Delaware
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001-35666
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45-5200503
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(State or other jurisdiction
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|
(Commission
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(IRS Employer
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of incorporation)
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File Number)
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Identification No.)
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Exhibit
Number
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|
Description
|
23.1
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|
Consent of Deloitte & Touche LLP
|
23.2
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|
Consent of Deloitte & Touche LLP
|
99.1
|
|
Summit Midstream Utica, LLC, Meadowlark Midstream Company, LLC, Tioga Midstream, LLC and Carve-out Financial Statements of Summit Midstream Partners, LLC Combined Financial Statements as of and for the years ended December 31, 2015 and 2014
|
99.2
|
|
Summit Midstream Partners, LP Unaudited Pro Forma Condensed Combined Financial Information as of and for the year ended December 31, 2015 and for the years ended December 31, 2015, 2014 and 2013
|
99.3
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|
Ohio Gathering Company, L.L.C. Financial Statements as of and for the years ended December 31, 2015 and 2014
|
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Summit Midstream Partners, LP
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||
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(Registrant)
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||
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||
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By:
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Summit Midstream GP, LLC (its general partner)
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||
Date:
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May 13, 2016
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/s/ Matthew S. Harrison
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||
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Matthew S. Harrison, Executive Vice President and Chief Financial Officer
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Exhibit
Number
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|
Description
|
23.1
|
|
Consent of Deloitte & Touche LLP
|
23.2
|
|
Consent of Deloitte & Touche LLP
|
99.1
|
|
Summit Midstream Utica, LLC, Meadowlark Midstream Company, LLC, Tioga Midstream, LLC and Carve-out Financial Statements of Summit Midstream Partners, LLC Combined Financial Statements as of and for the years ended December 31, 2015 and 2014
|
99.2
|
|
Summit Midstream Partners, LP Unaudited Pro Forma Condensed Combined Financial Information as of and for the year ended December 31, 2015 and for the years ended December 31, 2015, 2014 and 2013
|
99.3
|
|
Ohio Gathering Company, L.L.C. Financial Statements as of and for the years ended December 31, 2015 and 2014
|
|
December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
2,382
|
|
|
$
|
1,307
|
|
Accounts receivable
|
5,559
|
|
|
3,707
|
|
||
Insurance receivable
|
—
|
|
|
25,000
|
|
||
Other current assets
|
363
|
|
|
83
|
|
||
Total current assets
|
8,304
|
|
|
30,097
|
|
||
Property, plant and equipment, net
|
348,981
|
|
|
208,290
|
|
||
Rights-of-way, net
|
23,217
|
|
|
11,547
|
|
||
Investment in equity method investees
|
751,168
|
|
|
706,172
|
|
||
Other noncurrent assets
|
1,701
|
|
|
3,428
|
|
||
Total assets
|
$
|
1,133,371
|
|
|
$
|
959,534
|
|
|
|
|
|
||||
Liabilities and Membership Interests and Owner's Net Investment
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Trade accounts payable
|
$
|
21,837
|
|
|
$
|
13,536
|
|
Ad valorem taxes payable
|
381
|
|
|
61
|
|
||
Accrued environmental remediation
|
7,900
|
|
|
25,000
|
|
||
Other current liabilities
|
1,833
|
|
|
1,757
|
|
||
Total current liabilities
|
31,951
|
|
|
40,354
|
|
||
Long-term debt (Note 6)
|
332,500
|
|
|
435,000
|
|
||
Noncurrent accrued environmental remediation
|
5,764
|
|
|
5,000
|
|
||
Other noncurrent liabilities
|
99
|
|
|
223
|
|
||
Total liabilities
|
370,314
|
|
|
480,577
|
|
||
Commitments and contingencies (Note 10)
|
|
|
|
||||
|
|
|
|
||||
Membership interests and owner's net investment
|
763,057
|
|
|
478,957
|
|
||
Total liabilities and membership interests and owner's net investment
|
$
|
1,133,371
|
|
|
$
|
959,534
|
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Revenues:
|
|
|
|
||||
Gathering services and related fees
|
$
|
26,990
|
|
|
$
|
12,267
|
|
Other revenues
|
2,248
|
|
|
2,199
|
|
||
Total revenues
|
29,238
|
|
|
14,466
|
|
||
Costs and expenses:
|
|
|
|
||||
Operation and maintenance
|
7,701
|
|
|
5,942
|
|
||
General and administrative
|
8,564
|
|
|
5,012
|
|
||
Transaction costs
|
552
|
|
|
2,255
|
|
||
Depreciation and amortization
|
8,928
|
|
|
3,529
|
|
||
Environmental remediation
|
21,800
|
|
|
5,000
|
|
||
Total costs and expenses
|
47,545
|
|
|
21,738
|
|
||
Interest expense
|
(10,476
|
)
|
|
(8,427
|
)
|
||
Loss before income taxes
|
(28,783
|
)
|
|
(15,699
|
)
|
||
Income tax expense
|
(73
|
)
|
|
(223
|
)
|
||
Loss from equity method investees
|
(6,563
|
)
|
|
(16,712
|
)
|
||
Net loss
|
$
|
(35,419
|
)
|
|
$
|
(32,634
|
)
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Membership interests and owner's net investment, beginning of period
|
$
|
478,957
|
|
|
$
|
(97,281
|
)
|
Net loss
|
(35,419
|
)
|
|
(32,634
|
)
|
||
Equity-based compensation
|
758
|
|
|
805
|
|
||
Cash advances from Summit Investments
|
527,174
|
|
|
1,065,008
|
|
||
Cash advances to Summit Investments
|
(228,366
|
)
|
|
(472,046
|
)
|
||
Expenses paid by Summit Investments on behalf of the 2016 Drop Down Assets
|
19,015
|
|
|
14,401
|
|
||
Capitalized interest allocated to the 2016 Drop Down Assets by Summit Investments
|
938
|
|
|
704
|
|
||
Membership interests and owner's net investment, end of period
|
$
|
763,057
|
|
|
$
|
478,957
|
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(35,419
|
)
|
|
$
|
(32,634
|
)
|
Adjustments to reconcile net loss to cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
8,928
|
|
|
3,529
|
|
||
Amortization of deferred loan costs
|
1,052
|
|
|
1,066
|
|
||
Equity-based compensation
|
758
|
|
|
805
|
|
||
Loss from equity method investees
|
6,563
|
|
|
16,712
|
|
||
Distributions from equity method investees
|
34,641
|
|
|
2,992
|
|
||
Write-off of debt issuance costs
|
727
|
|
|
1,554
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(1,852
|
)
|
|
(2,248
|
)
|
||
Insurance receivable
|
25,000
|
|
|
(25,000
|
)
|
||
Trade accounts payable
|
1,320
|
|
|
264
|
|
||
Ad valorem taxes payable
|
320
|
|
|
61
|
|
||
Accrued environmental remediation, net
|
(16,336
|
)
|
|
30,000
|
|
||
Other, net
|
(277
|
)
|
|
855
|
|
||
Net cash provided by (used in) operating activities
|
25,425
|
|
|
(2,044
|
)
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Capital expenditures
|
(153,338
|
)
|
|
(122,560
|
)
|
||
Initial contribution to Ohio Gathering
|
—
|
|
|
(8,360
|
)
|
||
Acquisition of Ohio Gathering Option
|
—
|
|
|
(190,000
|
)
|
||
Option Exercise
|
—
|
|
|
(382,385
|
)
|
||
Contributions to equity method investees
|
(86,200
|
)
|
|
(145,131
|
)
|
||
Net cash used in investing activities
|
(239,538
|
)
|
|
(848,436
|
)
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Cash flows from financing activities:
|
|
|
|
||||
Cash advances from Summit Investments
|
527,174
|
|
|
1,065,008
|
|
||
Cash advances to Summit Investments
|
(228,366
|
)
|
|
(472,046
|
)
|
||
Expenses paid by Summit Investments on behalf of the 2016 Drop Down Assets
|
19,015
|
|
|
14,401
|
|
||
Borrowings under revolving credit facility
|
180,000
|
|
|
57,000
|
|
||
Repayments under revolving credit facility
|
(100,000
|
)
|
|
(115,000
|
)
|
||
Borrowings under term loan
|
—
|
|
|
400,000
|
|
||
Repayments under term loan
|
(182,500
|
)
|
|
(100,000
|
)
|
||
Deferred loan costs
|
(135
|
)
|
|
(3,003
|
)
|
||
Net cash provided by financing activities
|
215,188
|
|
|
846,360
|
|
||
Net change in cash and cash equivalents
|
1,075
|
|
|
(4,120
|
)
|
||
Cash and cash equivalents, beginning of period
|
1,307
|
|
|
5,427
|
|
||
Cash and cash equivalents, end of period
|
$
|
2,382
|
|
|
$
|
1,307
|
|
|
|
|
|
||||
Noncash Investing and Financing Activities:
|
|
|
|
||||
Capital expenditures in trade accounts payable (period-end accruals)
|
$
|
20,015
|
|
|
$
|
13,034
|
|
Capitalized interest allocated to the 2016 Drop Down Assets by Summit Investments
|
938
|
|
|
704
|
|
•
|
Meadowlark Midstream, crude oil, produced water and associated natural gas gathering systems, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota and the Denver-Julesburg Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado;
|
•
|
Tioga Midstream, crude oil, produced water and associated natural gas gathering systems, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
|
•
|
Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica Shale formation in southeastern Ohio.
|
|
Useful lives
(In years)
|
Gathering and processing systems and related equipment
|
30
|
Other
|
4-15
|
•
|
Level 1. Inputs represent quoted prices in active markets for identical assets or liabilities;
|
•
|
Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs); and
|
•
|
Level 3. Inputs that are not observable from objective sources, such as management’s internally developed assumptions used in pricing an asset or liability (for example, an internally developed present value of future cash flows model that underlies management's fair value measurement).
|
|
December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Gathering and processing systems and related equipment
|
$
|
308,223
|
|
|
$
|
170,665
|
|
Construction in progress
|
49,648
|
|
|
10,896
|
|
||
Land and line fill
|
1,716
|
|
|
1,093
|
|
||
Other
|
1,492
|
|
|
29,504
|
|
||
Total
|
361,079
|
|
|
212,158
|
|
||
Less accumulated depreciation
|
(12,098
|
)
|
|
(3,868
|
)
|
||
Property, plant and equipment, net
|
$
|
348,981
|
|
|
$
|
208,290
|
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Depreciation expense
|
$
|
8,230
|
|
|
$
|
3,248
|
|
Capitalized interest
|
938
|
|
|
704
|
|
|
Useful lives
(In years)
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Net
|
||||||
|
(Dollars in thousands)
|
||||||||||||
Rights-of-way, December 31, 2015
|
30
|
|
$
|
24,221
|
|
|
$
|
1,004
|
|
|
$
|
23,217
|
|
Rights-of-way, December 31, 2014
|
30
|
|
11,853
|
|
|
306
|
|
|
11,547
|
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Amortization expense – rights-of-way
|
$
|
698
|
|
|
$
|
281
|
|
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Investment in equity method investees, January 1
|
$
|
706,172
|
|
|
$
|
—
|
|
Cash contributions
|
86,200
|
|
|
145,131
|
|
||
Cash distributions
|
(34,641
|
)
|
|
(2,992
|
)
|
||
Gain (loss) from equity method investees
|
6,790
|
|
|
(4,472
|
)
|
||
Amortization of basis difference in equity method investees
|
(13,353
|
)
|
|
(12,240
|
)
|
||
Acquisition of initial interest in Ohio Gathering
|
—
|
|
|
190,000
|
|
||
January 2014 initial cash contribution
|
—
|
|
|
8,360
|
|
||
Option Exercise
|
—
|
|
|
382,385
|
|
||
Investment in equity method investees, December 31
|
751,168
|
|
|
706,172
|
|
||
December cash distributions
|
3,472
|
|
|
—
|
|
||
December cash contributions
|
—
|
|
|
(20,420
|
)
|
||
Basis difference
|
(156,888
|
)
|
|
(170,241
|
)
|
||
Share of net equity in equity method investees, November 30
|
$
|
597,752
|
|
|
$
|
515,511
|
|
|
November 30,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Total assets
|
$
|
1,510,075
|
|
|
$
|
1,341,007
|
|
Total liabilities
|
59,313
|
|
|
95,391
|
|
||
Members' equity
|
1,450,762
|
|
|
1,245,616
|
|
|
Twelve months ended
November 30, 2015
|
|
Ten months ended
November 30, 2014
|
||||
|
(In thousands)
|
||||||
Total revenues
|
$
|
130,090
|
|
|
$
|
45,313
|
|
Total operating expenses
|
112,581
|
|
|
66,374
|
|
||
Net income (loss)
|
16,803
|
|
|
(21,061
|
)
|
|
December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Variable rate senior secured revolving credit facility (2.43% at December 31, 2015 and 2.17% at December 31, 2014) due February 2019
|
$
|
115,000
|
|
|
$
|
35,000
|
|
Variable rate senior secured term loan (2.43% at December 31, 2015 and 2.17% at December 31, 2014) due May 2017
|
217,500
|
|
|
400,000
|
|
||
Total long-term debt
|
$
|
332,500
|
|
|
$
|
435,000
|
|
(i)
|
increased the borrowing capacity from $150.0 million to $250.0 million;
|
(ii)
|
extended the maturity date from March 2018 to February 2019;
|
(iii)
|
added a $100.0 million revolving credit facility accordion feature and a $400.0 million term loan accordion;
|
(iv)
|
reduced the leverage-based pricing grid by 0.75% from a range of 2.75% to 3.75% to a new range of 2.00% to 3.00% for London Interbank Offered Rate ("LIBOR") borrowings and from a range of 1.75% to 2.75% to a new range of 1.00% to 2.00% for alternate base rate borrowings;
|
(v)
|
changed the commitment fee from 0.50% to a leverage-based range of 0.30% to 0.50%; and
|
(vi)
|
increased the maximum total leverage ratio from 4.0 to 1.0 to 5.0 to 1.0 and from not more than 5.0 to 1.0 to 5.5 to 1.0 for up to 270 days following certain acquisitions, or material projects or, at our option, after a qualified notes offering (as defined in the Credit Facility).
|
|
December 31, 2015
|
|
December 31, 2014
|
||||||||||||
|
Carrying
value
|
|
Estimated
fair value (1)
|
|
Carrying
value
|
|
Estimated
fair value (1)
|
||||||||
|
(In thousands)
|
||||||||||||||
Revolving credit facility
|
$
|
115,000
|
|
|
$
|
115,000
|
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
Term loan
|
217,500
|
|
|
217,500
|
|
|
400,000
|
|
|
400,000
|
|
|
Year ended December 31,
|
||||||
|
2015
|
|
2014
|
||||
|
(In thousands)
|
||||||
Operation and maintenance
|
$
|
3,512
|
|
|
$
|
2,222
|
|
General and administrative
|
5,078
|
|
|
2,210
|
|
|
Total
|
||
|
(In thousands)
|
||
Accrued environmental remediation, January 1, 2014
|
$
|
—
|
|
Initial accrual
|
30,000
|
|
|
Accrued environmental remediation, December 31, 2014
|
30,000
|
|
|
Payments made with Company funds
|
(13,136
|
)
|
|
Payments made with proceeds from insurance policies
|
(25,000
|
)
|
|
Additional accruals
|
21,800
|
|
|
Accrued environmental remediation, December 31, 2015
|
$
|
13,664
|
|
•
|
six-and-one-half (6.5) multiplied by the average Business Adjusted EBITDA (as defined in the Contribution Agreement) of the 2016 Drop Down Assets for 2018 and 2019, less the G&A Adjuster, as defined in the Contribution Agreement;
|
•
|
less the Initial Payment;
|
•
|
less all capital expenditures incurred for the 2016 Drop Down Assets between Initial Close and December 31, 2019;
|
•
|
plus all Business Adjusted EBITDA from the 2016 Drop Down Assets between Initial Close and December 31, 2019.
|
•
|
February 2013, the date the Meadowlark Midstream assets were acquired by Summit Investments;
|
•
|
April 2014, the date of Tioga Midstream's formation by Summit Investments;
|
•
|
October 2014, the date of Summit Utica's formation by Summit Investments; and
|
•
|
January 2014, the date of Summit Investments' initial investment in Ohio Gathering and Ohio Condensate.
|
•
|
SMLP's audited consolidated financial statements;
|
•
|
the audited
combined
financial statements of Summit Midstream Utica, LLC, Meadowlark Midstream Company, LLC, Tioga Midstream, LLC and Carve-out Financial Statements of Summit Midstream Partners, LLC as of and for the years ended December 31, 2015 and 2014; and
|
•
|
the unaudited historical combined financial statements of Summit Midstream Utica, LLC, Meadowlark Midstream Company, LLC, Tioga Midstream, LLC and Carve-out Financial Statements of Summit Midstream Partners, LLC for the year ended December 31, 2013.
|
•
|
SMLP's historical financial statements filed with the Securities and Exchange Commission; and
|
•
|
the historical financial statements included in Exhibits 99.1 and 99.3 to this Amendment No. 1 to SMLP's Current Report on Form 8-K.
|
•
|
purport to present our financial position or results of operations had the 2016 Drop Down actually been completed as of December 31, 2015 or for the periods indicated;
|
•
|
purport to present our financial position or results of operations had SMLP's March 2016 draw of $360.0 million on its revolving credit facility been completed at an earlier date;
|
•
|
purport to present our financial position or results of operations had the deferred purchase price obligation been executed at an earlier date;
|
•
|
reflect any pro forma income or expense associated with the deferred purchase price obligation;
|
•
|
reflect any pro forma amounts for the 1% noncontrolling interest in the 2016 Drop Down Assets retained by Summit Investments because all equity balances and earnings attributable to periods prior to the drop will be attributed to Summit Investments; and
|
•
|
reflect the effects of any cost savings or other synergies that may be achieved as a result of the 2016 Drop Down.
|
•
|
based on assumptions that we believe are reasonable under the circumstances;
|
•
|
intended for informational purposes only; and
|
•
|
not intended to project our financial position or results of operations for any future date or period.
|
|
Historical
|
|
|
Summit Midstream Partners, LP pro forma
|
|||||||||||
|
Summit Midstream Partners, LP
|
|
2016 Drop Down Assets
|
|
Pro forma adjustments
|
|
|||||||||
|
(In thousands)
|
||||||||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Current assets:
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
$
|
19,411
|
|
|
$
|
2,382
|
|
|
$
|
360,000
|
|
(a)
|
$
|
21,793
|
|
|
|
|
|
|
(360,000
|
)
|
(b)
|
|
|||||||
Accounts receivable
|
84,022
|
|
|
5,559
|
|
|
—
|
|
|
89,581
|
|
||||
Other current assets
|
3,210
|
|
|
363
|
|
|
—
|
|
|
3,573
|
|
||||
Total current assets
|
106,643
|
|
|
8,304
|
|
|
—
|
|
|
114,947
|
|
||||
Property, plant and equipment, net
|
1,463,802
|
|
|
348,981
|
|
|
—
|
|
|
1,812,783
|
|
||||
Intangible assets, net
|
438,093
|
|
|
23,217
|
|
|
—
|
|
|
461,310
|
|
||||
Goodwill
|
16,211
|
|
|
—
|
|
|
—
|
|
|
16,211
|
|
||||
Investment in equity method investees
|
—
|
|
|
751,168
|
|
|
—
|
|
|
751,168
|
|
||||
Other noncurrent assets
|
6,552
|
|
|
1,701
|
|
|
(1,701
|
)
|
(c)
|
6,552
|
|
||||
Total assets
|
$
|
2,031,301
|
|
|
$
|
1,133,371
|
|
|
$
|
(1,701
|
)
|
|
$
|
3,162,971
|
|
|
Historical
|
|
|
|
Summit Midstream Partners, LP pro forma
|
||||||||||
|
Summit Midstream Partners, LP
|
|
2016 Drop Down Assets
|
|
Pro forma adjustments
|
|
|||||||||
|
(In thousands)
|
||||||||||||||
Liabilities and Partners' Capital, Membership Interests and Owner's Net Investment
|
|
|
|
|
|
|
|
||||||||
Current liabilities:
|
|
|
|
|
|
|
|
||||||||
Trade accounts payable
|
$
|
18,971
|
|
|
$
|
21,837
|
|
|
$
|
—
|
|
|
$
|
40,808
|
|
Due to affiliate
|
1,149
|
|
|
—
|
|
|
—
|
|
|
1,149
|
|
||||
Deferred revenue
|
677
|
|
|
—
|
|
|
—
|
|
|
677
|
|
||||
Ad valorem taxes payable
|
9,890
|
|
|
381
|
|
|
—
|
|
|
10,271
|
|
||||
Accrued interest
|
17,483
|
|
|
—
|
|
|
—
|
|
|
17,483
|
|
||||
Accrued environmental remediation
|
—
|
|
|
7,900
|
|
|
—
|
|
|
7,900
|
|
||||
Other current liabilities
|
11,464
|
|
|
1,833
|
|
|
1,177
|
|
(b)
|
14,474
|
|
||||
Total current liabilities
|
59,634
|
|
|
31,951
|
|
|
1,177
|
|
|
92,762
|
|
||||
Long-term debt
|
934,770
|
|
|
332,500
|
|
|
360,000
|
|
(a)
|
1,294,770
|
|
||||
|
|
|
|
|
(332,500
|
)
|
(c)
|
|
|||||||
Deferred purchase price obligation
|
—
|
|
|
—
|
|
|
507,427
|
|
(b)
|
507,427
|
|
||||
Deferred revenue
|
45,486
|
|
|
—
|
|
|
—
|
|
|
45,486
|
|
||||
Noncurrent accrued environmental remediation
|
—
|
|
|
5,764
|
|
|
—
|
|
|
5,764
|
|
||||
Other noncurrent liabilities
|
7,169
|
|
|
99
|
|
|
—
|
|
|
7,268
|
|
||||
Total liabilities
|
1,047,059
|
|
|
370,314
|
|
|
536,104
|
|
|
1,953,477
|
|
||||
Commitments and contingencies
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Common limited partner capital
|
744,977
|
|
|
—
|
|
|
(730
|
)
|
(b)
|
884,661
|
|
||||
|
|
|
|
|
140,414
|
|
(d)
|
|
|||||||
Subordinated limited partner capital
|
213,631
|
|
|
—
|
|
|
(423
|
)
|
(b)
|
294,694
|
|
||||
|
|
|
|
|
81,486
|
|
(d)
|
|
|||||||
General partner interests
|
25,634
|
|
|
—
|
|
|
(24
|
)
|
(b)
|
30,139
|
|
||||
|
|
|
|
|
4,529
|
|
(d)
|
|
|||||||
Membership interests and owner's net investment
|
—
|
|
|
763,057
|
|
|
(763,057
|
)
|
(d)
|
—
|
|
||||
Total partners' capital, membership interests and owner's net investment
|
984,242
|
|
|
763,057
|
|
|
(537,805
|
)
|
|
1,209,494
|
|
||||
Total liabilities and partners' capital, membership interests and owner's net investment
|
$
|
2,031,301
|
|
|
$
|
1,133,371
|
|
|
$
|
(1,701
|
)
|
|
$
|
3,162,971
|
|
|
Historical
|
|
|
|
Summit Midstream Partners, LP pro forma
|
||||||||||
|
Summit Midstream Partners, LP
|
|
2016 Drop Down Assets
|
|
Pro forma adjustments
|
|
|||||||||
|
(In thousands, except per-unit amounts)
|
||||||||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Gathering services and related fees
|
$
|
310,829
|
|
|
$
|
26,990
|
|
|
$
|
—
|
|
|
$
|
337,819
|
|
Natural gas, NGLs and condensate sales
|
42,079
|
|
|
—
|
|
|
—
|
|
|
42,079
|
|
||||
Other revenues
|
18,411
|
|
|
2,248
|
|
|
—
|
|
|
20,659
|
|
||||
Total revenues
|
371,319
|
|
|
29,238
|
|
|
—
|
|
|
400,557
|
|
||||
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Cost of natural gas and NGLs
|
31,398
|
|
|
—
|
|
|
—
|
|
|
31,398
|
|
||||
Operation and maintenance
|
87,285
|
|
|
7,701
|
|
|
—
|
|
|
94,986
|
|
||||
General and administrative
|
36,544
|
|
|
8,564
|
|
|
—
|
|
|
45,108
|
|
||||
Transaction costs
|
790
|
|
|
552
|
|
|
—
|
|
|
1,342
|
|
||||
Depreciation and amortization
|
96,189
|
|
|
8,928
|
|
|
—
|
|
|
105,117
|
|
||||
Environmental remediation
|
—
|
|
|
21,800
|
|
|
—
|
|
|
21,800
|
|
||||
Gain on asset sales, net
|
(172
|
)
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
||||
Long-lived asset impairment
|
9,305
|
|
|
—
|
|
|
—
|
|
|
9,305
|
|
||||
Goodwill impairment
|
248,851
|
|
|
—
|
|
|
—
|
|
|
248,851
|
|
||||
Total costs and expenses
|
510,190
|
|
|
47,545
|
|
|
—
|
|
|
557,735
|
|
||||
Other income
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||
Interest expense
|
(48,616
|
)
|
|
(10,476
|
)
|
|
(7,529
|
)
|
(a)
|
(56,145
|
)
|
||||
|
|
|
|
|
10,476
|
|
(e)
|
|
|||||||
Loss before income taxes
|
(187,485
|
)
|
|
(28,783
|
)
|
|
2,947
|
|
|
(213,321
|
)
|
||||
Income tax benefit (expense)
|
676
|
|
|
(73
|
)
|
|
—
|
|
|
603
|
|
||||
Loss from equity method investees
|
—
|
|
|
(6,563
|
)
|
|
|
|
(6,563
|
)
|
|||||
Net loss
|
$
|
(186,809
|
)
|
|
$
|
(35,419
|
)
|
|
$
|
2,947
|
|
|
$
|
(219,281
|
)
|
Less net income attributable to Summit Investments
|
5,403
|
|
|
|
|
—
|
|
|
5,403
|
|
|||||
Net loss attributable to SMLP
|
(192,212
|
)
|
|
|
|
(32,472
|
)
|
|
(224,684
|
)
|
|||||
Less net loss attributable to general partner, including IDRs
|
3,398
|
|
|
|
|
(649
|
)
|
(f)
|
2,749
|
|
|||||
Net loss attributable to limited partners
|
$
|
(195,610
|
)
|
|
|
|
$
|
(31,823
|
)
|
|
$
|
(227,433
|
)
|
||
|
|
|
|
|
|
|
|
||||||||
Loss per common unit – basic and diluted
|
$
|
(3.20
|
)
|
|
|
|
|
|
$
|
(3.71
|
)
|
||||
Loss per subordinated unit – basic and diluted
|
$
|
(2.88
|
)
|
|
|
|
|
|
$
|
(3.35
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Weighted-average common units outstanding – basic and diluted
|
39,217
|
|
|
|
|
|
|
39,217
|
|
||||||
Weighted-average subordinated units outstanding – basic and diluted
|
24,410
|
|
|
|
|
|
|
24,410
|
|
|
Historical
|
|
|
|
Summit Midstream Partners, LP pro forma
|
||||||||||
|
Summit Midstream Partners, LP
|
|
2016 Drop Down Assets
|
|
Pro forma adjustments
|
|
|||||||||
|
(In thousands, except per-unit amounts)
|
||||||||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Gathering services and related fees
|
$
|
255,211
|
|
|
$
|
12,267
|
|
|
$
|
—
|
|
|
$
|
267,478
|
|
Natural gas, NGLs and condensate sales
|
97,094
|
|
|
—
|
|
|
—
|
|
|
97,094
|
|
||||
Other revenues
|
20,398
|
|
|
2,199
|
|
|
—
|
|
|
22,597
|
|
||||
Total revenues
|
372,703
|
|
|
14,466
|
|
|
—
|
|
|
387,169
|
|
||||
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Cost of natural gas and NGLs
|
72,415
|
|
|
—
|
|
|
—
|
|
|
72,415
|
|
||||
Operation and maintenance
|
88,927
|
|
|
5,942
|
|
|
—
|
|
|
94,869
|
|
||||
General and administrative
|
38,269
|
|
|
5,012
|
|
|
—
|
|
|
43,281
|
|
||||
Transaction costs
|
730
|
|
|
2,255
|
|
|
—
|
|
|
2,985
|
|
||||
Depreciation and amortization
|
87,349
|
|
|
3,529
|
|
|
—
|
|
|
90,878
|
|
||||
Environmental remediation
|
—
|
|
|
5,000
|
|
|
—
|
|
|
5,000
|
|
||||
Loss on asset sales, net
|
442
|
|
|
—
|
|
|
—
|
|
|
442
|
|
||||
Long-lived asset impairment
|
5,505
|
|
|
—
|
|
|
—
|
|
|
5,505
|
|
||||
Goodwill impairment
|
54,199
|
|
|
—
|
|
|
—
|
|
|
54,199
|
|
||||
Total costs and expenses
|
347,836
|
|
|
21,738
|
|
|
—
|
|
|
369,574
|
|
||||
Other income
|
1,189
|
|
|
—
|
|
|
—
|
|
|
1,189
|
|
||||
Interest expense
|
(40,159
|
)
|
|
(8,427
|
)
|
|
(7,335
|
)
|
(a)
|
(47,494
|
)
|
||||
|
|
|
|
|
8,427
|
|
(e)
|
|
|||||||
Loss before income taxes
|
(14,103
|
)
|
|
(15,699
|
)
|
|
1,092
|
|
|
(28,710
|
)
|
||||
Income tax expense
|
(631
|
)
|
|
(223
|
)
|
|
—
|
|
|
(854
|
)
|
||||
Loss from equity method investees
|
—
|
|
|
(16,712
|
)
|
|
|
|
(16,712
|
)
|
|||||
Net loss
|
$
|
(14,734
|
)
|
|
$
|
(32,634
|
)
|
|
$
|
1,092
|
|
|
$
|
(46,276
|
)
|
Less net income attributable to Summit Investments
|
9,258
|
|
|
|
|
—
|
|
|
9,258
|
|
|||||
Net loss attributable to SMLP
|
(23,992
|
)
|
|
|
|
(31,542
|
)
|
|
(55,534
|
)
|
|||||
Less net loss attributable to general partner, including IDRs
|
3,125
|
|
|
|
|
(631
|
)
|
(f)
|
2,494
|
|
|||||
Net loss attributable to limited partners
|
$
|
(27,117
|
)
|
|
|
|
$
|
(30,911
|
)
|
|
$
|
(58,028
|
)
|
||
|
|
|
|
|
|
|
|
||||||||
Earnings per common unit – basic and diluted
|
$
|
(0.49
|
)
|
|
|
|
|
|
$
|
(1.03
|
)
|
||||
Earnings per subordinated unit – basic and diluted
|
$
|
(0.44
|
)
|
|
|
|
|
|
$
|
(0.96
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Weighted-average common units outstanding – basic and diluted
|
33,311
|
|
|
|
|
|
|
33,311
|
|
||||||
Weighted-average subordinated units outstanding – basic and diluted
|
24,410
|
|
|
|
|
|
|
24,410
|
|
|
Historical
|
|
|
|
Summit Midstream Partners, LP pro forma
|
||||||||||
|
Summit Midstream Partners, LP
|
|
2016 Drop Down Assets
|
|
Pro forma adjustments
|
|
|||||||||
|
(In thousands, except per-unit amounts)
|
||||||||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Gathering services and related fees
|
$
|
213,979
|
|
|
$
|
2,373
|
|
|
$
|
—
|
|
|
$
|
216,352
|
|
Natural gas, NGLs and condensate sales
|
88,185
|
|
|
—
|
|
|
—
|
|
|
88,185
|
|
||||
Other revenues
|
21,522
|
|
|
101
|
|
|
—
|
|
|
21,623
|
|
||||
Total revenues
|
323,686
|
|
|
2,474
|
|
|
—
|
|
|
326,160
|
|
||||
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Cost of natural gas and NGLs
|
68,037
|
|
|
—
|
|
|
—
|
|
|
68,037
|
|
||||
Operation and maintenance
|
77,114
|
|
|
1,061
|
|
|
—
|
|
|
78,175
|
|
||||
General and administrative
|
32,273
|
|
|
4,443
|
|
|
—
|
|
|
36,716
|
|
||||
Transaction costs
|
2,841
|
|
|
—
|
|
|
—
|
|
|
2,841
|
|
||||
Depreciation and amortization
|
70,574
|
|
|
658
|
|
|
—
|
|
|
71,232
|
|
||||
Loss on asset sales, net
|
113
|
|
|
—
|
|
|
—
|
|
|
113
|
|
||||
Total costs and expenses
|
250,952
|
|
|
6,162
|
|
|
—
|
|
|
257,114
|
|
||||
Other income
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
||||
Interest expense
|
(19,173
|
)
|
|
(2,141
|
)
|
|
(8,847
|
)
|
(a)
|
(28,020
|
)
|
||||
|
|
|
|
|
2,141
|
|
(e)
|
|
|||||||
Loss before income taxes
|
53,566
|
|
|
(5,829
|
)
|
|
(6,706
|
)
|
|
41,031
|
|
||||
Income tax expense
|
(729
|
)
|
|
—
|
|
|
—
|
|
|
(729
|
)
|
||||
Net income (loss)
|
$
|
52,837
|
|
|
$
|
(5,829
|
)
|
|
$
|
(6,706
|
)
|
|
$
|
40,302
|
|
Less net income attributable to Summit Investments
|
9,253
|
|
|
|
|
—
|
|
|
9,253
|
|
|||||
Net income (loss) attributable to SMLP
|
43,584
|
|
|
|
|
(12,535
|
)
|
|
31,049
|
|
|||||
Less net income (loss) attributable to general partner, including IDRs
|
1,035
|
|
|
|
|
(251
|
)
|
(f)
|
784
|
|
|||||
Net income (loss) attributable to limited partners
|
$
|
42,549
|
|
|
|
|
$
|
(12,284
|
)
|
|
$
|
30,265
|
|
||
|
|
|
|
|
|
|
|
||||||||
Earnings per common unit – basic and diluted
|
$
|
0.86
|
|
|
|
|
|
|
$
|
0.62
|
|
||||
Earnings per subordinated unit – basic and diluted
|
$
|
0.79
|
|
|
|
|
|
|
$
|
0.55
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Weighted-average common units outstanding – basic
|
26,951
|
|
|
|
|
|
|
26,951
|
|
||||||
Weighted-average common units outstanding – diluted
|
27,101
|
|
|
|
|
|
|
27,101
|
|
||||||
Weighted-average subordinated units outstanding – basic and diluted
|
24,410
|
|
|
|
|
|
|
24,410
|
|
|
Borrowing rate
|
|
Commitment fee
|
||
Attributable to the quarter ended:
|
|
|
|
||
December 31, 2015
|
2.45
|
%
|
|
0.375
|
%
|
September 30, 2015
|
2.44
|
%
|
|
0.375
|
%
|
June 30, 2015
|
2.43
|
%
|
|
0.375
|
%
|
March 31, 2015
|
2.67
|
%
|
|
0.500
|
%
|
December 31, 2014
|
2.41
|
%
|
|
0.375
|
%
|
September 30, 2014
|
2.40
|
%
|
|
0.375
|
%
|
June 30, 2014
|
2.42
|
%
|
|
0.375
|
%
|
March 31, 2014
|
2.42
|
%
|
|
0.375
|
%
|
December 31, 2013
|
3.43
|
%
|
|
0.500
|
%
|
September 30, 2013
|
2.71
|
%
|
|
0.500
|
%
|
June 30, 2013
|
2.71
|
%
|
|
0.500
|
%
|
March 31, 2013
|
2.98
|
%
|
|
0.500
|
%
|
Cash consideration paid to Summit Investments
|
$
|
360,000
|
|
Present value of deferred purchase price obligation
|
507,427
|
|
|
Direct acquisition costs
|
1,177
|
|
|
Total 2016 Drop Down Assets purchase price
|
$
|
868,604
|
|
•
|
six-and-one-half (6.5) multiplied by the average Business Adjusted EBITDA, as defined in the contribution agreement, of the 2016 Drop Down Assets for 2018 and 2019, less the the G&A Adjuster, as defined in the Contribution Agreement;
|
•
|
less the $360.0 million initial cash payment;
|
•
|
less all capital expenditures incurred for the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019;
|
•
|
plus all Business Adjusted EBITDA from the 2016 Drop Down Assets between March 3, 2016 and December 31, 2019, less the the Cumulative G&A Adjuster, as defined in the Contribution Agreement.
|
Summit Investments' membership interests and owner's interest in 2016 Drop Down Assets
|
$
|
763,057
|
|
|
|
||
SMP Holdings' borrowings allocated to 2016 Drop Down Assets and retained by Summit Investments
|
332,500
|
|
|
|
|||
SMP Holdings' deferred loan costs allocated to 2016 Drop Down Assets and retained by Summit Investments
|
(1,701
|
)
|
|
|
|||
|
|
|
$
|
1,093,856
|
|
||
Present value of deferred purchase price obligation
|
$
|
507,427
|
|
|
|
||
Borrowings under revolving credit facility
|
360,000
|
|
|
|
|||
Total consideration paid and recognized by SMLP
|
|
|
867,427
|
|
|||
Excess of acquired carrying value of 2016 Drop Down Assets over consideration paid and recognized by SMLP
|
|
|
$
|
226,429
|
|
||
|
|
|
|
||||
Allocation of contribution:
|
|
|
|
||||
Common limited partner capital
|
$
|
140,414
|
|
|
|
||
Subordinated limited partner capital
|
81,486
|
|
|
|
|||
General partner interests
|
4,529
|
|
|
|
|||
Partners' capital allocation
|
|
|
$
|
226,429
|
|
Exhibit 99.3
Ohio Gathering Company, L.L.C.
December 31, 2015 and 2014 Financial Statements and Independent Auditors Report
|
|
Deloitte & Touche LLP Suite 3600 555 Seventeenth Street Denver, CO 80202-3942 USA |
|
|
|
|
|
Tel: +1 303 292 5400 |
INDEPENDENT AUDITORS REPORT |
|
Fax: +1 303 312-4000 www.deloitte.com |
To the Audit Committee of
MPLX LP
Findlay, OH
We have audited the accompanying financial statements of Ohio Gathering Company, L.L.C. (the Company), which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, changes in members equity, and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Gathering Company, L.L.C. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
March 11, 2016
|
Member of |
|
Deloitte Touche Tohmatsu Limited |
Ohio Gathering Company, L.L.C.
Balance Sheets
($ in thousands)
|
|
December 31, 2015 |
|
December 31, 2014 |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash |
|
$ |
12,232 |
|
$ |
44,021 |
|
Trade receivables |
|
14,037 |
|
8,075 |
|
||
Affiliate receivables |
|
208 |
|
5,977 |
|
||
Inventories |
|
2,797 |
|
32 |
|
||
Other current assets |
|
1,372 |
|
1,345 |
|
||
Total current assets |
|
30,646 |
|
59,450 |
|
||
|
|
|
|
|
|
||
Property and equipment |
|
1,460,259 |
|
1,257,606 |
|
||
Less: accumulated depreciation |
|
(122,195 |
) |
(61,348 |
) |
||
Total property and equipment, net |
|
1,338,064 |
|
1,196,258 |
|
||
|
|
|
|
|
|
||
Other long-term assets: |
|
|
|
|
|
||
Other long-term assets |
|
55 |
|
|
|
||
Deferred contract costs |
|
6,591 |
|
6,591 |
|
||
Less: amortization of deferred contract costs |
|
(1,557 |
) |
(1,123 |
) |
||
Total assets |
|
$ |
1,373,799 |
|
$ |
1,261,176 |
|
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
17,843 |
|
$ |
28,771 |
|
Affiliate payables |
|
6,713 |
|
3,003 |
|
||
Accrued liabilities |
|
14,008 |
|
36,322 |
|
||
Total current liabilities |
|
38,564 |
|
68,096 |
|
||
|
|
|
|
|
|
||
Asset retirement obligations |
|
5,369 |
|
889 |
|
||
Other long-term liabilities |
|
154 |
|
|
|
||
|
|
|
|
|
|
||
Members equity |
|
1,329,712 |
|
1,192,191 |
|
||
Total liabilities and members equity |
|
$ |
1,373,799 |
|
$ |
1,261,176 |
|
The accompanying notes are an integral part of these financial statements.
Ohio Gathering Company, L.L.C.
Statements of Operations
($ in thousands)
|
|
Year ended December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Revenue: |
|
|
|
|
|
||
Gathering fees |
|
$ |
93,607 |
|
$ |
40,339 |
|
Compression fees |
|
30,549 |
|
15,728 |
|
||
Other revenue |
|
125 |
|
|
|
||
Total revenue |
|
124,281 |
|
56,067 |
|
||
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Facility expenses |
|
33,337 |
|
29,563 |
|
||
Selling, general and administrative expenses |
|
4,127 |
|
3,122 |
|
||
Depreciation and accretion |
|
61,418 |
|
42,062 |
|
||
(Gain) loss on disposal of property and equipment |
|
(300 |
) |
1,453 |
|
||
Total operating expenses |
|
98,582 |
|
76,200 |
|
||
|
|
|
|
|
|
||
Income (loss) from operations |
|
25,699 |
|
(20,133 |
) |
||
|
|
|
|
|
|
||
Miscellaneous income |
|
60 |
|
|
|
||
|
|
|
|
|
|
||
Income (loss) before provision for income tax |
|
25,759 |
|
(20,133 |
) |
||
|
|
|
|
|
|
||
Provision for deferred income tax expense |
|
19 |
|
|
|
||
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
25,740 |
|
$ |
(20,133 |
) |
The accompanying notes are an integral part of these financial statements.
Ohio Gathering Company, L.L.C.
Statements of Changes in Members Equity
($ in thousands)
|
|
|
|
|
|
Summit |
|
|
|
||||
|
|
MarkWest Utica |
|
Blackhawk |
|
Midstream |
|
|
|
||||
|
|
EMG, LLC |
|
Midstream, LLC |
|
Partners, LLC |
|
Total |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
January 1, 2014 |
|
$ |
696,680 |
|
$ |
6,591 |
|
$ |
|
|
$ |
703,271 |
|
|
|
|
|
|
|
|
|
|
|
||||
Assignment of interest in Ohio Gathering Option |
|
|
|
(6,591 |
) |
6,591 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Contributions from members (see Note 1) |
|
350,752 |
|
|
|
712,029 |
|
1,062,781 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Distributions to members (see Note 1) |
|
(340,619 |
) |
|
|
(227,079 |
) |
(567,698 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Non-cash fee contribution (see Note 3) |
|
8,700 |
|
|
|
5,270 |
|
13,970 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
(16,780 |
) |
|
|
(3,353 |
) |
(20,133 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2014 |
|
698,733 |
|
|
|
493,458 |
|
1,192,191 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Contributions from members (see Note 1) |
|
119,029 |
|
|
|
79,353 |
|
198,382 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Distributions to members (see Note 1) |
|
(51,961 |
) |
|
|
(34,640 |
) |
(86,601 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
15,444 |
|
|
|
10,296 |
|
25,740 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2015 |
|
$ |
781,245 |
|
$ |
|
|
$ |
548,467 |
|
$ |
1,329,712 |
|
The accompanying notes are an integral part of these financial statements.
Ohio Gathering Company, L.L.C.
Statements of Cash Flows
($ in thousands)
|
|
Year ended December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income (loss) |
|
$ |
25,740 |
|
$ |
(20,133 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and accretion |
|
61,418 |
|
42,062 |
|
||
Amortization of deferred contract costs |
|
435 |
|
435 |
|
||
Deferred revenue |
|
(115 |
) |
|
|
||
(Gain) loss on disposal of property and equipment |
|
(300 |
) |
1,453 |
|
||
Provision for deferred income tax expense |
|
19 |
|
|
|
||
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Trade receivables |
|
(5,604 |
) |
(5,829 |
) |
||
Affiliate receivables |
|
5,913 |
|
(2,536 |
) |
||
Inventories |
|
(2,765 |
) |
55 |
|
||
Other current and long-term assets |
|
(82 |
) |
1,437 |
|
||
Affiliate payables |
|
4,847 |
|
(386 |
) |
||
Accounts payable and accrued liabilities |
|
3,225 |
|
1,227 |
|
||
Net cash provided by operating activities |
|
92,731 |
|
17,785 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Capital expenditures |
|
(254,596 |
) |
(482,655 |
) |
||
Proceeds from sale of property and equipment |
|
18,295 |
|
13,808 |
|
||
Net cash used in investing activities |
|
(236,301 |
) |
(468,847 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Contributions from members |
|
198,382 |
|
1,062,781 |
|
||
Distributions to members |
|
(86,601 |
) |
(567,698 |
) |
||
Net cash provided by financing activities |
|
111,781 |
|
495,083 |
|
||
|
|
|
|
|
|
||
Net (decrease) increase in cash |
|
(31,789 |
) |
44,021 |
|
||
Cash at beginning of year |
|
44,021 |
|
|
|
||
Cash at end of year |
|
$ |
12,232 |
|
$ |
44,021 |
|
|
|
|
|
|
|
||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
||
Accrued property and equipment |
|
$ |
25,677 |
|
$ |
62,006 |
|
Affiliate payables for purchases of property and equipment |
|
1,120 |
|
2,743 |
|
||
Affiliate receivables for sales of property and equipment |
|
523 |
|
864 |
|
||
Contribution of assets by members |
|
|
|
13,970 |
|
||
Asset retirement obligation (see Note 6) |
|
4,147 |
|
851 |
|
The accompanying notes are an integral part of these financial statements.
Ohio Gathering Company, L.L.C.
Notes to Financial Statements
($ in thousands, unless otherwise indicated)
1. Organization and Business
Effective May 31, 2012, MarkWest Utica EMG, L.L.C. (MarkWest Utica) entered into the Limited Liability Company Agreement (the Original LLC Agreement) with Blackhawk Midstream LLC (Blackhawk), in order to form Ohio Gathering Company, L.L.C. (the Company or Ohio Gathering). The Company provides natural gas gathering services in the Utica Shale region of Ohio. Under the terms of the Original LLC Agreement, MarkWest Utica and Blackhawk each made initial nominal contributions to the Company in exchange for a 99% and 1% ownership interest, respectively. In addition, the Original LLC Agreement designates MarkWest Utica Operating Company, L.L.C. (MarkWest Utica Operating), the parent of MarkWest Utica, as the operator of the Company with the authority to manage the day-to-day operations, subject to certain approval rights retained by the board of managers. All operational and administrative services are provided through contractual arrangements with affiliates of MarkWest Utica Operating. See Note 3 for more information regarding affiliate transactions.
After the initial contributions, MarkWest Utica was obligated to contribute all of the capital required by the Company for the development, construction and operation of certain natural gas gathering and compression assets pursued by the Company. MarkWest Uticas and Blackhawks membership interests were adjusted to equal their respective share of the capital contributed. Therefore, as of December 31, 2013, MarkWest Utica owned more than a 99% interest and Blackhawk owned less than a 1% interest. Blackhawk also had an option to acquire a 40% equity interest in Ohio Gathering (the Ohio Gathering Option). See Note 2, in Deferred Contact Costs, for further discussion.
In January 2014, Blackhawk sold its interest and the Ohio Gathering Option to Summit Midstream Partners, LLC (Summit). Effective June 1, 2014 (Summit Investment Date), Summit exercised the Ohio Gathering Option and increased its equity ownership (Summit Equity Ownership) from less than 1% to approximately 40% through a net cash investment of $341.4 million.
In August 2014, MarkWest Utica and Summit entered into the Third Amended and Restated Limited Liability Company Agreement of Ohio Gathering Company, L.L.C. (the Third Amended LLC Agreement) which replaced the Second Amended and Restated Limited Liability Company Agreement of Ohio Gathering Company, L.L.C. In accordance with the Third Amended LLC Agreement, Summit has the right, but not the obligation, to make additional capital contributions subject to certain limitations. If Summit elects to contribute capital in response to a particular capital call then the aggregate amount of capital that MarkWest Utica is required to contribute pursuant to such capital call will be decreased, dollar for dollar, by the amount of capital Summit elects to contribute. As of December 31, 2015, Summit has elected to contribute 40% of all capital calls and in total MarkWest Utica has contributed $1.2 billion and Summit has contributed $791 million to the Company.
If a member fails to contribute any capital to the Company that is required to be so contributed or fails to timely wire the True-Up Amount (as defined in the Third Amended LLC Agreement) such member will be considered in default but will remain fully obligated to contribute such capital to the Company. The Company will be entitled to pursue all remedies available at law or in equity against the Defaulting member.
The business and affairs of the Company are overseen by a board of managers which currently consists of three managers from MarkWest Utica and two managers from Summit. Board managers are determined by investment balances and members will have one board manager for every 20% interest that it holds in the Company. Ownership is also determined based on investment balances in the Company. If Summit elects to not contribute capital in response to capital calls and its investment percentage decreases such that it is greater than 20% but less than their current 40%, they will lose a manager on the board of managers. If their investment percentage decreases below 20%, they will lose both managers on the board of managers.
2. Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
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. Estimates affect, among other items, valuing inventory; evaluating impairments of long-lived assets; establishing estimated useful lives for long-lived assets; estimating
revenue and expense accruals and capital expenditure accruals; valuing asset retirement obligations; establishing inputs when determining fair value of options; and in determining liabilities, if any, for environmental and legal contingencies. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments in highly liquid financial instruments purchased with a remaining maturity at date of acquisition of 90 days or less to be cash equivalents. Such investments would include money market accounts. The Company had no cash equivalents at December 31, 2015 and 2014.
Inventories
Inventories, which consist primarily of spare parts and supplies, are valued at the lower of weighted-average cost or net realizable value.
Property and Equipment
Property and equipment consists primarily of natural gas gathering assets, other pipeline assets, compressors and related facilities that are recorded at historical cost. Expenditures that extend the useful lives of assets are capitalized. Routine maintenance and repair costs that do not extend the useful lives of assets are expensed as incurred. Depreciation is provided principally on a straight-line method over a period of 20 years, with the exception of miscellaneous equipment and vehicles, which are depreciated over a period ranging from 3 to 15 years.
Asset Retirement Obligations
An asset retirement obligation (ARO) is a legal obligation associated with the retirement of tangible long-lived assets that generally result from the acquisition, construction, development or normal operation of the asset. AROs are recorded at fair value in the period in which they are incurred, if a reasonable estimate of fair value can be made, and added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability is determined using a credit-adjusted risk-free interest rate and increases due to the passage of time based on the time value of money until the obligation is settled. The Company recognizes a liability of a conditional ARO as soon as the fair value of the liability can be reasonably estimated. A conditional ARO is defined as an unconditional legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity.
Impairment of Long-Lived Assets
The Companys policy is to evaluate whether there has been an impairment in the value of long-lived assets when certain events indicate that the remaining balance may not be recoverable. Long-lived assets are considered impaired when the estimated undiscounted cash flows from such assets are less than the assets carrying value. In that event, a loss is recognized in the amount that the carrying value exceeds the fair value of the long-lived assets. Fair value is determined using either the income or market approach as appropriate. Management considers the volume of producer customer reserves behind the asset and future natural gas and natural gas liquids prices to estimate cash flows. The amount of additional producer customer reserves developed by future drilling activity depends, in part, on expected natural gas and natural gas liquids prices. Projections of producer customer reserves, drilling activity and future commodity prices are inherently subjective and contingent upon a number of variable factors, many of which are difficult to forecast. Any significant variance in any of these assumptions or factors could materially affect future cash flows, which could result in the impairment of an asset or assets. The Company did not record any impairments for the years ended December 31, 2015 or 2014.
For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if impairment is required. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.
Deferred Contract Costs
Deferred contract costs represent the asset created by the fair value of the Ohio Gathering Option that was recorded in 2012 as permanent equity. This cost is amortized over the term of the arrangement into Facility expenses on the accompanying Statements of Operations.
Revenue Recognition
The Company generates its revenue by providing natural gas gathering and compression services. The Company receives a fee or fees for the gathering and compression of natural gas. The revenue the Company earns under these arrangements is related to the volume of natural gas that flows through its facilities and is not directly dependent on commodity prices. The Companys assessment of each of the revenue recognition criteria as they relate to its revenue producing activities are as follows: persuasive evidence of an arrangement exists; delivery; the fee is fixed or determinable and collectability is reasonably assured. It is upon completion of services provided that the Company has met all four criteria and it is at such time that the Company recognizes revenue.
Revenue and Expense Accruals
The Company routinely makes accruals based on estimates for both revenues and expenses due to the timing of compiling billing information, receiving certain third-party information and reconciling the Companys records with those of third parties. The delayed information from third parties includes, among other things, actual volumes transported or compressed and other operating expenses. The Company makes accruals to reflect estimates for these items based on its internal records and information from third parties. Estimated accruals are adjusted when actual information is received from third parties and the Companys internal records have been reconciled.
Income Taxes
The Company is treated as a partnership for tax purposes under the provisions of the Internal Revenue Code. Accordingly, the accompanying financial statements do not reflect a provision for federal income taxes since the Companys results of operations and related credits and deductions will be passed through and taken into account by its members in computing their respective tax liabilities. The Company is, however, subject to an income tax at the Cadiz, Ohio jurisdictional level.
The Company accounts for income taxes under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of any tax rate change on deferred taxes is recognized as tax expense (benefit) from continuing operations in the period that includes the enactment date of the tax rate change. Realizability of deferred tax assets is assessed and, if not more likely than not, a valuation allowance is recorded to reflect the deferred tax assets at net realizable value as determined by management. All deferred tax balances are classified as long-term in the accompanying Balance Sheets.
The net deferred tax liability of $19 at December 31, 2015 resulting from temporary book-tax differences is comprised of net operating loss carryforwards for state jurisdictional level tax purposes of $48, a valuation allowance of ($40), and property, plant and equipment of ($27). This net deferred tax liability has been recorded as part of Other long-term liabilities in the accompanying Balance Sheets.
Significant judgment is required in evaluating the Companys tax positions. During the ordinary course of business, there may be transactions and calculations for which the ultimate tax determination is uncertain. However, the Company did not have any material uncertain tax positions for the years ended December 31, 2015 or 2014. The state net operating loss carryforwards begin to expire in 2017. The Company does not anticipate utilizing the entire net operating loss carryforwards and has provided an 83% valuation allowance against this deferred tax asset.
Environmental Costs
The Company records environmental liabilities at their undiscounted amounts when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liabilities are based on currently available facts, existing technology and presently enacted laws and regulations, and include estimates of associated legal costs. As of December 31, 2015 and 2014, the Company has not recognized any environmental liabilities.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including trade receivables, affiliate receivables and payables, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of these instruments.
Recent Accounting Pronouncements
In February 2016, the FASB issued an accounting standards update on lease accounting. This update requires lessees to put most leases on their balance sheets. The new standard also requires new disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The accounting standards update will be effective on a retrospective or modified retrospective basis for annual reporting periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company is in the process of determining the impact of the new standard on the financial statements.
In November 2015, the FASB issued an accounting standards update to simplify the balance sheet classification of deferred taxes. The update requires that deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The update does not change the existing requirement that only permits offsetting within a jurisdiction. The change is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The guidance may be applied either prospectively or retrospectively with early adoption permitted. Our adoption of this standard in the fourth quarter of 2015 did not have a material impact on our results of operations, financial position or cash flows. We have elected to apply this standard prospectively, therefore, prior periods have not been retrospectively adjusted.
In August 2014, the FASB issued an accounting standards update requiring management to assess an entitys ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Management will be required to assess if there is substantial doubt about an entitys ability to continue as a going concern for one year after the date that the financial statements are issued. Disclosures will be required if conditions give rise to substantial doubt and the type of disclosure will be determined based on whether managements plans will be able to alleviate the substantial doubt. The accounting standards update will be effective for the first annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. We do not expect application of this standard to have an impact on our financial reporting.
In May 2014, the FASB issued an accounting standards update for revenue recognition that is aligned with the International Accounting Standards Boards revenue recognition standard. The guidance in the update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and then recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The accounting standards update will be effective on a retrospective or modified retrospective basis for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted no earlier than January 1, 2017. The Company is in the process of determining the impact of the new standard on the financial statements.
3. Affiliate Transactions
The Company has no employees. Operating, maintenance and general and administrative services, including insurance, are provided to the Company under a service agreement with an affiliate of MarkWest Utica. In addition the Company has an office lease agreement with an affiliate. From time to time, the Company may also sell assets or inventory to or purchase assets or inventory at the lesser of average unit cost or fair value, from MarkWest Utica affiliates. The Company has incurred the following amounts with affiliates related to the service agreement, lease and assets sales:
|
|
Year ended December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Facility expenses |
|
|
|
|
|
||
Labor and benefits |
|
$ |
9,507 |
|
$ |
8,285 |
|
Rent expense |
|
271 |
|
|
|
||
|
|
|
|
|
|
||
Selling, general and administrative expenses |
|
|
|
|
|
||
General and administrative expenses |
|
1,511 |
|
1,500 |
|
||
Insurance expense |
|
1,382 |
|
1,001 |
|
||
|
|
|
|
|
|
||
Property and equipment sold to affiliates |
|
18,257 |
|
14,442 |
|
||
Property and equipment purchased from affiliates |
|
19,289 |
|
21,341 |
|
||
At December 31, 2015 and 2014, the Company had affiliate payables of $6.7 million and $3.0 million, respectively, and affiliate receivables of $0.2 million and $6.0 million, respectively, related to these transactions and the service agreement. During 2015, the Company capitalized $1.8 million of labor and benefits and $4.2 million related to engineering and construction management services provided under the affiliate service agreement in Property and equipment on the accompanying Balance Sheets. During 2014, the Company capitalized $1.2 million of labor and benefits and $9.5 million related to engineering and construction management services provided under the affiliate service agreements in Property and equipment. Prior to the Summit Investment Date, MarkWest Utica paid the engineering and construction management fees to an affiliate on behalf of the Company. The affiliate service agreement was revised in 2014 and $10.8 million of Affiliate payables related to engineering and construction management fees for prior years was reclassified as a deemed capital contribution from MarkWest Utica in 2014. In addition, $3.2 million of the $9.5 million capitalized in 2014 was also classified as a deemed contribution in 2014. The Company was partially reimbursed for the deemed contributions by Summit through a contribution to the Company at the Summit Investment Date and a corresponding distribution to MarkWest Utica. There were no deemed contributions in 2015.
4. Significant Customers and Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of trade receivables, which are generally unsecured. During 2015 and 2014, one producer customer accounted for 79.5% and 84.9%, respectively, of the Companys revenue. This customer accounted for 75.1% and 88.7%, respectively, of Trade receivables on the accompanying Balance Sheets as of December 31, 2015 and 2014.
The Company maintains cash deposits with a major bank, which, from time-to-time, may exceed federally insured limits.
5. Property and Equipment
Property and equipment is comprised of the following:
|
|
December 31, 2015 |
|
December 31, 2014 |
|
||
|
|
|
|
|
|
||
Gas gathering and compression equipment |
|
$ |
1,264,402 |
|
$ |
996,954 |
|
Land |
|
2,078 |
|
1,959 |
|
||
Construction in progress |
|
193,779 |
|
258,693 |
|
||
Property and equipment |
|
1,460,259 |
|
1,257,606 |
|
||
Less: accumulated depreciation |
|
(122,195 |
) |
(61,348 |
) |
||
Total property and equipment, net |
|
$ |
1,338,064 |
|
$ |
1,196,258 |
|
Depreciation expense of $61.1 million and $41.8 million is included in Depreciation and accretion on the Statements of Operations for the years ended December 31, 2015 and 2014, respectively.
6. Asset Retirement Obligations
The Companys assets subject to asset retirement obligations are primarily certain gas-gathering pipelines and compression equipment. The Company also has land leases that require the Company to return the land to its original condition upon termination of the lease. The Company reviews current laws and regulations governing obligations for asset retirements and leases, as well as the Companys leases and other agreements.
The following is a reconciliation of the changes in the asset retirement obligation for the years ended:
|
|
December 31,
|
|
December 31,
|
|
||
Beginning asset retirement obligation |
|
$ |
889 |
|
$ |
|
|
Liabilities incurred |
|
4,147 |
|
851 |
|
||
Accretion expense |
|
333 |
|
38 |
|
||
Ending asset retirement obligation |
|
$ |
5,369 |
|
$ |
889 |
|
At December 31, 2015 and 2014 there were no assets legally restricted for purposes of settling asset retirement obligations.
In addition to the recorded asset retirement obligations, the Company has asset retirement obligations related to certain gathering assets as a result of environmental and other legal requirements. The Company is not required to perform such work until it permanently ceases operations of the respective assets. Because the Company considers the operational life of these assets to be indeterminable, an associated asset retirement obligation cannot be calculated and is not recorded.
7. Commitments and Contingencies
In September 2015, the Company and MarkWest Utica settled a legal dispute with a pipeline construction contractor that had been engaged to construct certain natural gas gathering assets for $10.5 million (of which $5.2 million relates to the Company). The Company had accrued its portion of $2.4 million at December 31, 2014 and capitalized the costs in Property and equipment in the accompanying balance sheets. The remaining $2.8 million was capitalized in Property and equipment during 2015. The settlement has been paid as of December 31, 2015.
The Company is subject to a variety of risks and disputes, and is a party to various legal proceedings in the normal course of its business. The Company maintains insurance policies in amounts and with coverage and deductibles that it believes are reasonable and prudent. However, the Company cannot assure that the insurance companies will promptly honor their policy obligations, or that the coverage or levels of insurance will be adequate to protect the Company from all material expenses related to future claims for property loss or business interruption to the Company, or for third-party claims of personal injury and property damage, or that the coverage or levels of insurance it currently has will be available in the future at economical prices. While it is not possible to predict the outcome of the legal actions with certainty, management is of the opinion that appropriate provisions and accruals for potential losses associated with all legal actions have been made in the financial statements and that none of these actions, either individually or in the aggregate, will have a material adverse effect on the Companys financial condition, liquidity or results of operations.
The Company has various non-cancelable operating lease agreements. The related expense and commitments resulting from these agreements is immaterial to the Companys financial position and results of operations.
8. Subsequent Events
On March 3, 2016, Summit Midstream Partners, LP acquired Summits interest in Ohio Gathering. The Company evaluated subsequent events through March 11, 2016, the date the financial statements were issued.