Item 1. Financial Statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION
Organization.
SMLP, a Delaware limited partnership, was formed in May 2012 and began operations in October 2012. SMLP is a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. Our business activities are conducted through various operating subsidiaries, each of which is owned or controlled by our wholly owned subsidiary holding company, Summit Holdings, a Delaware limited liability company. References to the "Partnership," "we," or "our" refer collectively to SMLP and its subsidiaries.
The General Partner, a Delaware limited liability company, manages our operations and activities. Summit Investments, a Delaware limited liability company, is the ultimate owner of our General Partner and has the right to appoint the entire Board of Directors. Summit Investments is controlled by Energy Capital Partners.
Summit Investments owned an approximate
2%
general partner interest in SMLP (including the IDRs) until March 22, 2019. On March 22, 2019, we executed an equity restructuring agreement with the General Partner and SMP Holdings pursuant to which the IDRs and the 2% general partner interest were converted into a non-economic general partner interest in exchange for 8,750,000 common units which were issued to SMP Holdings (the “Equity Restructuring”). As of June 30, 2019, SMP Holdings, a wholly owned subsidiary of Summit Investments, beneficially owned
34,604,581
SMLP common units
and a subsidiary of Energy Capital Partners directly owned 5,915,827 SMLP common units.
Neither SMLP nor its subsidiaries have any employees. All of the personnel that conduct our business are employed by Summit Investments, but these individuals are sometimes referred to as our employees.
Business Operations.
We provide natural gas gathering, compression, treating and processing services as well as crude oil and produced water gathering services pursuant to primarily long-term, fee-based agreements with our customers. Our results are primarily driven by the volumes of natural gas that we gather, compress, treat and/or process as well as by the volumes of crude oil and produced water that we gather. We are the owner-operator of, or have significant ownership interests in, the following gathering systems:
|
•
|
Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;
|
|
•
|
Ohio Gathering, a natural gas gathering system and a condensate stabilization facility operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;
|
|
•
|
Polar and Divide, a crude oil and produced water gathering system and transmission pipeline operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
|
|
•
|
Bison Midstream, an associated natural gas gathering system operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
|
|
•
|
Niobrara G&P, an associated natural gas gathering and processing system operating in the DJ Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado and southern Wyoming;
|
|
•
|
Summit Permian, an associated natural gas gathering and processing system operating in the northern Delaware Basin, which includes the Wolfcamp and Bone Spring formations, in southeastern New Mexico;
|
|
•
|
Grand River, a natural gas gathering and processing system operating in the Piceance Basin, which includes the Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado and eastern Utah;
|
|
•
|
DFW Midstream, a natural gas gathering system operating in the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and
|
9
|
•
|
Mountaineer Midstream,
a natural gas gathering system operating in the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia
.
|
Additionally, until March 22, 2019, we owned Tioga Midstream, a crude oil, produced water and associated natural gas gathering system operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota. Refer to Note 17 for details on the sale of Tioga Midstream.
In June 2019, in conjunction with the Project, Summit Permian Transmission entered into a definitive joint venture agreement (the “Agreement”) with an affiliate of Double E’s foundation shipper (the “JV Partner”) to fund the capital expenditures associated with the Project. Refer to Note 8 for additional details.
Other than our investments in Double E and Ohio Gathering, all of our business activities are conducted through wholly owned operating subsidiaries.
Presentation and Consolidation.
We prepare our unaudited condensed consolidated financial statements in accordance with GAAP as established by the FASB. We make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates, including fair value measurements, the reported amounts of revenue and expense and the disclosure of contingencies. Although management believes these estimates are reasonable, actual results could differ from its estimates.
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and the regulations of the SEC. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments which are necessary to fairly present the unaudited condensed consolidated balance sheet as of June 30, 2019, the unaudited condensed consolidated statements of operations and statements of partners’ capital for the three and six months ended June 30, 2019 and 2018 and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018. The balance sheet at December 31, 2018 included herein was derived from our audited financial statements, but does not include all disclosures required by GAAP. See Note 2 for the impact relating to the adoption of the new lease standard. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our annual report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 26, 2019 (the "2018 Annual Report"). The results of operations for an interim period are not necessarily indicative of results expected for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except for the changes below, there have been no changes to our significant accounting policies since December 31, 2018.
Recent Accounting Pronouncements.
Accounting standard setters frequently issue new or revised accounting rules. We review new pronouncements to determine the impact, if any, on our financial statements. Accounting standards that have or could possibly have a material effect on our financial statements are discussed below.
Recently Adopted Accounting Pronouncements
. We have recently adopted the following accounting pronouncement:
|
•
|
ASU No. 2016-02 Leases (“Topic 842"). We adopted Topic 842 with a date of initial application of January 1, 2019. We applied Topic 842 by recognizing (i) a $5.4 million right-of-use (“ROU”) asset which represents the right to use, or to control the use of, specified assets for a lease term. The ROU asset is included in the Property, plant and equipment, net caption on the unaudited condensed consolidated balance sheet; and (ii) a $5.4 million lease liability for the obligation to make lease payments arising from the leases. The lease liability is included in the Other current liabilities and Other noncurrent liabilities captions on the unaudited condensed consolidated balance sheet. The comparative information has not been adjusted and is reported under the accounting standards in effect for those periods.
|
Refer to Note 16 for additional information.
10
Accounting Pronouncements Pending Adoption
. We have not yet adopted the following accounting pronouncement as of
June
3
0
, 201
9
:
|
•
|
ASU No. 2018-13 Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 updates the disclosure requirements on fair value measurements including new disclosures for the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 modifies existing disclosures including clarifying the measurement uncertainty disclosure. ASU 2018-13 removes certain existing disclosure requirements including the amount and reasons for transfers between Level 1 and Level 2 fair value measurements and the policy for the timing of transfer between levels.
We are currently evaluating the provisions of ASU 2018-13 to determine its impact on our financial statements and related disclosures and will adopt its provisions effective January 1, 2020.
|
3. REVENUE
The majority of our revenue is derived from long-term, fee-based contracts with our customers, which include original terms of up to 25 years. We recognize revenue earned from fee-based gathering, compression, treating and processing services in gathering services and related fees. We also earn revenue in the Williston Basin and Permian Basin reporting segments from the sale of physical natural gas purchased from our customers under certain percent-of-proceeds arrangements. Under ASC Topic 606, these gathering contracts are presented net within cost of natural gas and NGLs. We sell natural gas that we retain from certain customers in the Barnett Shale reporting segment to offset the power expenses of the electric-driven compression on the DFW Midstream system. We also sell condensate retained from certain of our gathering services in the Piceance Basin reporting segment. Revenues from the sale of natural gas and condensate are recognized in natural gas, NGLs and condensate sales; the associated expense is included in operation and maintenance expense. Certain customers reimburse us for costs we incur on their behalf. We record costs incurred and reimbursed by our customers on a gross basis, with the revenue component recognized in Other revenues.
The transaction price in our contracts is primarily based on the volume of natural gas, crude oil or produced water transferred by our gathering systems to the customer’s agreed upon delivery point multiplied by the contractual rate. For contracts that include MVCs, variable consideration up to the MVC will be included in the transaction price. For contracts that do not include MVCs, we do not estimate variable consideration because the performance obligations are completed and settled on a daily basis. For contracts containing noncash consideration such as fuel received in-kind, we measure the transaction price at the point of sale when the volume, mix and market price of the commodities are known.
We have contracts with MVCs that are variable and constrained. Contracts with greater than monthly MVCs are reviewed on a quarterly basis and adjustments to those estimates are made during each respective reporting period, if necessary.
11
The transaction price is allocated if the contract contains more than one performance obligation such as contracts that include MVCs. The transaction price allocated is based on the MVC for the applicable measurement period
.
Performance obligations.
The majority of our contracts have a single performance obligation which is either to provide gathering services (an integrated service) or sell natural gas, NGLs and condensate, which are both satisfied when the related natural gas, crude oil and produced water are received and transferred to an agreed upon delivery point. We also have certain contracts with multiple performance obligations. They include an option for the customer to acquire additional services such as contracts containing MVCs. These performance obligations would also be satisfied when the related natural gas, crude oil and produced water are received and transferred to an agreed upon delivery point. In these instances, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each service in the contract.
Performance obligations for gathering services are generally satisfied over time. We utilize either an output method (i.e., measure of progress) for guaranteed, stand-ready service contracts or an asset/system delivery time estimate for non-guaranteed, as-available service contracts.
Performance obligations for the sale of natural gas, NGLs and condensate are satisfied at a point in time. There are no significant judgments for these transactions because the customer obtains control based on an agreed upon delivery point.
Certain of our gathering and/or processing agreements provide for monthly, annual or multi-year MVCs. Under these MVCs, our customers agree to ship and/or process a minimum volume of production on our gathering systems or to pay a minimum monetary amount over certain periods during the term of the MVC. A customer must make a shortfall payment to us at the end of the contracted measurement period if its actual throughput volumes are less than its contractual MVC for that period. Certain customers are entitled to utilize shortfall payments to offset gathering fees in one or more subsequent contracted measurement periods to the extent that such customer's throughput volumes in a subsequent contracted measurement period exceed its MVC for that contracted measurement period.
We recognize customer obligations under their MVCs as revenue and contract assets when (i) we consider it remote that the customer will utilize shortfall payments to offset gathering or processing fees in excess of its MVCs in subsequent periods; (ii) the customer incurs a shortfall in a contract with no banking mechanism or claw back provision; (iii) the customer’s banking mechanism has expired; or (iv) it is remote that the customer will use its unexercised right.
Our services are typically billed on a monthly basis and we do not offer extended payment terms. We do not have contracts with financing components.
The following table presents estimated revenue expected to be recognized during the remainder of 2019 and over the remaining contract period related to performance obligations that are unsatisfied and are comprised of estimated MVC shortfall payments.
We applied the practical expedient in paragraph 606-10-50-14 of Topic 606 for certain arrangements that we consider optional purchases (i.e., there is no enforceable obligation for the customer to make purchases) and those amounts are excluded from the table.
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Thereafter
|
|
|
|
(In thousands)
|
|
Gathering services and related fees
|
|
$
|
60,217
|
|
|
$
|
120,941
|
|
|
$
|
100,117
|
|
|
$
|
83,673
|
|
|
$
|
70,971
|
|
|
$
|
114,043
|
|
12
Revenue by Category.
In the following table, revenue is disaggregated by geographic area and major products and services. Ohio Gathering is excluded from the tables below due to equity method accounting. For more detailed information about reportable segments, see Note 4.
|
|
Reportable Segments
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Permian Basin
|
|
|
Piceance Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Major products /
services lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services
and related fees
|
|
$
|
7,591
|
|
|
$
|
15,685
|
|
|
$
|
4,021
|
|
|
$
|
586
|
|
|
$
|
30,555
|
|
|
$
|
11,428
|
|
|
$
|
5,897
|
|
|
$
|
75,763
|
|
|
$
|
(656
|
)
|
|
$
|
75,107
|
|
Natural gas, NGLs
and condensate
sales
|
|
|
—
|
|
|
|
3,768
|
|
|
|
101
|
|
|
|
2,406
|
|
|
|
2,104
|
|
|
|
6,273
|
|
|
|
—
|
|
|
|
14,652
|
|
|
|
3,639
|
|
|
|
18,291
|
|
Other revenues
|
|
|
—
|
|
|
|
2,670
|
|
|
|
1,034
|
|
|
|
49
|
|
|
|
945
|
|
|
|
1,646
|
|
|
|
—
|
|
|
|
6,344
|
|
|
|
(56
|
)
|
|
|
6,288
|
|
Total
|
|
$
|
7,591
|
|
|
$
|
22,123
|
|
|
$
|
5,156
|
|
|
$
|
3,041
|
|
|
$
|
33,604
|
|
|
$
|
19,347
|
|
|
$
|
5,897
|
|
|
$
|
96,759
|
|
|
$
|
2,927
|
|
|
$
|
99,686
|
|
|
|
Reportable Segments
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Permian Basin
|
|
|
Piceance Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Major products /
services lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services
and related fees
|
|
$
|
15,086
|
|
|
$
|
41,391
|
|
|
$
|
7,745
|
|
|
$
|
952
|
|
|
$
|
62,395
|
|
|
$
|
24,453
|
|
|
$
|
12,094
|
|
|
$
|
164,116
|
|
|
$
|
(2,045
|
)
|
|
$
|
162,071
|
|
Natural gas, NGLs
and condensate
sales
|
|
|
—
|
|
|
|
9,353
|
|
|
|
186
|
|
|
|
6,627
|
|
|
|
4,406
|
|
|
|
6,877
|
|
|
|
—
|
|
|
|
27,449
|
|
|
|
28,770
|
|
|
|
56,219
|
|
Other revenues
|
|
|
—
|
|
|
|
5,578
|
|
|
|
2,041
|
|
|
|
81
|
|
|
|
2,083
|
|
|
|
3,302
|
|
|
|
—
|
|
|
|
13,085
|
|
|
|
(281
|
)
|
|
|
12,804
|
|
Total
|
|
$
|
15,086
|
|
|
$
|
56,322
|
|
|
$
|
9,972
|
|
|
$
|
7,660
|
|
|
$
|
68,884
|
|
|
$
|
34,632
|
|
|
$
|
12,094
|
|
|
$
|
204,650
|
|
|
$
|
26,444
|
|
|
$
|
231,094
|
|
|
|
Reportable Segments
|
|
|
|
Three months ended June 30, 2018
|
|
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Piceance Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Major products /
services lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services
and related fees
|
|
$
|
10,422
|
|
|
$
|
23,106
|
|
|
$
|
2,509
|
|
|
$
|
33,661
|
|
|
$
|
14,080
|
|
|
$
|
8,050
|
|
|
$
|
91,828
|
|
|
$
|
(2,243
|
)
|
|
$
|
89,585
|
|
Natural gas, NGLs
and condensate
sales
|
|
|
—
|
|
|
|
7,350
|
|
|
|
79
|
|
|
|
4,596
|
|
|
|
381
|
|
|
|
—
|
|
|
|
12,406
|
|
|
|
19,485
|
|
|
|
31,891
|
|
Other revenues
|
|
|
—
|
|
|
|
2,960
|
|
|
|
969
|
|
|
|
1,178
|
|
|
|
1,694
|
|
|
|
—
|
|
|
|
6,801
|
|
|
|
(94
|
)
|
|
|
6,707
|
|
Total
|
|
$
|
10,422
|
|
|
$
|
33,416
|
|
|
$
|
3,557
|
|
|
$
|
39,435
|
|
|
$
|
16,155
|
|
|
$
|
8,050
|
|
|
$
|
111,035
|
|
|
$
|
17,148
|
|
|
$
|
128,183
|
|
13
|
|
Reportable Segments
|
|
|
|
Six months ended June 30, 2018
|
|
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Piceance Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total reportable segments
|
|
|
All other segments
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Major products /
services lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering services
and related fees
|
|
$
|
20,463
|
|
|
$
|
40,772
|
|
|
$
|
4,688
|
|
|
$
|
66,776
|
|
|
$
|
27,717
|
|
|
$
|
15,875
|
|
|
$
|
176,291
|
|
|
$
|
(2,345
|
)
|
|
$
|
173,946
|
|
Natural gas, NGLs
and condensate
sales
|
|
|
—
|
|
|
|
15,196
|
|
|
|
159
|
|
|
|
8,841
|
|
|
|
926
|
|
|
|
—
|
|
|
|
25,122
|
|
|
|
32,886
|
|
|
|
58,008
|
|
Other revenues
|
|
|
—
|
|
|
|
5,872
|
|
|
|
1,726
|
|
|
|
2,389
|
|
|
|
3,682
|
|
|
|
—
|
|
|
|
13,669
|
|
|
|
(120
|
)
|
|
|
13,549
|
|
Total
|
|
$
|
20,463
|
|
|
$
|
61,840
|
|
|
$
|
6,573
|
|
|
$
|
78,006
|
|
|
$
|
32,325
|
|
|
$
|
15,875
|
|
|
$
|
215,082
|
|
|
$
|
30,421
|
|
|
$
|
245,503
|
|
Contract balances.
Contract assets relate to our rights to consideration for work completed but not billed at the reporting date and consist of the estimated MVC shortfall payments expected from our customers and unbilled activity associated with contributions in aid of construction. Contract assets are transferred to trade receivables when the rights become unconditional. The following table provides information about contract assets from contracts with customers:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(In thousands)
|
|
Contract assets, beginning of period
|
|
$
|
8,755
|
|
|
$
|
—
|
|
Additions
|
|
|
14,602
|
|
|
|
26,403
|
|
Transfers out
|
|
|
(5,550
|
)
|
|
|
(17,648
|
)
|
Contract assets, end of period
|
|
$
|
17,807
|
|
|
$
|
8,755
|
|
As of June 30, 2019, receivables with customers totaled $59.0 million and contract assets totaled $17.8 million which were included in the Accounts receivable caption on the unaudited condensed consolidated balance sheet.
As of December 31, 2018, receivables with customers totaled $82.9 million and contract assets totaled $8.8 million which were included in the Accounts receivable caption on the unaudited condensed consolidated balance sheet.
Contract liabilities (deferred revenue) relate to the advance consideration received from customers primarily for contributions in aid of construction. We recognize contract liabilities under these arrangements in revenue over the contract period. For the three months ended June 30, 2019 and 2018, we recognized $2.7 million and $3.9 million of gathering services and related fees which was included in the contract liability balance as of the beginning of the period. For the six months ended June 30, 2019 and 2018, we recognized $5.4 million and $5.0 million of gathering services and related fees which was included in the contract liability balance as of the beginning of the period. See Note 9 for additional details.
4. SEGMENT INFORMATION
As of June 30, 2019, our reportable segments are:
|
•
|
the Utica Shale, which is served by Summit Utica;
|
|
•
|
Ohio Gathering, which includes our ownership interest in OGC and OCC;
|
|
•
|
the Williston Basin, which is served by Polar and Divide and Bison Midstream;
|
|
•
|
the DJ Basin, which is served by Niobrara G&P;
|
|
•
|
the Permian Basin, which is served by Summit Permian;
|
|
•
|
the Piceance Basin, which is served by Grand River;
|
|
•
|
the Barnett Shale, which is served by DFW Midstream; and
|
|
•
|
the Marcellus Shale, which is served by Mountaineer Midstream.
|
14
Additionally, until March 22, 2019, we owned Tioga Midstream, a crude oil, produced water and associated natural gas gathering system operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota. Refer to Note 17 to the unaudited condensed consolidated financial statements for details on the sale of Tioga Midstream.
Each of our reportable segments provides midstream services in a specific geographic area. Our reportable segments reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations.
The Ohio Gathering reportable segment includes our investment in OGC and OCC. Income or loss from equity method investees, as reflected on the statements of operations, relates to Ohio Gathering and is recognized and disclosed on a one-month lag (see Note 8).
For the three and six months ended June 30, 2019, other than the investment activity described in Note 8 below, Double E did not have any results of operations given that the Project is currently under development. The Project is expected to be operational in the third quarter of 2021.
Corporate and Other represents those results that are: (i) not specifically attributable to a reportable segment; (ii) not individually reportable (such as Double E); or (iii) that have not been allocated to our reportable segments for the purpose of evaluating their performance, including certain general and administrative expense items, natural gas and crude oil marketing services and transaction costs.
Assets by reportable segment follow.
|
|
June 30,2019
|
|
|
December 31, 2018
|
|
|
|
(In thousands)
|
|
Assets (1):
|
|
|
|
|
|
|
|
|
Utica Shale
|
|
$
|
206,911
|
|
|
$
|
207,357
|
|
Ohio Gathering
|
|
|
630,513
|
|
|
|
649,250
|
|
Williston Basin
|
|
|
439,026
|
|
|
|
526,819
|
|
DJ Basin
|
|
|
167,329
|
|
|
|
166,580
|
|
Permian Basin
|
|
|
174,964
|
|
|
|
145,702
|
|
Piceance Basin
|
|
|
672,664
|
|
|
|
699,638
|
|
Barnett Shale
|
|
|
358,997
|
|
|
|
376,564
|
|
Marcellus Shale
|
|
|
204,252
|
|
|
|
208,790
|
|
Total reportable segment assets
|
|
|
2,854,656
|
|
|
|
2,980,700
|
|
Corporate and Other
|
|
|
43,046
|
|
|
|
44,181
|
|
Eliminations
|
|
|
—
|
|
|
|
(4,319
|
)
|
Total assets
|
|
$
|
2,897,702
|
|
|
$
|
3,020,562
|
|
(1) At June 30, 2019, Corporate and Other included $23.3 million relating to our investment in Double E (included in the Investment in equity method investees caption of the unaudited condensed consolidated balance sheet). At December 31, 2018, Corporate and Other included $9.6 million of capital expenditures relating to our investment in Double E.
15
Revenues by reportable segment follow.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revenues (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utica Shale
|
|
$
|
7,591
|
|
|
$
|
10,422
|
|
|
$
|
15,086
|
|
|
$
|
20,463
|
|
Williston Basin
|
|
|
22,123
|
|
|
|
33,416
|
|
|
|
56,322
|
|
|
|
61,840
|
|
DJ Basin
|
|
|
5,156
|
|
|
|
3,557
|
|
|
|
9,972
|
|
|
|
6,573
|
|
Permian Basin
|
|
|
3,041
|
|
|
|
—
|
|
|
|
7,660
|
|
|
|
—
|
|
Piceance Basin
|
|
|
33,604
|
|
|
|
39,435
|
|
|
|
68,884
|
|
|
|
78,006
|
|
Barnett Shale
|
|
|
19,347
|
|
|
|
16,155
|
|
|
|
34,632
|
|
|
|
32,325
|
|
Marcellus Shale
|
|
|
5,897
|
|
|
|
8,050
|
|
|
|
12,094
|
|
|
|
15,875
|
|
Total reportable segments revenue
|
|
|
96,759
|
|
|
|
111,035
|
|
|
|
204,650
|
|
|
|
215,082
|
|
Corporate and Other
|
|
|
3,824
|
|
|
|
19,422
|
|
|
|
30,662
|
|
|
|
33,598
|
|
Eliminations
|
|
|
(897
|
)
|
|
|
(2,274
|
)
|
|
|
(4,218
|
)
|
|
|
(3,177
|
)
|
Total revenues
|
|
$
|
99,686
|
|
|
$
|
128,183
|
|
|
$
|
231,094
|
|
|
$
|
245,503
|
|
(1) Excludes revenues earned by Ohio Gathering due to equity method accounting.
Counterparties accounting for more than 10% of total revenues were as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Percentage of total revenues (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A - Piceance Basin
|
|
|
12
|
%
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
Counterparty B - Williston Basin
|
|
|
11
|
%
|
|
*
|
|
|
|
10
|
%
|
|
*
|
|
Counterparty C - Barnett Shale
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
12
|
%
|
|
*
|
|
(1) Excludes revenues earned by Ohio Gathering due to equity method accounting.
* Less than 10%
Depreciation and amortization, including the amortization expense associated with our favorable and unfavorable (for 2018) gas gathering contracts as reported in other revenues, by reportable segment follows.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Depreciation and amortization (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utica Shale
|
|
$
|
1,923
|
|
|
$
|
2,033
|
|
|
$
|
3,831
|
|
|
$
|
3,886
|
|
Williston Basin
|
|
|
4,734
|
|
|
|
5,622
|
|
|
|
10,170
|
|
|
|
11,231
|
|
DJ Basin
|
|
|
464
|
|
|
|
784
|
|
|
|
1,263
|
|
|
|
1,565
|
|
Permian Basin
|
|
|
1,163
|
|
|
|
—
|
|
|
|
2,235
|
|
|
|
—
|
|
Piceance Basin
|
|
|
11,810
|
|
|
|
11,666
|
|
|
|
23,601
|
|
|
|
23,440
|
|
Barnett Shale (2)
|
|
|
4,167
|
|
|
|
3,759
|
|
|
|
8,497
|
|
|
|
7,516
|
|
Marcellus Shale
|
|
|
2,286
|
|
|
|
2,274
|
|
|
|
4,569
|
|
|
|
4,546
|
|
Total reportable segment depreciation and amortization
|
|
|
26,547
|
|
|
|
26,138
|
|
|
|
54,166
|
|
|
|
52,184
|
|
Corporate and Other
|
|
|
616
|
|
|
|
496
|
|
|
|
1,113
|
|
|
|
976
|
|
Total depreciation and amortization
|
|
$
|
27,163
|
|
|
$
|
26,634
|
|
|
$
|
55,279
|
|
|
$
|
53,160
|
|
(1) Excludes depreciation and amortization recognized by Ohio Gathering due to equity method accounting.
(2) Includes the amortization expense associated with our favorable and unfavorable (for 2018) gas gathering contracts as reported in other revenues
.
16
Cash paid for capital expenditures by reportable segment follow.
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Cash paid for capital expenditures (1):
|
|
|
|
|
|
|
|
|
Utica Shale
|
|
$
|
1,065
|
|
|
$
|
1,846
|
|
Williston Basin
|
|
|
14,230
|
|
|
|
10,966
|
|
DJ Basin
|
|
|
50,373
|
|
|
|
21,415
|
|
Permian Basin
|
|
|
28,163
|
|
|
|
50,773
|
|
Piceance Basin
|
|
|
1,497
|
|
|
|
3,412
|
|
Barnett Shale (2)
|
|
|
(37
|
)
|
|
|
349
|
|
Marcellus Shale
|
|
|
108
|
|
|
|
545
|
|
Total reportable segment capital expenditures
|
|
|
95,399
|
|
|
|
89,306
|
|
Corporate and Other
|
|
|
15,693
|
|
|
|
1,088
|
|
Total cash paid for capital expenditures
|
|
$
|
111,092
|
|
|
$
|
90,394
|
|
(1) Excludes cash paid for capital expenditures by Ohio Gathering due to equity method accounting.
(2) For the six months ended June 30, 2019, the amount includes sales tax reimbursements of $1.1 million.
During the six months ended June 30, 2019, Corporate and Other included cash paid of $0.3 million for corporate purposes; the remainder represents capital expenditures relating to the Project.
We assess the performance of our reportable segments based on segment adjusted EBITDA. We define segment adjusted EBITDA as total revenues less total costs and expenses; plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) adjustments related to capital reimbursement activity, (vi) unit-based and noncash compensation, (vii) change in the Deferred Purchase Price Obligation fair value, (viii) impairments and (ix) other noncash expenses or losses, less other noncash income or gains. We define proportional adjusted EBITDA for our equity method investees as the product of (i) total revenues less total expenses, excluding impairments and other noncash income or expense items and (ii) amortization for deferred contract costs; multiplied by our ownership interest in Ohio Gathering during the respective period.
For the purpose of evaluating segment performance, we exclude the effect of Corporate and Other revenues and expenses, such as certain general and administrative expenses (including compensation-related expenses and professional services fees), natural gas and crude oil marketing services, transaction costs, interest expense, change in the Deferred Purchase Price Obligation fair value and income tax expense or benefit from segment adjusted EBITDA.
Segment adjusted EBITDA by reportable segment follows.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Reportable segment adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utica Shale
|
|
$
|
6,640
|
|
|
$
|
9,223
|
|
|
$
|
12,833
|
|
|
$
|
17,938
|
|
Ohio Gathering
|
|
|
9,939
|
|
|
|
8,935
|
|
|
|
19,149
|
|
|
|
19,412
|
|
Williston Basin
|
|
|
16,650
|
|
|
|
19,030
|
|
|
|
35,384
|
|
|
|
35,000
|
|
DJ Basin
|
|
|
2,816
|
|
|
|
959
|
|
|
|
5,489
|
|
|
|
2,280
|
|
Permian Basin
|
|
|
(656
|
)
|
|
|
—
|
|
|
|
(1,206
|
)
|
|
|
—
|
|
Piceance Basin
|
|
|
24,584
|
|
|
|
26,714
|
|
|
|
50,583
|
|
|
|
54,628
|
|
Barnett Shale
|
|
|
11,208
|
|
|
|
11,093
|
|
|
|
22,582
|
|
|
|
20,952
|
|
Marcellus Shale
|
|
|
4,635
|
|
|
|
6,543
|
|
|
|
9,777
|
|
|
|
13,219
|
|
Total of reportable segments' measures of profit or loss
|
|
$
|
75,816
|
|
|
$
|
82,497
|
|
|
$
|
154,591
|
|
|
$
|
163,429
|
|
17
A reconciliation of income or loss before income taxes and income or loss from equity method investees to total of reportable segments' measures of profit or loss follows.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Reconciliation of income (loss) before income taxes
and loss from equity method investees to total
of reportable segments' measures of profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and loss
from equity method investees
|
|
$
|
6,030
|
|
|
$
|
(45,699
|
)
|
|
$
|
(30,236
|
)
|
|
$
|
(51,101
|
)
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other expense
|
|
|
7,208
|
|
|
|
9,002
|
|
|
|
21,367
|
|
|
|
19,625
|
|
Interest expense
|
|
|
17,941
|
|
|
|
14,837
|
|
|
|
35,468
|
|
|
|
29,959
|
|
Deferred Purchase Price Obligation
|
|
|
3,712
|
|
|
|
69,305
|
|
|
|
8,139
|
|
|
|
90,963
|
|
Depreciation and amortization
|
|
|
27,163
|
|
|
|
26,634
|
|
|
|
55,279
|
|
|
|
53,160
|
|
Proportional adjusted EBITDA for equity method
investees
|
|
|
9,939
|
|
|
|
8,935
|
|
|
|
19,149
|
|
|
|
19,412
|
|
Adjustments related to MVC shortfall payments
|
|
|
3,533
|
|
|
|
(3,542
|
)
|
|
|
(666
|
)
|
|
|
(3,542
|
)
|
Adjustments related to capital reimbursement activity
|
|
|
(1,046
|
)
|
|
|
115
|
|
|
|
(1,761
|
)
|
|
|
155
|
|
Unit-based and noncash compensation
|
|
|
1,553
|
|
|
|
2,261
|
|
|
|
4,079
|
|
|
|
4,223
|
|
(Gain) loss on asset sales, net
|
|
|
(287
|
)
|
|
|
62
|
|
|
|
(1,248
|
)
|
|
|
(12
|
)
|
Long-lived asset impairment
|
|
|
70
|
|
|
|
587
|
|
|
|
45,021
|
|
|
|
587
|
|
Total of reportable segments' measures of profit
|
|
$
|
75,816
|
|
|
$
|
82,497
|
|
|
$
|
154,591
|
|
|
$
|
163,429
|
|
Adjustments related to MVC shortfall payments recognize the earnings from MVC shortfall payments ratably over the term of the associated MVC (see Note 3). Contributions in aid of construction are recognized over the remaining term of the respective contract. We include adjustments related to capital reimbursement activity in our calculation of segment adjusted EBITDA to account for revenue recognized from contributions in aid of construction.
Adjustments related to MVC shortfall payments by reportable segment follow.
|
|
Three months ended June 30, 2019
|
|
|
|
Williston Basin
|
|
|
Piceance
Basin
|
|
|
Barnett
Shale
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Adjustments related to expected MVC shortfall payments:
|
|
$
|
2,081
|
|
|
$
|
—
|
|
|
$
|
1,452
|
|
|
$
|
3,533
|
|
|
|
Three months ended June 30, 2018
|
|
|
|
Williston Basin
|
|
|
Piceance
Basin
|
|
|
Barnett
Shale
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Adjustments related to expected MVC shortfall payments:
|
|
$
|
(3,386
|
)
|
|
$
|
(93
|
)
|
|
$
|
(63
|
)
|
|
$
|
(3,542
|
)
|
|
|
Six months ended June 30, 2019
|
|
|
|
Williston Basin
|
|
|
Piceance
Basin
|
|
|
Barnett
Shale
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Adjustments related to expected MVC shortfall payments:
|
|
$
|
(3,468
|
)
|
|
$
|
(103
|
)
|
|
$
|
2,905
|
|
|
$
|
(666
|
)
|
|
|
Six months ended June 30, 2018
|
|
|
|
Williston Basin
|
|
|
Piceance
Basin
|
|
|
Barnett
Shale
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Adjustments related to expected MVC shortfall payments:
|
|
$
|
(3,386
|
)
|
|
$
|
(93
|
)
|
|
$
|
(63
|
)
|
|
$
|
(3,542
|
)
|
18
5. PROPERTY, PLANT AND EQUIPMENT, NET
Details on property, plant and equipment follow.
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(In thousands)
|
|
Gathering and processing systems and related equipment
|
|
$
|
2,136,209
|
|
|
$
|
2,155,325
|
|
Construction in progress
|
|
|
76,086
|
|
|
|
137,920
|
|
Land and line fill
|
|
|
9,823
|
|
|
|
11,748
|
|
Other
|
|
|
61,045
|
|
|
|
45,853
|
|
Total
|
|
|
2,283,163
|
|
|
|
2,350,846
|
|
Less accumulated depreciation
|
|
|
404,312
|
|
|
|
387,133
|
|
Property, plant and equipment, net
|
|
$
|
1,878,851
|
|
|
$
|
1,963,713
|
|
In March 2019, certain events, facts and circumstances occurred which indicated that certain long-lived assets in the DJ Basin and Barnett Shale reporting segments could be impaired. Consequently, in the first quarter of 2019, we performed a recoverability assessment of certain assets within these reporting segments.
In the DJ Basin, we determined that certain processing plant assets related to our existing 20 MMcf/d plant would no longer be utilized due to our expansion plans for the Niobrara G&P system. Based on the results of the recoverability assessment and the conclusion that the carrying value was not fully recoverable, we recorded an impairment charge of $34.7 million related to these assets in the first quarter of 2019.
In the Barnett Shale, we determined, in the first quarter of 2019, that certain compressor station assets would be shut down and decommissioned. As a result, we recorded an impairment charge of $9.7 million related to these assets in the first quarter of 2019. See Note 6 for additional details.
Depreciation expense and capitalized interest follow.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
$
|
18,829
|
|
|
$
|
18,657
|
|
|
$
|
38,612
|
|
|
$
|
37,214
|
|
Capitalized interest
|
|
|
2,446
|
|
|
|
1,863
|
|
|
|
4,361
|
|
|
|
3,085
|
|
6. AMORTIZING INTANGIBLE ASSETS
Details regarding our intangible assets, all of which are subject to amortization, follow:
|
|
June 30, 2019
|
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
Favorable gas gathering contracts
|
|
$
|
24,195
|
|
|
$
|
(14,657
|
)
|
|
$
|
9,538
|
|
Contract intangibles
|
|
|
278,448
|
|
|
|
(156,755
|
)
|
|
|
121,693
|
|
Rights-of-way
|
|
|
159,734
|
|
|
|
(39,715
|
)
|
|
|
120,019
|
|
Total intangible assets
|
|
$
|
462,377
|
|
|
$
|
(211,127
|
)
|
|
$
|
251,250
|
|
|
|
December 31, 2018
|
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
Favorable gas gathering contracts
|
|
$
|
24,195
|
|
|
$
|
(13,905
|
)
|
|
$
|
10,290
|
|
Contract intangibles
|
|
|
278,448
|
|
|
|
(143,962
|
)
|
|
|
134,486
|
|
Rights-of-way
|
|
|
166,209
|
|
|
|
(37,569
|
)
|
|
|
128,640
|
|
Total intangible assets
|
|
$
|
468,852
|
|
|
$
|
(195,436
|
)
|
|
$
|
273,416
|
|
In March 2019, certain events, facts and circumstances occurred which indicated that certain long-lived assets relating to the Barnett Shale reporting segment could be impaired (see Note 5). In connection with this evaluation, we evaluated the related intangible assets associated therewith for impairment consisting of rights-of-way intangible assets. We concluded the rights-of-way intangible assets were also impaired and, as a result, we recorded an impairment charge of $0.5 million in the first quarter of 2019.
19
We recognized amortization expense in other revenues as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Amortization expense – favorable gas gathering contracts
|
|
$
|
(363
|
)
|
|
$
|
(388
|
)
|
|
$
|
(752
|
)
|
|
$
|
(777
|
)
|
We recognized amortization expense in costs and expenses as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Amortization expense – contract intangibles
|
|
$
|
6,397
|
|
|
$
|
6,535
|
|
|
$
|
12,794
|
|
|
$
|
13,070
|
|
Amortization expense – rights-of-way
|
|
|
1,574
|
|
|
|
1,592
|
|
|
|
3,121
|
|
|
|
3,177
|
|
The estimated aggregate annual amortization expected to be recognized for the remainder of 2019 and each of the four succeeding fiscal years follows.
|
|
Intangible assets
|
|
|
|
(In thousands)
|
|
2019
|
|
$
|
15,971
|
|
2020
|
|
|
32,049
|
|
2021
|
|
|
28,357
|
|
2022
|
|
|
25,290
|
|
2023
|
|
|
25,236
|
|
7. GOODWILL
We evaluate goodwill for impairment annually on September 30. We also evaluate goodwill whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. There have been no impairments of goodwill during the three and six months ended June 30, 2019.
Fair Value Measurement.
Our impairment determinations, in the context of (i) our annual impairment evaluations and (ii) our other-than-annual impairment evaluations involved significant assumptions and judgments, as discussed in the 2018 Annual Report. Differing assumptions regarding any of these inputs could have a significant effect on the valuations. As such, the fair value measurements utilized within these models are classified as non-recurring Level 3 measurements in the fair value hierarchy because they are not observable from objective sources. Due to the volatility of the inputs used, we cannot predict the likelihood of any future impairment.
8. EQUITY METHOD INVESTMENTS
Double E
In June 2019, we formed Double E in connection with the Project. Effective June 26, 2019, Summit Permian Transmission, a wholly owned and consolidated subsidiary of the Partnership, and our JV Partner executed the Agreement whereby Double E will provide natural gas transportation services from multiple receipt points in the Delaware Basin to various delivery points in and around the Waha Hub in Texas. In connection with the Agreement and the related Project, the Partnership contributed total assets of approximately $23.6 million in exchange for a 70% ownership interest in Double E and our JV Partner contributed $7.3 million of cash in exchange for a 30% ownership interest in Double E. Concurrent with these contributions, and in accordance with the Agreement, Double E distributed $7.3 million to the Partnership. Subsequent to the formation of Double E, we also made additional cash investments of $5.9 million during June 2019.
20
Double E
is deemed to be a
variable interest entity as defined in GAAP
. As of the date of the
Agreement
,
Summit Permian Transmission
is not deemed to be the primary beneficiary due to
the JV Partner
’s voting rights on significant matters.
We account for our ownership interest in Double E as an equity method investment because we have significant influence over Double E. Our portion of Double E’s net assets, which was $
23.3
million at June 30, 2019, is reported under the caption Investment in equity method investees on the unaudited condensed consolidated balance sheet.
For the three and six months ended June 30, 2019, other than the investment activity noted above, Double E did not have any results of operations given that the Project is currently under development.
Ohio Gathering
Ohio Gathering owns, operates and is currently developing midstream infrastructure consisting of a liquids-rich natural gas gathering system, a dry natural gas gathering system and a condensate stabilization facility in the Utica Shale in southeastern Ohio. Ohio Gathering provides gathering services pursuant to primarily long-term, fee-based gathering agreements, which include acreage dedications.
As a result of our joint venture partner funding a disproportionate amount of the capital calls during the six months ended June 30, 2019, our ownership interest in Ohio Gathering decreased from 40.0% at December 31, 2018, to 39.0% at June 30, 2019.
A reconciliation of our
39.0%
ownership interest in Ohio Gathering to our investment per Ohio Gathering's books and records follows (in thousands).
Investment in Ohio Gathering, June 30, 2019
|
|
$
|
630,513
|
|
June cash distributions
|
|
|
3,273
|
|
Basis difference
|
|
|
(110,156
|
)
|
Investment in Ohio Gathering, net of basis difference,
May 31, 2019
|
|
$
|
523,630
|
|
Summarized statements of operations information for OGC and OCC follow (amounts represent 100% of investee financial information).
|
|
Three months ended
May 31, 2019
|
|
|
Three months ended
May 31, 2018
|
|
|
|
OGC
|
|
|
OCC
|
|
|
OGC
|
|
|
OCC
|
|
|
|
(In thousands)
|
|
Total revenues
|
|
$
|
35,262
|
|
|
$
|
2,073
|
|
|
$
|
34,123
|
|
|
$
|
2,070
|
|
Total operating expenses
|
|
|
26,336
|
|
|
|
2,691
|
|
|
|
35,518
|
|
|
|
1,958
|
|
Net income (loss)
|
|
|
8,926
|
|
|
|
(619
|
)
|
|
|
(1,396
|
)
|
|
|
(59
|
)
|
|
|
Six months ended
May 31, 2019
|
|
|
Six months ended
May 31, 2018
|
|
|
|
OGC
|
|
|
OCC
|
|
|
OGC
|
|
|
OCC
|
|
|
|
(In thousands)
|
|
Total revenues
|
|
$
|
68,728
|
|
|
$
|
4,339
|
|
|
$
|
69,083
|
|
|
$
|
4,559
|
|
Total operating expenses
|
|
|
51,823
|
|
|
|
5,664
|
|
|
|
62,293
|
|
|
|
4,099
|
|
Net income (loss)
|
|
|
16,898
|
|
|
|
(1,326
|
)
|
|
|
6,784
|
|
|
|
121
|
|
21
9. DEFERRED REVENUE
A rollforward of current deferred revenue follows.
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Piceance
Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total current
|
|
|
|
(In thousands)
|
|
Current deferred revenue,
January 1, 2019
|
|
$
|
18
|
|
|
$
|
1,414
|
|
|
$
|
739
|
|
|
$
|
7,616
|
|
|
$
|
1,642
|
|
|
$
|
38
|
|
|
$
|
11,467
|
|
Additions
|
|
|
9
|
|
|
|
1,227
|
|
|
|
909
|
|
|
|
10,513
|
|
|
|
817
|
|
|
|
19
|
|
|
|
13,494
|
|
Less revenue recognized
|
|
|
9
|
|
|
|
790
|
|
|
|
475
|
|
|
|
10,528
|
|
|
|
815
|
|
|
|
19
|
|
|
|
12,636
|
|
Current deferred revenue,
June 30, 2019
|
|
$
|
18
|
|
|
$
|
1,851
|
|
|
$
|
1,173
|
|
|
$
|
7,601
|
|
|
$
|
1,644
|
|
|
$
|
38
|
|
|
$
|
12,325
|
|
A rollforward of noncurrent deferred revenue follows.
|
|
Utica Shale
|
|
|
Williston Basin
|
|
|
DJ Basin
|
|
|
Piceance
Basin
|
|
|
Barnett Shale
|
|
|
Marcellus Shale
|
|
|
Total noncurrent
|
|
|
|
(In thousands)
|
|
Noncurrent deferred revenue,
January 1, 2019
|
|
$
|
21
|
|
|
$
|
4,393
|
|
|
$
|
7,284
|
|
|
$
|
17,942
|
|
|
$
|
9,628
|
|
|
$
|
236
|
|
|
$
|
39,504
|
|
Additions
|
|
|
—
|
|
|
|
1,940
|
|
|
|
1,841
|
|
|
|
3,372
|
|
|
|
760
|
|
|
|
—
|
|
|
|
7,913
|
|
Less reclassification to current
deferred revenue
|
|
|
9
|
|
|
|
1,665
|
|
|
|
909
|
|
|
|
3,797
|
|
|
|
817
|
|
|
|
19
|
|
|
|
7,216
|
|
Noncurrent deferred revenue,
June 30, 2019
|
|
$
|
12
|
|
|
$
|
4,668
|
|
|
$
|
8,216
|
|
|
$
|
17,517
|
|
|
$
|
9,571
|
|
|
$
|
217
|
|
|
$
|
40,201
|
|
10. DEBT
Debt consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(In thousands)
|
|
Summit Holdings' variable rate senior secured Revolving Credit Facility
(4.91% at June 30, 2019 and 5.03% at December 31, 2018)
due May 2022
|
|
$
|
573,000
|
|
|
$
|
466,000
|
|
Summit Holdings' 5.5% senior unsecured notes due August 2022
|
|
|
300,000
|
|
|
|
300,000
|
|
Less unamortized debt issuance costs (1)
|
|
|
(2,024
|
)
|
|
|
(2,362
|
)
|
Summit Holdings' 5.75% senior unsecured notes due April 2025
|
|
|
500,000
|
|
|
|
500,000
|
|
Less unamortized debt issuance costs (1)
|
|
|
(5,412
|
)
|
|
|
(5,907
|
)
|
Total long-term debt
|
|
$
|
1,365,564
|
|
|
$
|
1,257,731
|
|
(1) Issuance costs are being amortized over the life of the notes.
Revolving Credit Facility.
Summit Holdings has a senior secured revolving credit facility which allows for revolving loans, letters of credit and swing line loans. The Revolving Credit Facility has a $1.25 billion borrowing capacity, matures in May 2022, and includes a $250.0 million accordion feature. As of June 30, 2019, SMLP and the Guarantor Subsidiaries fully and unconditionally and jointly and severally guarantee, and pledge substantially all of their assets in support of, the indebtedness outstanding under the Revolving Credit Facility. In June 2019, we executed the second amendment to the third amended and restated credit agreement that, among other things, made accommodations for the Agreement, and the transactions contemplated thereby, and designated Double E as an unrestricted subsidiary under the Revolving Credit Facility.
22
Borrowings under the Revolving Credit Facility bear interest, at the election of Summit Holdings, at a rate based on the alternate base rate (as defined in the credit agreement) plus an applicable margin ranging from 0.75% to 1.75% or the adjusted Eurodollar rate (the LIBOR rate), as defined in the credit agreement, plus an applicable margin ranging from 1.75% to 2.75%, with the commitment fee ranging from 0.30% to 0.50% in each case based on our relative leverage at the time of determination. At June 30, 2019, the applicable margin under LIBOR borrowings was 2.50% and the interest rate was 4.91%. The unused portion of the Revolving Credit Facility totaled $667.9 million, subject to a commitment fee of 0.50%, after giving effect to the issuance thereunder of a $9.1 million outstanding but undrawn irrevocable standby letter of credit. See Note 16 for additional information on our letter of credit.
As of June 30, 2019, we had
$7.2 million
of debt issuance costs attributable to our Revolving Credit Facility and related amendments which are included in noncurrent assets on the unaudited condensed consolidated balance sheet.
As of and during the six months ended June 30, 2019, we were in compliance with the Revolving Credit Facility's financial covenants. There were
no
defaults or events of default during the six months ended June 30, 2019.
Senior Notes.
In July 2014, Summit Holdings and its
100
%
owned finance subsidiary, Finance Corp. (together with Summit Holdings, the "Co-Issuers") co-issued
$300.0 million
of
5.5
%
senior unsecured notes maturing August 15, 2022 (the "5.5%
Senior Notes" and, together with the
5.75
%
Senior Notes (defined below), the “Senior Notes”).
In February 2017, the Co-Issuers completed a public offering of
$500.0 million
of
5.75%
senior unsecured notes (the "5.75%
Senior Notes") as described in the 2018 Annual Report.
T
he Guarantor Subsidiaries are 100% owned by a subsidiary of SMLP. The Guarantor Subsidiaries and SMLP fully and unconditionally and jointly and severally guarantee the 5.5% Senior Notes and the 5.75% Senior Notes. There are no significant restrictions on the ability of SMLP or Summit Holdings to obtain funds from its subsidiaries by dividend or loan. Finance Corp. has had no assets or operations since inception in 2013. We have no other independent assets or operations. At no time have the Senior Notes been guaranteed by the Co-Issuers.
As of and during the six months ended June 30, 2019, we were in compliance with the covenants governing our Senior Notes. There were no defaults or events of default during the six months ended June 30, 2019.
11. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk.
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents in bank deposit accounts that frequently exceed federally insured limits. We have not experienced any losses in such accounts and do not believe we are exposed to any significant risk.
Accounts receivable primarily comprise amounts due for the gathering, compression, treating and processing services we provide to our customers and also the sale of natural gas liquids resulting from our processing services. This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of our counterparties and can require letters of credit or other forms of credit assurance for receivables from counterparties that are judged to have substandard credit, unless the credit risk can otherwise be mitigated. Our top
five
customers or counterparties accounted for
50%
of total accounts receivable as of June 30, 2019, compared with 39%
as of December 31, 2018.
Fair Value.
The carrying amount of cash and cash equivalents, accounts receivable and trade accounts payable reported on the balance sheet approximates fair value due to their short-term maturities.
23
The Deferred Purchase Price Obligation's carrying value is its fair value because carrying value represents the present value of the payment expected to be made in 2020. In March 2019, the Partnership amended the Contribution Agreement related to the 2016 Drop Down and fixed the Remaining Consideration at $303.5 million, with such amount to be paid by the Partnership in one or more payments over the period from March 1, 2020 through December 31, 2020, in (i) cash, (ii) the Partnership’s common units or (iii) a combination of cash and the Partnership’s common units, at the discretion of the Partnership. At least 50% of the Remaining Consideration must be paid on or before June 30, 2020 and interest will accrue at a rate of 8% per annum on any portion of the Remaining Consideration that remains unpaid after March 31, 2020 (see Note 17 for additional information).
A summary of the estimated fair value of our debt financial instruments follows.
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Carrying
value
|
|
|
Estimated
fair value
(Level 2)
|
|
|
Carrying
value
|
|
|
Estimated
fair value
(Level 2)
|
|
|
|
(In thousands)
|
|
Summit Holdings 5.5% Senior Notes ($300.0 million
principal)
|
|
$
|
297,976
|
|
|
$
|
287,750
|
|
|
$
|
297,638
|
|
|
$
|
286,625
|
|
Summit Holdings 5.75% Senior Notes ($500.0 million
principal)
|
|
|
494,588
|
|
|
|
437,500
|
|
|
|
494,093
|
|
|
|
455,208
|
|
The carrying value on the balance sheet of the Revolving Credit Facility is its fair value due to its floating interest rate. The estimated fair value for the Senior Notes is based on an average of nonbinding broker quotes as of June 30, 2019 and December 31, 2018. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value of the Senior Notes.
12. PARTNERS' CAPITAL
A rollforward of the number of common limited partner, preferred limited partner and General Partner units follows.
|
|
Limited partners
|
|
|
|
|
|
Series A Preferred Units
|
|
|
Common
|
|
|
General
Partner
|
|
Units, January 1, 2019
|
|
|
300,000
|
|
|
|
73,390,853
|
|
|
|
1,490,999
|
|
Conversion of General Partner economic interests
|
|
|
—
|
|
|
|
8,750,000
|
|
|
|
(1,490,999
|
)
|
Net units issued under the SMLP LTIP
|
|
|
—
|
|
|
|
564,038
|
|
|
|
—
|
|
Units, June 30, 2019
|
|
|
300,000
|
|
|
|
82,704,891
|
|
|
|
—
|
|
GP/IDR Exchange.
On March 22, 2019, we cancelled our IDRs and converted our 2% economic GP interest to a non-economic GP interest in exchange for 8,750,000 SMLP common units which were issued to SMP Holdings in the Equity Restructuring. These units had a fair value of $84.5 million as of the transaction date (March 22, 2019). As a result of the Equity Restructuring, the general partner units and IDRs were eliminated, are no longer outstanding, and no longer participate in distributions of cash from SMLP. ECP continues to control the non-economic GP interest in SMLP.
Immediately following the Equity Restructuring, SMP Holdings directly owned a 41.8% limited partner interest in SMLP and an affiliate of Energy Capital Partners II, LLC directly owned a 7.2% limited partner interest in SMLP.
For the three and six months ended June 30, 2018, our general partner held IDRs that entitled it to receive increasing percentage allocations, up to a maximum of 50%, of the cash we distributed from operating surplus in excess of $0.46 per unit per quarter.
Our payment of IDRs as reported in distributions to unitholders – general partner in the statement of partners' capital during the three and six months ended June 30 follow.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
IDR payments
|
|
$
|
—
|
|
|
$
|
2,136
|
|
|
$
|
2,139
|
|
|
$
|
4,264
|
|
24
For the purposes of calculating net income attributable to General Partner in the statements of operations and partners' capital, the financial impact of IDRs was recognized in respect of the quarter for which the distributions were declared. For the purposes of calculating distributions
to unitholders in the statements of partners' capital and cash flows, IDR payments
were
recognized in the quarter in which they are paid.
At-the-market Program.
In 2017, we executed an equity distribution agreement and filed a prospectus and a prospectus supplement with the SEC for the issuance and sale from time to time of SMLP
common units having an aggregate offering price of up to
$150.0 million
(the "ATM Program"). These sales will be made (i) pursuant to the terms of the equity distribution agreement between us and the sales agents named therein and (ii) by means of ordinary brokers' transactions at market prices, in block transactions or as otherwise agreed between us and the sales agents. Sales of our common units may be made in negotiated transactions or transactions that are deemed to be at-the-market offerings as defined by SEC rules
.
During the three and six months ended June 30, 2019, there were no
transactions under the ATM Program. Following the effectiveness of the ATM Program registration statement and after taking into account the aggregate sales price of common units sold under the ATM Program through June 30, 2019, we have the capacity to issue additional common units under the ATM Program up to an aggregate
$132.3 million.
Series A Preferred Units.
In 2017, we issued 300,000 Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Series A Preferred Units”) representing limited partner interests in the Partnership at a price to the public of $1,000 per unit as described in the 2018 Annual Report.
Cash Distributions Paid and Declared.
We paid the following per-unit distributions during the three and six months ended June 30
:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Per-unit distributions to unitholders
|
|
$
|
0.2875
|
|
|
$
|
0.575
|
|
|
$
|
0.8625
|
|
|
$
|
1.150
|
|
On July 25, 2019, the Board of Directors of our General Partner declared a distribution of $0.2875
per unit for the quarterly period ended June 30, 2019. This distribution, which totaled $23.8 million, will be paid on August 14, 2019 to unitholders of record at the close of business on August 7, 2019.
25
13. EARNINGS PER UNIT
The following table details the components of EPU.
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands, except per-unit amounts)
|
|
Numerator for basic and diluted EPU:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income (loss) among limited partner interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to limited partners
|
|
$
|
4,809
|
|
|
$
|
(51,111
|
)
|
|
$
|
(32,117
|
)
|
|
$
|
(57,099
|
)
|
Less net income attributable to Series A Preferred Units
|
|
|
7,125
|
|
|
|
7,125
|
|
|
|
14,250
|
|
|
|
14,250
|
|
Net loss attributable to common limited partners
|
|
$
|
(2,316
|
)
|
|
$
|
(58,236
|
)
|
|
$
|
(46,367
|
)
|
|
$
|
(71,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted EPU:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common units outstanding – basic and diluted
|
|
|
82,700
|
|
|
|
73,356
|
|
|
|
79,266
|
|
|
|
73,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common unit – basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.97
|
)
|
Common unit – diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested anti-dilutive phantom units excluded from the
calculation of diluted EPU
|
|
|
—
|
|
|
|
1
|
|
|
|
17
|
|
|
|
3
|
|
14. UNIT-BASED AND NONCASH COMPENSATION
SMLP Long-Term Incentive Plan.
The SMLP LTIP provides for equity awards to eligible officers, employees, consultants and directors of our General Partner and its affiliates. Items to note:
|
•
|
In March 2019, we granted 639,522
phantom units and associated distribution equivalent rights to employees in connection with our annual incentive compensation award cycle. These awards had a grant date fair value of
$9.78
and vest ratably over a
three-year
period.
|
|
•
|
In March 2019, we also issued 16,358 common units to our two independent directors in connection with their annual compensation plan. In May 2019, we issued an additional 9,580 units to an independent director in conjunction with his appointment to our Board of Directors.
|
|
•
|
During the six months ended June 30, 2019, 562,660 phantom units vested.
|
|
•
|
As of June 30, 2019, approximately
2.6
million
common units remained available for future issuance under the SMLP LTIP.
|
15. RELATED-PARTY TRANSACTIONS
Acquisitions.
See Notes 12 and 17 of the 2018 Annual Report.
Reimbursement of Expenses from General Partner.
Our General Partner and its affiliates do not receive a management fee or other compensation in connection with the management of our business, but will be reimbursed for expenses incurred on our behalf. Under our Partnership Agreement, we reimburse our General Partner and its affiliates for certain expenses incurred on our behalf, including, without limitation, salary, bonus, incentive compensation and other amounts paid to our General Partner's employees and executive officers who perform services necessary to run our business. Our Partnership Agreement provides that our General Partner will determine in good faith the expenses that are allocable to us. The "Due to affiliate" line item on the consolidated balance sheet represents the payables to our General Partner for expenses incurred by it and paid on our behalf.
26
Expenses incurred by the General Partner and reimbursed by us under our Partnership Agreement were as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Operation and maintenance expense
|
|
$
|
7,560
|
|
|
$
|
7,114
|
|
|
$
|
15,445
|
|
|
$
|
14,737
|
|
General and administrative expense
|
|
|
6,135
|
|
|
|
7,481
|
|
|
|
16,965
|
|
|
|
15,598
|
|
16. LEASES, COMMITMENTS AND CONTINGENCIES
Leases.
We account for leases in accordance with Topic 842, which we adopted on January 1, 2019, using the modified retrospective method. Under the modified retrospective method, the comparative information is not adjusted and is reported under the accounting standards in effect for those periods. See Note 2 for further discussion of the adoption.
We and Summit Investments lease certain office space and equipment under operating leases. We lease office space for our corporate headquarters as well as for offices in and around our gathering systems for terms of between 3 and 10 years. We lease the office space to limit exposure to risks related to ownership, such as fluctuations in real estate prices. In addition, we lease equipment primarily to support our operations in response to the needs of our gathering systems for terms of between 3 and 4 years. We and Summit Investments also lease vehicles under finance leases to support our operations in response to the needs of our gathering systems for a term of 3 years. We only lease from reputable companies and our leased assets are not specialized in our industry.
Some of our leases are subject to annual changes relating to the Consumer Price Index (“CPI”). While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.
We have options to extend the lease term of certain office space in Texas, Colorado and West Virginia. The beginning of the noncancelable lease period for these leases range from 2014 to 2018 and the lease period ends between 2019 and 2021. These lease agreements contain between one and three options to renew the lease for a period of between two and five years. As of June 30, 2019, the exercise of the renewal options for these leases are not reasonably certain and, as a result, the payments associated with these renewals are not included in the measurement of the lease liability and ROU asset.
We also have options to extend the lease term of certain compression equipment used at the Summit Utica gathering system. The beginning of the noncancelable lease period for these leases is 2017 and the lease period ends in 2020. Upon expiration of the noncancelable lease period, we have the option to renew the leases on a month-to-month basis; we therefore have not included any amounts attributable to renewals in the measurement.
Our leases do not contain residual value guarantees.
In accordance with the provisions in our Revolving Credit Facility, our aggregate finance lease obligations cannot exceed the greater of $50 million or 5.5% of consolidated total assets in any period of twelve consecutive calendar months during the life of such leases.
In March 2019, we entered into an agreement with a third party vendor to construct a transmission line to deliver electric power to the new 60 MMcf/d processing plant under development in the DJ Basin. The project was expected to cost approximately $7.8 million and we made an up-front payment of $3.0 million which is included in the Property, plant and equipment, net caption on the unaudited condensed consolidated balance sheet. During the second quarter of 2019, we exercised an option to increase the capacity of the transmission line for an additional cost of $4.3 million and we issued an irrevocable standby letter of credit payable to the vendor with an initial term of one year totaling $9.1 million, which reflects the expected remaining cost of the project. The letter of credit will automatically renew for successive twelve month periods following the initial term, subject to certain adjustments. Once construction is complete, the letter of credit will be adjusted to reflect the final construction cost. We determined the contract contained a lease based on the right to use the constructed transmission line to power the processing plant in the DJ Basin. The project is expected to be completed and the commencement date of the ROU asset will be on or before July 1, 2020.
27
Our significant assumptions or judgments include the determination of whether a contract contains a lease and the discount rate used in our lease liabilities.
The rate implicit in our lease contracts is not readily determinable. In determining the discount rate used in our lease liabilities, we analyzed certain factors in our incremental borrowing rate, including collateral assumptions and the term used. Our incremental borrowing rate on the Revolving Credit Facility was 5.03% at December 31, 2018, which reflects the fixed rate at which we could borrow a similar amount, for a similar term and with similar collateral as in the lease contracts at the commencement date.
We adopted the following practical expedients in Topic 842 for all asset classes, which included (i) not being required to reassess whether any expired or existing contracts are or contain leases; (ii) not being required to reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with Topic 840 will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with Topic 840 will be classified as finance leases); (iii) not being required to reassess initial direct costs for any existing leases; (iv) not recognizing ROU assets and lease liabilities that arise from short-term leases of twelve months or less for any class of underlying asset; (v) not allocating consideration in a contract between lease and nonlease (e.g., maintenance services) components for our leased office space and equipment; and (vi) not evaluating existing or expired land easements that were not previously accounted for as leases under Topic 840.
ROU assets (included in the Property, plant and equipment, net caption on our unaudited condensed consolidated balance sheet) and lease liabilities (included in the Other current liabilities and Other noncurrent liabilities captions on our unaudited condensed consolidated balance sheet) follow:
|
|
June 30,
|
|
|
|
2019
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
ROU assets
|
|
|
|
|
Operating
|
|
$
|
5,136
|
|
Finance
|
|
|
4,061
|
|
|
|
$
|
9,197
|
|
Lease liabilities, current
|
|
|
|
|
Operating
|
|
$
|
2,337
|
|
Finance
|
|
|
1,627
|
|
|
|
$
|
3,964
|
|
Lease liabilities, noncurrent
|
|
|
|
|
Operating
|
|
$
|
2,996
|
|
Finance
|
|
|
1,194
|
|
|
|
$
|
4,190
|
|
Lease cost and Other information follow:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2019
|
|
|
|
(In thousands)
|
|
Lease cost
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of ROU assets (included in depreciation and amortization)
|
|
$
|
407
|
|
|
$
|
775
|
|
Interest on lease liabilities (included in interest expense)
|
|
|
30
|
|
|
|
53
|
|
Operating lease cost (included in general and administrative expense)
|
|
|
745
|
|
|
|
1,577
|
|
|
|
$
|
1,182
|
|
|
$
|
2,405
|
|
28
|
|
Six months ended
|
|
|
|
June 30, 2019
|
|
|
|
(In thousands)
|
|
Other information
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
1,678
|
|
Operating cash outflows from finance leases
|
|
|
53
|
|
Financing cash outflows from finance leases
|
|
|
915
|
|
ROU assets obtained in exchange for new operating lease
liabilities
|
|
|
1,218
|
|
ROU assets obtained in exchange for new finance lease
liabilities
|
|
|
1,292
|
|
Weighted-average remaining lease term (years) - operating leases
|
|
|
4.9
|
|
Weighted-average remaining lease term (years) - finance leases
|
|
|
2.0
|
|
Weighted-average discount rate - operating leases
|
|
|
5
|
%
|
Weighted-average discount rate - finance leases
|
|
|
4
|
%
|
We recognize total lease expense incurred or allocated to us in general and administrative expenses. Lease expense related to operating leases, including lease expense incurred on our behalf and allocated to us, was as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Lease expense
|
|
$
|
986
|
|
|
$
|
956
|
|
|
$
|
1,930
|
|
|
$
|
1,978
|
|
Future minimum lease payments due under noncancelable leases for the remainder of 2019 and each of the five succeeding fiscal years and thereafter, were as follows:
|
|
June 30, 2019
|
|
|
|
(In thousands)
|
|
|
|
Operating
|
|
|
Finance
|
|
2019
|
|
$
|
1,738
|
|
|
$
|
898
|
|
2020
|
|
|
1,606
|
|
|
|
1,348
|
|
2021
|
|
|
1,001
|
|
|
|
621
|
|
2022
|
|
|
538
|
|
|
|
70
|
|
2023
|
|
|
400
|
|
|
|
—
|
|
2024
|
|
|
240
|
|
|
|
—
|
|
Thereafter
|
|
|
895
|
|
|
|
—
|
|
Total future minimum lease payments
|
|
$
|
6,418
|
|
|
$
|
2,937
|
|
Future minimum lease payments due under noncancelable operating leases (under ASC 840) at December 31, 2018, were as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
|
(In thousands)
|
|
2019
|
|
$
|
3,133
|
|
2020
|
|
|
1,018
|
|
2021
|
|
|
550
|
|
2022
|
|
|
506
|
|
2023
|
|
|
373
|
|
Thereafter
|
|
|
621
|
|
Total future minimum lease payments
|
|
$
|
6,201
|
|
29
Future payments due under finance leases (under ASC 840) at December 31, 2018, were as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
|
(In thousands)
|
|
2019
|
|
$
|
1,473
|
|
2020
|
|
|
902
|
|
2021
|
|
|
174
|
|
Total finance lease obligations
|
|
|
2,549
|
|
Less: Amounts representing interest
|
|
|
(104
|
)
|
Net present value of finance lease obligations
|
|
|
2,445
|
|
Less: Amount representing current portion (included in Other current liabilities)
|
|
|
(1,406
|
)
|
Finance lease obligations, less current portion (included in Other noncurrent liabilities)
|
|
$
|
1,039
|
|
Environmental Matters.
Although we believe that we are in material compliance with applicable environmental regulations, the risk of environmental remediation costs and liabilities are inherent in pipeline ownership and operation. Furthermore, we can provide no assurances that significant environmental remediation costs and liabilities will not be incurred by the Partnership in the future. We are currently not aware of any material contingent liabilities that exist with respect to environmental matters, except as noted below.
As described in the 2018 Annual Report, in 2015, Summit Investments learned of the rupture of a four-inch produced water gathering pipeline on the Meadowlark Midstream system near Williston, North Dakota. The incident, which was covered by Summit Investments' insurance policies, was subject to maximum coverage of
$25.0 million
from its pollution liability insurance policy and
$200.0 million
from its property and business interruption insurance policy. Summit Investments exhausted the
$25.0 million
pollution liability policy in 2015.
A rollforward of the aggregate accrued environmental remediation liabilities follows.
|
|
Total
|
|
|
|
(In thousands)
|
|
Accrued environmental remediation, January 1, 2019
|
|
$
|
5,636
|
|
Payments made
|
|
|
(1,001
|
)
|
Additional accruals
|
|
|
767
|
|
Accrued environmental remediation, June 30, 2019
|
|
$
|
5,402
|
|
As of June 30, 2019, we have recognized (i) a current liability for remediation effort expenditures expected to be incurred within the next 12 months and (ii) a noncurrent liability for estimated remediation expenditures and fines expected to be incurred subsequent to June 30, 2020. Each of these amounts represent our best estimate for costs expected to be incurred. Neither of these amounts has been discounted to its present value.
While we cannot predict the ultimate outcome of this matter with certainty for Summit Investments or Meadowlark Midstream, especially as it relates to any material liability as a result of any governmental proceeding related to the incident, we believe at this time that it is unlikely that SMLP or its General Partner will be subject to any material liability as a result of any governmental proceeding related to the rupture.
Legal Proceedings.
The Partnership is involved in various litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims or those arising in the normal course of business would not individually or in the aggregate have a material adverse effect on the Partnership's financial position or results of operations.
30
17. DISPOSITIONS, ACQUISITIONS AND DROP DOWN TRANSACTIONS
Tioga Midstream Disposition.
In February 2019, Tioga Midstream, LLC, a subsidiary of SMLP, and certain affiliates of SMLP (collectively, “Summit”) entered into two Purchase and Sale Agreements (the “Tioga PSAs”) with Hess Infrastructure Partners LP and Hess North Dakota Pipelines LLC (collectively, “Hess Infrastructure”), pursuant to which Summit agreed to sell the Tioga Midstream system to Hess Infrastructure for a combined cash purchase price of $90 million, subject to adjustments as provided in the Tioga PSAs (the “Tioga Midstream Sale”). On March 22, 2019, Summit closed the Tioga Midstream Sale and recorded a gain on sale of $0.9 million based on the difference between the consideration received and the carrying value for Tioga Midstream at closing. The gain is included in the Gain on asset sales, net caption on the unaudited condensed consolidated statement of operations. The financial results of Tioga Midstream (a component of the Williston Basin reportable segment) are included in our unaudited condensed consolidated financial statements and footnotes for the period from January 1, 2019 through March 22, 2019.
2016 Drop Down.
In 2016, SMLP acquired a controlling interest in OpCo, the entity which owns the 2016 Drop Down Assets. These assets include certain natural gas, crude oil and produced water gathering systems located in the Utica Shale, the Williston Basin and the DJ Basin, as well as ownership interests in Ohio Gathering.
The net consideration paid and recognized in connection with the 2016 Drop Down (i) consisted of a cash payment to SMP Holdings of
$360.0 million
funded with borrowings under our Revolving Credit Facility and a
$0.6 million
working capital adjustment received in June 2016 (the “Initial Payment”) and (ii) includes the Deferred Purchase Price Obligation payment due in 2020.
In March 2019, the Partnership amended the Contribution Agreement related to the 2016 Drop Down and fixed the Remaining Consideration at $303.5 million, with such amount to be paid by the Partnership in one or more payments over the period from March 1, 2020 through December 31, 2020, in (i) cash, (ii) the Partnership’s common units or (iii) a combination of cash and the Partnership’s common units, at the discretion of the Partnership. At least 50% of the Remaining Consideration must be paid on or before June 30, 2020 and interest will accrue at a rate of 8% per annum on any portion of the Remaining Consideration that remains unpaid after March 31, 2020.
The present value of the Deferred Purchase Price Obligation is reflected as a liability on our balance sheet until paid. As of June 30, 2019, the Remaining Consideration, which reflects the net present value of the $303.5 million Deferred Purchase Price Obligation, was $292.1 million on the unaudited condensed consolidated balance sheet using a discount rate of 5.25%.
18. SUBSEQUENT EVENTS
We have evaluated subsequent events for recognition or disclosure in the unaudited condensed consolidated financial statements and no events have occurred that require recognition or disclosure.
31