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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, 2021

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 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, 2021

Common Units

 

6,744,736 units

 

 

 


 

 

TABLE OF CONTENTS

 

COMMONLY USED OR DEFINED TERMS

2

 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

 

Unaudited Condensed Consolidated Balance Sheets.

4

 

Unaudited Condensed Consolidated Statements of Operations.

5

 

Unaudited Condensed Consolidated Statements of Partners' Capital.

6

 

Unaudited Condensed Consolidated Statements of Cash Flows.

7

 

Notes to Unaudited Condensed Consolidated Financial Statements.

8

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

41

Item 4.

Controls and Procedures.

41

 

 

 

PART II

OTHER INFORMATION

42

Item 1.

Legal Proceedings.

42

Item 1A.

Risk Factors.

42

Item 5.

Other Information.

42

Item 6.

Exhibits.

43

 

 

 

SIGNATURES

44

 


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

2022 Senior Notes

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

    2022

2025 Senior Notes

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

    2025

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

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

Energy Capital Partners

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

Epping

Epping Transmission Company, LLC

EPU

earnings or loss per unit

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

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

hub

geographic location of a storage facility and multiple pipeline interconnections

LIBOR

London Interbank Offered Rate

Mbbl/d

one thousand barrels per day

Meadowlark Midstream

Meadowlark Midstream Company, LLC

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

NYSE

New York Stock Exchange

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

2


 

Permian Transmission Credit Facility

Credit Agreement, dated as of March 8, 2021, among Summit Permian Transmission, LLC,

    as borrower, MUFG Bank Ltd., as administrative agent, Mizuho Bank (USA),

    as collateral agent, ING Capital LLC, Mizuho Bank, Ltd. and MUFG Union Bank, N.A.,

    as L/C issuers, coordinating lead arrangers and joint bookrunners, and the lenders from

    time to time party thereto

Polar and Divide

the Polar and Divide system; collectively Polar Midstream and Epping

produced water

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

    crude oil production

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,

    the Third Amendment to Third Amended and Restated Credit Agreement

    dated as of December 24, 2019 and the Fourth Amendment to Third

    Amended and Restated Credit Agreement dated as of December 18, 2020

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) impairments and (viii) 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 LTIP

SMLP Long-Term Incentive Plan

SMP Holdings

Summit Midstream Partners Holdings, LLC, also known as SMPH

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

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 Marketing

Summit Midstream Marketing, LLC

Summit Permian

Summit Midstream Permian, LLC

Summit Permian II

Summit Midstream Permian II, LLC

Summit Permian

    Transmission

Summit Permian Transmission, LLC

Summit Utica

Summit Midstream Utica, LLC

the Partnership

Summit Midstream Partners, LP and its subsidiaries

the Partnership

    Agreement

the Fourth Amended and Restated Agreement of Limited Partnership of the

    Partnership dated May 28, 2020

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

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

 


3


 

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands, except unit amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,233

 

 

$

15,544

 

Restricted cash

 

 

8,067

 

 

 

 

Accounts receivable, net

 

 

54,301

 

 

 

61,932

 

Other current assets

 

 

12,167

 

 

 

4,623

 

Total current assets

 

 

90,768

 

 

 

82,099

 

Property, plant and equipment, net

 

 

1,788,222

 

 

 

1,817,546

 

Intangible assets, net

 

 

192,378

 

 

 

199,566

 

Investment in equity method investees

 

 

394,405

 

 

 

392,740

 

Other noncurrent assets

 

 

6,792

 

 

 

7,866

 

TOTAL ASSETS

 

$

2,472,565

 

 

$

2,499,817

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

15,873

 

 

$

11,878

 

Accrued expenses

 

 

11,666

 

 

 

13,036

 

Deferred revenue

 

 

10,017

 

 

 

9,988

 

Ad valorem taxes payable

 

 

7,589

 

 

 

9,086

 

Accrued compensation and employee benefits

 

 

4,481

 

 

 

9,658

 

Accrued interest

 

 

8,512

 

 

 

8,007

 

Accrued environmental remediation

 

 

1,885

 

 

 

1,392

 

Other current liabilities

 

 

14,682

 

 

 

5,363

 

Total current liabilities

 

 

74,705

 

 

 

68,408

 

Long-term debt

 

 

1,304,918

 

 

 

1,347,326

 

Noncurrent deferred revenue

 

 

47,644

 

 

 

48,250

 

Noncurrent accrued environmental remediation

 

 

1,368

 

 

 

1,537

 

Other noncurrent liabilities

 

 

21,700

 

 

 

21,747

 

Total liabilities

 

 

1,450,335

 

 

 

1,487,268

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine Capital

 

 

 

 

 

 

 

 

Subsidiary Series A Preferred Units (86,802 and 85,308 units issued and outstanding at March 31, 2021 and December 31, 2020, respectively)

 

 

93,590

 

 

 

89,658

 

 

 

 

 

 

 

 

 

 

Partners' Capital

 

 

 

 

 

 

 

 

Series A Preferred Units (162,109 units issued and outstanding at March 31, 2021 and December 31, 2020)

 

 

178,712

 

 

 

174,425

 

Common limited partner capital (6,206,021 and 6,110,092 units issued and outstanding at March 31, 2021 and December 31, 2020, respectively)

 

 

749,928

 

 

 

748,466

 

Total partners' capital

 

 

928,640

 

 

 

922,891

 

TOTAL LIABILITIES AND CAPITAL

 

$

2,472,565

 

 

$

2,499,817

 

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

4


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

 

 

(In thousands, except per-unit amounts)

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Gathering services and related fees

 

$

70,348

 

 

$

83,792

 

 

Natural gas, NGLs and condensate sales

 

 

20,763

 

 

 

13,780

 

 

Other revenues

 

 

8,207

 

 

 

7,331

 

 

Total revenues

 

 

99,318

 

 

 

104,903

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of natural gas and NGLs

 

 

20,476

 

 

 

8,225

 

 

Operation and maintenance

 

 

16,593

 

 

 

21,811

 

 

General and administrative

 

 

10,344

 

 

 

16,561

 

 

Depreciation and amortization

 

 

28,511

 

 

 

29,666

 

 

Transaction costs

 

 

 

 

 

11

 

 

(Gain) loss on asset sales, net

 

 

(136

)

 

 

115

 

 

Long-lived asset impairments

 

 

1,492

 

 

 

3,821

 

 

Total costs and expenses

 

 

77,280

 

 

 

80,210

 

 

Other income (expense), net

 

 

55

 

 

 

(427

)

 

Interest expense

 

 

(13,953

)

 

 

(23,828

)

 

Loss on ECP Warrants and other

 

 

(1,481

)

 

 

 

 

Income before income taxes and

   equity method investment income

 

 

6,659

 

 

 

438

 

 

Income tax benefit

 

 

14

 

 

 

13

 

 

Income from equity method investees

 

 

2,315

 

 

 

3,311

 

 

Net income

 

$

8,988

 

 

$

3,762

 

 

Net income attributable to Subsidiary Series A Preferred Units

 

 

(3,932

)

 

 

(945

)

 

Net loss attributable to noncontrolling interest

 

 

 

 

 

1,881

 

 

Net income attributable to Summit Midstream Partners, LP

 

$

5,056

 

 

$

4,698

 

 

Less: net income attributable to Series A Preferred Units

 

 

(4,287

)

 

 

(7,125

)

 

Net income (loss) attributable to common limited partners

 

$

769

 

 

$

(2,427

)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per limited partner unit:

 

 

 

 

 

 

 

 

 

Common unit – basic

 

$

0.13

 

 

$

(0.80

)

 

Common unit – diluted

 

$

0.12

 

 

$

(0.80

)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average limited partner units outstanding:

 

 

 

 

 

 

 

 

 

Common units – basic

 

 

6,125

 

 

 

3,021

 

 

Common units – diluted

 

 

6,260

 

 

 

3,021

 

 

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 PARTNERS' CAPITAL

 

 

 

Noncontrolling Interest

 

 

Partners' Capital

 

 

 

 

 

 

 

Series A Preferred Units

 

 

Common

Noncontrolling

Interests

 

 

Series A Preferred Units

 

 

Partners' Capital

 

 

Total

 

 

(In thousands)

 

Partners' capital, January 1, 2021

 

$

 

 

$

 

 

$

174,425

 

 

$

748,466

 

 

$

922,891

 

Net income

 

 

 

 

 

 

 

 

4,287

 

 

 

769

 

 

 

5,056

 

Unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

1,967

 

 

 

1,967

 

Tax withholdings and associated

    payments on vested SMLP LTIP

    awards

 

 

 

 

 

 

 

 

 

 

 

(1,274

)

 

 

(1,274

)

Partners' capital, March 31, 2021

 

$

 

 

$

 

 

$

178,712

 

 

$

749,928

 

 

$

928,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling Interest

 

 

Partners' Capital

 

 

 

 

 

 

 

Series A Preferred Units

 

 

Common Noncontrolling Interests

 

 

Series A Preferred Units

 

 

Partners' Capital

 

 

Total

 

 

 

(In thousands)

 

Partners' capital, January 1, 2020

 

$

293,616

 

 

$

186,070

 

 

$

 

 

$

305,550

 

 

$

785,236

 

Net income (loss)

 

 

7,125

 

 

 

(1,881

)

 

 

 

 

 

(2,427

)

 

 

2,817

 

Net cash distributions to SMLP unitholders

 

 

 

 

 

(6,037

)

 

 

 

 

 

 

 

 

(6,037

)

Unit-based compensation

 

 

 

 

 

2,723

 

 

 

 

 

 

 

 

 

2,723

 

Effect of common unit issuances under

    SMLP LTIP

 

 

 

 

 

2,322

 

 

 

 

 

 

(2,322

)

 

 

 

Tax withholdings and associated

    payments on vested SMLP LTIP

    awards

 

 

 

 

 

(984

)

 

 

 

 

 

 

 

 

(984

)

Partners' capital, March 31, 2020

 

$

300,741

 

 

$

182,213

 

 

$

 

 

$

300,801

 

 

$

783,755

 

 

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 CASH FLOWS

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

8,988

 

 

$

3,762

 

Adjustments to reconcile net income (loss) to net

    cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

28,746

 

 

 

29,900

 

Noncash lease expense

 

 

289

 

 

 

473

 

Amortization of debt issuance costs

 

 

1,717

 

 

 

1,582

 

Unit-based and noncash compensation

 

 

1,967

 

 

 

2,723

 

Income from equity method investees

 

 

(2,315

)

 

 

(3,311

)

Distributions from equity method investees

 

 

6,268

 

 

 

7,494

 

(Gain) loss on asset sales, net

 

 

(136

)

 

 

115

 

Loss on ECP Warrants and other

 

 

1,481

 

 

 

 

Long-lived asset impairment

 

 

1,492

 

 

 

3,821

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,592

 

 

 

18,470

 

Trade accounts payable

 

 

4,544

 

 

 

3,973

 

Accrued expenses

 

 

(1,546

)

 

 

(138

)

Deferred revenue, net

 

 

(576

)

 

 

5,161

 

Ad valorem taxes payable

 

 

(1,497

)

 

 

(4,781

)

Accrued interest

 

 

504

 

 

 

3,059

 

Accrued environmental remediation, net

 

 

324

 

 

 

(17

)

Other, net

 

 

(6,412

)

 

 

(2,085

)

Net cash provided by operating activities

 

 

51,430

 

 

 

70,201

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,610

)

 

 

(18,583

)

Proceeds from asset sale

 

 

8,000

 

 

 

 

Investment in Double E equity method investee

 

 

(5,619

)

 

 

(58,033

)

Other, net

 

 

 

 

 

217

 

Net cash used in investing activities

 

 

(229

)

 

 

(76,399

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net cash distributions to noncontrolling interest SMLP unitholders

 

 

 

 

 

(6,037

)

Borrowings under Revolving Credit Facility

 

 

 

 

 

55,000

 

Repayments on Revolving Credit Facility

 

 

(55,000

)

 

 

(34,000

)

Borrowings under Permian Transmission Credit Facility

 

 

17,500

 

 

 

 

Repayments on SMPH Term Loan before TL Restructuring

 

 

 

 

 

(750

)

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

   issuance costs

 

 

 

 

 

33,946

 

Debt issuance costs

 

 

(4,909

)

 

 

(101

)

Proceeds from asset sale

 

 

143

 

 

 

 

Other, net

 

 

(179

)

 

 

(1,401

)

Net cash provided by (used in) financing activities

 

 

(42,445

)

 

 

46,657

 

Net change in cash, cash equivalents and restricted cash

 

 

8,756

 

 

 

40,459

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

15,544

 

 

 

36,922

 

Cash, cash equivalents and restricted cash, end of period

 

$

24,300

 

 

$

77,381

 

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

7


 

SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION

Organization. Summit Midstream Partners, LP (including its subsidiaries, collectively “SMLP” or the “Partnership”) is a Delaware limited partnership that 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. The Partnership’s business activities are conducted through various operating subsidiaries, each of which is owned or controlled by its wholly owned subsidiary holding company, Summit Holdings, a Delaware limited liability company.

GP Buy-In Transaction. On May 28, 2020, the Partnership closed the transactions contemplated by the Purchase Agreement (the “Purchase Agreement”), dated May 3, 2020, with affiliates of its sponsor at that time, Energy Capital Partners II, LLC (“ECP”), to acquire Summit Investments, the parent company of the General Partner. The acquisition of Summit Investments resulted in the Partnership acquiring (a) 2.3 million SMLP common units (34.6 million SMLP common units prior to the Partnership’s 1-for-15 reverse unit split of its common units, effective November 9, 2020 (the “Reverse Unit Split”)) that were pledged as collateral under the SMPH Term Loan, (b) 0.7 million SMLP common units (10.7 million SMLP common units prior to the Reverse Unit Split) that were not pledged as collateral under the SMPH Term Loan and (c) a deferred purchase price obligation receivable owed by the Partnership. In addition, the Partnership acquired 0.4 million SMLP common units held by an affiliate of ECP. The total purchase price was $35.0 million in cash and warrants giving ECP the right to purchase up to 0.7 million SMLP common units (10.0 million SMLP common units prior to the Reverse Unit Split) (refer to Note 9 – Partners’ Capital and Mezzanine Capital for additional details). Pursuant to the Purchase Agreement, the Partnership assumed the liabilities stemming from the release of produced water from a produced water pipeline operated by Meadowlark Midstream, a subsidiary of the Partnership, that occurred near Williston, North Dakota and was discovered on January 6, 2015. These transactions are collectively referred to as the “GP Buy-In Transaction.”

As a result of the GP Buy-In Transaction, the Partnership indirectly owns its General Partner. Following the closing of the GP Buy-In Transaction, the Partnership retired 1.1 million SMLP common units (16.6 million common units prior to the Reverse Unit Split) it acquired that were not pledged as collateral under the SMPH Term Loan. On November 17, 2020, the Partnership issued the 2.3 million SMLP common units (34.6 million common units prior to the Reverse Unit Split) that were pledged as collateral under the SMPH Term Loan as partial consideration for a consensual debt discharge and restructuring (the “TL Restructuring”) of its SMP Holdings’ $155.2 million term loan (“SMPH Term Loan”). SMP Holdings is a wholly-owned subsidiary of Summit Investments.

Under GAAP, the GP Buy-In Transaction was deemed a transaction among entities under common control with a change in reporting entity. Although SMLP is the surviving entity for legal purposes, Summit Investments is the surviving entity for accounting purposes; therefore, the historical financial results included herein, prior to the GP Buy-In Transaction are those of Summit Investments. Prior to the GP Buy-In Transaction, Summit Investments controlled SMLP and SMLP’s financial statements were consolidated into Summit Investments.

Business Operations. The Partnership provides 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 its customers. The Partnership’s results are primarily driven by the volumes of natural gas that it gathers, compresses, treats and/or processes as well as by the volumes of crude oil and produced water that it gathers. Other than the Partnership’s investments in Double E and Ohio Gathering, all of its business activities are conducted through wholly owned operating subsidiaries.

Presentation and Consolidation. The Partnership prepares its condensed consolidated financial statements in accordance with GAAP as established by the FASB and pursuant to the rules and regulations of the SEC pertaining to interim financial information. The condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented herein. The Partnership makes 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. Although management believes these estimates are reasonable, actual results could differ from its estimates.

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The condensed consolidated financial statements contained in this report include the assets, liabilities and results of operations of SMLP and its subsidiaries. All intercompany transactions among the consolidated entities have been eliminated in consolidation. Comprehensive income or loss is the same as net income or loss for all periods presented.

Risks and Uncertainties.  The Partnership is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it has impacted and will impact its customers, employees, supply chain and distribution network. The Partnership is unable to predict the ultimate impact that COVID-19 may have on its business, future results of operations, financial position or cash flows.

Given the dynamic nature of the COVID-19 pandemic and related market conditions, the Partnership cannot reasonably estimate the period of time that these events will persist or the full extent of the impact they will have on its business. The full extent to which the Partnership’s 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 changes in the severity of the pandemic, countermeasures taken by governments, businesses and individuals to slow the spread of the pandemic, and the development and availability of treatments and vaccines and the extent to which these treatments and vaccines may remain effective as potential new strains of the coronavirus emerge. 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 AND RECENTLY ISSUED ACCOUNTING STANDARDS APPLICABLE TO THE PARTNERSHIP

Except for the below, there have been no changes to the Partnership’s significant accounting policies since December 31, 2020.

Cash, Cash Equivalents and Restricted Cash. We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash that is held by a major bank and has restrictions on its availability to the Partnership is classified as restricted cash. The restricted cash balance of $8.1 million at March 31, 2021 is related to proceeds from the Permian Transmission Credit Facility, which can be used to finance Permian Transmission’s capital calls associated with its investment in Double E, for debt service or other general corporate purposes. See Note 7 - Debt for additional information.

Interest Rate Swaps. Interest rate swap agreements are reported as either assets or liabilities on the consolidated balance sheet at fair value. Interest rate swap agreements are not designated as cash-flow hedges, and accordingly, the changes in the fair value are recorded in earnings. The Partnership does not use interest rate swap agreements for speculative purposes.

New accounting standards recently implemented.

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 the Partnership’s consolidated financial statements or 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 the Partnership’s consolidated financial statements or disclosures.

New accounting standards not yet implemented.

ASU No. 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s

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own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Partnership is currently evaluating the provisions of ASU 2020-06 to determine its impact on the Partnership’s consolidated financial statements and disclosures.

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. The Partnership is currently evaluating the provisions of ASU 2020-04 to determine its impact on the Partnership’s consolidated financial statements and disclosures.

3. REVENUE

Performance obligations.  The following table presents estimated revenue expected to be recognized during the remainder of 2021 and over the remaining contract period related to performance obligations that are unsatisfied and are comprised of estimated minimum volume commitments.

 

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

 

 

 

Gathering services and related fees

 

$

74,014

 

 

$

84,215

 

 

$

66,330

 

 

$

49,872

 

 

$

32,996

 

 

$

22,078

 

 

Revenue by Category.  In the following table, revenue is disaggregated by geographic area and major products and services.  For more detailed information about reportable segments, see Note 15 – Segment Information.

 

 

Three Months Ended March 31, 2021

 

 

 

Gathering services and related fees

 

 

Natural gas, NGLs and condensate sales

 

 

Other revenues

 

 

Total

 

 

 

(in thousands)

 

Reportable Segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utica Shale

 

$

8,572

 

 

$

 

 

$

 

 

$

8,572

 

Williston Basin

 

 

12,633

 

 

 

12,227

 

 

 

4,506

 

 

 

29,366

 

DJ Basin

 

 

6,263

 

 

 

110

 

 

 

704

 

 

 

7,077

 

Permian Basin

 

 

2,199

 

 

 

6,518

 

 

 

116

 

 

 

8,833

 

Piceance Basin

 

 

24,784

 

 

 

1,853

 

 

 

1,177

 

 

 

27,814

 

Barnett Shale

 

 

9,696

 

 

 

55

 

 

 

1,061

 

 

 

10,812

 

Marcellus Shale

 

 

6,201

 

 

 

 

 

 

 

 

 

6,201

 

Total reportable segments

 

 

70,348

 

 

 

20,763

 

 

 

7,564

 

 

 

98,675

 

All other segments

 

 

 

 

 

 

 

 

643

 

 

 

643

 

Total

 

$

70,348

 

 

$

20,763

 

 

$

8,207

 

 

$

99,318

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

Gathering services and related fees

 

 

Natural gas, NGLs and condensate sales

 

 

Other revenues

 

 

Total

 

 

 

(in thousands)

 

Reportable Segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utica Shale

 

$

6,962

 

 

$

 

 

$

 

 

$

6,962

 

Williston Basin

 

 

23,797

 

 

 

4,324

 

 

 

3,142

 

 

 

31,263

 

DJ Basin

 

 

6,855

 

 

 

70

 

 

 

1,034

 

 

 

7,959

 

Permian Basin

 

 

2,311

 

 

 

4,512

 

 

 

187

 

 

 

7,010

 

Piceance Basin

 

 

27,189

 

 

 

1,003

 

 

 

1,065

 

 

 

29,257

 

Barnett Shale

 

 

10,443

 

 

 

3,871

 

 

 

1,260

 

 

 

15,574

 

Marcellus Shale

 

 

6,235

 

 

 

 

 

 

 

 

 

6,235

 

Total reportable segments

 

 

83,792

 

 

 

13,780

 

 

 

6,688

 

 

 

104,260

 

All other segments

 

 

 

 

 

 

 

 

643

 

 

 

643

 

Total

 

$

83,792

 

 

$

13,780

 

 

$

7,331

 

 

$

104,903

 

 

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Contract balances. Contract assets relate to the Partnership’s rights to consideration for work completed but not billed at the reporting date and consist of the estimated MVC shortfall payments expected from its 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:

 

 

2021

 

 

 

(In thousands)

 

Contract assets, January 1,

 

$

2,026

 

Additions

 

 

2,840

 

Transfers out

 

 

(973

)

Contract assets, March 31,

 

$

3,893

 

As of March 31, 2021, receivables with customers totaled $48.3 million and contract assets totaled $3.9 million and were included in the accounts receivable caption on the unaudited condensed consolidated balance sheets.

As of December 31, 2020, receivables with customers totaled $57.5 million and contract assets totaled $2.0 million which were included in the accounts receivable caption on the unaudited condensed consolidated balance sheets.

Contract liabilities (deferred revenue) relate to the advance consideration received from customers primarily for contributions in aid of construction. The Partnership recognizes contract liabilities under these arrangements in revenue over the contract period. For the three months ended March 31, 2021 and 2020, the Partnership recognized $1.1 million and $2.4 million of gathering services and related fees, respectively, which were included in the contract liability balance as of the beginning of the period. See Note 6 – Deferred Revenue for additional details.

 

4. PROPERTY, PLANT AND EQUIPMENT, NET

Details of the Partnership’s property, plant and equipment follows.

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(In thousands)

 

Gathering and processing systems and related equipment

 

$

2,215,053

 

 

$

2,213,501

 

Construction in progress

 

 

51,071

 

 

 

60,443

 

Land and line fill

 

 

10,440

 

 

 

10,440

 

Other

 

 

61,315

 

 

 

61,340

 

Total

 

 

2,337,879

 

 

 

2,345,724

 

Less: accumulated depreciation

 

 

(549,657

)

 

 

(528,178

)

Property, plant and equipment, net

 

$

1,788,222

 

 

$

1,817,546

 

 

 

Depreciation expense and capitalized interest for the Partnership follows.

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Depreciation expense

 

$

21,466

 

 

$

21,698

 

Capitalized interest

 

$

1,060

 

 

$

491

 

 

 

5. EQUITY METHOD INVESTMENTS

Double E. The Partnership is responsible for leading the development, permitting and construction of the Double E Project. During the three month periods ended March 31, 2021 and 2020, the Partnership made cash investments of $5.6 million and $58.0 million, respectively, in the Double E Project. Other than the investment activity noted above, Double E did not have any results of operations for the three months ended March 31, 2021, given that the Double E Project is currently under development.

Ohio Gathering. As of March 31, 2021 and December 31, 2020, the Partnership’s ownership interest in Ohio Gathering was 38.0% and 38.2%, respectively. A reconciliation of the difference between the carrying amount of the Partnership’s interest in Ohio Gathering and the Partnership’s underlying investment per Ohio Gathering's books and records is provided in the table below as of March 31, 2021.

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2021

 

 

 

(In thousands)

 

Investment in Ohio Gathering, March 31,

 

$

256,430

 

March cash distributions

 

 

2,196

 

Basis difference

 

 

214,426

 

Investment in Ohio Gathering (Books and records), February 28,

 

$

473,052

 

 

6. DEFERRED REVENUE

A rollforward of current deferred revenue follows.

 

 

Total

 

 

 

(In thousands)

 

Current deferred revenue, January 1, 2021

 

$

9,988