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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to        

Commission file number: 001-35666

Summit Midstream Partners, LP

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

45-5200503

(I.R.S. Employer

Identification No.)

 

 

 

910 Louisiana Street, Suite 4200

Houston, TX

(Address of principal executive offices)

 

77002

(Zip Code)

 

(832) 413-4770

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Securities Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Units

SMLP

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes          No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

As of April 30, 2020

Common Units

 

94,558,166 units

 

 

 


 

TABLE OF CONTENTS

 

COMMONLY USED OR DEFINED TERMS

2

 

 

 

PART I

FINANCIAL INFORMATION

5

Item 1.

Financial Statements.

5

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

5

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

6

 

Unaudited Condensed Consolidated Statements of Partners' Capital for the three months ended March 31, 2020 and 2019

7

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

32

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

55

Item 4.

Controls and Procedures.

56

 

 

 

PART II

OTHER INFORMATION

57

Item 1.

Legal Proceedings.

57

Item 1A.

Risk Factors.

57

Item 6.

Exhibits.

60

 

 

 

SIGNATURES

61

 

 

1


 

COMMONLY USED OR DEFINED TERMS

2016 Drop Down

the Partnership's March 3, 2016 acquisition from SMP Holdings of substantially all

    of (i) the issued and outstanding membership interests in Summit Utica,

    Meadowlark Midstream and Tioga Midstream and (ii) SMP Holdings’ 40%

    ownership interest in Ohio Gathering

5.5% Senior Notes

Summit Holdings' and Finance Corp.’s 5.5% senior unsecured notes due August

    2022

5.75% Senior Notes

Summit Holdings' and Finance Corp.’s 5.75% senior unsecured notes due April

    2025

associated natural gas

a form of natural gas which is found with deposits of petroleum, either dissolved

    in the crude oil or as a free gas cap above the crude oil in the reservoir

ASU

Accounting Standards Update

Bbl

one barrel; used for crude oil and produced water and equivalent to 42 U.S. gallons

Bcf

one billion cubic feet

Bison Midstream

Bison Midstream, LLC

Board of Directors

the board of directors of our General Partner

condensate

a natural gas liquid with a low vapor pressure, mainly composed of propane, butane,

    pentane and heavier hydrocarbon fractions

Deferred Purchase Price

    Obligation

the deferred payment liability recognized in connection with the 2016 Drop Down, as

    subsequently amended; also referred to as DPPO

DFW Midstream

DFW Midstream Services LLC

DJ Basin

Denver-Julesburg Basin

Double E

Double E Pipeline, LLC

Double E Project

the development and construction of a long-haul natural gas pipeline with an

    initial throughput capacity of 1.35 billion cubic feet per day that will provide

    transportation service from multiple receipt points in the Delaware Basin

    to various delivery points in and around the Waha Hub in Texas

dry gas

natural gas primarily composed of methane where heavy hydrocarbons and water

    either do not exist or have been removed through processing or treating

Energy Capital Partners

Energy Capital Partners II, LLC and its parallel and co-investment funds; also known

    as the Sponsor

Epping

Epping Transmission Company, LLC

EPU

earnings or loss per unit

Equity Restructuring

a series of transactions consummated on March 22, 2019, pursuant to which the

    Partnership cancelled its IDRs and converted its 2% economic GP interest

    to a non-economic GP interest in exchange for 8,750,000 SMLP common

    units, which were issued to SMP Holdings

FASB

Financial Accounting Standards Board

Finance Corp.

Summit Midstream Finance Corp.

GAAP

accounting principles generally accepted in the United States of America

General Partner

Summit Midstream GP, LLC

GP

general partner

GP interest

2.0% general partner interest of GP in the Partnership prior to the Equity

    Restructuring and a non-economic general partner interest after the Equity

    Restructuring

Grand River

Grand River Gathering, LLC

Guarantor Subsidiaries

Bison Midstream and its subsidiaries, Grand River and its subsidiaries, DFW

    Midstream, Summit Marketing, Summit Permian, Permian Finance, OpCo,

    Summit Utica, Meadowlark Midstream, Summit Permian II and Mountaineer

    Midstream

IDRs

incentive distribution rights

LIBOR

London Interbank Offered Rate

Mbbl

one thousand barrels

Mbbl/d

one thousand barrels per day

Mcf

one thousand cubic feet

MD&A

Management's Discussion and Analysis of Financial Condition and Results of

    Operations

Meadowlark Midstream

Meadowlark Midstream Company, LLC

2


 

MMcf

one million cubic feet

MMcf/d

one million cubic feet per day

Mountaineer Midstream

Mountaineer Midstream Company, LLC

MVC

minimum volume commitment

NGLs

natural gas liquids; the combination of ethane, propane, normal butane,

    iso-butane and natural gasolines that when removed from unprocessed

    natural gas streams become liquid under various levels of higher

    pressure and lower temperature

Niobrara G&P

Niobrara Gathering and Processing system

OCC

Ohio Condensate Company, L.L.C.

OGC

Ohio Gathering Company, L.L.C.

Ohio Gathering

Ohio Gathering Company, L.L.C. and Ohio Condensate Company, L.L.C.

OpCo

Summit Midstream OpCo, LP

play

a proven geological formation that contains commercial amounts of hydrocarbons

Permian Finance

Summit Midstream Permian Finance, LLC

Permian Holdco

Summit Permian Transmission Holdco, LLC

Polar and Divide

the Polar and Divide system; collectively Polar Midstream and Epping

Polar Midstream

Polar Midstream, LLC

produced water

water from underground geologic formations that is a by-product of natural gas and

    crude oil production

Red Rock Gathering

Red Rock Gathering Company, LLC

Remaining Consideration

the consideration to be paid to SMP Holdings in 2022 in connection with the 2016

    Drop Down, the present value of which is reflected on our balance sheets as the

    Deferred Purchase Price Obligation

Revolving Credit Facility

the Third Amended and Restated Credit Agreement dated as of May 26, 2017, as

    amended by the First Amendment to Third Amended and Restated Credit

    Agreement dated as of September 22, 2017, the Second Amendment to Third

    Amended and Restated Credit Agreement dated as of June 26, 2019 and

    the Third Amendment to Third Amended and Restated Credit Agreement

    dated as of December 24, 2019

SEC

Securities and Exchange Commission

segment adjusted

    EBITDA

total revenues less total costs and expenses; plus (i) other income excluding interest

    income, (ii) our proportional adjusted EBITDA for equity method investees, (iii)

    depreciation and amortization, (iv) adjustments related to MVC shortfall

    payments, (v) adjustments related to capital reimbursement activity, (vi) unit-

    based and noncash compensation, (vii) the change in the Deferred Purchase

    Price Obligation, (viii) impairments and (ix) other noncash expenses

    or losses, less other noncash income or gains

Senior Notes

The 5.5% Senior Notes and the 5.75% Senior Notes, collectively

Series A Preferred Units

Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

shortfall payment

the payment received from a counterparty when its volume throughput does not

    meet its MVC for the applicable period

SMLP

Summit Midstream Partners, LP

SMLP Holdings

SMLP Holdings, LLC

SMLP LTIP

SMLP Long-Term Incentive Plan

SMP Holdings

Summit Midstream Partners Holdings, LLC

SMPH Term Loan

the Term Loan Agreement, dated as of March 21, 2017, among SMP Holdings,

    as borrower, the lenders party thereto and Credit Suisse AG, Cayman Islands

    Branch, as Administrative Agent and Collateral Agent

Sponsor

Energy Capital Partners II, LLC and its parallel and co-investment funds; also known

    as Energy Capital Partners

Subsidiary Series A

    Preferred Units

Series A Fixed Rate Cumulative Redeemable Preferred Units issued by Permian

    Holdco

Summit Holdings

Summit Midstream Holdings, LLC

Summit Investments

Summit Midstream Partners, LLC

Summit Niobrara

Summit Midstream Niobrara, LLC

Summit Marketing

Summit Midstream Marketing, LLC

Summit Permian

Summit Midstream Permian, LLC

3


 

Summit Permian II

Summit Midstream Permian II, LLC

Summit Permian

    Transmission

Summit Permian Transmission, LLC

Summit Utica

Summit Midstream Utica, LLC

the Company

Summit Midstream Partners, LLC and its subsidiaries

the Partnership

Summit Midstream Partners, LP and its subsidiaries

throughput volume

the volume of natural gas, crude oil or produced water gathered, transported or

    passing through a pipeline, plant or other facility during a particular period;

    also referred to as volume throughput

Tioga Midstream

Tioga Midstream, LLC

unconventional resource

    basin

a basin where natural gas or crude oil production is developed from unconventional

    sources that require hydraulic fracturing as part of the completion process, for

    instance, natural gas produced from shale formations and coalbeds; also

    referred to as an unconventional resource play

wellhead

the equipment at the surface of a well, used to control the well's pressure; also, the

    point at which the hydrocarbons and water exit the ground

 

4


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands, except unit amounts)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,694

 

 

$

4,948

 

Restricted cash

 

 

4,057

 

 

 

27,392

 

Accounts receivable

 

 

83,648

 

 

 

102,118

 

Other current assets

 

 

4,265

 

 

 

5,018

 

Total current assets

 

 

159,664

 

 

 

139,476

 

Property, plant and equipment, net

 

 

1,869,882

 

 

 

1,882,251

 

Intangible assets, net

 

 

224,076

 

 

 

232,278

 

Investment in equity method investees

 

 

363,578

 

 

 

309,728

 

Other noncurrent assets

 

 

7,735

 

 

 

9,718

 

Total assets

 

$

2,624,935

 

 

$

2,573,451

 

 

 

 

 

 

 

 

 

 

Liabilities and Capital

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

22,294

 

 

$

24,415

 

Accrued expenses

 

 

11,413

 

 

 

11,482

 

Due to affiliate

 

 

776

 

 

 

311

 

Deferred revenue

 

 

14,318

 

 

 

13,493

 

Ad valorem taxes payable

 

 

3,696

 

 

 

8,477

 

Accrued interest

 

 

15,370

 

 

 

12,311

 

Accrued environmental remediation

 

 

2,016

 

 

 

1,725

 

Other current liabilities

 

 

8,621

 

 

 

11,933

 

Total current liabilities

 

 

78,504

 

 

 

84,147

 

Long-term debt

 

 

1,491,716

 

 

 

1,470,299

 

Deferred Purchase Price Obligation

 

 

180,750

 

 

 

178,453

 

Noncurrent deferred revenue

 

 

43,045

 

 

 

38,709

 

Noncurrent accrued environmental remediation

 

 

2,618

 

 

 

2,926

 

Other noncurrent liabilities

 

 

8,044

 

 

 

7,951

 

Total liabilities

 

 

1,804,677

 

 

 

1,782,485

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine Capital

 

 

 

 

 

 

 

 

Subsidiary Series A Preferred Units (66,002 units issued and

    outstanding at March 31, 2020 and 30,058 units issued and

    outstanding at December 31, 2019)

 

 

62,341

 

 

 

27,450

 

 

 

 

 

 

 

 

 

 

Partners' Capital

 

 

 

 

 

 

 

 

Series A Preferred Units (300,000 units issued and outstanding at

    March 31, 2020 and December 31, 2019)

 

 

300,741

 

 

 

293,616

 

Common limited partner capital (94,469,385 units issued and outstanding

    at March 31, 2020 and 93,493,473 units issued and outstanding

    at December 31, 2019)

 

 

457,176

 

 

 

469,900

 

Total partners' capital

 

 

757,917

 

 

 

763,516

 

Total liabilities, mezzanine capital and partners' capital

 

$

2,624,935

 

 

$

2,573,451

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands, except per-unit amounts)

 

Revenues:

 

 

 

 

 

 

 

 

Gathering services and related fees

 

$

83,792

 

 

$

86,964

 

Natural gas, NGLs and condensate sales

 

 

13,780

 

 

 

37,928

 

Other revenues

 

 

7,331

 

 

 

6,516

 

Total revenues

 

 

104,903

 

 

 

131,408

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of natural gas and NGLs

 

 

8,225

 

 

 

31,759

 

Operation and maintenance

 

 

21,811

 

 

 

24,222

 

General and administrative

 

 

16,378

 

 

 

17,281

 

Depreciation and amortization

 

 

29,629

 

 

 

27,727

 

Transaction costs

 

 

11

 

 

 

950

 

Loss (gain) on asset sales, net

 

 

115

 

 

 

(961

)

Long-lived asset impairment

 

 

3,821

 

 

 

44,951

 

Total costs and expenses

 

 

79,990

 

 

 

145,929

 

Other (expense) income

 

 

(428

)

 

 

209

 

Interest expense

 

 

(20,218

)

 

 

(17,527

)

Deferred Purchase Price Obligation

 

 

(2,297

)

 

 

(4,427

)

Income (loss) before income taxes and income

   (loss) from equity method investees

 

 

1,970

 

 

 

(36,266

)

Income tax benefit (expense)

 

 

28

 

 

 

(207

)

Income (loss) from equity method investees

 

 

3,311

 

 

 

(441

)

Net income (loss)

 

$

5,309

 

 

$

(36,914

)

Less:

 

 

 

 

 

 

 

 

Net income attributable to General Partner,

    including IDRs

 

 

 

 

 

12

 

Net income (loss) attributable to limited partners

 

 

5,309

 

 

 

(36,926

)

Net income attributable to Series A Preferred Units

 

 

7,125

 

 

 

7,125

 

Net income attributable to Subsidiary Series A Preferred Units

 

 

945

 

 

 

 

Net loss attributable to common limited partners

 

$

(2,761

)

 

$

(44,051

)

 

 

 

 

 

 

 

 

 

Loss per limited partner unit:

 

 

 

 

 

 

 

 

Common unit – basic

 

$

(0.03

)

 

$

(0.58

)

Common unit – diluted

 

$

(0.03

)

 

$

(0.58

)

 

 

 

 

 

 

 

 

 

Weighted-average limited partner units outstanding:

 

 

 

 

 

 

 

 

Common units – basic

 

 

93,675

 

 

 

75,793

 

Common units – diluted

 

 

93,675

 

 

 

75,793

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

 

 

Partners' capital

 

 

 

 

 

 

 

Limited partners

 

 

 

 

 

 

 

Series A Preferred Units

 

 

Common

 

 

Total

 

 

 

(In thousands)

 

Partners' capital, January 1, 2020

 

$

293,616

 

 

$

469,900

 

 

$

763,516

 

Net income (loss)

 

 

7,125

 

 

 

(2,761

)

 

 

4,364

 

Distributions to unitholders

 

 

 

 

 

(11,702

)

 

 

(11,702

)

Unit-based compensation

 

 

 

 

 

2,723

 

 

 

2,723

 

Tax withholdings and associated payments

  on vested SMLP LTIP awards

 

 

 

 

 

(984

)

 

 

(984

)

Partners' capital, March 31, 2020

 

$

300,741

 

 

$

457,176

 

 

$

757,917

 

 

 

 

Partners' capital

 

 

 

 

 

 

 

Limited partners

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Units

 

 

Common

 

 

General Partner

 

 

Total

 

 

 

(In thousands)

 

Partners' capital, January 1, 2019

 

$

293,616

 

 

$

902,358

 

 

$

25,250

 

 

$

1,221,224

 

Net income (loss)

 

 

7,125

 

 

 

(44,051

)

 

 

12

 

 

 

(36,914

)

Conversion of General Partner economic

    interests

 

 

 

 

 

22,222

 

 

 

(22,222

)

 

 

 

Distributions to unitholders

 

 

 

 

 

(42,241

)

 

 

(3,040

)

 

 

(45,281

)

Unit-based compensation

 

 

 

 

 

2,526

 

 

 

 

 

 

2,526

 

Tax withholdings and associated payments

  on vested SMLP LTIP awards

 

 

 

 

 

(2,522

)

 

 

 

 

 

(2,522

)

Partners' capital, March 31, 2019

 

$

300,741

 

 

$

838,292

 

 

$

 

 

$

1,139,033

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,309

 

 

$

(36,914

)

Adjustments to reconcile net income (loss) to net

    cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

29,863

 

 

 

28,116

 

Noncash lease expense

 

 

473

 

 

 

765

 

Amortization of debt issuance costs

 

 

1,109

 

 

 

1,080

 

Deferred Purchase Price Obligation

 

 

2,297

 

 

 

4,427

 

Unit-based and noncash compensation

 

 

2,723

 

 

 

2,526

 

(Income) loss from equity method investees

 

 

(3,311

)

 

 

441

 

Distributions from equity method investees

 

 

7,494

 

 

 

8,583

 

Loss (gain) on asset sales, net

 

 

115

 

 

 

(961

)

Long-lived asset impairment

 

 

3,821

 

 

 

44,951

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

18,470

 

 

 

4,675

 

Trade accounts payable

 

 

3,960

 

 

 

271

 

Accrued expenses

 

 

(69

)

 

 

(1,199

)

Due from affiliate

 

 

465

 

 

 

80

 

Deferred revenue, net

 

 

5,161

 

 

 

2,323

 

Ad valorem taxes payable

 

 

(4,781

)

 

 

(6,184

)

Accrued interest

 

 

3,059

 

 

 

3,111

 

Accrued environmental remediation, net

 

 

(17

)

 

 

(548

)

Other, net

 

 

(2,173

)

 

 

(2,832

)

Net cash provided by operating activities

 

 

73,968

 

 

 

52,711

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(18,583

)

 

 

(60,848

)

Proceeds from asset sale (net of cash of $1,475 for the

    period ended March 31, 2019)

 

 

 

 

 

89,461

 

Investment in equity method investee

 

 

(58,033

)

 

 

 

Other, net

 

 

217

 

 

 

(120

)

Net cash (used in) provided by investing activities

 

 

(76,399

)

 

 

28,493

 

8


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions to unitholders

 

 

(11,702

)

 

 

(45,281

)

Borrowings under Revolving Credit Facility

 

 

55,000

 

 

 

69,000

 

Repayments under Revolving Credit Facility

 

 

(34,000

)

 

 

(101,000

)

Proceeds from issuance of Series A preferred units, net of costs

 

 

33,946

 

 

 

 

Other, net

 

 

(1,402

)

 

 

(2,968

)

Net cash provided by (used in) financing activities

 

 

41,842

 

 

 

(80,249

)

Net change in cash, cash equivalents and restricted cash

 

 

39,411

 

 

 

955

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

32,340

 

 

 

4,345

 

Cash, cash equivalents and restricted cash, end of period (1)

 

$

71,751

 

 

$

5,300

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash interest paid

 

$

16,523

 

 

$

15,229

 

Less capitalized interest

 

 

491

 

 

 

1,915

 

Interest paid (net of capitalized interest)

 

$

16,032

 

 

$

13,314

 

 

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

Capital expenditures in trade accounts payable (period-end

    accruals)

 

$

13,765

 

 

$

23,389

 

Right-of-use assets relating to ASC Topic 842

 

 

 

 

 

5,448

 

 

 

 

 

 

 

 

 

 

(1) A reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets follow:

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

67,694

 

 

$

5,300

 

Restricted cash

 

 

4,057

 

 

 

 

Total cash, cash equivalents and restricted cash

 

$

71,751

 

 

$

5,300

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

9


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION

Organization. SMLP, a Delaware limited partnership, was formed in May 2012 and began operations in October 2012. SMLP is a value-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in unconventional resource basins, primarily shale formations, in the continental United States. Our business activities are conducted through various operating subsidiaries, each of which is owned or controlled by our wholly owned subsidiary holding company, Summit Holdings, a Delaware limited liability company. References to the "Partnership," "we," or "our" refer collectively to SMLP and its subsidiaries.

The General Partner, a Delaware limited liability company, manages our operations and activities. Summit Investments, a Delaware limited liability company, is the ultimate owner of our General Partner and has the right to appoint the entire Board of Directors. Summit Investments is controlled by Energy Capital Partners.

As of March 31, 2020, SMP Holdings, a wholly owned subsidiary of Summit Investments, beneficially owned 45,318,866 SMLP common units and a subsidiary of Energy Capital Partners directly owned 5,915,827 SMLP common units.

Neither SMLP nor its subsidiaries have any employees. All of the personnel that conduct our business are employed by Summit Investments, but these individuals are sometimes referred to as our employees.

Business Operations.  We provide natural gas gathering, compression, treating and processing services as well as crude oil and produced water gathering services pursuant to primarily long-term, fee-based agreements with our customers. Our results are primarily driven by the volumes of natural gas that we gather, compress, treat and/or process as well as by the volumes of crude oil and produced water that we gather. We are the owner-operator of, or have significant ownership interests in, the following gathering and transportation systems:

 

Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;

 

Ohio Gathering, a natural gas gathering system and a condensate stabilization facility operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;

 

Polar and Divide, a crude oil and produced water gathering system and transmission pipeline operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;

 

Bison Midstream, an associated natural gas gathering system operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;

 

Niobrara G&P, an associated natural gas gathering and processing system operating in the DJ Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado and southeastern Wyoming;

 

Summit Permian, an associated natural gas gathering and processing system operating in the northern Delaware Basin, which includes the Wolfcamp and Bone Spring formations, in southeastern New Mexico;

 

Double E, a 1.35 Bcf/d natural gas transmission pipeline that is under development and will provide transportation service from multiple receipt points in the Delaware Basin to various delivery points in and around the Waha Hub in Texas;

 

Grand River, a natural gas gathering and processing system operating in the Piceance Basin, which includes the Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado;

 

DFW Midstream, a natural gas gathering system operating in the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and

 

Mountaineer Midstream, a natural gas gathering system operating in the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia.

10


 

Other than our investments in Double E and Ohio Gathering, all of our business activities are conducted through wholly owned operating subsidiaries.

Presentation and Consolidation.  We prepare our unaudited condensed consolidated financial statements in accordance with GAAP as established by the FASB. We make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates, including fair value measurements, the reported amounts of revenues and expenses and the disclosure of commitments and contingencies. Further, these estimates and other factors, including those outside of our control, such as the impact of lower commodity prices, may have a significant negative impact to our business, financial condition, results of operations and cash flows. Although management believes these estimates are reasonable, actual results could differ from its estimates.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and the regulations of the SEC. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments which are necessary to fairly present the unaudited condensed consolidated balance sheet as of March 31, 2020, the unaudited condensed consolidated statements of operations and statements of partners’ capital for the three months ended March 31, 2020 and 2019 and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019. The balance sheet at December 31, 2019 included herein was derived from our audited financial statements, but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our annual report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 9, 2020 (the "2019 Annual Report"). The results of operations for an interim period are not necessarily indicative of results expected for a full year.

Risks and Uncertainties.  We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our customers, employees, supply chain and distribution network. While COVID-19 did not have a material adverse effect on our reported results for the first quarter of 2020, only one month of the quarter was affected by COVID-19 and if the current conditions continue, subsequent quarters may reflect these conditions for a full quarter. We are unable to predict the ultimate impact that COVID-19 may have on our business, future results of operations, financial position or cash flows.

The full extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the changes below, there have been no changes to our significant accounting policies since December 31, 2019.

Recent Accounting Pronouncements. Accounting standard setters frequently issue new or revised accounting rules. We review new pronouncements to determine the impact, if any, on our financial statements. Accounting standards that have or could possibly have a material effect on our financial statements are discussed below.

11


 

Recently Adopted Accounting Pronouncements. We have recently adopted the following accounting pronouncement:

 

ASU No. 2018-13 Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 updates the disclosure requirements on fair value measurements including new disclosures for the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 modifies existing disclosures including clarifying the measurement uncertainty disclosure. ASU 2018-13 removes certain existing disclosure requirements including the amount and reasons for transfers between Level 1 and Level 2 fair value measurements and the policy for the timing of transfer between levels. The adoption of ASU 2018-13 on January 1, 2020 did not have a material impact on our unaudited condensed consolidated financial statement disclosures.

 

ASU No. 2016-13 Financial Instruments – Credit Losses (“ASU 2016-13”). ASU 2016-13 requires the use of a current expected loss model for financial assets measured at amortized cost and certain off-balance sheet credit exposures. Under this model, entities will be required to estimate the lifetime expected credit losses on such instruments based on historical experience, current conditions, and reasonable and supportable forecasts. This amended guidance also expands the disclosure requirements to enable users of financial statements to understand an entity’s assumptions, models and methods for estimating expected credit losses. The changes are effective for annual and interim periods beginning after December 15, 2019, and amendments should be applied using a modified retrospective approach. The adoption of ASU 2016-13 on January 1, 2020 did not have a material impact on our unaudited condensed consolidated financial statements or disclosures.

Accounting Pronouncements Pending Adoption. We have not yet adopted the following accounting pronouncement as of March 31, 2020:

 

ASU No. 2020-04 Reference Rate Reform (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform on financial reporting. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. We are currently evaluating the provisions of ASU 2020-04 to determine its impact on our unaudited condensed consolidated financial statements and disclosures.

3. REVENUE

The majority of our revenue is derived from long-term, fee-based contracts with our customers, which include original terms of up to 25 years. We recognize revenue earned from fee-based gathering, compression, treating and processing services in Gathering services and related fees. We also earn revenue in the Williston Basin and Permian Basin reporting segments from the sale of physical natural gas purchased from our customers under certain percent-of-proceeds arrangements. Under ASC Topic 606, these gathering contracts are presented net within Cost of natural gas and NGLs. We sell natural gas that we retain from certain customers in the Barnett Shale reporting segment to offset the power expenses of the electric-driven compression on the DFW Midstream system. We also sell condensate and NGLs retained from certain of our gathering services in the Piceance Basin and Permian Basin reporting segments. Revenues from the sale of natural gas and condensate are recognized in Natural gas, NGLs and condensate sales; the associated expense is included in Operation and maintenance expense. Certain customers reimburse us for costs we incur on their behalf. We record costs incurred and reimbursed by our customers on a gross basis, with the revenue component recognized in Other revenues.  

The transaction price in our contracts is primarily based on the volume of natural gas, crude oil or produced water transferred by our gathering systems to the customer’s agreed upon delivery point multiplied by the contractual rate. For contracts that include MVCs, variable consideration up to the MVC will be included in the transaction price. For contracts that do not include MVCs, we do not estimate variable consideration because the performance obligations are completed and settled on a daily basis. For contracts containing noncash consideration such as fuel received

12


 

in-kind, we measure the transaction price at the point of sale when the volume, mix and market price of the commodities are known.

We have contracts with MVCs that are variable and constrained. Contracts with greater than monthly MVCs are reviewed on a quarterly basis and adjustments to those estimates are made during each respective reporting period, if necessary.

The transaction price is allocated if the contract contains more than one performance obligation such as contracts that include MVCs. The transaction price allocated is based on the MVC for the applicable measurement period.

Performance obligations.  The majority of our contracts have a single performance obligation which is either to provide gathering services (an integrated service) or sell natural gas, NGLs and condensate, which are both satisfied when the related natural gas, crude oil and produced water are received and transferred to an agreed upon delivery point. We also have certain contracts with multiple performance obligations. They include an option for the customer to acquire additional services such as contracts containing MVCs. These performance obligations would also be satisfied when the related natural gas, crude oil and produced water are received and transferred to an agreed upon delivery point. In these instances, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each service in the contract.

Performance obligations for gathering services are generally satisfied over time. We utilize either an output method (i.e., measure of progress) for guaranteed, stand-ready service contracts or an asset/system delivery time estimate for non-guaranteed, as-available service contracts.

Performance obligations for the sale of natural gas, NGLs and condensate are satisfied at a point in time. There are no significant judgments for these transactions because the customer obtains control based on an agreed upon delivery point.

Certain of our gathering and/or processing agreements provide for monthly or annual MVCs. Under these MVCs, our customers agree to ship and/or process a minimum volume of production on our gathering systems or to pay a minimum monetary amount over certain periods during the term of the MVC. A customer must make a shortfall payment to us at the end of the contracted measurement period if its actual throughput volumes are less than its contractual MVC for that period. Certain customers are entitled to utilize shortfall payments to offset gathering fees in one or more subsequent contracted measurement periods to the extent that such customer's throughput volumes in a subsequent contracted measurement period exceed its MVC for that contracted measurement period.  

We recognize customer obligations under their MVCs as revenue and contract assets when (i) we consider it remote that the customer will utilize shortfall payments to offset gathering or processing fees in excess of its MVCs in subsequent periods; (ii) the customer incurs a shortfall in a contract with no banking mechanism or claw back provision; (iii) the customer’s banking mechanism has expired; or (iv) it is remote that the customer will use its unexercised right.

Our services are typically billed on a monthly basis and we do not offer extended payment terms. We do not have contracts with financing components.  

The following table presents estimated revenue expected to be recognized during the remainder of 2020 and over the remaining contract period related to performance obligations that are unsatisfied and are comprised of estimated MVC shortfall payments.

We applied the practical expedient in paragraph 606-10-50-14 of ASC Topic 606 for certain arrangements that we consider optional purchases (i.e., there is no enforceable obligation for the customer to make purchases) and those amounts are therefore excluded from the table.

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

 

 

(In thousands)

 

Gathering services and related fees

 

$

86,916

 

 

$

102,127

 

 

$

84,736

 

 

$

66,693

 

 

$

50,608

 

 

$

58,672

 

 

 

13


 

Revenue by Category.  In the following table, revenue is disaggregated by geographic area and major products and services. Ohio Gathering is excluded from the tables below due to equity method accounting. For more detailed information about reportable segments, see Note 4.

 

 

 

Reportable Segments

 

 

 

Three months ended March 31, 2020

 

 

 

Utica Shale

 

 

Williston Basin

 

 

DJ Basin

 

 

Permian Basin

 

 

Piceance Basin

 

 

Barnett Shale

 

 

Marcellus Shale

 

 

Total reportable segments

 

 

All other segments

 

 

Total

 

 

 

(In thousands)

 

Major products /

    services lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering services

    and related fees

 

$

6,962

 

 

$

23,797

 

 

$

6,855

 

 

$

2,311

 

 

$

27,189

 

 

$

10,443

 

 

$

6,235

 

 

$

83,792

 

 

$

 

 

$

83,792

 

Natural gas, NGLs

    and condensate

    sales

 

 

 

 

 

4,324

 

 

 

70

 

 

 

4,512

 

 

 

1,003

 

 

 

3,871

 

 

 

 

 

 

13,780

 

 

 

 

 

 

13,780

 

Other revenues

 

 

 

 

 

3,142

 

 

 

1,034

 

 

 

187

 

 

 

1,065

 

 

 

1,260

 

 

 

 

 

 

6,688

 

 

 

643

 

 

 

7,331

 

Total

 

$

6,962

 

 

$

31,263

 

 

$

7,959

 

 

$

7,010

 

 

$

29,257

 

 

$

15,574

 

 

$

6,235

 

 

$

104,260

 

 

$

643

 

 

$

104,903

 

 

 

 

 

Reportable Segments

 

 

 

Three months ended March 31, 2019

 

 

 

Utica Shale

 

 

Williston Basin

 

 

DJ Basin

 

 

Permian Basin

 

 

Piceance Basin

 

 

Barnett Shale

 

 

Marcellus Shale

 

 

Total reportable segments

 

 

All other segments

 

 

Total

 

 

 

(In thousands)

 

Major products /

    services lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gathering services

    and related fees

 

$

7,495

 

 

$

25,706

 

 

$

3,724

 

 

$

366

 

 

$

31,840

 

 

$

13,025

 

 

$

6,197

 

 

$

88,353

 

 

$

(1,389

)

 

$

86,964

 

Natural gas, NGLs

    and condensate

    sales

 

 

 

 

 

5,585

 

 

 

85

 

 

 

4,221

 

 

 

2,302

 

 

 

604

 

 

 

 

 

 

12,797

 

 

 

25,131

 

 

 

37,928

 

Other revenues

 

 

 

 

 

2,908

 

 

 

1,007

 

 

 

32

 

 

 

1,138

 

 

 

1,656

 

 

 

 

 

 

6,741

 

 

 

(225

)

 

 

6,516

 

Total

 

$

7,495

 

 

$

34,199

 

 

$

4,816

 

 

$

4,619

 

 

$

35,280

 

 

$

15,285

 

 

$

6,197

 

 

$

107,891

 

 

$

23,517

 

 

$

131,408

 

 

Contract balances.  Contract assets relate to our rights to consideration for work completed but not billed at the reporting date and consist of the estimated MVC shortfall payments expected from our customers and unbilled activity associated with contributions in aid of construction. Contract assets are transferred to trade receivables when the rights become unconditional. The following table provides information about contract assets from contracts with customers:

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(In thousands)