow
of Noble Midstream Partners LP
|
$
|
39,857
|
|
|
$
|
30,336
|
|
|
$
|
87,187
|
|
|
$
|
54,561
|
|
LIQUIDITY AND CAPITAL RESOURCES
Financing Strategy
Our primary sources of liquidity are cash flows generated from operations based on commercial agreements with Noble and our third party customers. We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and issuances of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. We do not have any commitment from Noble or our general partner or any of their respective affiliates to fund our cash flow deficits or provide other direct or indirect financial assistance to us. Certain consolidated subsidiaries make distributions to or receive contributions from Noble in proportion to Noble’ s ownership in the subsidiary.
Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including our revolving credit facility and the issuance of debt and equity securities, to fund acquisitions and our expansion capital expenditures.
On July 31, 2018, we entered into the Term Credit Agreement that permits aggregate borrowings of up to
$500 million
. Proceeds from the Term Credit Agreement will be used to repay a portion of the outstanding borrowings under our revolving credit facility, pay fees and expenses in connection with the Term Credit Agreement transactions and for working capital, capital expenditures, acquisitions and other purposes of the Partnership.
See Item 1. Financial Statements – Note
7. Long-Term Debt
.
Available Liquidity
Information regarding liquidity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
June 30, 2018
|
|
December 31, 2017
|
|
Cash, Cash Equivalents, and Restricted Cash
(1)
|
$
|
16,202
|
|
|
$
|
55,531
|
|
|
Amount Available to be Borrowed Under Our Revolving Credit Facility
(2)
|
270,000
|
|
|
265,000
|
|
|
Available Liquidity
|
$
|
286,202
|
|
|
$
|
320,531
|
|
Revolving Credit Facility
On January 31, 2018, in connection with the closing of the Black Diamond Acquisition, we entered into an amendment to increase the capacity on our revolving credit facility from $350 million to $530 million. On March 9, 2018, we entered into an additional amendment to extend the maturity of our revolving credit facility and increase the borrowing capacity to
$800 million
. The revolving credit facility is available to fund working capital and to finance acquisitions and expansion capital expenditures. As of
June 30, 2018
,
$530 million
was outstanding under our revolving credit facility.
See Item 1. Financial Statements – Note
7. Long-Term Debt
.
Cash Flows
Summary cash flow information was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2018
|
|
2017
|
|
Total Cash Provided By (Used in)
|
|
|
|
|
Operating Activities
|
$
|
105,072
|
|
|
$
|
74,527
|
|
|
Investing Activities
|
(1,058,594
|
)
|
|
(177,460
|
)
|
|
Financing Activities
|
914,193
|
|
|
65,137
|
|
|
Decrease in Cash, Cash Equivalents, and Restricted Cash
|
$
|
(39,329
|
)
|
|
$
|
(37,796
|
)
|
Operating Activities
Net cash provided by operating activities
increased
during the first six months of
2018
as compared with the first six months of
2017
primarily due to
an increase of
net income driven by increased revenues resulting from higher
throughput volumes due to expansion of existing systems and providing services to new areas and customers. The increase in revenues was partially offset by an increase in direct operating expenses resulting from providing services to new areas and customers as well as an increase in general and administrative expense due to legal and financial advisory fees associated with the Black Diamond Acquisition.
Investing Activities
Cash used in investing activities
increased
during the first six months of
2018
as compared with the first six months of
2017
primarily driven by the Black Diamond Acquisition. Additions to property, plant and equipment were also higher in 2018 due to construction of the Mustang gathering and fresh water delivery system as well as construction of the Delaware Basin CGFs.
Financing Activities
Cash provided by financing activities increased during the first six months of
2018
as compared with the first six months of
2017
. The increase is primarily due to increased net borrowings on our revolving credit facility and increased contributions from noncontrolling interest owners which includes the contribution from Greenfield Member to fund the Black Diamond Acquisition.
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.
Contractual Obligations
We had no material changes in our contractual commitments and obligations from amounts listed under Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources - Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2017.
Capital Requirements
Capital Expenditures and Other Investing Activities
The midstream energy business is capital intensive, requiring the maintenance of existing gathering systems and other midstream assets and facilities and the acquisition or construction and development of new gathering systems and other midstream assets and facilities. Capital expenditures and other investing activities (on an accrual basis) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
(in thousands)
|
2018
|
|
2017
|
|
Gathering System Expenditures
(1)
|
$
|
596,960
|
|
|
$
|
149,206
|
|
|
Fresh Water Delivery System Expenditures
|
12,552
|
|
|
10,622
|
|
|
Total Capital Expenditures
|
$
|
609,512
|
|
|
$
|
159,828
|
|
|
|
|
|
|
|
Additions to Investments
|
$
|
119
|
|
|
$
|
68,485
|
|
|
|
|
|
(1)
|
Gathering system expenditures include only the portion of the purchase price for the Black Diamond Acquisition allocated to Property, Plant and Equipment totaling
$205.8 million
.
|
For the
six months ended June 30, 2018
, our gathering system expenditures were primarily associated with the construction of the Mustang gathering system and construction of CGFs in the Delaware Basin. Additionally, our gathering system expenditures include the Black Diamond Acquisition as well as expenditures related to the connection of the acquired system to a major oil takeaway outlet in the DJ Basin. Fresh water delivery system expenditures were primarily associated with the construction of the the Mustang fresh water delivery system.
For the
six months ended June 30, 2017
, our gathering system expenditures were primarily associated with the construction of the Greeley Crescent, Delaware Basin and Mustang gathering systems, expansion of the Wells Ranch gathering system and construction of the connection from our first CGF in the Delaware Basin to the Advantage pipeline. Fresh water delivery system expenditures were primarily associated with the construction of the Greeley Crescent fresh water delivery system and expansion of the Mustang fresh water delivery system.
For the
six months ended June 30, 2018
, additions to investments were related to a capital call for our White Cliffs Interest. For the
six months ended June 30, 2017
, additions to investments were related to our investment in the Advantage Joint Venture.
Cash Distributions
Our partnership agreement requires that we distribute all of our available cash quarterly. Quarterly distributions, if any, will be made within 45 days after the end of each calendar quarter to holders of record on the applicable record date.
On July 26, 2018, the board of directors of our general partner declared a quarterly cash distribution of
$0.5348
per unit. The distribution will be paid on August 13, 2018, to unitholders of record on August 6, 2018. Also on August 13, 2018, a cash incentive distribution of
$1.1 million
will be made to Noble related to its IDRs, based upon the level of distribution paid per Common Unit and Subordinated Unit.
For future quarters, the minimum quarterly distribution of
$0.375
per unit equates to
$14.8 million
per quarter, or
$59.4 million
million per year, based on the number of Common Units and Subordinated Units outstanding as of
June 30, 2018
.
We expect that if we are successful in executing our business strategy, we will grow our business in a steady and sustainable manner and distribute to our unitholders a portion of any increase in our cash available for distribution resulting from such growth. We expect our general partner may cause us to establish reserves for specific purposes, such as major capital expenditures or debt service payments, or may choose to generally reserve cash in the form of excess distribution coverage from time to time for the purpose of maintaining stability or growth in our quarterly distributions. In addition, our general partner may cause us to borrow amounts to fund distributions in quarters when we generate less cash than is necessary to sustain or grow our cash distributions per unit. Our cash distribution policy reflects a judgment that our unitholders will be better served by our distributing rather than retaining our cash available for distribution. The board of directors of our general partner has considerable discretion to determine the amount of our available cash each quarter. In addition, the board of directors of our general partner may change our cash distribution policy at any time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
We currently generate substantially all of our revenues pursuant to fee-based commercial agreements under which we are paid based on the volumes of crude oil, natural gas and produced water that we gather and handle and fresh water services we provide, rather than the underlying value of the commodity.
We have indirect exposure to commodity price risk in that persistent low commodity prices may cause our customers and other potential customers to delay drilling or shut in production, which would reduce the volumes available for gathering and processing by our infrastructure assets. If our customers delay drilling or completion activity, or temporarily shut in production due to persistently low commodity prices or for any other reason, we are not assured a certain amount of revenue as our commercial agreements do not contain minimum volume commitments. Because of the natural decline in production from existing wells, our success, in part, depends on our ability to maintain or increase hydrocarbon and water throughput volumes on our midstream systems, which depends on our customers’ level of drilling and completion activity on our dedicated acreage.
We may acquire or develop additional midstream assets in a manner that increases our exposure to commodity price risk. Future exposure to the volatility of crude oil, natural gas and NGL prices could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions to our unitholders.
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under our revolving credit facility, which has a variable interest rate. As of
June 30, 2018
,
$530 million
was outstanding under our revolving credit facility. A 1.0% increase in our revolving credit facility interest rate would have resulted in an estimated $2.2 million increase in interest expense for the
six months ended June 30, 2018
. As a result, our results of operations, cash flows and financial condition and, as a further result, our ability to make cash distributions to our unitholders, could be adversely affected by significant increases in interest rates.
Seasonality
Demand for crude oil and natural gas generally decreases during the spring and fall months and increases during the summer and winter months. However, seasonal anomalies such as mild winters or mild summers sometimes lessen this fluctuation. In addition, certain crude oil and natural gas users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer. This can also lessen seasonal demand fluctuations. These seasonal anomalies can increase demand for crude oil and natural gas during the summer and winter months and decrease demand for crude oil and natural gas during the spring and fall months. With respect to our completed midstream systems, we do not expect seasonal conditions to have a material impact on our throughput volumes. Severe or prolonged winters may, however, impact our ability to complete additional well connections or construction projects, which may impact the rate of our growth. In addition, severe winter weather may also impact or slow the ability of Noble and our third party customers to execute their drilling and development plans.
Disclosure Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictive in nature, depend upon or refer to future events or conditions or include the words “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,”
“would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “on schedule”, “strategy” and other similar expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. Our forward-looking statements may include statements about our business strategy, our industry, our future profitability, our expected capital expenditures and the impact of such expenditures on our performance, the costs of being a publicly traded partnership and our capital programs.
Forward-looking statements are not guarantees of future performance and are based on certain assumptions and bases, and subject to certain risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, and not all of which can be disclosed in advance. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
|
|
|
|
•
|
the ability of our customers to meet their drilling and development plans;
|
|
|
|
|
•
|
changes in general economic conditions;
|
|
|
|
|
•
|
competitive conditions in our industry;
|
|
|
|
|
•
|
actions taken by third-party operators, gatherers, processors and transporters;
|
|
|
|
|
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the demand for crude oil and natural gas gathering and processing services;
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our ability to successfully implement our business plan;
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our ability to complete internal growth projects on time and on budget;
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the price and availability of debt and equity financing;
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the availability and price of crude oil and natural gas to the consumer compared to the price of alternative and competing fuels;
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energy efficiency and technology trends;
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operating hazards and other risks incidental to our midstream services;
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natural disasters, weather-related delays, casualty losses and other matters beyond our control;
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defaults by our customers under our agreements;
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changes in availability and cost of capital;
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changes in our tax status;
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the effect of existing and future laws and government regulations;
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the effects of future litigation;
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interruption of the Partnership's operations due to social, civil or political events or unrest;
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terrorist attacks or cyber threats;
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any future acquisitions or dispositions of assets or the delay or failure of any such transaction to close; and
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certain factors discussed elsewhere in this Form 10-Q.
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You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law. You should consider carefully the statements under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements. Our Annual Report on Form 10-K for the year ended December 31, 2017 is available on our website at www.nblmidstream.com.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on the evaluation of our disclosure controls and procedures by our principal executive officer and our principal financial officer, as of the end of the period covered by this quarterly report, each of them has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.