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, 2020, CenterPoint Energy held approximately 53.7% 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, 2020, the Partnership owned a 50% interest in SESH. See Note 8 for further discussion of SESH. For the three months ended March 31, 2020, 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, the Partnership held 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, (d) acquisitions and dispositions of businesses, assets and other interests, and (e) the impact of the ongoing spread and economic effects of COVID-19 and the recent actions of Saudi Arabia and Russia which have resulted in a substantial decrease in natural gas, NGLs and crude oil prices.
For a description of the Partnership’s reportable segments, see Note 16.
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
On March 26, 2020, FERC issued an order approving MRT’s 2018 Rate Case and 2019 Rate Case settlements. As a result of the settlements, the new depreciation rates for MRT have been applied in accordance with the order. 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
The Partnership adopted ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020. Upon adoption, the Partnership recognized a $3 million cumulative adjustment to Partners’ Equity and a corresponding adjustment to 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 primarily upon the historical loss-rate method established for various pools of accounts receivables with similar levels of credit risk. The historical loss-rates are then adjusted, as necessary, based on current conditions and forecasted information that could result in future uncollectable amounts. On an ongoing basis, we evaluate our customers’ financial strength and liquidity 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 and other receivable balances within other assets 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. The following table summarizes the required allowance for doubtful accounts.
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
January 1, 2020
|
|
|
|
|
|
(In millions)
|
Accounts receivable
|
$
|
2
|
|
|
$
|
2
|
|
Other assets
|
3
|
|
|
3
|
|
Total Allowance for doubtful accounts
|
$
|
5
|
|
|
$
|
5
|
|
Inventory
Natural gas inventory is held, through the transportation and storage segment, to provide operational support for 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 recorded write-downs to net realizable value related to natural gas and natural gas liquids inventory of $6 million and $1 million during the three months ended March 31, 2020 and 2019, respectively.
(2) New Accounting Pronouncements
Accounting Standards to be Adopted in Future Periods
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This standard provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The standard was effective upon issuance and generally can be applied through December 31, 2022. The Partnership is currently evaluating the impact this ASU will have 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, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Gathering and
Processing
|
|
Transportation
and Storage
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Revenues:
|
|
|
|
|
|
|
|
Product sales:
|
|
|
|
|
|
|
|
Natural gas
|
$
|
56
|
|
|
$
|
73
|
|
|
$
|
(60
|
)
|
|
$
|
69
|
|
Natural gas liquids
|
172
|
|
|
2
|
|
|
(2
|
)
|
|
172
|
|
Condensate
|
27
|
|
|
—
|
|
|
—
|
|
|
27
|
|
Total revenues from natural gas, natural gas liquids, and condensate
|
255
|
|
|
75
|
|
|
(62
|
)
|
|
268
|
|
Gain on derivative activity
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Total Product sales
|
$
|
275
|
|
|
$
|
75
|
|
|
$
|
(62
|
)
|
|
$
|
288
|
|
Service revenues:
|
|
|
|
|
|
|
|
Demand revenues
|
$
|
39
|
|
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
181
|
|
Volume-dependent revenues
|
163
|
|
|
17
|
|
|
(1
|
)
|
|
179
|
|
Total Service revenues
|
$
|
202
|
|
|
$
|
159
|
|
|
$
|
(1
|
)
|
|
$
|
360
|
|
Total Revenues
|
$
|
477
|
|
|
$
|
234
|
|
|
$
|
(63
|
)
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
MRT Rate Case Settlements
In June 2018, MRT filed a general NGA rate case (the “2018 Rate Case”), and in October 2019, MRT filed a second rate case (the “2019 Rate Case”). MRT began collecting the rates proposed in the 2018 Rate Case, subject to refund, on January 1, 2019. On March 26, 2020, FERC issued an order approving settlements filed in the 2018 Rate Case and the 2019 Rate Case. Upon issuance of the order and approval of the settlement of the MRT rate cases, the Partnership recognized $17 million of revenues from amounts previously held in reserve related to transportation and storage services performed in 2019. As of March 31, 2020, $21 million is held in reserve to be refunded to customers, which is inclusive of interest and is expected to be paid in May 2020.
Accounts Receivable
The following table summarizes the components of accounts receivable, net of allowance for doubtful accounts.
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
(In millions)
|
Accounts Receivable:
|
|
|
|
Customers
|
$
|
176
|
|
|
$
|
239
|
|
Contract assets (1)
|
26
|
|
|
18
|
|
Non-customers
|
7
|
|
|
12
|
|
Total Accounts Receivable (2)
|
$
|
209
|
|
|
$
|
269
|
|
____________________
|
|
(1)
|
Contract assets reflected in Total Accounts Receivable include accrued minimum volume commitments. Contract assets are primarily attributable to revenues associated with estimated shortfall volumes on certain annual minimum volume commitment arrangements. Total Accounts Receivable does not include $7 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 receivable, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
Amounts recognized in revenues
|
|
|
|
|
|
|
|
(In millions)
|
Deferred revenues (1)
|
$
|
47
|
|
|
$
|
48
|
|
|
$
|
19
|
|
The table below summarizes the timing of recognition of these contract liabilities as of March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and After
|
|
(In millions)
|
Deferred revenues (1)
|
$
|
22
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
7
|
|
____________________
|
|
(1)
|
Deferred revenues includes deferred revenue—affiliated companies. This amount is included in Other current liabilities and Other long-term liabilities.
|
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 Condensed Consolidated Statements of Income. The table below summarizes the timing of recognition of the remaining performance obligations as of March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and After
|
|
(In millions)
|
Transportation and Storage
|
$
|
343
|
|
|
$
|
308
|
|
|
$
|
240
|
|
|
$
|
225
|
|
|
$
|
702
|
|
Gathering and Processing
|
90
|
|
|
121
|
|
|
123
|
|
|
121
|
|
|
313
|
|
Total remaining performance obligations
|
$
|
433
|
|
|
$
|
429
|
|
|
$
|
363
|
|
|
$
|
346
|
|
|
$
|
1,015
|
|
(4) Leases
As of March 31, 2020, we have right-of-use assets of $31 million recorded as Other Assets, $7 million of corresponding obligations recorded as Other Current Liabilities and $27 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, 2020 were classified as operating leases, therefore all cash flows are reflected in Cash Flows from Operating Activities. Rental costs associated with field equipment and buildings were $5 million and $1 million during the three months ended March 31, 2020, respectively, and $7 million and $2 million during the three months ended March 31, 2019, respectively. As of March 31, 2020, the weighted average remaining lease term is 6.7 years and the weighted average discount rate is 5.43%.
The following table presents the Partnership’s lease cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Gathering and
Processing
|
|
Transportation
and Storage
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
Lease Cost:
|
|
|
|
|
|
Operating lease cost
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Short-term lease cost
|
3
|
|
|
—
|
|
|
3
|
|
Variable lease cost
|
1
|
|
|
—
|
|
|
1
|
|
Total Lease Cost
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Gathering and
Processing
|
|
Transportation
and Storage
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
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, 2020, the Partnership has operating lease obligations expiring at various dates. The $4 million difference between undiscounted cash flows for operating leases and our $34 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,
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025 and After
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Noncancellable operating leases
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
11
|
|
|
$
|
38
|
|
(5) Earnings Per Limited Partner Unit
The following table illustrates the Partnership’s calculation of earnings per unit for common units. The dilutive effect of the unit-based awards discussed in Note 15 was less than $0.01 per unit during the three months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions, except per unit data)
|
Net income
|
$
|
105
|
|
|
$
|
123
|
|
Net (loss) income attributable to noncontrolling interest
|
(7
|
)
|
|
1
|
|
Series A Preferred Unit distributions
|
9
|
|
|
9
|
|
General partner interest in net income
|
—
|
|
|
—
|
|
Net income available to common unitholders
|
$
|
103
|
|
|
$
|
113
|
|
|
|
|
|
Net income allocable to common units
|
$
|
103
|
|
|
$
|
113
|
|
Dilutive effect of Series A Preferred Unit distributions
|
9
|
|
|
—
|
|
Diluted net income allocable to common units
|
$
|
112
|
|
|
$
|
113
|
|
|
|
|
|
Basic earnings per unit
|
|
|
|
Common units
|
$
|
0.24
|
|
|
$
|
0.26
|
|
|
|
|
|
Basic weighted average number of common units outstanding (1)
|
437
|
|
|
435
|
|
Dilutive effect of Series A Preferred Units
|
144
|
|
|
—
|
|
Diluted weighted average number of common units outstanding
|
581
|
|
|
435
|
|
|
|
|
|
Diluted earnings per unit
|
|
|
|
Common units
|
$
|
0.19
|
|
|
$
|
0.26
|
|
____________________
|
|
(1)
|
Basic weighted average number of outstanding common units includes approximately two million and one million time-based phantom units for the three months ended March 31, 2020 and 2019, respectively.
|
(6) 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 2020 and 2019 (in millions, except for per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Record Date
|
|
Payment Date
|
|
Per Unit Distribution
|
|
Total Cash Distribution
|
March 31, 2020 (1)
|
|
May 19, 2020
|
|
May 27, 2020
|
|
$
|
0.16525
|
|
|
$
|
72
|
|
December 31, 2019
|
|
February 18, 2020
|
|
February 25, 2020
|
|
0.3305
|
|
|
144
|
|
September 30, 2019
|
|
November 19, 2019
|
|
November 26, 2019
|
|
0.3305
|
|
|
144
|
|
June 30, 2019
|
|
August 20, 2019
|
|
August 27, 2019
|
|
0.3305
|
|
|
144
|
|
March 31, 2019
|
|
May 21, 2019
|
|
May 29, 2019
|
|
0.318
|
|
|
138
|
|
_____________________
|
|
(1)
|
The Board of Directors declared this $0.16525 per common unit cash distribution on May 5, 2020, to be paid on May 27, 2020 to common unitholders of record at the close of business on May 19, 2020.
|
The Partnership paid or has authorized payment of the following cash distributions to holders of the Series A Preferred Units during 2019 and 2020 (in millions, except for per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Record Date
|
|
Payment Date
|
|
Per Unit Distribution
|
|
Total Cash Distribution
|
March 31, 2020 (1)
|
|
May 5, 2020
|
|
May 15, 2020
|
|
$
|
0.625
|
|
|
$
|
9
|
|
December 31, 2019
|
|
February 7, 2020
|
|
February 14, 2020
|
|
0.625
|
|
|
9
|
|
September 30, 2019
|
|
November 5, 2019
|
|
November 14, 2019
|
|
0.625
|
|
|
9
|
|
June 30, 2019
|
|
August 2, 2019
|
|
August 14, 2019
|
|
0.625
|
|
|
9
|
|
March 31, 2019
|
|
April 29, 2019
|
|
May 15, 2019
|
|
0.625
|
|
|
9
|
|
_____________________
|
|
(1)
|
The Board of Directors declared a $0.625 per Series A Preferred Unit cash distribution on May 5, 2020, to be paid on May 15, 2020, to Series A Preferred unitholders of record at the close of business on May 5, 2020.
|
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, 2020 and 2019, the Partnership did not issue common units under the ATM Program. As of March 31, 2020, $197 million of common units remained available for issuance through the ATM Program.
(7) Impairments of Long-lived Assets and Goodwill
Impairment of Long-lived Assets
The Partnership periodically evaluates long-lived assets, including property, plant and equipment when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets, as compared to the carrying value of the assets. Due to decreases in natural gas and NGL market prices during 2020 as a result of the ongoing spread and economic effects of the COVID-19 pandemic, together with the recent dispute over crude oil production levels between Russia and members of OPEC led by Saudi Arabia, as of March 31, 2020, management reassessed the carrying value of the Atoka assets, in which the Partnership owns a 50% interest in the consolidated joint venture, which is a component of the gathering and processing segment. Based on forecasted future undiscounted cash flows, management determined that the carrying value of the Atoka assets were not
fully recoverable. The Partnership utilized the income approach (generally accepted valuation approach) to estimate the fair value of these assets. The primary inputs are forecasted cash flows and the discount rate. The fair value measurement is based on inputs that are not observable in the market and thus represent Level 3 inputs. Applying a discounted cash flow model to the property, plant and equipment, the Partnership recognized a $16 million impairment, which is included in Impairments on the Condensed Consolidated Statements of Income during the three months ended March 31, 2020.
Impairment of Goodwill
In the fourth quarter of 2017, as a result of the acquisition of ETGP, the Partnership recorded $12 million of goodwill associated with the Ark-La-Tex Basin reporting unit, included in the gathering and processing reportable segment.
The Partnership tests its goodwill for impairment annually on October 1st, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Goodwill is assessed for impairment by comparing the fair value of the reporting unit with its book value, including goodwill. During 2020, the energy industry was impacted by current and forward commodity price declines due to the ongoing spread and economic effects of the COVID-19 pandemic, together with the recent dispute over crude oil production levels between Russia and members of OPEC led by Saudi Arabia. Amid such crude oil, NGL and natural gas price declines, producers have been cutting back spending and shifting their focus from emphasizing reserves growth, to increasing net cash flows and reducing outstanding debt, which consequently resulted in a decrease in rig count and in forecasted producer activity in the Ark-La-Tex Basin reporting unit during the first quarter of 2020. At the same time, unit prices and market multiples for midstream companies with gathering and processing operations have dropped to their lowest levels in the last three years. Due to the continuing decrease in forward commodity prices, the reduction in forecasted producer activities, the resulting decrease in our forecasted cash flows and the increase in the weighted average cost of capital, the Partnership determined that the fair value of the goodwill associated with our Ark-La-Tex Basin reporting unit would more likely than not be impaired. As a result, the Partnership performed a quantitative test for our goodwill and determined that the carrying value of the Ark-La-Tex Basin reporting unit exceeded its fair value and that goodwill associated with the Ark-La-Tex Basin was completely impaired in the amount of $12 million. The impairment is included in Impairments on the Condensed Consolidated Statements of Income for the three months ended March 31, 2020.
The following table presents the change in carrying amount of goodwill in each of our reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and Processing
|
|
Transportation and Storage
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
Balance as of December 31, 2019
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Goodwill impairment
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Balance as of March 31, 2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(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 $6 million and $3 million during the three months ended March 31, 2020 and 2019, 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. The following table presents the amount of Equity in earnings of equity method affiliate recognized and Distributions from equity method affiliate received.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Equity in Earnings of Equity Method Affiliate
|
$
|
6
|
|
|
$
|
3
|
|
Distributions from Equity Method Affiliate (1)
|
$
|
10
|
|
|
$
|
12
|
|
___________________
|
|
(1)
|
Distributions from equity method affiliate includes a $6 million and $3 million return on investment and a $4 million and $9 million return of investment for the three months ended March 31, 2020 and 2019, respectively.
|
The following table includes the summarized financial information of SESH.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Income Statements:
|
|
|
|
Revenues
|
$
|
27
|
|
|
$
|
27
|
|
Operating income
|
$
|
16
|
|
|
$
|
11
|
|
Net income
|
$
|
11
|
|
|
$
|
7
|
|
(9) Debt
The following table presents the Partnership’s outstanding debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Outstanding Principal
|
|
Discount (1)
|
|
Total Debt
|
|
Outstanding Principal
|
|
Premium (Discount) (1)
|
|
Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Commercial Paper
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
110
|
|
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
155
|
|
Revolving Credit Facility
|
300
|
|
|
—
|
|
|
300
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2019 Term Loan Agreement
|
800
|
|
|
—
|
|
|
800
|
|
|
800
|
|
|
—
|
|
|
800
|
|
2024 Notes
|
600
|
|
|
—
|
|
|
600
|
|
|
600
|
|
|
—
|
|
|
600
|
|
2027 Notes
|
700
|
|
|
(2
|
)
|
|
698
|
|
|
700
|
|
|
(2
|
)
|
|
698
|
|
2028 Notes
|
800
|
|
|
(5
|
)
|
|
795
|
|
|
800
|
|
|
(5
|
)
|
|
795
|
|
2029 Notes
|
550
|
|
|
(1
|
)
|
|
549
|
|
|
550
|
|
|
(1
|
)
|
|
549
|
|
2044 Notes
|
550
|
|
|
—
|
|
|
550
|
|
|
550
|
|
|
—
|
|
|
550
|
|
EOIT Senior Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
|
1
|
|
|
251
|
|
Total debt
|
$
|
4,410
|
|
|
$
|
(8
|
)
|
|
$
|
4,402
|
|
|
$
|
4,405
|
|
|
$
|
(7
|
)
|
|
$
|
4,398
|
|
Less: Short-term debt (2)
|
|
|
|
|
110
|
|
|
|
|
|
|
155
|
|
Less: Current portion of long-term debt (3)
|
|
|
|
|
—
|
|
|
|
|
|
|
251
|
|
Less: Unamortized debt expense (4)
|
|
|
|
|
22
|
|
|
|
|
|
|
23
|
|
Total long-term debt
|
|
|
|
|
$
|
4,270
|
|
|
|
|
|
|
$
|
3,969
|
|
____________________
|
|
(1)
|
Unamortized premium (discount) on long-term debt is amortized over the life of the respective debt.
|
|
|
(2)
|
Short-term debt includes $110 million and $155 million of outstanding commercial paper as of March 31, 2020 and December 31, 2019, respectively.
|
|
|
(3)
|
As of December 31, 2019, Current portion of long-term debt included $251 million outstanding balance of the EOIT Senior Notes which were repaid in March 2020.
|
|
|
(4)
|
As of March 31, 2020 and December 31, 2019, there was an additional $4 million 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 $110 million and $155 million outstanding under our commercial paper program at March 31, 2020 and December 31, 2019, respectively. The weighted average interest rate for the outstanding commercial paper was 2.29% as of March 31, 2020.
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, five-year senior unsecured revolving credit facility, which under certain circumstances may be increased from time to time up to an additional $875 million. 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, 2020, there were $300 million principal advances and $3 million in letters of credit outstanding under the 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 designated credit ratings from S&P, Moody’s and Fitch Ratings. As of March 31, 2020, 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 credit ratings. As of March 31, 2020, 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 with Bank of America, N.A., as administrative agent, and the several lenders thereto. As of March 31, 2020, there was $800 million outstanding under the 2019 Term Loan Agreement. 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. 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 credit 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, 2020, 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, 2020, the weighted average interest rate of the 2019 Term Loan Agreement was 3.00%.
Senior Notes
As of March 31, 2020, the Partnership’s debt included the 2024 Notes, 2027 Notes, 2028 Notes, 2029 Notes and 2044 Notes, which had $8 million of unamortized discount and $22 million of unamortized debt expense at March 31, 2020, resulting in effective interest rates of 4.01%, 4.57%, 5.20%, 4.31% and 5.08%, respectively, during the three months ended March 31, 2020. In March 2020, the Partnership’s EOIT Senior Notes matured and were paid using proceeds from the Revolving Credit Facility.
As of March 31, 2020, the Partnership was in compliance with all of its debt agreements, including financial covenants.
(10) Derivative Instruments and Hedging Activities
The primary risks managed using derivative instruments are commodity price and interest rate risks.
Derivatives Not Designated as Hedging Instruments
Derivative instruments not designated as hedging instruments for accounting purposes are utilized to manage the Partnership’s exposure to commodity price risk. 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 Not Designated as Hedging Instruments
The following table presents the Partnership’s derivative instruments that were not designated as hedging instruments for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Gross Notional Volume
|
|
Purchases
|
|
Sales
|
|
Purchases
|
|
Sales
|
Natural gas— TBtu (1)
|
|
|
|
|
|
|
|
Financial fixed futures/swaps
|
7
|
|
|
20
|
|
|
10
|
|
|
19
|
|
Financial basis futures/swaps
|
7
|
|
|
30
|
|
|
11
|
|
|
30
|
|
Financial swaptions (2)
|
—
|
|
|
7
|
|
|
—
|
|
|
2
|
|
Physical purchases/sales
|
—
|
|
|
4
|
|
|
—
|
|
|
6
|
|
Crude oil (for condensate)— MBbl (3)
|
|
|
|
|
|
|
|
Financial futures/swaps
|
—
|
|
|
630
|
|
|
—
|
|
|
990
|
|
Financial swaptions (2)
|
—
|
|
|
165
|
|
|
—
|
|
|
225
|
|
Natural gas liquids— MBbl (4)
|
|
|
|
|
|
|
|
Financial futures/swaps
|
2,205
|
|
|
2,085
|
|
|
2,490
|
|
|
2,415
|
|
Financial options
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
____________________
|
|
(1)
|
As of March 31, 2020, 87.9% of the natural gas contracts had durations of one year or less and 12.1% had durations of more than one year and less than two years. As of December 31, 2019, 86.6% of the natural gas contracts had durations of one year or less and 13.4% had durations of more than one year and less than two years.
|
|
|
(2)
|
The notional volume 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 volume hedged under the fixed price swap until the option expiration date. The notional volume represents the volume prior to option exercise.
|
|
|
(3)
|
As of March 31, 2020, 77.4% of the crude oil (for condensate) contracts had durations of one year or less and 22.6% had durations of more than one year and less than two years. As of December 31, 2019, 72.8% of the crude oil (for condensate) contracts had durations of one year or less and 27.2% had durations of more than one year and less than two years.
|
|
|
(4)
|
As of March 31, 2020, 82.5% of the natural gas liquids contracts had durations of one year or less and 17.5% had durations of more than one year and less than two years. As of December 31, 2019, 72.2% of the natural gas liquid contracts had durations of one year or less and 27.8% had durations of more than one year and less than two years.
|
Derivatives Designated as Hedging Instruments
Derivative instruments designated as hedging instruments for accounting purposes are utilized in managing the Partnership’s interest rate risk exposures.
Quantitative Disclosures Related to Derivative Instruments Designated as Hedging Instruments
The following table presents the Partnership’s derivative instruments that were designated as hedging instruments for accounting purposes.
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
December 31, 2019
|
|
Gross Notional Value
|
|
(In millions)
|
Interest rate swaps
|
$
|
300
|
|
|
$
|
300
|
|
Balance Sheet Presentation Related to Derivative Instruments
The following table presents the fair value of the derivative instruments that are included in the Partnership’s Condensed Consolidated Balance Sheets that were not designated as hedging instruments for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
Fair Value
|
Instrument
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Natural gas
|
|
|
|
|
|
|
|
Financial futures/swaps
|
Other Current
|
|
$
|
7
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Financial swaptions
|
Other Current
|
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Financial futures/swaps
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Physical purchases/sales
|
Other Current
|
|
4
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Crude oil (for condensate)
|
|
|
|
|
|
|
|
|
|
Financial futures/swaps
|
Other Current
|
|
6
|
|
|
8
|
|
|
1
|
|
|
19
|
|
Financial swaptions
|
Other Current
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financial futures/swaps
|
Other
|
|
1
|
|
|
5
|
|
|
—
|
|
|
8
|
|
Natural gas liquids
|
|
|
|
|
|
|
|
|
|
Financial futures/swaps
|
Other Current
|
|
16
|
|
|
5
|
|
|
25
|
|
|
3
|
|
Financial swaptions
|
Other Current
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financial futures/swaps
|
Other
|
|
6
|
|
|
1
|
|
|
11
|
|
|
2
|
|
Total gross commodity derivatives (1)
|
|
|
$
|
47
|
|
|
$
|
26
|
|
|
$
|
49
|
|
|
$
|
38
|
|
_____________________
|
|
(1)
|
See Note 11 for a reconciliation of the Partnership’s commodity derivatives fair value to the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.
|
The following table presents the fair value of the derivative instruments that are included in the Partnership’s Condensed Consolidated Balance Sheets that were designated as hedging instruments for accounting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
Fair Value
|
Instrument
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Interest rate swaps
|
Other Current
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest rate swaps
|
Other
|
|
—
|
|
|
4
|
|
|
—
|
|
|
2
|
|
Total gross interest rate derivatives (1)
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
3
|
|
_____________________
|
|
(1)
|
All interest rate derivative instruments that were designated as cash flow hedges are considered Level 2 as of March 31, 2020 and December 31, 2019.
|
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.
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Income
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Natural gas
|
|
|
|
Financial futures/swaps gains (losses)
|
$
|
4
|
|
|
$
|
(1
|
)
|
Financial swaptions (losses)
|
(1
|
)
|
|
—
|
|
Physical purchases/sales gains (losses)
|
1
|
|
|
(1
|
)
|
Crude oil (for condensate)
|
|
|
|
Financial futures/swaps gains (losses)
|
19
|
|
|
(11
|
)
|
Financial swaptions gains
|
4
|
|
|
—
|
|
Natural gas liquids
|
|
|
|
Financial futures/swaps (losses) gains
|
(7
|
)
|
|
3
|
|
Total
|
$
|
20
|
|
|
$
|
(10
|
)
|
For derivatives not designated as hedges in the tables above, amounts recognized in income for the periods ended March 31, 2020 and 2019, if any, are reported in Product sales.
The following table presents the components of gain (loss) on derivative activity in the Partnership’s Condensed Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Change in fair value of commodity derivatives
|
$
|
10
|
|
|
$
|
(12
|
)
|
Realized gain on commodity derivatives
|
10
|
|
|
2
|
|
Gain (loss) on commodity derivative activity
|
$
|
20
|
|
|
$
|
(10
|
)
|
Credit-Risk Related Contingent Features in Derivative Instruments
In the event Moody’s or S&P 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, 2020, under these obligations, the Partnership has posted no cash collateral related to natural gas swaps and swaptions, crude oil swaps and swaptions and NGL swaps and no additional collateral would be required to be posted by the Partnership in the event of a credit ratings downgrade to a below investment grade rating. In certain situations where the Partnership’s credit rating is lowered by Moody’s or S&P, the Partnership could be subject to an early termination event related to certain derivative instruments, which could result in a cash settlement of the instruments at market values on the date of such early termination.
(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. 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, 2020, there were no transfers between levels. As of March 31, 2020, there were no contracts classified as Level 3.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Debt
|
|
|
|
|
|
|
|
Revolving Credit Facility (Level 2) (1)
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2019 Term Loan Agreement (Level 2)
|
800
|
|
|
800
|
|
|
800
|
|
|
800
|
|
2024 Notes (Level 2)
|
600
|
|
|
333
|
|
|
600
|
|
|
614
|
|
2027 Notes (Level 2)
|
698
|
|
|
340
|
|
|
698
|
|
|
698
|
|
2028 Notes (Level 2)
|
795
|
|
|
398
|
|
|
795
|
|
|
811
|
|
2029 Notes (Level 2)
|
549
|
|
|
253
|
|
|
549
|
|
|
526
|
|
2044 Notes (Level 2)
|
550
|
|
|
236
|
|
|
550
|
|
|
506
|
|
EOIT Senior Notes (Level 2)
|
—
|
|
|
—
|
|
|
251
|
|
|
252
|
|
____________________
|
|
(1)
|
Borrowing capacity is effectively reduced by our borrowings outstanding under the commercial paper program. $110 million and $155 million of commercial paper was outstanding as of March 31, 2020 and December 31, 2019, respectively.
|
The fair value of the Partnership’s Revolving Credit Facility, 2019 Term Loan Agreement, 2024 Notes, 2027 Notes, 2028 Notes, 2029 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, 2020, no material fair value adjustments or fair value measurements were required for these non-financial assets or liabilities, other than those discussed in Note 7.
Based upon review of forecasted undiscounted cash flows as of March 31, 2020, all of the asset groups were considered recoverable, other than those discussed in Note 7. Future price declines, throughput declines, contracted capacity declines, cost increases, regulatory or political environment changes and other changes in market conditions, including the ongoing spread and economic effects of COVID-19 and the recent dispute over crude oil production levels between Russia and members of OPEC led by Saudi Arabia, could reduce forecasted undiscounted cash flows.
Contracts with Master Netting Arrangements
As of March 31, 2020, the Partnership’s Level 2 interest rate derivatives are recorded as liabilities with no netting adjustments.
The following tables summarize the Partnership’s other assets and liabilities that are measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
Commodity Contracts
|
|
Gas Imbalances (1)
|
|
Assets
|
|
Liabilities
|
|
Assets (2)
|
|
Liabilities (3)
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Quoted market prices in active market for identical assets (Level 1)
|
$
|
5
|
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Significant other observable inputs (Level 2)
|
42
|
|
|
8
|
|
|
13
|
|
|
10
|
|
Total fair value
|
47
|
|
|
26
|
|
|
13
|
|
|
10
|
|
Netting adjustments
|
(26
|
)
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
Total
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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)
|
$
|
5
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Significant other observable inputs (Level 2)
|
44
|
|
|
7
|
|
|
14
|
|
|
11
|
|
Total fair value
|
49
|
|
|
38
|
|
|
14
|
|
|
11
|
|
Netting adjustments
|
(37
|
)
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
Total
|
$
|
12
|
|
|
$
|
1
|
|
|
$
|
14
|
|
|
$
|
11
|
|
______________________
|
|
(1)
|
The Partnership uses the market approach to fair value its gas imbalance assets and liabilities at individual, or where appropriate an average of, current market indices applicable to the Partnership’s operations, not to exceed net realizable value. There were no netting adjustments as of March 31, 2020 and December 31, 2019.
|
|
|
(2)
|
Gas imbalance assets exclude fuel reserves for under retained fuel due from shippers of $23 million and $21 million at March 31, 2020 and December 31, 2019, respectively, which fuel reserves are based on the value of natural gas at the time the imbalance was created, and which are not subject to revaluation at fair market value.
|
|
|
(3)
|
Gas imbalance liabilities exclude fuel reserves for over retained fuel due to shippers of $7 million and $8 million at March 31, 2020 and December 31, 2019, respectively, which fuel reserves are based on the value of natural gas at the time the imbalance was created, and which are not subject to revaluation at fair market value.
|
(12) Supplemental Disclosure of Cash Flow Information
The following table provides information regarding supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Cash Payments:
|
|
|
|
Interest, net of capitalized interest
|
$
|
43
|
|
|
$
|
32
|
|
Non-cash transactions:
|
|
|
|
Accounts payable related to capital expenditures
|
8
|
|
|
39
|
|
Lease liabilities related to (derecognition) recognition of right-of-use assets
|
(4
|
)
|
|
35
|
|
Impact of adoption of financial instruments-credit losses accounting standard (Note 1)
|
(3
|
)
|
|
—
|
|
The following table reconciles cash and cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets to cash, cash equivalents and restricted cash on the Condensed Consolidated Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Cash and cash equivalents
|
$
|
4
|
|
|
$
|
18
|
|
Restricted cash
|
—
|
|
|
1
|
|
Cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows
|
$
|
4
|
|
|
$
|
19
|
|
(13) Related Party Transactions
MRT provides firm transportation and firm storage services to CenterPoint Energy’s LDCs in Arkansas and Louisiana. As part of the MRT rate case settlements, contracts for these services were extended and are in effect through July 31, 2028 and will remain in effect thereafter unless and until terminated by either party upon twelve months’ prior written notice.
The Partnership’s revenues from affiliated companies accounted for 8% and 6% of total revenues during the three months ended March 31, 2020 and 2019, respectively. The following table presents the amounts of revenues from affiliated companies included in the Partnership’s Condensed Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Gas transportation and storage service revenues — CenterPoint Energy
|
$
|
37
|
|
|
$
|
33
|
|
Natural gas product sales — CenterPoint Energy
|
—
|
|
|
1
|
|
Gas transportation and storage service revenues — OGE Energy
|
9
|
|
|
13
|
|
Natural gas product sales — OGE Energy
|
5
|
|
|
1
|
|
Total revenues — affiliated companies
|
$
|
51
|
|
|
$
|
48
|
|
The following table presents the amounts of natural gas purchased from affiliated companies included in the Partnership’s Condensed Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Cost of natural gas purchases — CenterPoint Energy
|
$
|
1
|
|
|
$
|
—
|
|
Cost of natural gas purchases — OGE Energy
|
8
|
|
|
6
|
|
Total cost of natural gas purchases — affiliated companies
|
$
|
9
|
|
|
$
|
6
|
|
Corporate services and seconded employees
The Partnership receives services and support functions from each of CenterPoint Energy and OGE Energy under services agreements for an initial term that ended on April 30, 2016. The services agreements automatically extend year-to-year at the end of the initial term, unless terminated by the Partnership with at least 90 days’ notice prior to the end of any extension. Additionally, the Partnership may terminate the services agreements at any time with 180 days’ notice, if approved by the Board of Enable GP. The Partnership reimburses CenterPoint Energy and OGE Energy for these services up to annual caps, which for 2020 are $0 million and $1 million, respectively.
As of March 31, 2020, the Partnership had certain employees who are participants under OGE Energy’s defined benefit and retiree medical plans, who will remain seconded to the Partnership, subject to certain termination rights of the Partnership and OGE Energy. The Partnership’s reimbursement of OGE Energy for seconded employee costs arising out of OGE Energy’s defined benefit and retiree medical plans is fixed at actual cost subject to an annual cap of $5 million until secondment is terminated.
The following table presents the amounts charged to the Partnership by affiliates for seconded employees, included primarily in Operation and maintenance and General and administrative expenses in the Partnership’s Condensed Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Seconded Employee Costs — OGE Energy
|
$
|
3
|
|
|
$
|
6
|
|
(14) Commitments and Contingencies
The Partnership is routinely involved in legal, environmental, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business. Some of these proceedings may from time to time involve substantial amounts. The Partnership regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. The Partnership does not currently expect the disposition of these matters to have a material adverse effect on its financial condition, results of operations or cash flows.
On January 1, 2017, the Partnership entered into a 10-year gathering and processing agreement, which became effective on July 1, 2018, with an affiliate of Energy Transfer Partners, LP for 400 MMcf/d of deliveries to the Godley Plant in Johnson County, Texas. As of March 31, 2020, the Partnership estimates the remaining associated minimum volume commitment fee to be $187 million. Minimum volume commitment fees are expected to be $15 million for the remainder of 2020, $23 million per year from 2021 through 2027 and $11 million in 2028.
On September 13, 2018, the Partnership executed a precedent agreement for the development of the Gulf Run Pipeline, an interstate natural gas transportation project. On January 30, 2019, a final investment decision was made by Golden Pass LNG, the cornerstone shipper for the LNG facility to be served by the Gulf Run Pipeline project. Subject to approval of the project by FERC, the Partnership will be required to construct a large-diameter pipeline from northern Louisiana to Gulf Coast markets. In addition, the Partnership requested approval to transfer existing EGT transportation infrastructure to the Gulf Run Pipeline. The Company filed applications with FERC to obtain authorization to construct and operate the pipeline on February 28, 2020. Under the precedent agreement, the Partnership estimates the cost to complete the Gulf Run Pipeline project to fulfill its obligations under the precedent agreement would be as much as $500 million. The project is backed by a 20-year firm transportation service agreement. The Gulf Run Pipeline connects natural gas producing regions in the U.S., including the Haynesville, Marcellus, Utica and Barnett shales and the Mid-Continent region. The project is expected to be placed into service in 2022.
On September 23, 2019, the Partnership entered into an agreement to sell its undivided 1/12th interest in the Bistineau Storage Facility in Louisiana for approximately $19 million. On January 27, 2020, FERC approved the sale. The Partnership closed the sale on April 1, 2020.
(15) Equity-Based Compensation
The following table summarizes the Partnership’s equity-based compensation expense related to performance units and phantom units for the Partnership’s employees and independent directors.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
|
|
|
|
(In millions)
|
Performance units
|
$
|
2
|
|
|
$
|
3
|
|
Phantom units
|
2
|
|
|
1
|
|
Total compensation expense
|
$
|
4
|
|
|
$
|
4
|
|
The following table presents the assumptions related to the performance share units granted in 2020.
|
|
|
|
|
|
2020
|
Number of units granted
|
933,738
|
|
Fair value of units granted
|
$
|
7.00
|
|
Expected distribution yield
|
12.27
|
%
|
Expected price volatility
|
27.70
|
%
|
Risk-free interest rate
|
0.85
|
%
|
Expected life of units (in years)
|
3
|
|
The following table presents the number of phantom units granted and the grant date fair value related to the phantom units granted in 2020.
|
|
|
|
|
2020
|
Phantom Units granted
|
941,732
|
|
Fair value of phantom units granted
|
$6.48 - $10.13
|
|
Units Outstanding
A summary of the activity for the Partnership’s performance units and phantom units applicable to the Partnership’s employees at March 31, 2020 and changes during 2020 are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Units
|
|
Phantom Units
|
|
Number
of Units
|
|
Weighted Average Grant-Date Fair Value, Per Unit
|
|
Number
of Units
|
|
Weighted Average Grant-Date Fair Value, Per Unit
|
|
|
|
|
|
|
|
|
|
(In millions, except unit data)
|
Units outstanding at December 31, 2019
|
1,393,329
|
|
|
$
|
19.04
|
|
|
1,392,560
|
|
|
$
|
14.65
|
|
Granted (1)
|
933,738
|
|
|
7.00
|
|
|
941,732
|
|
|
8.41
|
|
Vested (2)
|
(381,981
|
)
|
|
19.25
|
|
|
(347,287
|
)
|
|
16.10
|
|
Forfeited
|
(11,621
|
)
|
|
19.12
|
|
|
(10,611
|
)
|
|
14.81
|
|
Units outstanding at March 31, 2020
|
1,933,465
|
|
|
$
|
13.18
|
|
|
1,976,394
|
|
|
$
|
10.55
|
|
Aggregate intrinsic value of units outstanding at March 31, 2020
|
$
|
5
|
|
|
|
|
$
|
5
|
|
|
|
_____________________
|
|
(1)
|
Performance units represents the target number of performance units granted. The actual number of performance units earned, if any, is dependent upon performance and may range from 0% to 200% of the target.
|
|
|
(2)
|
Performance units vested as of March 31, 2020 include 376,292 units from the 2017 annual grant, which were approved by the Board of Directors in 2017 and, based on the level of achievement of a performance goal established by the Board of Directors over the performance period of January 1, 2017 through December 31, 2019, no performance units vested.
|
Unrecognized Compensation Cost
The following table summarizes the Partnership’s unrecognized compensation cost for its non-vested performance units and phantom units, and the weighted-average periods over which the compensation cost is expected to be recognized.
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Unrecognized Compensation Cost
(In millions)
|
|
Weighted Average Period for Recognition
(In years)
|
Performance Units
|
$
|
16
|
|
|
2.18
|
Phantom Units
|
13
|
|
|
1.97
|
Total
|
$
|
29
|
|
|
|
As of March 31, 2020, there were 4,987,106 units available for issuance under the long-term incentive plan.
(16) Reportable Segments
The Partnership’s determination of reportable segments considers the strategic operating units under which it manages sales, allocates resources and assesses performance of various products and services to customers in differing regulatory environments. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies excerpt in the Partnership’s audited 2019 consolidated financial statements included in the Annual Report. The Partnership uses operating income as the measure of profit or loss for its reportable segments.
The Partnership’s assets and operations are organized into two reportable segments: (i) gathering and processing, which primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers, and (ii) transportation and storage, which provides interstate and intrastate natural gas pipeline transportation and storage service primarily to our producer, power plant, LDC and industrial end-user customers.
Financial data for reportable segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
Gathering and
Processing
|
|
Transportation (1)
and Storage
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Product sales
|
$
|
275
|
|
|
$
|
75
|
|
|
$
|
(62
|
)
|
|
$
|
288
|
|
Service revenues
|
202
|
|
|
159
|
|
|
(1
|
)
|
|
360
|
|
Total Revenues
|
477
|
|
|
234
|
|
|
(63
|
)
|
|
648
|
|
Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
|
211
|
|
|
78
|
|
|
(63
|
)
|
|
226
|
|
Operation and maintenance, General and administrative
|
81
|
|
|
45
|
|
|
—
|
|
|
126
|
|
Depreciation and amortization
|
74
|
|
|
30
|
|
|
—
|
|
|
104
|
|
Impairments
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Taxes other than income tax
|
11
|
|
|
7
|
|
|
—
|
|
|
18
|
|
Operating income
|
$
|
72
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
146
|
|
Total Assets
|
$
|
9,659
|
|
|
$
|
5,702
|
|
|
$
|
(3,244
|
)
|
|
$
|
12,117
|
|
Capital expenditures
|
$
|
34
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
Gathering and
Processing
|
|
Transportation (1)
and Storage
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Product sales
|
$
|
423
|
|
|
$
|
167
|
|
|
$
|
(147
|
)
|
|
$
|
443
|
|
Service revenues
|
207
|
|
|
149
|
|
|
(4
|
)
|
|
352
|
|
Total Revenues
|
630
|
|
|
316
|
|
|
(151
|
)
|
|
795
|
|
Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
|
360
|
|
|
169
|
|
|
(151
|
)
|
|
378
|
|
Operation and maintenance, General and administrative
|
84
|
|
|
45
|
|
|
—
|
|
|
129
|
|
Depreciation and amortization
|
74
|
|
|
31
|
|
|
—
|
|
|
105
|
|
Taxes other than income tax
|
11
|
|
|
7
|
|
|
—
|
|
|
18
|
|
Operating income
|
$
|
101
|
|
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
165
|
|
Total assets as of December 31, 2019
|
$
|
9,739
|
|
|
$
|
5,886
|
|
|
$
|
(3,359
|
)
|
|
$
|
12,266
|
|
Capital expenditures
|
$
|
107
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
143
|
|
_____________________
|
|
(1)
|
See Note 8 for discussion regarding ownership interests in SESH and related equity earnings included in the transportation and storage segment for the three months ended March 31, 2020 and 2019.
|
(17) Subsequent Event
On April 8, 2020, we experienced pipeline damage to one of our rich gas gathering systems in the Ark-La-Tex Basin of our gathering and processing segment. We have ceased operation of this system and are in process of abandoning it in-place. We expect to recognize a loss on retirement of approximately $20 million during the second quarter of 2020. Other than recognition of the non-cash loss on retirement, we do not anticipate a material impact to our financial position, results of operations or cash flows related to the abandonment of this system.