Quarterly Report (10-q)

Date : 05/01/2019 @ 11:48AM
Source : Edgar (US Regulatory)
Stock : Enable Midstream Partners LP (ENBL)
Quote : 10.77  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _______________________________________
FORM 10-Q
 _______________________________________
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File No. 1-36413
 _______________________________________
ENABLE MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter)  
 _______________________________________
Delaware
 
72-1252419
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
One Leadership Square
211 North Robinson Avenue
Suite 150
Oklahoma City, Oklahoma 73102
(Address of principal executive offices)
(Zip Code)

(405) 525-7788
Registrant’s telephone number, including area code
 _______________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Units Representing Limited Partner Interests
 
ENBL
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of April 12, 2019 , there were 435,073,301 common units outstanding.
 
 
 
 
 




ENABLE MIDSTREAM PARTNERS, LP
FORM 10-Q
TABLE OF CONTENTS
 

 AVAILABLE INFORMATION

Our website is www.enablemidstream.com. On the investor relations tab of our website, http://investors.enablemidstream.com, we make available free of charge a variety of information to investors. Our goal is to maintain the investor relations tab of our website as a portal through which investors can easily find or navigate to pertinent information about us, including but not limited to:
our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;
press releases on quarterly distributions, quarterly earnings, and other developments;
governance information, including our governance guidelines, committee charters, and code of ethics and business conduct;
information on events and presentations, including an archive of available calls, webcasts, and presentations;
news and other announcements that we may post from time to time that investors may find useful or interesting; and
opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.

Information contained on our website or any other website is not incorporated by reference into this report and does not constitute a part of this report.
 




i


GLOSSARY OF TERMS
 
2019 Notes.
$500 million aggregate principal amount of the Partnership’s 2.400% senior notes due 2019.
2019 Term Loan Agreement.
$1 billion unsecured term loan agreement.
2024 Notes.
$600 million aggregate principal amount of the Partnership’s 3.900% senior notes due 2024.
2027 Notes.
$700 million aggregate principal amount of the Partnership’s 4.400% senior notes due 2027.
2028 Notes.
$800 million aggregate principal amount of the Partnership’s 4.950% senior notes due 2028.
2044 Notes.
$550 million aggregate principal amount of the Partnership’s 5.000% senior notes due 2044.
Adjusted EBITDA.
A non-GAAP measure calculated as net income attributable to limited partners plus depreciation and amortization expense, interest expense, net of interest income, income tax expense, distributions received from equity method affiliate in excess of equity earnings, non-cash equity-based compensation, changes in fair value of derivatives, certain other non-cash gains and losses (including gains and losses on sales of assets and write-downs of materials and supplies) and impairments, less the noncontrolling interest allocable to Adjusted EBITDA.
Adjusted interest expense.
A non-GAAP measure calculated as interest expense plus amortization of premium on long-term debt and capitalized interest on expansion capital, less amortization of debt costs and discount on long-term debt.
Annual Report.
Annual Report on Form 10-K for the year ended December 31, 2018.
ASC.
Accounting Standards Codification.
ASU.
Accounting Standards Update.
Atoka.
Atoka Midstream LLC, in which the Partnership owns a 50% interest, which provides gathering and processing services to customers in the Arkoma Basin in Oklahoma.
ATM Program.
The offer and sale, from time to time, of common units representing limited partner interest having an aggregate offering price of up to $200 million in quantities, by sales methods and at prices determined by market conditions and other factors at the time of such sales, pursuant to that certain ATM Equity Offering Sales Agreement, entered into on May 12, 2017.
Barrel.
42 U.S. gallons of petroleum products.
Bbl.
Barrel.
Bbl/d.
Barrels per day.
Bcf/d.
Billion cubic feet per day.
Board of Directors.
The board of directors of Enable GP, LLC.
Btu.
British thermal unit. When used in terms of volume, Btu refers to the amount of natural gas required to raise the temperature of one pound of water by one degree Fahrenheit at one atmospheric pressure.
CenterPoint Energy.
CenterPoint Energy, Inc., a Texas corporation, and its subsidiaries.
Condensate.
A natural gas liquid with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions.
DCF.
Distributable Cash Flow, a non-GAAP measure calculated as Adjusted EBITDA, as further adjusted for Series A Preferred Unit distributions, distributions for phantom and performance units, Adjusted interest expense, maintenance capital expenditures and current income taxes. 
Distribution coverage ratio.
A non-GAAP measure calculated as DCF divided by distributions related to common unitholders.
DOT.
Department of Transportation.
EGR
Enable Gulf Run Transmission, LLC, a Delaware limited liability company, a wholly owned subsidiary of the Partnership.
EGT.
Enable Gas Transmission, LLC, a wholly owned subsidiary of the Partnership that operates an approximately 5,900-mile interstate pipeline that provides natural gas transportation and storage services to customers principally in the Anadarko, Arkoma and Ark-La-Tex Basins in Oklahoma, Texas, Arkansas, Louisiana and Kansas.
Enable GP.
Enable GP, LLC, a Delaware limited liability company and the general partner of Enable Midstream Partners, LP.
EOCS.
Enable Oklahoma Crude Services, LLC, formerly Velocity Holdings, LLC, a wholly owned subsidiary of the Partnership that provides crude oil and condensate gathering services in the SCOOP and STACK plays of the Anadarko Basin in Oklahoma.

1


EOIT.
Enable Oklahoma Intrastate Transmission, LLC, formerly Enogex LLC, a wholly owned subsidiary of the Partnership that operates an approximately 2,200-mile intrastate pipeline that provides natural gas transportation and storage services to customers in Oklahoma.
EOIT Senior Notes.
$250 million 6.25% senior notes due 2020.
ESCP.
Enable South Central Pipeline, LLC, formerly Velocity Pipeline Partners, LLC, a Delaware limited liability company, in which the Partnership, through EOCS, owns a 60% joint venture interest in a 26-mile pipeline system with a third party which owns and operates a refinery connected to the EOCS system.
Exchange Act.
Securities Exchange Act of 1934, as amended.
FASB.
Financial Accounting Standards Board.
FERC.
Federal Energy Regulatory Commission.
GAAP.
Generally accepted accounting principles in the United States.
Gas imbalance.
The difference between the actual amounts of natural gas delivered from or received by a pipeline, as compared to the amounts scheduled to be delivered or received.
Gross margin.
A non-GAAP measure calculated as Total revenues minus Cost of natural gas and natural gas liquids, excluding depreciation and amortization.
ICE.
Intercontinental Exchange.
LDC.
Local distribution company involved in the delivery of natural gas to consumers within a specific geographic area.
LIBOR.
London Interbank Offered Rate.
MBbl.
Thousand barrels.
MBbl/d.
Thousand barrels per day.
MMcf.
Million cubic feet of natural gas.
MMcf/d.
Million cubic feet per day.
MRT.
Enable Mississippi River Transmission, LLC, a wholly owned subsidiary of the Partnership that operates a 1,600-mile interstate pipeline that provides natural gas transportation and storage services principally in Texas, Arkansas, Louisiana, Missouri and Illinois.
NGLs.
Natural gas liquids, which are the hydrocarbon liquids contained within natural gas including condensate.
NYMEX.
New York Mercantile Exchange.
NYSE.
New York Stock Exchange.
OGE Energy.
OGE Energy Corp., an Oklahoma corporation, and its subsidiaries.
Partnership.
Enable Midstream Partners, LP, and its subsidiaries.
Partnership Agreement.
Fifth Amended and Restated Agreement of Limited Partnership of Enable Midstream Partners, LP dated as of November 14, 2017.
Revolving Credit Facility.
$1.75 billion senior unsecured revolving credit facility.
SCOOP.
South Central Oklahoma Oil Province.
SEC.
Securities and Exchange Commission.
Series A Preferred Units.
10% Series A Fixed-to-Floating Non-Cumulative Redeemable Perpetual Preferred Units representing limited partner interests in the Partnership.
SESH.
Southeast Supply Header, LLC, in which the Partnership owns a 50% interest, that operates an approximately 290-mile interstate natural gas pipeline from Perryville, Louisiana to southwestern Alabama near the Gulf Coast.
STACK.
Sooner Trend (oil field), Anadarko (basin), Canadian and Kingfisher (counties).
TBtu.
Trillion British thermal units.
TBtu/d.
Trillion British thermal units per day.
WTI.
West Texas Intermediate.

2


FORWARD-LOOKING STATEMENTS
 
Some of the information in this report may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “could,” “will,” “should,” “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this report include our expectations of plans, strategies, objectives, growth and anticipated financial and operational performance, including revenue projections, capital expenditures and tax position. Forward-looking statements can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed.
 
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, when considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report. Those risk factors and other factors noted throughout this report and in our Annual Report could cause our actual results to differ materially from those disclosed in any forward-looking statement. 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:
changes in general economic conditions;
competitive conditions in our industry;
actions taken by our customers and competitors;
the supply and demand for natural gas, NGLs, crude oil and midstream services;
our ability to successfully implement our business plan;
our ability to complete internal growth projects on time and on budget;
the price and availability of debt and equity financing;
strategic decisions by CenterPoint Energy and OGE Energy regarding their ownership of us and Enable GP;
operating hazards and other risks incidental to transporting, storing, gathering and processing natural gas, NGLs, crude oil and midstream products;
natural disasters, weather-related delays, casualty losses and other matters beyond our control;
interest rates;
the timing and extent of changes in labor and material prices;
labor relations;
large customer defaults;
changes in the availability and cost of capital;
changes in tax status;
the effects of existing and future laws and governmental regulations;
changes in insurance markets impacting costs and the level and types of coverage available;
the timing and extent of changes in commodity prices;
the suspension, reduction or termination of our customers’ obligations under our commercial agreements;
disruptions due to equipment interruption or failure at our facilities, or third-party facilities on which our business is dependent;
the effects of current or future litigation; and
other factors set forth in this report and our other filings with the SEC, including our Annual Report.
Forward-looking statements speak only as of the date on which they are made. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

3



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended March 31,
 
2019

2018
 
 
 
 
 
(In millions, except per unit data)
Revenues (including revenues from affiliates (Note 13)):





Product sales
$
443


$
443

Service revenues
352


305

Total Revenues
795


748

Cost and Expenses (including expenses from affiliates (Note 13)):




Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
378


375

Operation and maintenance
103


94

General and administrative
26


27

Depreciation and amortization
105


96

Taxes other than income tax
18


17

Total Cost and Expenses
630


609

Operating Income
165


139

Other Income (Expense):



Interest expense
(46
)

(33
)
Equity in earnings of equity method affiliate
3


6

Other, net


2

Total Other Expense
(43
)

(25
)
Income Before Income Tax
122


114

Income tax benefit
(1
)


Net Income
$
123


$
114

Less: Net income attributable to noncontrolling interest
1



Net Income Attributable to Limited Partners
$
122


$
114

Less: Series A Preferred Unit distributions (Note 7)
9


9

Net Income Attributable to Common Units (Note 6)
$
113


$
105







Basic earnings per unit (Note 6)





Common units
$
0.26


$
0.24

Diluted earnings per unit (Note 6)



Common units
$
0.26


$
0.24

 

See Notes to the Unaudited Condensed Consolidated Financial Statements
4


ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(In millions)
Current Assets:
 
Cash and cash equivalents
$
18

 
$
8

Restricted cash
1

 
14

Accounts receivable, net of allowance for doubtful accounts (Note 1)
261

 
290

Accounts receivable—affiliated companies
17

 
19

Inventory
51

 
50

Gas imbalances
22

 
29

Other current assets
32

 
39

Total current assets
402

 
449

Property, Plant and Equipment:
 
 
 
Property, plant and equipment
13,016

 
12,899

Less accumulated depreciation and amortization
2,110

 
2,028

Property, plant and equipment, net
10,906

 
10,871

Other Assets:
 
 
 
Intangible assets, net
647

 
663

Goodwill
98

 
98

Investment in equity method affiliate
308

 
317

Other
86

 
46

Total other assets
1,139

 
1,124

Total Assets
$
12,447

 
$
12,444

Current Liabilities:
 
 
 
Accounts payable
$
211

 
$
288

Accounts payable—affiliated companies
4

 
4

Current portion of long-term debt
756

 
500

Short-term debt
796

 
649

Taxes accrued
26

 
31

Gas imbalances
15

 
22

Other
133

 
121

Total current liabilities
1,941

 
1,615

Other Liabilities:
 
 
 
Accumulated deferred income taxes, net
4

 
5

Regulatory liabilities
23

 
23

Other
74

 
54

Total other liabilities
101

 
82

Long-Term Debt
2,822

 
3,129

Commitments and Contingencies (Note 14)

 

Partners’ Equity:
 
 
 
Series A Preferred Units (14,520,000 issued and outstanding at March 31, 2019 and December 31, 2018)
362

 
362

Common units (435,071,235 issued and outstanding at March 31, 2019 and 433,232,411 issued and outstanding at December 31, 2018, respectively)
7,183

 
7,218

Noncontrolling interest
38

 
38

Total Partners’ Equity
7,583

 
7,618

Total Liabilities and Partners’ Equity
$
12,447

 
$
12,444


See Notes to the Unaudited Condensed Consolidated Financial Statements
5


ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In millions)
Cash Flows from Operating Activities:
 
Net income
$
123

 
$
114

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
105

 
96

Deferred income taxes
(1
)
 

Loss on sale/retirement of assets
1

 
1

Equity in earnings of equity method affiliate
(3
)
 
(6
)
Return on investment in equity method affiliate
3

 
6

Equity-based compensation
4

 
5

Changes in other assets and liabilities:
 
 
 
Accounts receivable, net
27

 
24

Accounts receivable—affiliated companies
2

 
(1
)
Inventory
(1
)
 
1

Gas imbalance assets
7

 
2

Other current assets
10

 
(4
)
Other assets
5

 
(3
)
Accounts payable
(55
)
 
(62
)
Accounts payable—affiliated companies

 
2

Gas imbalance liabilities
(7
)
 
(4
)
Other current liabilities
4

 
(6
)
Other liabilities
(9
)
 
1

Net cash provided by operating activities
215

 
166

Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(143
)
 
(190
)
Proceeds from sale of assets

 
7

Return of investment in equity method affiliate
9

 
7

Other, net
(10
)
 

Net cash used in investing activities
(144
)
 
(176
)
Cash Flows from Financing Activities:
 
 
 
Increase in short-term debt
147

 
190

Proceeds from long-term debt, net of issuance costs
200

 

Repayment of Revolving Credit Facility
(250
)
 

Distributions
(148
)
 
(150
)
Cash paid for employee equity-based compensation
(23
)
 
(5
)
Net cash (used in) provided by financing activities
(74
)
 
35

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash
(3
)
 
25

Cash, Cash Equivalents and Restricted Cash at Beginning of Period
22

 
19

Cash, Cash Equivalents and Restricted Cash at End of Period
$
19

 
$
44


See Notes to the Unaudited Condensed Consolidated Financial Statements
6


ENABLE MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(Unaudited)
 
 
Series A
Preferred
Units
 
Common
Units
 
Noncontrolling
Interest
 
Total Partners’
Equity
 
Units
 
Value
 
Units
 
Value
 
Value
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance as of December 31, 2017
15

 
$
362

 
433

 
$
7,280

 
$
12

 
$
7,654

Net income

 
9

 

 
105

 

 
114

Distributions

 
(9
)
 

 
(139
)
 
(1
)
 
(149
)
Equity-based compensation, net of units for employee taxes

 

 

 

 

 

Balance as of March 31, 2018
15

 
$
362

 
433

 
$
7,246

 
$
11

 
$
7,619

 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
15

 
$
362

 
433

 
$
7,218

 
$
38

 
$
7,618

Net income

 
9

 

 
113

 
1

 
123

Distributions

 
(9
)
 

 
(138
)
 
(1
)
 
(148
)
Equity-based compensation, net of units for employee taxes

 

 
2

 
(10
)
 

 
(10
)
Balance as of March 31, 2019
15

 
$
362

 
435

 
$
7,183

 
$
38

 
$
7,583


See Notes to the Unaudited Condensed Consolidated Financial Statements
7


ENABLE MIDSTREAM PARTNERS, LP
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

(1) Summary of Significant Accounting Policies

Organization
 
Enable Midstream Partners, LP is a Delaware limited partnership whose assets and operations are organized into two reportable segments: (i) gathering and processing and (ii) transportation and storage. The gathering and processing segment primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers. The transportation and storage segment provides interstate and intrastate natural gas pipeline transportation and storage services primarily to our producer, power plant, LDC and industrial end-user customers. The Partnership’s natural gas gathering and processing assets are primarily located in Oklahoma, Texas, Arkansas and Louisiana and serve natural gas production in the Anadarko, Arkoma and Ark-La-Tex Basins. Crude oil gathering assets are located in Oklahoma and serve crude oil production in the SCOOP and STACK plays of the Anadarko Basin and in North Dakota and serve crude oil production in the Bakken Shale formation of the Williston Basin. The Partnership’s natural gas transportation and storage assets consist primarily of an interstate pipeline system extending from western Oklahoma and the Texas Panhandle to Louisiana, an interstate pipeline system extending from Louisiana to Illinois, an intrastate pipeline system in Oklahoma, and our investment in SESH, a pipeline extending from Louisiana to Alabama.
 
CenterPoint Energy and OGE Energy each have 50% of the management interests in Enable GP. Enable GP is the general partner of the Partnership and has no other operating activities. Enable GP is governed by a board made up of two representatives designated by each of CenterPoint Energy and OGE Energy, along with the Partnership’s Chief Executive Officer and three independent board members CenterPoint Energy and OGE Energy mutually agreed to appoint. CenterPoint Energy and OGE Energy also own a 40% and 60% interest, respectively, in the incentive distribution rights held by Enable GP.

As of March 31, 2019 , CenterPoint Energy held approximately 53.8% or 233,856,623 of the Partnership’s common units, and OGE Energy held approximately 25.5% or 110,982,805 of the Partnership’s common units. Additionally, CenterPoint Energy holds 14,520,000 Series A Preferred Units. The limited partner interests of the Partnership have limited voting rights on matters affecting the business. As such, limited partners do not have rights to elect the Partnership’s general partner on an annual or continuing basis and may not remove Enable GP, its current general partner, without at least a  75%  vote by all unitholders, including all units held by the Partnership’s limited partners, and Enable GP and its affiliates, voting together as a single class.
 
As of March 31, 2019 , the Partnership owned a 50% interest in SESH. See Note 8 for further discussion of SESH. For the three months ended March 31, 2019 , the Partnership held a 50% ownership in Atoka and consolidated Atoka in its Condensed Consolidated Financial Statements as EOIT acted as the managing member of Atoka and had control over the operations of Atoka. In addition, beginning November 1, 2018 through March 31, 2019 , the Partnership owned a 60% interest in ESCP, which is consolidated in its Condensed Consolidated Financial Statements as EOCS acted as the managing member of ESCP and had control over the operations of ESCP.

Basis of Presentation

The accompanying condensed consolidated financial statements and related notes of the Partnership have been prepared pursuant to the rules and regulations of the SEC and GAAP. Pursuant to such rules and regulations, certain disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report.  

 The condensed consolidated financial statements and the related notes reflect all normal recurring adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective periods. Amounts reported in the Partnership’s Condensed Consolidated Statements of Income are not necessarily indicative of amounts expected for a full-year period due to the effects of, among other things, (a) seasonal fluctuations in demand for energy and energy services, (b) changes in energy commodity prices, (c) timing of maintenance and other expenditures and (d) acquisitions and dispositions of businesses, assets and other interests.
 
For a description of the Partnership’s reportable segments, see Note 16.


8


Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Depreciation Expense

The Partnership completed a depreciation study for the Gathering and Processing and Transportation and Storage segments. Effective January 1, 2019, the new depreciation rates have been applied prospectively as a change in accounting estimate. The new depreciation rates did not result in a material change in depreciation expense or results of operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not typically bear interest. The determination of the allowance for doubtful accounts requires management to make estimates and judgments regarding our customers’ ability to pay. The allowance for doubtful accounts is determined based upon specific identification and estimates of future uncollectable amounts. On an ongoing basis, we evaluate our customers’ financial strength based on aging of accounts receivable, payment history, and review of other relevant information, including ratings agency credit ratings and alerts, publicly available reports and news releases, and bank and trade references. It is the policy of management to review the outstanding accounts receivable at least quarterly, giving consideration to credit losses, the aging of receivables, specific customer circumstances that may impact their ability to pay the amounts due and current and forecasted economic conditions over the assets contractual lives. Based on this review, management determined that a $2 million allowance for doubtful accounts was required at March 31, 2019 and December 31, 2018 .

Inventory

Natural gas inventory is held, through the transportation and storage segment, to provide operational support for the intrastate pipeline deliveries and to manage leased intrastate storage capacity. Natural gas liquids inventory is held, through the gathering and processing segment, due to timing differences between the production of certain natural gas liquids and ultimate sale to third parties. Natural gas and natural gas liquids inventory is valued using moving average cost and is subsequently recorded at the lower of cost or net realizable value. The Partnership’s Inventory balance is net of $1 million and $4 million lower of cost or net realizable value adjustments as of March 31, 2019 and December 31, 2018 , respectively.


(2) New Accounting Pronouncements

Accounting Standards to be Adopted in Future Periods

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a more timely manner. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted for interim and annual periods beginning after December 15, 2018. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

Intangibles—Goodwill and Other

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard requires entities to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. The standard is effective for interim and annual reporting periods beginning after December 15, 2019. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.


9


Fair Value Measurement—Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” which focuses on improving the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The standard is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. The Partnership expects to adopt these standards in the first quarter of 2020 and continues to evaluate the other impacts of the new standards on our Condensed Consolidated Financial Statements and related disclosures.

Intangibles—Goodwill and Other—Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, which aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for interim and annual periods beginning after December 15, 2019. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.

Collaborative Arrangements

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.” This standard resolves the diversity in practice concerning the manner in which entities account for transactions on the basis of their view of the economics of the collaborative arrangement. The amendments (1) clarify that certain transactions between collaborative participants should be accounted for as revenue under topic 606 when the collaborative participant is a customer in the context of the unit of account; (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606; and (3) clarify that in a transaction that is not directly related to sales to third parties, presenting the transaction as revenue would be precluded if the collaborative participant counterparty was not a customer. The standard is effective for interim and annual periods beginning after December 15, 2019. The Partnership does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements and related disclosures.


(3) Revenues

The following tables disaggregate total revenues by major source from contracts with customers and the gain (loss) on derivative activity for the three months ended March 31, 2019 and 2018 .
 
Three Months Ended March 31, 2019
 
Gathering and
Processing
 
Transportation
and Storage
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
(In millions)
Revenues:
 
 
 
 
 
 
 
Product sales:
 
 
 
 
 
 
 
Natural gas
$
128

 
$
162

 
$
(141
)
 
$
149

Natural gas liquids
270

 
6

 
(6
)
 
270

Condensate
34

 

 

 
34

Total revenues from natural gas, natural gas liquids, and condensate
432

 
168

 
(147
)
 
453

Gain (loss) on derivative activity
(9
)
 
(1
)
 

 
(10
)
Total Product sales
$
423

 
$
167

 
$
(147
)
 
$
443

Service revenues:

 

 

 

Demand revenues
$
60

 
$
131

 
$

 
$
191

Volume-dependent revenues
147

 
18

 
(4
)
 
161

Total Service revenues
$
207

 
$
149

 
$
(4
)
 
$
352

Total Revenues
$
630

 
$
316

 
$
(151
)
 
$
795


10



 
Three Months Ended March 31, 2018
 
Gathering and
Processing
 
Transportation
and Storage
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
(In millions)
Revenues:
 
 
 
 
 
 
 
Product sales:
 
 
 
 
 
 
 
Natural gas
$
106

 
$
131

 
$
(109
)
 
$
128

Natural gas liquids
279

 
7

 
(7
)
 
279

Condensate
36

 

 

 
36

Total revenues from natural gas, natural gas liquids, and condensate
421

 
138

 
(116
)
 
443

Gain (loss) on derivative activity
(3
)
 
2

 
1

 

Total Product sales
$
418

 
$
140

 
$
(115
)
 
$
443

Service revenues:
 
 
 
 
 
 
 
Demand revenues
$
50

 
$
120

 
$

 
$
170

Volume-dependent revenues
123

 
19

 
(7
)
 
135

Total Service revenues
$
173

 
$
139

 
$
(7
)
 
$
305

Total Revenues
$
591

 
$
279

 
$
(122
)
 
$
748


Accounts Receivable

The table below summarizes the change in accounts receivable for the three months ended March 31, 2019 .

 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
(In millions)
Accounts Receivable:
 
 
 
Customers
$
259

 
$
297

Contract assets (1)
14

 
6

Non-customers
5

 
6

Total Accounts Receivable (2)
$
278

 
$
309

____________________
(1)
Contract assets reflected in Total Accounts Receivable include accrued minimum volume commitments. Contract assets increased $8 million compared to December 31, 2018 primarily due to the increase in estimated shortfall volumes on certain annual minimum volume commitment arrangements. Total Accounts Receivable does not include $4 million of contracts assets related to firm service transportation contracts with tiered rates, which are reflected in Other Assets.
(2)
Total Accounts Receivable includes Accounts receivables, net of allowance for doubtful accounts and Accounts receivable—affiliated companies.

Contract Liabilities

Our contract liabilities primarily consist of prepayments received from customers for which the good or service has not yet been provided in connection with the prepayment. The table below summarizes the change in the contract liabilities for the three months ended March 31, 2019 :

 
March 31,
2019
 
December 31,
2018
 
Amounts recognized in revenues
 
 
 
 
 
 
 
(In millions)
Deferred revenues
$
48

 
$
48

 
$
20



11



The table below summarizes the timing of recognition of these contract liabilities as of March 31, 2019 :
 
2019
 
2020
 
2021
 
2022
 
2023 and After
 
(In millions)
Deferred revenues
$
22

 
$
6

 
$
5

 
$
5

 
$
10


Remaining Performance Obligations

Our remaining performance obligations consist primarily of firm arrangements and minimum volume commitment arrangements. Upon completion of the performance obligations associated with these arrangements, customers are invoiced and revenue is recognized as Service revenues in the Consolidated Statements of Income. The table below summarizes the timing of recognition of the remaining performance obligations as of March 31, 2019 :

 
2019
 
2020
 
2021
 
2022
 
2023 and After
 
(In millions)
Transportation and Storage
$
344

 
$
356

 
$
200

 
$
156

 
$
774

Gathering and Processing
220

 
164

 
136

 
138

 
461

Total remaining performance obligations
$
564

 
$
520

 
$
336

 
$
294

 
$
1,235



(4) Leases

On January 1, 2019, the Partnership adopted ASU 2016-02, “Leases (ASC 842).” This standard requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Partnership has applied the standard to only contracts that were not expired as of January 1, 2019.

The Partnership elected the optional transition practical expedient to not evaluate land easements that exist or expire before the Partnership's adoption of ASC 842 and that were not previously accounted for as leases under ASC 840. The Partnership elected the optional transition practical expedient to not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for any existing leases. Upon adoption, we increased our asset and liability balances on the Condensed Consolidated Balance Sheets by approximately $35 million due to the required recognition of right-of-use assets and corresponding lease liabilities for all lease obligations that were classified as operating leases. The Partnership did not recognize a material cumulative adjustment to the Condensed Consolidated Statement of Partners’ Equity and we did not have any material changes in the timing of expense recognition or our accounting policies.

Our lease obligations are primarily comprised of rentals of field equipment and buildings, which are recorded as Operation and maintenance and General and administrative expenses in the Partnership’s Condensed Consolidated Statements of Income. Other than the contractual terms for each lease obligation, the key inputs for our calculations of the initial right-of-use assets and corresponding lease liabilities are the expected remaining life and applicable discount rate. Field equipment has an expected lease term of three to five years, with contractual base terms of one to three years followed by month-to-month renewals. Field equipment rental arrangements do not generally contain any significant variable lease payments. While certain arrangements may include lower standby rates, field equipment is generally anticipated to be in use for all of its expected lease term. Buildings have an expected lease term of seven to ten years, which is currently the same as the contractual base term. Building rental arrangements contain market-based renewal options of up to 15 years. Variable lease payments for buildings are generally comprised of costs for utilities, maintenance and building management services. There are no variable lease payments due under building rental arrangements until July 1, 2019, after which amounts will be due monthly. The Partnership is generally not aware of the implicit rate for either field equipment or building rental arrangements, so discount rates are based upon the expected term of each arrangement and the Partnership’s uncollateralized borrowing rate associated with the expected term at the time of lease inception. As of March 31, 2019 , the weighted average remaining lease term is 4.2 years and the weighted average discount rate is 5.55% .


12


As of March 31, 2019 , we have right-of-use assets of $33 million recorded as Other Assets, $8 million of corresponding obligations recorded as Other Current Liabilities and $26 million of corresponding obligations recorded as Other Liabilities on the Partnership’s Condensed Consolidated Balance Sheet. All lease obligations outstanding during the three months ended March 31, 2019 were classified as operating leases, therefore all cash flows are reflected in Cash Flows from Operating Activities. During the three months ended March 31, 2019 , rental costs associated with field equipment and buildings were $7 million and $2 million , respectively.

The table below summarizes lease expense for the three-month period ended March 31, 2019:

 
Three Months Ended March 31, 2019
 
Gathering and
Processing
 
Transportation
and Storage
 
Total
 
 
 
 
 
 
 
(In millions)
Lease Expense:
 
 
 
 
 
Lease Cost:
 
 
 
 
 
Operating lease cost
$
2

 
$

 
$
2

Short-term lease cost
6

 
1

 
7

Total Lease Cost
$
8

 
$
1

 
$
9


Under ASC 842, as of March 31, 2019 , the Partnership has operating lease obligations expiring at various dates. The $17 million difference between undiscounted cash flows for operating leases and our $35 million of lease obligations is due to the impact of the applicable discount rate. Undiscounted cash flows for operating lease liabilities are as follows:

 
Year Ended December 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
2024 and After
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Noncancellable operating leases
$
11

 
$
11

 
$
6

 
$
5

 
$
5

 
$
14

 
$
52


Under ASC 840, as of December 31, 2018 , the Partnership had the following operating lease obligations as well as the estimate of the period in which the obligation will be settled:

 
Year Ended December 31,
 
2019
 
2020-2021
 
2022-2023
 
After 2023
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Noncancellable operating leases
$
14

 
$
6

 
$
6

 
$
14

 
$
40





13


(5) Acquisition

Velocity Holdings, LLC Acquisition

On November 1, 2018, the Partnership acquired all of the equity interests in Velocity Holdings, LLC, now EOCS, which owns and operates a crude oil and condensate gathering system in the SCOOP and STACK plays of the Anadarko Basin, for approximately $444 million in cash, subject to certain customary working capital adjustments. The acquisition was accounted for as a business combination and was funded with borrowings under the commercial paper program. During the fourth quarter of 2018, the Partnership finalized the purchase price allocation as of November 1, 2018.

The following table presents the fair value of the identified assets acquired and liabilities assumed at the acquisition date:

Purchase price allocation:
 
Assets acquired:
 
Cash
$
1

Current Assets
3

Property, plant and equipment
124

Intangibles
259

Goodwill
86

Liabilities assumed:
 
Current liabilities
1

Less: Non-Controlling Interest at fair value
28

Total identifiable net assets
$
444


The Partnership recognized intangible assets related to customer relationships. The acquired intangible assets will be amortized on a straight-line basis over the estimated customer contract life of approximately 15 years. Goodwill recognized from the acquisition primarily relates to greater operating leverage in the Anadarko Basin and is allocated to the gathering and processing segment. Included within the acquisition was 60% of a 26 -mile pipeline system joint venture with a third party which owns and operates a refinery connected to the EOCS system. This joint venture’s financials have been consolidated within the Partnership’s financial statements resulting in $28 million in non-controlling interest. The Partnership incurred approximately $6 million of acquisition costs associated with this transaction, which were included in General and administrative expense in the Consolidated Statements of Income for the twelve months ended December 31, 2018 . The Partnership determined not to include pro forma consolidated financial statements for the periods presented as the impact would not be material.

 

14


(6) Earnings Per Limited Partner Unit

The following table illustrates the Partnership’s calculation of earnings per unit for common units:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In millions, except per unit data)
Net income
$
123

 
$
114

Net income attributable to noncontrolling interest
1

 

Series A Preferred Unit distributions
9

 
9

General partner interest in net income

 

Net income available to common unitholders
$
113

 
$
105

 
 
 
 
Net income allocable to common units
$
113

 
$
105

Dilutive effect of Series A Preferred Unit distributions

 

Diluted net income allocable to common units
113

 
105

 
 
 
 
Basic earnings per unit
 
 
 
Common units
$
0.26

 
$
0.24

 
 
 
 
Basic weighted average number of common units outstanding (1)
435

 
434

Dilutive effect of Series A Preferred Units

 

Dilutive effect of performance units

 
1

Diluted weighted average number of common units outstanding
435

 
435

 
 
 
 
Diluted earnings per unit
 
 
 
Common units
$
0.26

 
$
0.24

____________________
(1)
Basic weighted average number of outstanding common units includes approximately one million time-based phantom units for each of the three months ended March 31, 2019 and 2018 , respectively.


(7) Partners’ Equity

The Partnership Agreement requires that, within 60 days after the end of each quarter, the Partnership distribute all of its available cash (as defined in the Partnership Agreement) to unitholders of record on the applicable record date.

The Partnership paid or has authorized payment of the following cash distributions to common unitholders, as applicable, during 2018 and 2019 (in millions, except for per unit amounts):
Three Months Ended
 
Record Date
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
March 31, 2019 (1)
 
May 21, 2019
 
May 29, 2019
 
$
0.318

 
$
138

December 31, 2018
 
February 19, 2019
 
February 26, 2019
 
0.318

 
138

September 30, 2018
 
November 16, 2018
 
November 29, 2018
 
0.318

 
138

June 30, 2018
 
August 21, 2018
 
August 28, 2018
 
0.318

 
138

March 31, 2018
 
May 22, 2018
 
May 29, 2018
 
0.318

 
138

_____________________
(1)
The Board of Directors declared this $0.318 per common unit cash distribution on April 29, 2019 , to be paid on May 29, 2019 , to common unitholders of record at the close of business on May 21, 2019 .


15


The Partnership paid or has authorized payment of the following cash distributions to holders of the Series A Preferred Units during 2018 and 2019 (in millions, except for per unit amounts):
Three Months Ended
 
Record Date
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
March 31, 2019 (1)
 
April 29, 2019
 
May 15, 2019
 
$
0.625

 
$
9

December 31, 2018
 
February 8, 2019
 
February 14, 2019
 
0.625

 
9

September 30, 2018
 
November 6, 2018
 
November 14, 2018
 
0.625

 
9

June 30, 2018
 
August 1, 2018
 
August 14, 2018
 
0.625

 
9

March 31, 2018
 
May 1, 2018
 
May 15, 2018
 
0.625

 
9

_____________________
(1)
The Board of Directors declared a $0.625 per Series A Preferred Unit cash distribution on April 29, 2019 , to be paid on May 15, 2019 , to Series A Preferred unitholders of record at the close of business on April 29, 2019 .

ATM Program

On May 12, 2017, the Partnership entered into an ATM Equity Offering Sales Agreement, pursuant to which the Partnership may issue and sell common units having an aggregate offering price of up to $200 million , by sales methods and at prices determined by market conditions and other factors at the time of our offerings. The Partnership has no obligation to sell any common units under the ATM Program and the Partnership may suspend sales under the ATM Program at any time. During the three months ended March 31, 2019 and March 31, 2018 , the Partnership did not issue common units under the ATM Program. As of March 31, 2019 , $197 million of common units remained available for issuance through the ATM Program.


(8) Investment in Equity Method Affiliate
 
The Partnership uses the equity method of accounting for investments in entities in which it has an ownership interest between 20% and 50% and exercises significant influence.
 
SESH is owned 50% by Enbridge, Inc. and 50% by the Partnership. Pursuant to the terms of the SESH LLC Agreement, if, at any time, CenterPoint Energy has a right to receive less than 50% of our distributions through its interest in the Partnership and its economic interest in Enable GP, or does not have the ability to exercise certain control rights, Enbridge, Inc. may, under certain circumstances, have the right to purchase the Partnership’s interest in SESH at fair market value, subject to certain exceptions.

The Partnership shares operations of SESH with Enbridge, Inc. under service agreements. The Partnership is responsible for the field operations of SESH. SESH reimburses each party for actual costs incurred, which are billed based upon a combination of direct charges and allocations. The Partnership billed SESH $3 million and $2 million during the three months ended March 31, 2019 and 2018 , respectively, associated with these service agreements.

The Partnership includes equity in earnings of equity method affiliate under the Other Income (Expense) caption in the Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 .

SESH:
 
Three Months Ended March 31,
 
2019

2018
 
 
 
 
 
(In millions)
Equity in Earnings of Equity Method Affiliate
$
3

 
$
6

Distributions from Equity Method Affiliate (1)
$
12

 
$
13

___________________
(1)
Distributions from equity method affiliate includes a $3 million and $6 million return on investment and a $9 million and $7 million return of investment for the three months ended March 31, 2019 and 2018 , respectively.


16


Summarized financial information of SESH:
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In millions)
Income Statements:
 
 
 
Revenues
$
27

 
$
28

Operating income
$
11

 
$
17

Net income
$
7

 
$
12


 
(9) Debt

The following table presents the Partnership’s outstanding debt as of March 31, 2019 and December 31, 2018 .
 
March 31, 2019
 
December 31, 2018
 
Outstanding Principal
 
Premium (Discount)
 
Total Debt
 
Outstanding Principal
 
Premium (Discount)
 
Total Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Commercial Paper
$
796

 
$

 
$
796

 
$
649

 
$

 
$
649

Revolving Credit Facility

 

 

 
250

 

 
250

2019 Term Loan Agreement
200

 

 
200

 

 

 

2019 Notes
500

 

 
500

 
500

 

 
500

2024 Notes
600

 

 
600

 
600

 

 
600

2027 Notes
700

 
(2
)
 
698

 
700

 
(2
)
 
698

2028 Notes
800

 
(6
)
 
794

 
800

 
(6
)
 
794

2044 Notes
550

 

 
550

 
550

 

 
550

EOIT Senior Notes
250

 
6

 
256

 
250

 
7

 
257

Total debt
$
4,396

 
$
(2
)
 
$
4,394

 
$
4,299

 
$
(1
)
 
$
4,298

Less: Short-term debt (1)
 
 
 
 
796

 
 
 
 
 
649

Less: Current portion of long-term debt (2)
 
 
 
 
756

 
 
 
 
 
500

Less: Unamortized debt expense  (3)
 
 
 
 
20

 
 
 
 
 
20

Total long-term debt
 
 
 
 
$
2,822

 
 
 
 
 
$
3,129

____________________
(1)
Short-term debt includes $796 million and $649 million of outstanding commercial paper as of March 31, 2019 and December 31, 2018 , respectively.
(2)
As of March 31, 2019 , Current portion of long-term debt includes $756 million outstanding balances of the 2019 Notes due May 15, 2019 and EOIT Senior Notes due March 15, 2020. As of December 31, 2018 , Current portion of long-term debt includes $500 million outstanding balance of the 2019 Notes due May 15, 2019.
(3)
As of March 31, 2019 and December 31, 2018 , there was an additional $5 million and $6 million , respectively, of unamortized debt expense related to the Revolving Credit Facility included in Other assets, not included above.

Commercial Paper

The Partnership has a commercial paper program, pursuant to which the Partnership is authorized to issue up to $1.4 billion of commercial paper. The commercial paper program is supported by our Revolving Credit Facility, and outstanding commercial paper effectively reduces our borrowing capacity thereunder. There were $796 million and $649 million outstanding under our commercial paper program at March 31, 2019 and December 31, 2018 , respectively. The weighted average interest rate for the outstanding commercial paper was 3.41% as of March 31, 2019 .

17



Revolving Credit Facility

On April 6, 2018, the Partnership amended and restated its Revolving Credit Facility. As amended and restated, the Revolving Credit Facility is a $1.75 billion , 5 -year senior unsecured revolving credit facility, which under certain circumstances may be increased from time to time up to an additional $875 million , in aggregate. The Revolving Credit Facility is scheduled to mature on April 6, 2023, subject to an extension option, which could be exercised two times to extend the term of the Revolving Credit Facility, in each case, for an additional one -year term. As of March 31, 2019 , there were no principal advances and $3 million in letters of credit outstanding under the Restated Revolving Credit Facility.

The Revolving Credit Facility provides that outstanding borrowings bear interest at the LIBOR and/or an alternate base rate, at the Partnership’s election, plus an applicable margin. The applicable margin is based on the Partnership’s applicable credit ratings. As of March 31, 2019 , the applicable margin for LIBOR-based borrowings under the Revolving Credit Facility was 1.50% based on the Partnership’s credit ratings. In addition, the Revolving Credit Facility requires the Partnership to pay a fee on unused commitments. The commitment fee is based on the Partnership’s applicable credit rating from the rating agencies. As of March 31, 2019 , the commitment fee under the restated Revolving Credit Facility was 0.20% per annum based on the Partnership’s credit ratings. The commitment fee is recorded as interest expense in the Partnership’s Condensed Consolidated Statements of Income.

2019 Term Loan Agreement

On January 29, 2019, the Partnership entered into an unsecured term loan agreement, providing for up to $1 billion in advances with Bank of America, N.A., as administrative agent, and the several lenders thereto. The 2019 Term Loan Agreement has a scheduled maturity date of January 29, 2022, but contains an option, which may be exercised up to two times, to extend the maturity date for an additional one-year term. As of March 31, 2019 , there is a principal advance of $200 million outstanding under the 2019 Term Loan Agreement, and a delayed-draw feature permits the Partnership to borrow up to an additional $800 million within 180 days of the closing date, subject to the terms and conditions of the 2019 Term Loan Agreement. The 2019 Term Loan Agreement provides that outstanding borrowings bear interest at the eurodollar rate and/or an alternate base rate, at the Partnership’s election, plus an applicable margin. The applicable margin is based on the Partnership’s designated ratings from Standard & Poor’s Rating Services, Moody’s Investor Services and Fitch Ratings. The applicable margin shall equal, (1) in the case of interest rates determined by reference to the eurodollar rate, between 0.75% and 1.50% per annum and (2) in the case of interest rates determined by reference to the alternate base rate, between 0% and 0.50% per annum. As of March 31, 2019 , the applicable margin for LIBOR-based advances under the 2019 Term Loan Facility was 1.25% based on the Partnership’s credit ratings. As of March 31, 2019 , the weighted average interest rate of the 2019 Term Loan Agreement was 3.74% .

The 2019 Term Loan Agreement requires the Partnership to, starting April 29, 2019 and continuing until the date on which all commitments have expired or been terminated or the amount available to be drawn is zero, pay a ticking fee on each lender’s unused commitment amount. The ticking fee shall equal a per annum rate of 0.125% on the actual daily amount of such lender’s portion of the unused commitments.

Advances under the 2019 Term Loan Agreement are subject to certain conditions precedent, including the accuracy in all material respects of certain representations and warranties and the absence of any default or event of default. Advances under the 2019 Term Loan Agreement may be used to refinance indebtedness outstanding from time to time and for other general corporate purposes, including to fund acquisitions, investments and capital expenditures. Advances under the 2019 Term Loan Agreement can be prepaid, in whole or in part, at any time without premium or penalty, other than usual and customary LIBOR breakage costs, if applicable.

The 2019 Term Loan Agreement contains a financial covenant requiring the Partnership to maintain a ratio of consolidated funded debt to consolidated EBITDA as of the last day of each fiscal quarter of less than or equal to 5.00 to 1.00; provided that, for a certain period time following an acquisition by the Partnership or certain of its subsidiaries with a purchase price that when combined with the aggregate purchase price for all other such acquisitions in any rolling 12-month period, is equal to or greater than $25 million , the consolidated funded debt to consolidated EBITDA ratio as of the last day of each such fiscal quarter during such period would be permitted to be up to 5.50 to 1.00.

The 2019 Term Loan Agreement also contains covenants that restrict the Partnership and certain of its subsidiaries in respect of, among other things, mergers and consolidations, sales of all or substantially all assets, incurrence of subsidiary indebtedness, incurrence of liens, transactions with affiliates, designation of subsidiaries as Excluded Subsidiaries (as defined in the 2019 Term Loan Agreement), restricted payments, changes in the nature of their respective business and entering into certain restrictive agreements. The 2019 Term Loan Agreement is subject to acceleration upon the occurrence of certain defaults, including, among others, payment defaults on such facility, breach of representations, warranties and covenants, acceleration of indebtedness ( other

18


than intercompany and non-recourse indebtedness) of $100 million or more in the aggregate, change of control, nonpayment of uninsured judgments in excess of $100 million , and the occurrence of certain ERISA and bankruptcy events, subject where applicable to specified cure periods.

Senior Notes

As of March 31, 2019 , the Partnership’s debt included the 2019 Notes, 2024 Notes, 2027 Notes, 2028 Notes and 2044 Notes, which had $8 million of unamortized discount and $20 million of unamortized debt expense at March 31, 2019 , resulting in effective interest rates of 2.56% , 4.01% , 4.57% , 5.20% and 5.08% , respectively, during the three months ended March 31, 2019 .

As of March 31, 2019 , the Partnership’s debt included EOIT’s Senior Notes. The EOIT Senior Notes had $6 million of unamortized premium at March 31, 2019 , resulting in an effective interest rate of 3.80% during the three months ended March 31, 2019 .

As of March 31, 2019 , the Partnership and EOIT were in compliance with all of their debt agreements, including financial covenants.


(10) Derivative Instruments and Hedging Activities
 
The Partnership is exposed to certain risks relating to its ongoing business operations. The primary risk managed using derivative instruments is commodity price risk. The Partnership is also exposed to credit risk in its business operations.
 
Commodity Price Risk
 
The Partnership has used forward physical contracts, commodity price swap contracts and commodity price option features to manage the Partnership’s commodity price risk exposures in the past. Commodity derivative instruments used by the Partnership are as follows:
NGL put options, NGL futures and swaps, and WTI crude oil futures, swaps and swaptions are used to manage the Partnership’s NGL and condensate exposure associated with its processing agreements;
natural gas futures and swaps, natural gas options, natural gas swaptions and natural gas commodity purchases and sales are used to manage the Partnership’s natural gas exposure associated with its gathering, processing, transportation and storage assets, contracts and asset management activities.

Normal purchases and normal sales contracts are not recorded in Other Assets or Liabilities in the Condensed Consolidated Balance Sheets and earnings are recognized and recorded in the period in which physical delivery of the commodity occurs. Management applies normal purchases and normal sales treatment to: (i) commodity contracts for the purchase and sale of natural gas used in or produced by the Partnership’s operations and (ii) commodity contracts for the purchase and sale of NGLs produced by the Partnership’s gathering and processing business.
 
The Partnership recognizes its non-exchange traded derivative instruments as Other Assets or Liabilities in the Condensed Consolidated Balance Sheets at fair value with such amounts classified as current or long-term based on their anticipated settlement. Exchange traded transactions are settled on a net basis daily through margin accounts with a clearing broker and are recorded as Other Assets or Liabilities in the Condensed Consolidated Balance Sheets at fair value on a net basis with such amounts classified as current or long-term based on their anticipated settlement.
 
As of March 31, 2019 and December 31, 2018 , the Partnership had no derivative instruments that were designated as cash flow or fair value hedges for accounting purposes.

Credit Risk
 
Credit risk includes the risk that counterparties that owe the Partnership money or energy will breach their obligations. If the counterparties to these arrangements fail to perform, the Partnership may seek or be forced to enter into alternative arrangements. In that event, the Partnership’s financial results could be adversely affected, and the Partnership could incur losses.
 

19


Derivatives Not Designated as Hedging Instruments
 
Derivative instruments not designated as hedging instruments for accounting purposes are utilized in the Partnership’s asset management activities. For derivative instruments not designated as hedging instruments, the gain or loss on the derivative is recognized currently in earnings.

Quantitative Disclosures Related to Derivative Instruments
 
The majority of natural gas physical purchases and sales not designated as hedges for accounting purposes are priced based on a monthly or daily index, and the fair value is subject to little or no market price risk. Natural gas physical sales volumes exceed natural gas physical purchase volumes due to the marketing of natural gas volumes purchased via the Partnership’s processing contracts, which are not derivative instruments.

As of March 31, 2019 and December 31, 2018 , the Partnership had the following derivative instruments that were not designated as hedging instruments for accounting purposes:

 
March 31, 2019
 
December 31, 2018
   
Gross Notional Volume
 
Purchases
 
Sales
 
Purchases
 
Sales
Natural gas—   TBtu (1)
 
 
 
 
 
 
 
Financial fixed futures/swaps
15

 
29

 
16

 
28

Financial basis futures/swaps
17

 
45

 
18

 
29

Financial swaptions (3)

 
3

 

 
1

Physical purchases/sales

 
10

 

 
11

Crude oil (for condensate)—   MBbl (2)
 
 
 
 
 
 
 
Financial futures/swaps

 
735

 

 
945

Financial swaptions (3)

 
30

 

 
30

Natural gas liquids—   MBbl (4)
 
 
 
 
 
 
 
Financial futures/swaps
1,465

 
2,940

 
270

 
2,535

____________________
(1)
As of March 31, 2019 , 78.3% of the natural gas contracts had durations of one year or less, 20.2% had durations of more than one year and less than two years and 1.5% had durations of more than two years. As of December 31, 2018 , 74.0% of the natural gas contracts had durations of one year or less, 24.2% had durations of more than one year and less than two years and 1.8% had durations of more than two years.
(2)
As of March 31, 2019 , 86.3% of the crude oil (for condensate) contracts had durations of one year or less and 13.7% had durations of more than one year and less than two years. As of December 31, 2018 , 76.9% of the crude oil (for condensate) contracts had durations of one year or less and 23.1% had durations of more than one year and less than two years.
(3)
The notional contains a combined derivative instrument consisting of a fixed price swap and a sold option, which gives the counterparties the right, but not the obligation, to increase the notional quantity hedged under the fixed price swap until the option expiration date. The notional volume represents the volume prior to option exercise.
(4)
As of March 31, 2019 , 94.9% of the natural gas liquids contracts had durations of one year or less and 5.1% had durations of more than one year and less than two years. As of December 31, 2018 , 86.1% of the natural gas liquid contracts had durations of one year or less and 13.9% had durations of more than one year and less than two years.


20


Balance Sheet Presentation Related to Derivative Instruments
 
The fair value of the derivative instruments that are presented in the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 that were not designated as hedging instruments for accounting purposes are as follows:
 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
 
Fair Value
Instrument
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Natural gas
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 
$
1

 
$
1

 
$
3

 
$
5

Financial futures/swaps
Other
 

 
2

 

 
2

Physical purchases/sales
Other Current
 
2

 

 
3

 

Physical purchases/sales
Other
 
2

 

 
4

 

Crude oil (for condensate)
 
 
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 

 
4

 
9

 
3

Financial futures/swaps
Other
 
1

 

 
2

 

Natural gas liquids
 
 
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 
10

 

 
10

 
1

Financial futures/swaps
Other
 
1

 

 
2

 

Total gross derivatives (1)
 
 
$
17

 
$
7

 
$
33

 
$
11

_____________________
(1)
See Note 11 for a reconciliation of the Partnership’s total derivatives fair value to the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 .

Income Statement Presentation Related to Derivative Instruments
 
The following table presents the effect of derivative instruments on the Partnership’s Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 :

 
Amounts Recognized in Income
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In millions)
Natural gas
 
 
 
Financial futures/swaps (losses) gains
$
(1
)
 
$
(3
)
Physical purchases/sales gains
(1
)
 
2

Crude oil (for condensate)
 
 
 
Financial futures/swaps (losses) gains
(11
)
 
(3
)
Financial swaptions (losses) gains

 

Natural gas liquids
 
 
 
Financial futures/swaps (losses) gains
3

 
4

Total
$
(10
)
 
$


For derivatives not designated as hedges in the tables above, amounts recognized in income for the periods ended March 31, 2019 and 2018 , if any, are reported in Product sales.
    

21


The following table presents the components of gain (loss) on derivative activity in the Partnership’s Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 :

 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
 
(In millions)
Change in fair value of derivatives
$
(12
)
 
$
(2
)
Realized gain (loss) on derivatives
2

 
2

Gain (loss) on derivative activity
$
(10
)
 
$


Credit-Risk Related Contingent Features in Derivative Instruments
 
In the event Moody’s Investors Services or Standard & Poor’s Ratings Services were to lower the Partnership’s senior unsecured debt rating to a below investment grade rating, the Partnership could be required to provide additional credit assurances to third parties, which could include letters of credit or cash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position. As of March 31, 2019 , under these obligations, the Partnership has posted no cash collateral related to NGL swaps and crude swaps and swaptions and no additional collateral may be required to be posted by the Partnership in the event of a credit ratings downgrade to a below investment grade rating.


(11) Fair Value Measurements
 
Certain assets and liabilities are recorded at fair value in the Condensed Consolidated Balance Sheets and are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined below and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities are as follows:
 
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Instruments classified as Level 1 include natural gas futures, swaps and options transactions for contracts traded on either the NYMEX or the ICE and settled through either a NYMEX or ICE clearing broker.
 
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, and inputs other than quoted prices that are observable for the asset or liability. Fair value assets and liabilities that are generally included in this category are derivatives with fair values based on inputs from actively quoted markets. Instruments classified as Level 2 generally include over-the-counter natural gas swaps, natural gas swaptions, natural gas basis swaps and natural gas purchase and sales transactions in markets such that the pricing is closely related to the NYMEX or the ICE pricing, and over-the-counter WTI crude oil swaps and swaptions for condensate sales.
 
Level 3: Inputs are unobservable for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Unobservable inputs reflect the Partnership’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Partnership develops these inputs based on the best information available, including the Partnership’s own data.
 
The Partnership utilizes the market approach in determining the fair value of its derivative positions by using either NYMEX, ICE or WTI published market prices, independent broker pricing data or broker/dealer valuations. The valuations of derivatives with pricing based on NYMEX or ICE published market prices may be considered Level 1 if they are settled through a NYMEX or ICE clearing broker account with daily margining. Over-the-counter derivatives with NYMEX, ICE or WTI based prices are considered Level 2 due to the impact of counterparty credit risk. Valuations based on independent broker pricing or broker/dealer valuations may be classified as Level 2 only to the extent they may be validated by an additional source of independent market data for an identical or closely related active market. Certain derivatives with option features may be classified as Level 2 if valued using an industry standard Black-Scholes option pricing model that contain observable inputs in the marketplace throughout the term of the derivative instrument. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, contracts are valued using internally developed methodologies that consider historical relationships among various quoted prices in active markets that result in management’s best estimate of fair value. These contracts are classified as Level 3. As of March 31, 2019 , there were no contracts classified as Level 3.
 

22


The Partnership determines the appropriate level for each financial asset and liability on a quarterly basis and recognizes transfers between levels at the end of the reporting period. For the three months ended March 31, 2019 , there were no transfers between levels.
 
The impact to the fair value of derivatives due to credit risk is calculated using the probability of default based on Standard & Poor’s Ratings Services and/or internally generated ratings. The fair value of derivative assets is adjusted for credit risk. The fair value of derivative liabilities is adjusted for credit risk only if the impact is deemed material.

Estimated Fair Value of Financial Instruments

The fair values of all accounts receivable, notes receivable, accounts payable, commercial paper and other such financial instruments on the Condensed Consolidated Balance Sheets are estimated to be approximately equivalent to their carrying amounts due to their short-term nature and have been excluded from the table below. The following table summarizes the fair value and carrying amount of the Partnership’s financial instruments as of March 31, 2019 and December 31, 2018 .
 
 
March 31, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
 
 
 
 
 
 
 
 
(In millions)
Debt
 
 
 
 
 
 
 
Revolving Credit Facility (Level 2) (1)
$

 
$

 
$
250

 
$
250

2019 Term Loan Agreement (Level 2)
200

 
200

 

 

2019 Notes (Level 2)
500

 
499

 
500

 
497

2024 Notes (Level 2)
600

 
599

 
600

 
571

2027 Notes (Level 2)
698

 
684

 
698

 
642

2028 Notes (Level 2)
794

 
811

 
794

 
764

2044 Notes (Level 2)
550

 
489

 
550

 
445

EOIT Senior Notes (Level 2)
256

 
257

 
257

 
256

____________________
(1)
Borrowing capacity is effectively reduced by our borrowings outstanding under the commercial paper program. $796 million and $649 million of commercial paper was outstanding as of March 31, 2019 and December 31, 2018 , respectively.

The fair value of the Partnership’s Revolving Credit Facility, 2019 Term Loan Agreement, 2019 Notes, 2024 Notes, 2027 Notes, 2028 Notes, 2044 Notes and EOIT Senior Notes is based on quoted market prices and estimates of current rates available for similar issues with similar maturities and is classified as Level 2 in the fair value hierarchy.
 
Non-Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
 
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). As of March 31, 2019 , no material fair value adjustments or fair value measurements were required for these non-financial assets or liabilities.

Contracts with Master Netting Arrangements
 
Fair value amounts recognized for forward, interest rate swap, option and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement may be offset. The reporting entity’s choice to offset or not must be applied consistently. A master netting arrangement exists if the reporting entity has multiple contracts, whether for the same type of conditional or exchange contract or for different types of contracts, with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for forward, interest rate swap, option and other conditional or exchange contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the Condensed Consolidated Balance Sheets. The Partnership has presented the fair values of its derivative contracts under master netting agreements using a net fair value presentation.
 

23


The following tables summarize the Partnership’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 :
 
March 31, 2019
Commodity Contracts
 
Gas Imbalances (1)
 
Assets
 
Liabilities
 
Assets (2)
 
Liabilities (3)
 
 
 
 
 
 
 
 
 
(In millions)
Quoted market prices in active market for identical assets (Level 1)
$
1

 
$
6

 
$

 
$

Significant other observable inputs (Level 2)
16

 
1

 
14

 
6

Unobservable inputs (Level 3)

 

 

 

Total fair value
17

 
7

 
14

 
6

Netting adjustments
(6
)
 
(6
)
 

 

Total
$
11

 
$
1

 
$
14

 
$
6


December 31, 2018
Commodity Contracts
 
Gas Imbalances (1)
 
Assets
 
Liabilities
 
Assets (2)
 
Liabilities (3)
 
 
 
 
 
 
 
 
 
(In millions)
Quoted market prices in active market for identical assets (Level 1)
$
4

 
$
9

 
$

 
$

Significant other observable inputs (Level 2)
29

 
2

 
18

 
17

Unobservable inputs (Level 3)

 

 

 

Total fair value
33

 
11

 
18

 
17

Netting adjustments
(9
)
 
(9
)
 

 

Total
$
24

 
$
2

 
$
18