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2: EX-10.1 Material Contract HTML 29K
3: EX-10.2 Material Contract HTML 243K
4: EX-10.3 Material Contract HTML 282K
5: EX-10.4 Material Contract HTML 255K
6: EX-10.5 Material Contract HTML 295K
7: EX-10.6 Material Contract HTML 326K
8: EX-21.1 Subsidiaries List HTML 20K
9: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
10: EX-31.2 Certification -- §302 - SOA'02 HTML 24K
11: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
12: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
19: R1 Cover Page HTML 76K
20: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 130K
21: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 23K
(Parenthetical)
22: R4 Condensed Consolidated Statements of Operations HTML 107K
(Unaudited)
23: R5 Condensed Consolidated Statements of Changes in HTML 80K
Equity (Unaudited)
24: R6 Condensed Consolidated Statements of Cash Flows HTML 111K
(Unaudited)
25: R7 Organization and Nature of Operations HTML 34K
26: R8 Summary of Significant Accounting Policies HTML 28K
27: R9 Revenue Recognition HTML 55K
28: R10 Transactions with Affiliates HTML 28K
29: R11 Accrued Liabilities HTML 26K
30: R12 Property, Plant and Equipment HTML 32K
31: R13 Long-Term Debt HTML 37K
32: R14 Inventory HTML 20K
33: R15 Commitments and Contingencies HTML 21K
34: R16 Partnership Equity and Distributions HTML 37K
35: R17 Earnings (Loss) Per Limited Partner Unit HTML 99K
36: R18 Subsequent Events HTML 24K
37: R19 Summary of Significant Accounting Policies HTML 44K
(Policies)
38: R20 Organization and Nature of Operations (Tables) HTML 30K
39: R21 Revenue Recognition (Tables) HTML 52K
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(Details)
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and Contract Liabilities Activity (Details)
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Remaining Performance Obligation (Details)
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52: R34 Long-Term Debt - Revolving Credit Facility HTML 55K
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53: R35 Long-Term Debt - Senior Unsecured Notes (Details) HTML 49K
54: R36 Inventory (Details) HTML 20K
55: R37 Partnership Equity and Distributions - Percentage HTML 30K
Allocations of Available Cash from Operating
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Calculation of Basic and Diluted Weighted Average
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(Exact name of registrant as specified in its charter)
iDelaware
i47-1208855
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i1001 Fannin Street, iSuite
1500
iHouston, iTexas
i77002
(Address
of principal executive offices)
(Zip Code)
(i281) i404-9500
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon units representing limited partner interests
iOMP
iThe
NASDAQ Stock Market LLC
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. iYes☒
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). iYes☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
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. i☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes iý No ¨
At November 2, 2021, there were i48,627,680
common units representing limited partner interests outstanding.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. iOrganization
and Nature of Operations
Organization. Oasis Midstream Partners LP (the “Partnership”) is a leading gathering and processing master limited partnership formed by its sponsor, Oasis Petroleum Inc. (together with its subsidiaries, “Oasis Petroleum”) to own, develop, operate and acquire a diversified portfolio of midstream assets in North America.
The Partnership conducts its business through its wholly-owned subsidiaries: Bighorn DevCo LLC (“Bighorn DevCo”), Bobcat DevCo LLC (“Bobcat DevCo”), Beartooth DevCo LLC (“Beartooth DevCo”) and Panther DevCo LLC (“Panther DevCo” and collectively with Bighorn DevCo, Bobcat DevCo and Beartooth
DevCo, the “DevCos”).
iAs of September 30, 2021, the Partnership’s assets in the DevCos were as follows:
DevCo
Areas
Served
Service Lines
Bighorn DevCo
Wild Basin South Nesson
–Natural gas processing
–Crude oil terminaling
–Crude oil transportation
–Crude
oil gathering
Bobcat DevCo
Wild Basin South Nesson
–Natural gas gathering
–Natural gas compression
–Gas lift supply
–Crude oil gathering
–Produced and flowback water gathering
–Produced and flowback water disposal
Beartooth
DevCo
Alger Cottonwood Hebron Indian Hills Red Bank Wild Basin
–Produced and flowback water gathering
–Produced and flowback water disposal
–Freshwater supply and distribution
Panther DevCo
Permian Basin
–Crude oil gathering
–Produced
and flowback water gathering
–Produced and flowback water disposal
Nature of business. The Partnership generates a substantial majority of its revenues through fee-based contractual arrangements with Oasis Petroleum for midstream services. These services include (i) gas gathering, compression, processing, gas lift supply and natural gas liquids (“NGLs”) storage services; (ii) crude oil gathering, terminaling and transportation services; (iii) produced and flowback water gathering and disposal services; and (iv) freshwater supply and distribution services. The revenue earned from these services is generally directly related to the volume of natural gas, crude oil, produced and flowback water and freshwater
that flows through the Partnership’s systems.
The Partnership’s operations are supported by significant acreage dedications from Oasis Petroleum and commitments from third party producers in the Williston Basin and Permian Basin. On June 29, 2021, Oasis Petroleum sold its remaining upstream assets in the Permian Basin to a third party buyer. The Partnership retained its midstream assets in the Permian Basin through its ownership of Panther DevCo, and all of its midstream services in the Permian Basin are now provided to third party producers. Upon closing, the commercial agreements between Panther DevCo and Oasis Petroleum were assigned to the buyer, and there were no material changes to the terms of such agreements.
The Partnership is not a taxable entity for United States federal income tax purposes and is not subject to income
tax in the majority of states in which the Partnership operates. As taxes are generally borne by its partners through the allocation of taxable income, the Partnership does not record deferred taxes related to the aggregate difference in the basis of its assets for financial and tax reporting purposes. The Partnership is subject to a Texas margin tax due to its operations in the Permian Basin and recorded a de minimis state income tax provision for the three and nine months ended September 30, 2021.
The accompanying condensed
consolidated financial statements of the Partnership have not been audited by the Partnership’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2020 is derived from audited financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for fair statement of the Partnership’s financial position have been included. Management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
These interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”).
i
Simplification
Transaction
On March 30, 2021, the Partnership closed the Simplification Transaction (defined below) with Oasis Petroleum to acquire Oasis Petroleum’s remaining ownership interests in Bobcat DevCo and Beartooth DevCo. In addition, the Simplification Transaction eliminated the incentive distribution rights (the “IDRs”) held by the General Partner (see Note 4 — Transactions with Affiliates).
Prior to the Simplification Transaction, the Contributed Assets (defined below) were reflected as non-controlling interests in the Partnership’s unaudited condensed consolidated financial statements. In accordance with the Financial Accounting Standard Board’s (“FASB”) authoritative guidance under Accounting Standards Codification (“ASC”) Topic 810-10 for non-controlling interests in a common control transaction, the Partnership
accounted for the Simplification Transaction as an equity transaction and adjusted the carrying amount of non-controlling interests in the condensed consolidated financial statements to reflect the change in ownership interests. Furthermore, as the Partnership acquired additional interests in previously consolidated subsidiaries, the Simplification Transaction did not result in a change in reporting entity, as defined under the FASB authoritative guidance under ASC Topic 805, Business Combinations, and was accounted for on a prospective basis.
i
Consolidation
The
Partnership’s condensed consolidated financial statements include its accounts and the accounts of the DevCos, each of which is a wholly-owned subsidiary of the Partnership and controlled by the Partnership through OMP GP LLC (the “General Partner”). All intercompany balances and transactions have been eliminated upon consolidation.
i
Risks and Uncertainties
Concentrations of market and credit risk. The Partnership has limited direct exposure to risks associated with fluctuating
commodity prices due to the nature of its business and its long-term, fixed-fee contractual arrangements with its existing customers, including Oasis Petroleum. However, to the extent that the Partnership’s future contractual arrangements with customers, including Oasis Petroleum or third parties, do not provide for fixed-fee structures, the Partnership may become subject to more substantial direct commodity price risk. In addition, in response to a prolonged low commodity price environment, the Partnership’s customers could seek to amend existing contractual arrangements to reduce the volumetric fees the Partnership charges.
As a substantial majority of the Partnership’s revenues are derived from Oasis Petroleum, the Partnership is indirectly subject to risks associated with fluctuating commodity prices to the extent that lower commodity prices adversely affect Oasis Petroleum’s production, drilling schedule or financial
condition.
i
Significant Accounting Policies
There have been no material changes to the Partnership’s critical accounting policies and estimates from those disclosed in the 2020 Annual Report.
Recent Accounting Pronouncements
Reference rate reform. In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments provide
optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP guidance to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts
and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Partnership is currently evaluating its contracts and the optional expedients provided by ASU 2020-04 and the impact the new standard will have on its consolidated financial statements and related disclosures.
3. iRevenue
Recognition
Disaggregation of Revenues
iThe following table presents revenues associated with contracts with customers for the periods presented:
The Partnership records revenue when the performance obligations under the terms of its customer contracts are satisfied. The Partnership measures the satisfaction of its performance obligations using the output method based upon the volumes of crude oil, natural gas or water that flow through its systems. In certain cases, the Partnership is required to estimate these volumes during a reporting period and record any differences between the estimated volumes and actual volumes in the following reporting period. Such differences have historically not been significant. For the three and nine months ended September 30, 2021 and 2020, revenues recognized related to performance obligations satisfied in
prior reporting periods were not material.
Contract balances are the result of timing differences between revenue recognition, billings and cash collections. Contract assets relate to revenue recognized for accrued deficiency fees associated with minimum volume commitments where the Partnership believes it is probable there will be a shortfall payment and that a significant reversal of revenue recognized will not occur once the related performance period is completed and the customer is billed. Contract
liabilities relate to aid in construction payments received from customers, which are recognized as revenue over the expected period of future benefit. The Partnership does not recognize contract assets or contract liabilities under its customer contracts for which invoicing occurs once the Partnership’s performance obligations have been satisfied and payment is unconditional. Contract balances are classified as current or long-term based on the timing of when the Partnership expects to receive cash for contract assets
or recognize revenue for contract liabilities. The Partnership did not have any material contract asset balances as of September 30, 2021 or December 31, 2020.
iThe
following table presents estimated revenue allocated to remaining performance obligations for contracted revenues that are unsatisfied (or partially satisfied) as of September 30, 2021:
iThe
partially and wholly unsatisfied performance obligations presented in the table above are generally limited to customer contracts which have fixed pricing and fixed volume terms and conditions, which generally include customer contracts with minimum volume commitment payment obligations.
The Partnership has elected practical expedients, pursuant to ASC 606, Revenue from Contracts with Customers, to exclude from the presentation of remaining performance obligations: (i) contracts with index-based pricing or variable
volume attributes in which such variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a series of distinct services and (ii) contracts with an original expected duration of one year or less.
4. iTransactions
with Affiliates
Revenues. ThePartnership generates the substantial majority of its revenues through fee-based contractual arrangements with wholly-owned subsidiaries of Oasis Petroleum for midstream services as described in Note 1 — Organization and Nature of Operations. In addition, the Partnership sells the residue gas and NGLs recovered from its gas processing plants attributable to its third-party natural gas purchase agreements to Oasis Petroleum to market and sell to non-affiliated purchasers.
Expenses. Oasis Petroleum provides substantial labor and overhead support to the Partnership pursuant to a services and secondment agreement. Oasis Petroleum performs centralized corporate, general
and administrative services for the Partnership, such as legal, corporate recordkeeping, planning, budgeting, regulatory, accounting, billing, business development, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, investor relations, cash management and banking, payroll, internal audit, tax and engineering. Oasis Petroleum has also seconded to the Partnership certain of its employees to operate, construct, manage and maintain the Partnership’s assets. The expenses of executive officers and non-executive employees of Oasis Petroleum are allocated to the Partnership based on the amount of time spent managing its business and operations. The Partnership reimburses Oasis Petroleum for direct and allocated general and administrative expenses incurred by Oasis Petroleum for the provision of these services.
The Partnership’s general
and administrative expenses include $i5.6 million and $i7.9 million
from affiliate transactions with Oasis Petroleum for the three months ended September 30, 2021 and 2020, respectively, and $i19.5 million and $i23.6 million
from affiliate transactions with Oasis Petroleum for the nine months ended September 30, 2021 and 2020, respectively.
Simplification Transaction. On March 30, 2021, the Partnership consummated the transactions contemplated by the Contribution and Simplification Agreement (the “Contribution and Simplification Agreement”), dated as of March 22, 2021, by and among the Partnership, OMS Holdings LLC (“OMS Holdings”), Oasis Midstream Services LLC (“OMS”), the General Partner, OMP Operating LLC (“OMP Operating”), OMP DevCo Holdings Corp, Beartooth DevCo LLC (“Beartooth DevCo”), Bobcat DevCo LLC (“Bobcat DevCo”), OMS Holdings Merger Sub, LLC, a wholly-owned subsidiary of
OMS Holdings, and for limited purposes set forth therein, Oasis Petroleum.
Pursuant to the Contribution and Simplification Agreement, among other things, (a) Oasis Petroleum contributed to the Partnership its remaining limited liability company interests in Bobcat DevCo and Beartooth DevCo of i64.7% and i30.0%
(the
“Contributed Assets”), respectively, in exchange for total consideration of $i512.5 million composed of (x) a cash distribution of $i231.5 million,
sourced from the net proceeds of the offering of the Senior Notes (defined below) and (y) i12,949,644 common units representing limited partner interests in the Partnership, (b) the Partnership’s IDRs were cancelled and converted into i1,850,356
common units representing limited partner interests in the Partnership (the “IDR Elimination” and such common units, the “IDR Conversion Common Units”), and (c) the IDR Conversion Common Units were distributed on a pro-rata basis by the General Partner to the holders of its Class A Units and Class B Units, such that following such distribution, Oasis Petroleum, through its wholly-owned subsidiary OMS Holdings, is the sole member of the General Partner (the foregoing clauses (a), (b) and (c), the “Simplification Transaction”). The Contribution and Simplification Agreement also implemented among other things, a right of first refusal in favor of the Partnership with respect to the midstream opportunities in the Painted Woods and City of Williston operating areas of Oasis Petroleum and the amendment and restatement of the (x) agreement of limited partnership of the Partnership and (y) limited liability company agreement of the General Partner to reflect
the Simplification Transaction.
The effective date of the Simplification Transaction was January 1, 2021 and was accounted for on the closing date of March 30, 2021. As a result, net income was allocated to Oasis Petroleum’s non-controlling interests in Bobcat DevCo and Beartooth DevCo until the closing date. The cash distribution to Oasis Petroleum of $i231.5 million includes: (i) $i229.0 million
cash component of the purchase price, (ii) $i10.1 million upward adjustment to the purchase price related to the expanded project dedication to the Partnership in South Nesson and (iii) $i7.6 million
downward adjustment to the purchase price related to activity between the effective date and the close date. At March 30, 2021, Oasis Petroleum’s non-controlling interests in Bobcat DevCo and Beartooth DevCo were eliminated, and Oasis Petroleum no longer owns any of the limited liability company interests of Bobcat DevCo or Beartooth DevCo.
Redemption of Common Units from Oasis Petroleum. On June 29, 2021, the Partnership redeemed ii3,623,188/
common units from Oasis Petroleum for $ii87.0/ million.
The proceeds to redeem such common units from Oasis Petroleum were derived from the Equity Offering (defined in Note 10 – Partnership Equity and Distributions). As of September 30, 2021, Oasis Petroleum owns approximately i70% of the Partnership’s outstanding common units.
Less:
unamortized deferred financing costs on senior unsecured notes
(i9,610)
i—
Total
long-term debt
$
i650,390
$
i450,000
/
Revolving
Credit Facility
The Partnership has a revolving credit facility among OMP Operating, as borrower, Wells Fargo Bank, N.A., as administrative agent and the lenders party thereto (as amended, the “Revolving Credit Facility”). On March 22, 2021, the Partnership entered into the Fourth Amendment to the Revolving Credit Facility (the “Fourth Amendment”) to, among other things, (i) provide for the occurrence of the transactions pursuant to the Simplification Transaction, (ii) amend the consolidated total leverage ratio financial covenant to no greater than i5.00
to 1.00, (iii) amend the consolidated senior secured leverage ratio to no greater than i3.00 to 1.00, (iv) amend the consolidated interest coverage ratio to no less than i2.50
to 1.00, (v) provide for the issuance of the Senior Notes (defined below), (vi) decrease the aggregate lender commitments to $i450.0 million, (vii) increase pricing for credit and (viii) extend the maturity date from September 25, 2022 until at least September 30, 2024. In connection with the Fourth Amendment to the Revolving Credit Facility, the Partnership accelerated
$i1.1 million of unamortized deferred financing costs in the first quarter of 2021.
Following the Fourth Amendment, the applicable margin for borrowings under the Revolving Credit Facility varies from (a) in the case of LIBOR loans (defined in the Revolving Credit Facility as Eurodollar Loans), i2.25%
to i3.25%, and (b) in the case of domestic bank prime rate loans (defined in the Revolving Credit Facility as ABR Loans) or swingline loans, i1.25% to i2.25%.
The unused portion of the Revolving Credit Facility is subject to a commitment fee ranging from i0.375% to i0.500%.
At
September 30, 2021, the aggregate amount of elected commitments under the Revolving Credit Facility was $i450.0 million, and there were $i210.0
million of borrowings outstanding and $i5.5 million of outstanding letters of credit, resulting in an unused borrowing capacity of $i234.5
million. For the three and nine months ended September 30, 2021, the weighted average interest rate incurred on borrowings under the Revolving Credit Facility was i2.5% and i2.4%,
respectively. The fair value of the Revolving Credit Facility approximates its carrying value since borrowings under the Revolving Credit Facility bear interest at variable rates, which are tied to current market rates.
The Revolving Credit Facility contains customary events of default, as well as cross-default provisions with other indebtedness of the Partnership and its restricted subsidiaries. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Revolving Credit Facility to be immediately due and payable. There are no cross-default provisions between the Revolving Credit Facility and the indebtedness of Oasis Petroleum and its restricted subsidiaries. The Partnership was in compliance with
the covenants under the Revolving Credit Facility at September 30, 2021.
Senior Unsecured Notes
On March 30, 2021, the Partnership and OMP Finance Corp. (“OMP Finance” and together with the Partnership, the “Issuers”) issued in a private placement $i450.0 million of i8.00%
senior unsecured notes due April 1, 2029 (the “Senior Notes”). The Senior Notes were issued at par and resulted in net proceeds, after deducting the underwriters’ gross spread, of $i442.1 million. The Partnership used the net proceeds from the Senior Notes to: (i) make a distribution to OMS of $i231.5
million in connection with the Simplification Transaction, (ii) repay $i204.0 million of outstanding principal borrowings and $i0.5 million
of accrued interest under the Revolving Credit Facility and (iii) pay approximately $i6.1 million in fees and other expenses. In connection with the issuance of the Senior Notes, the Partnership recorded deferred financing costs of $i10.2
million which are being amortized over the term of the Senior Notes. The fair value of the Senior Notes, which are publicly traded among qualified institutional investors and represent a Level 1 measurement, was $i468.0 million at September 30, 2021.
Interest on the Senior Notes is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2021. The Senior Notes are fully and unconditionally guaranteed on a senior
unsecured basis by the Issuers, along with the Partnership’s wholly-owned subsidiaries (the “Guarantors”). The Senior Notes guarantees are joint and several obligations of the Guarantors. The Issuers and Guarantors do not have any significant restrictions on the ability to obtain funds from its subsidiaries by dividend or loan. In addition, there are no restrictions on the subsidiaries to transfer funds, and as such, there are no restricted net assets to disclose.
The indenture governing the Senior Notes contains certain covenants that, subject to certain exceptions
and qualifications, among other things, limit the Partnership’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur or guarantee additional indebtedness or issue certain redeemable or preferred equity, (ii) make certain investments, (iii) declare or
pay dividends or make distributions on equity interests or redeem, repurchase or retire equity interests or subordinated indebtedness, (iv) transfer or sell assets including equity of restricted subsidiaries,
(v) agree to payment restrictions affecting the Partnership’s restricted subsidiaries, (vi) consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, (vii) enter into transactions with affiliates, (viii) incur liens and (ix) designate certain of the Partnership’s subsidiaries as unrestricted subsidiaries. In addition, the indenture governing the Senior Notes contains cross-default provisions with other indebtedness of the Partnership and its restricted subsidiaries; however, there are no
cross-default provisions with the indebtedness of Oasis Petroleum and its restricted subsidiaries.
8. iInventory
Inventory consists primarily of spare parts and equipment related to the Partnership’s midstream infrastructure. Inventory is stated at the lower of cost and net realizable value with
cost determined on an average cost method. The Partnership assesses the carrying value of inventory and uses estimates and judgments when making any adjustments necessary to reduce the carrying value to net realizable value. The Partnership recorded a de minimis write-down of its inventory during the nine months ended September 30, 2021 and during the three and nine months ended September 30, 2020. The carrying value of the Partnership’s inventory was $i5.8 million and $i7.0 million
at September 30, 2021 and December 31, 2020, respectively.
9. iCommitments and Contingencies
The Partnership has various contractual obligations in the normal course of its operations. There have been no material changes to the Partnership’s commitments
and contingencies from those disclosed in its 2020 Annual Report.
Litigation. The Partnership is party to various legal and/or regulatory proceedings from time to time arising in the ordinary course of business. When the Partnership determines that a loss is probable of occurring and is reasonably estimable, the Partnership accrues an undiscounted liability for such contingencies based on its best estimate using information available at the time. The Partnership discloses contingencies where an adverse outcome may be material, or where in the judgment of management, the matter should otherwise be disclosed.
10. iPartnership
Equity and Distributions
Equity offering. On June 29, 2021, the Partnership completed an underwritten public offering of ii3,623,188/
common units representing limited partnership interests at a price to the public of $i24.00 per common unit (the “Equity Offering”) and received net proceeds of $ii87.0/ million,
after deducting underwriting discounts and commissions. The Partnership used the proceeds from the Equity Offering to fund the redemption of ii3,623,188/
common units held by Oasis Petroleum (see Note 4 – Transactions with Affiliates).
Cash distributions. On October 25, 2021, the Board of Directors of the General Partner declared the quarterly cash distribution for the third quarter of 2021 of $i0.56 per unit. This distribution will be payable on November 29, 2021 to unitholders of record as of November 15,
2021.
iThe following table details the distributions paid in respect of each period in which the distributions were earned for the periods presented:
Subordinated
unit conversion. On March 19, 2021, the first business day following the payment of the Partnership’s distribution for the fourth quarter of 2020, the subordination period under the partnership agreement terminated in accordance with the terms thereof, and the Partnership’s i13,750,000 subordinated units representing limited partner interests, all of which were held by OMS Holdings, automatically converted into common units on a ione-to-one
basis.
Incentive distribution rights. All of the Partnership’s IDRs, all of which were held by the General Partner, were eliminated in connection with the Simplification Transaction. See Note 4 — Transactions with Affiliates.
Simplification Transaction. On March 30, 2021, the Partnership acquired Oasis Petroleum’s remaining i64.7%
limited liability company interest in Bobcat DevCo and its remaining i30.0% limited liability company interest in Beartooth DevCo. See Note 4 – Transactions with Affiliates.
Earnings (loss) per limited partner unit is computed by dividing the respective limited partners’ interest in earnings (loss) attributable to the Partnership by the weighted average number of common and subordinated units outstanding. For periods prior to the conversion of subordinated units and IDR Elimination, the Partnership had more than one class of participating securities and used the two-class method when calculating earnings (loss)
per limited partner unit. The classes of participating securities include common units, subordinated units and IDRs.
Diluted earnings (loss) per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the LTIP, were exercised, settled or converted into common units. When it is determined that potential common units should be included in diluted net income (loss) per limited partner unit calculation, the impact is reflected by applying the treasury stock method. There are no adjustments made to net income (loss) attributable to Oasis Midstream Partners LP in the calculation of diluted earnings (loss) per unit. For the three and nine months ended September 30, 2021 and 2020, the diluted earnings (loss) per share calculation excludes the anti-dilutive
effect of unvested restricted unit awards.
iThe following is a calculation of the basic and diluted weighted average units outstanding for the periods presented:
iThe
following tables present the calculation of earnings (loss) per limited partner unit under the two-class method for each period presented (in thousands, except per unit data):
Net income (loss) attributable to Oasis Midstream Partners LP
Distributions
$
i3,081
$
i32,499
$
i22,275
$
i57,855
Undistributed
loss attributable to Oasis Midstream Partners LP
i—
(i53,452)
(i36,667)
(i90,119)
Net
income (loss) attributable to Oasis Midstream Partners LP
$
i3,081
$
(i20,953)
$
(i14,392)
$
(i32,264)
Weighted
average limited partners units outstanding
Basic
i20,044
Diluted
i20,044
Net
loss attributable to Oasis Midstream Partners LP per limited partner unit
Basic
$
(i1.05)
Diluted
(i1.05)
Anti-dilutive
restricted units
i16
12. iSubsequent
Events
On October 25, 2021, the Partnership and the General Partner entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Crestwood Equity Partners LP, a Delaware limited partnership (“Crestwood”), Project Falcon Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of Crestwood (“Merger Sub”), Project Phantom Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of Crestwood (“GP Merger Sub”), and, solely for the purposes of Section 2.1(a)(i) of the Merger Agreement, Crestwood Equity GP LLC, a Delaware limited liability company and the general partner of Crestwood (“Crestwood GP”). Upon the terms and subject to the conditions set forth in the Merger Agreement,
Merger Sub will merge with and into the Partnership (the “LP Merger”), with the Partnership surviving the LP Merger as a subsidiary of Crestwood, and GP Merger Sub will merge with and into the General Partner (the “GP Merger” and, together with the LP Merger, the “Mergers”), with the General Partner surviving the GP Merger as a wholly-owned subsidiary of Crestwood. On October 25, 2021, the board of directors of Crestwood GP, and the board of directors of the General Partner (“GP Board”), unanimously approved the Merger Agreement. The Conflicts Committee of the GP Board provided Special Approval (as defined in the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of March 30, 2021), and in connection with such Special Approval received a fairness opinion from Jefferies LLC.
At
the effective time of the Mergers (the “Effective Time”): (i) i6,520,944 common units representing limited partner interests in the Partnership (“Partnership Common Units”) issued and outstanding immediately prior to the Effective Time and owned by OMS Holdings (such Partnership Common Units, the “Sponsor Cash Units”), will be converted into and will thereafter represent the right to receive $i150.0
million in cash in the aggregate and each other Partnership Common Unit issued and outstanding immediately prior to the Effective Time owned by Oasis Petroleum or its subsidiaries (other than the Partnership) (together with the Sponsor Cash Units, the “Sponsor Units”) will be converted into and will thereafter represent the right to receive i0.7680 common units representing limited partner interests in Crestwood (“Crestwood Common Units”); (ii) each Partnership Common Unit issued and outstanding immediately
prior to the Effective Time (other than the Sponsor Units) will be converted into and will thereafter represent the right to receive i0.8700 (the “Public Holder Exchange Ratio”) Crestwood Common Units and (iii) all of the limited liability company interests of the General Partner issued and outstanding as of immediately prior to the Effective Time will be converted into and will thereafter represent the right to receive $i10.0
million in cash. Upon completion of the Mergers, Oasis Petroleum is expected to own approximately i22% of the Crestwood Common Units.
The Mergers are expected to close in the first quarter of 2022 and are subject to customary closing conditions, including regulatory approvals.
Contemporaneously with the execution of the Merger Agreement, the Partnership, Crestwood, Oasis Petroleum, the General Partner and OMS Holdings entered into a support agreement (the “Support
Agreement”) regarding the Partnership Common
15
Units owned by Oasis Petroleum and OMS Holdings (or their affiliates). Pursuant to the Support Agreement, Oasis Petroleum and OMS Holdings have agreed to, among other things (and as applicable), following effectiveness of a registration statement of Crestwood on Form S-4 in connection with the issuance of Crestwood Common Units in the LP Merger, execute and deliver, or cause an affiliate to execute and deliver, a written consent covering all of their Partnership Common Units, approving the Merger Agreement and the transactions contemplated thereby. The Support Agreement and the Merger Agreement may be terminated in the event the written consent is not delivered.
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”), as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject
to a number of risks and uncertainties, many of which are beyond our control. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition or provide forecasts of future events. Words such as “may,”“assume,”“forecast,”“position,”“predict,”“strategy,”“expect,”“intend,”“plan,”“estimate,”“anticipate,”“believe,”“project,”“budget,”“potential,”“continue” and other similar expressions are used to identify forward-looking statements.
Forward-looking statements can be affected by the assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements discussed
below and detailed under Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. Actual results may vary materially. Although forward-looking statements reflect our good faith beliefs at the time they are made, you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. In addition, our forward-looking statements address the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the novel coronavirus 2019 (“COVID-19”) pandemic and the related impacts on our businesses, operations, earnings and results. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include but are not limited
to:
•crude oil and natural gas realized prices;
•developments in the global economy as well as the public health crisis related to the COVID-19 virus and resulting demand and supply for crude oil and natural gas;
•uncertainty regarding the worldwide response to COVID-19, including the impact of new virus strains, the administration of vaccines and the risks associated with restrictions on various commercial and economic activities; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for crude oil and natural gas;
•uncertainty regarding the future actions of foreign oil producers and the related impacts such actions have on the balance between
the supply of and demand for crude oil and natural gas and therefore the demand for midstream services;
•uncertainty regarding the timing, pace and extent of an economic recovery in the U.S. and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for the midstream services we provide and the commercial opportunities available to us;
•an inability of Oasis Petroleum Inc. (“Oasis Petroleum”) or our other customers to meet their operational and development plans on a timely basis or at all;
•the execution of our business strategies;
•the demand for and price of crude oil and natural gas, on an absolute basis and in comparison to the price of alternative
and competing fuels;
•the fees we charge, and the margins we realize, from our midstream services;
•the cost of achieving organic growth in current and new markets;
•our ability to make acquisitions of other midstream infrastructure assets or other assets that complement or diversify our operations;
•our ability to make acquisitions of other assets on economically acceptable terms from Oasis Petroleum;
•our recently announced merger with Crestwood Equity Partners LP (“Crestwood”), including risks that the proposed transaction may not be consummated or the benefits contemplated therefrom may not be realized, the ability to obtain
requisite regulatory and unitholder approval and the satisfaction of the other conditions to the consummation of the proposed transaction, the ability of Crestwood to successfully integrate Oasis Midstream Partners LP’s (the “Partnership”) operations and employees and realize anticipated synergies and cost savings and
the potential impact of the announcement or consummation of the proposed transaction on relationships, including with employees, suppliers, customers, competitors and credit rating agencies;
•our inability to perform our obligations under our contracts,
whether due to non-performance by third parties, including our customers or other counterparties, market constraints, third-party constraints, legal constraints (including governmental orders or guidance), or other factors;
•the lack of asset and geographic diversification;
•the suspension, reduction or termination of our commercial agreements with Oasis Petroleum;
•labor relations and government regulations;
•competition and actions taken by third party producers, operators, processors and transporters;
•outcomes of litigation and regulatory investigations, proceedings or inquiries;
•the
demand for, and the costs of developing and conducting, our midstream infrastructure services;
•interruptions in service and fluctuations in tariff provisions of third party connecting pipelines;
•general economic conditions;
•inflation rates;
•the price and availability of equity and debt financing;
•operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
•potential effects arising from cyber threats, terrorist attacks and any consequential or other hostilities;
•interruption
of our operations due to social, civil or political events or unrest;
•changes in environmental, safety and other laws and regulations;
•execution of our environmental, social and governance (“ESG”) initiatives;
•the effects of accounting pronouncements issued periodically during the periods covered by forward-looking statements;
•changes in our tax status;
•uncertainty regarding our future operating results; and
•certain factors discussed elsewhere in this Quarterly Report on Form 10-Q, in our 2020 Annual Report and in our other SEC filings.
All
forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by securities law. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Some of the key factors which could cause actual results to vary from our expectations include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in projecting future throughput volumes, cash flow and access to capital, the timing of development expenditures and the other risks described under Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
We are a leading gathering and processing master limited partnership formed by our sponsor, Oasis Petroleum (Nasdaq: OAS), to own, develop, operate and acquire a diversified portfolio of midstream assets in North America. We provide natural gas services (gathering, compression, processing and gas lift supply), crude oil services (gathering, terminaling and transportation) and water services (gathering and disposal of produced and flowback water and freshwater distribution) to our customers. We conduct our business through our wholly-owned subsidiaries: Bighorn DevCo LLC (“Bighorn DevCo”), Bobcat DevCo LLC (“Bobcat DevCo”), Beartooth DevCo LLC (“Beartooth DevCo”) and Panther DevCo LLC (“Panther DevCo” and collectively with Bighorn DevCo, Bobcat DevCo and Beartooth DevCo, the “DevCos”).
Our assets are located in the heart of the oil-rich Williston and Permian Basins. In the Williston Basin, our assets are integral to the crude oil and natural gas operations of Oasis Petroleum and are also strategically positioned to capture volumes from third party producers. In the Permian Basin, we provide crude oil gathering and produced and flowback water gathering and disposal services to third party producers. The substantial majority of our revenues are generated through long-term, fixed-fee contracts with Oasis Petroleum for crude oil, natural gas and water-related midstream services. We are also party to a long-term transportation services agreement regulated by the Federal Energy Regulatory Commission (the “FERC”) governing the transportation of crude oil via pipeline from the Wild Basin area to
Johnson’s Corner. Our fixed-fee contracts minimize our direct exposure to commodity prices, and the amount of revenue we generate primarily depends on the volume of crude oil, natural gas and water for which we provide midstream services. We have increased our customer diversification by providing midstream services to third parties, but we are largely dependent on Oasis Petroleum as our most significant customer. We expect to grow acquisitively through accretive, dropdown acquisitions, as well as organically as Oasis Petroleum develops its acreage. We also expect to grow by increasing services provided to third party producers and by acquiring midstream assets from third parties.
Recent Developments
Acquisition of Remaining Interests in Bobcat DevCo and Beartooth DevCo
On
March 30, 2021, we acquired Oasis Petroleum’s remaining interests in Bobcat DevCo and Beartooth DevCo. Pursuant to the Contribution and Simplification Agreement (the “Contribution and Simplification Agreement”), dated as of March 22, 2021, among other things, (a) Oasis Petroleum contributed to the Partnership its remaining limited liability company interests in Bobcat DevCo and Beartooth DevCo of 64.7% and 30.0%, respectively, in exchange for total consideration of $512.5 million composed of (x) a cash distribution of $231.5 million, sourced from the net proceeds of the offering of the Senior Notes (defined below) and (y) 12,949,644 common units representing limited partner interests in the Partnership, (b) the Partnership incentive distribution rights (the “IDRs”) were cancelled and converted into 1,850,356 common units representing limited partner interests
in the Partnership (the “IDR Elimination” and such common units, the “IDR Conversion Common Units”), and (c) the IDR Conversion Common Units were distributed on a pro-rata basis by OMP GP LLC (the “General Partner”) to the holders of its Class A Units and Class B Units, such that following such distribution, Oasis Petroleum, through its wholly-owned subsidiary OMS Holdings LLC (“OMS Holdings”), is the sole member of the General Partner (the foregoing clauses (a), (b) and (c), the “Simplification Transaction”). The Contribution and Simplification Agreement also implemented, among other things, a right of first refusal in favor of the Partnership with respect to the midstream opportunities in the Painted Woods and City of Williston operating areas of Oasis Petroleum and the amendment and restatement of the (x) agreement of limited partnership of the Partnership and (y) limited liability company agreement of the General Partner to reflect
the Simplification Transaction.
The effective date of the Simplification Transaction was January 1, 2021, and the closing date was March 30, 2021. Following the Simplification Transaction, Oasis Petroleum no longer owns any of the limited liability company interests of Bobcat DevCo or Beartooth DevCo.
IDR Elimination
In connection with the Simplification Transaction, all of our IDRs were cancelled and exchanged for 1,850,356 common units in accordance with the terms of the Contribution and Simplification Agreement. Additionally, the owners of the General Partner, OMS Holdings and holders of Class B Units in the General Partner received the common units issued in exchange for the IDR Elimination pursuant to the Contribution and Simplification
Agreement.
Subordinated Unit Conversion
On March 19, 2021, the first business day following the payment of our distribution for the fourth quarter of 2020, the subordination period under our partnership agreement terminated in accordance with the terms thereof, and our 13,750,000 subordinated units representing limited partner interests, all of which were held by OMS Holdings, automatically converted into common units on a one-to-one basis.
Change in Board Chair
On April 13, 2021, Daniel E. Brown was elected to serve on the board of directors of the General Partner. On April 29, 2021, Mr. Brown was elected by the board of directors of the General
Partner to serve as Board Chair. Mr. Brown replaced Douglas E. Brooks, who was elected by the board of directors of the General Partner on January 29, 2021 to serve as Board Chair on an interim basis.
On May 14, 2021, the FERC issued a revised oil pricing index factor that used the Producer Price Index for Finished Goods plus an index level of 0.78%, resulting in a negative percent change for the index year July 1, 2021 through June
30, 2022, meaning that the ceiling level for certain of an oil pipelines’ rates may decrease and, if the actual transportation rate would be above such ceiling level, the rate also must decrease to be equal to or less than the applicable ceiling. Bighorn DevCo’s Johnson’s Corner pipeline has not adjusted its rates in several years and its applicable rates remain below the FERC’s adjusted ceiling level. Bighorn DevCo could increase its rates in future index years to equal the new ceiling level. Requests for rehearing of the December 2020 Order Establishing Index Level were filed with the FERC, and those requests remain pending, with rehearing granted for purposes of extending the time the FERC has to review these requests. The FERC’s final application of its indexing rate methodology for the next five-year term of index rates may impact our revenues associated with any transportation services we may provide pursuant to rates adjusted by the FERC oil pipeline index.
Permian
Basin Midstream Assets
On June 29, 2021, Oasis Petroleum completed the sale of its remaining upstream assets in the Permian Basin to a third party buyer. We retained our midstream assets in the Permian Basin through our ownership of Panther DevCo and provide all of our midstream services in the Permian Basin to third party producers. Our commercial agreements with Oasis Petroleum in the Permian Basin were assigned to the buyer with no material changes to the contractual terms. We have successfully commenced crude oil and water services to the new operator, and we expect to benefit from incremental activity and increased diversification of our customer base.
Redemption of Common Units from Oasis Petroleum
On June 29, 2021, we completed an
underwritten public offering of 3,623,188 common units representing limited partnership interests at a price to the public of $24.00 per common unit (the “Equity Offering”) and received net proceeds of $87.0 million after deducting underwriting discounts and commissions. We used the proceeds from the Equity Offering to redeem 3,623,188 common units held by Oasis Petroleum for $87.0 million. Following such redemption, Oasis Petroleum owns approximately 70% of our outstanding common units.
City of Williston and Painted Woods Project Dedications
On August 3, 2021, Oasis Petroleum approved an acreage dedication to the Partnership in the City of Williston project area pursuant to which we will provide midstream services to Oasis Petroleum for crude oil gathering, natural gas gathering and compression, and produced and flowback water
gathering and disposal. We expect to commence services pursuant to the acreage dedication in the second half of 2022.
In addition, Oasis Petroleum approved an acreage dedication to the Partnership in the Painted Woods project area pursuant to which we will provide midstream services to Oasis Petroleum for crude oil gathering, natural gas gathering and compression, and produced and flowback water gathering and disposal.
Crude Oil Gathering and Storage Agreement
On October 5, 2021, OMP Operating LLC (“OMP Operating”) entered into a Crude Oil Gathering and Storage Agreement with Oasis Petroleum North America LLC (“OPNA”) and Oasis Petroleum Marketing LLC (“OPM”), both indirect wholly-owned subsidiaries
of Oasis Petroleum Inc., pursuant to which (i) OPNA and OPM agreed to deliver into OMP Operating’s crude oil gathering system all of the crude oil produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from a dedicated area in the City of Williston area, and (ii) OMP Operating will perform certain gathering and storage services for the crude oil delivered. The City of Williston Crude Oil Gathering and Storage Agreement provides for an initial term of 15 years. On October 25, 2021, OMP Operating entered into an Amended and Restated Crude Oil Gathering and Storage Agreement with OPNA and OPM (the “A&R Crude Oil Gathering and Storage Agreement”), which amends and restates the Crude Oil Gathering and Storage Agreement. Pursuant to the A&R Crude Oil Gathering and Storage Agreement, (i) OPNA and OPM agreed to deliver into OMP’s crude oil gathering system all of the crude oil
produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from a dedicated area in the City of Williston and Painted Woods areas, and (ii) OMP will perform certain gathering and storage services for the crude oil delivered. The A&R Crude Oil Gathering and Storage Agreement provides for an initial term of 15 years.
Produced and Flowback Water Gathering and Disposal Agreement
On October 5, 2021, OMP Operating entered into a Produced and Flowback Water Gathering and Disposal Agreement with OPNA, pursuant to which OPNA dedicated the City of Williston area to the Partnership for produced and flowback water gathering and disposal services. The Produced Water Gathering and Disposal Agreement provides for an initial term of 15 years. On October 25, 2021,
OMP Operating entered into an Amended and Restated Produced and Flowback Water Gathering and Disposal Agreement (the “A&R Produced and Flowback Water Gathering and Disposal Agreement”) with OPNA, which
amends and restates the Produced and Flowback Water Gathering and Disposal Agreement. Pursuant to the A&R Produced and Flowback Water Gathering and Disposal Agreement, OPNA dedicated the City of Williston and Painted Woods areas to the Partnership for produced and flowback water gathering and disposal services. The A&R Produced and Flowback Water Gathering and Disposal Agreement provides for an initial term of 15 years.
Gas
Gathering, Compression and Processing Agreement
On October 25, 2021, OMP entered into a Gas Gathering, Compression, and Processing with OPNA and OPM (the “Gas Gathering Agreement”) pursuant to which (i) OPNA and OPM agreed to deliver into the Partnership’s natural gas gathering system all of the natural gas produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from dedicated areas in the City of Williston and Painted Woods areas and (ii) OMP, or its designee, will perform certain gathering, compression, and processing services. The Gas Gathering Agreement provides for an initial term of 15 years.
Proposed Merger with Crestwood Equity Partners LP
On October 25, 2021, the Partnership and the General
Partner entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Crestwood, Project Falcon Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of Crestwood (“Merger Sub”), Project Phantom Merger Sub LLC, a Delaware limited liability company and direct wholly-owned subsidiary of Crestwood (“GP Merger Sub”), and, solely for the purposes of Section 2.1(a)(i) of the Merger Agreement, Crestwood Equity GP LLC, a Delaware limited liability company and the general partner of Crestwood (“Crestwood GP”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Partnership (the “LP Merger”), with the Partnership surviving the LP Merger as a subsidiary of Crestwood, and GP Merger Sub will merge with and into the General Partner (the “GP
Merger” and, together with the LP Merger, the “Mergers”), with the General Partner surviving the GP Merger as a wholly-owned subsidiary of Crestwood. On October 25, 2021, the board of directors of Crestwood GP, and the board of directors of the General Partner (“GP Board”), unanimously approved the Merger Agreement. The Conflicts Committee of the GP Board provided Special Approval (as defined in the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of March 30, 2021), and in connection with such Special Approval received a fairness opinion from Jefferies LLC.
At the effective time of the Mergers (the “Effective Time”): (i) 6,520,944 common units representing limited partner interests in the Partnership (“Partnership Common Units”) issued and outstanding
immediately prior to the Effective Time and owned by OMS Holdings (such Partnership Common Units, the “Sponsor Cash Units”), will be converted into and will thereafter represent the right to receive $150.0 million in cash in the aggregate and each other Partnership Common Unit issued and outstanding immediately prior to the Effective Time owned by Oasis Petroleum or its subsidiaries (other than the Partnership) (together with the Sponsor Cash Units, the “Sponsor Units”) will be converted into and will thereafter represent the right to receive 0.7680 common units representing limited partner interests in Crestwood (“Crestwood Common Units”); (ii) each Partnership Common Unit issued and outstanding immediately prior to the Effective Time (other than the Sponsor Units) will be converted into and will thereafter represent the right to receive 0.8700 (the “Public
Holder Exchange Ratio”) Crestwood Common Units and (iii) all of the limited liability company interests of the General Partner issued and outstanding as of immediately prior to the Effective Time will be converted into and will thereafter represent the right to receive $10.0 million in cash. Upon completion of the Mergers, Oasis Petroleum is expected to own approximately 22% of the Crestwood Common Units.
The Mergers are expected to close in the first quarter of 2022 and are subject to customary closing conditions, including regulatory approvals.
Contemporaneously with the execution of the Merger Agreement, the Partnership, Crestwood, Oasis Petroleum, the General Partner and OMS Holdings entered into a support agreement (the “Support Agreement”) regarding the Partnership Common Units owned by Oasis Petroleum and OMS Holdings (or their affiliates). Pursuant to the Support
Agreement, Oasis Petroleum and OMS Holdings have agreed to, among other things (and as applicable), following effectiveness of a registration statement of Crestwood on Form S-4 in connection with the issuance of Crestwood Common Units in the LP Merger, execute and deliver, or cause an affiliate to execute and deliver, a written consent covering all of their Partnership Common Units, approving the Merger Agreement and the transactions contemplated thereby. The Support Agreement and the Merger Agreement may be terminated in the event the written consent is not delivered.
Market Conditions and COVID-19
COVID-19 remains a global health crisis and there continues to be considerable uncertainty regarding the extent to which COVID-19 and its variants will continue to spread. Public health and governmental authorities have commenced programs to administer vaccines and certain restrictions
imposed to contain the spread of COVID-19 have been lifted. In September 2021, President Biden announced a COVID-19 action plan that would have the Occupational Safety and Health Administration develop an Emergency Temporary Standard which may include new obligations for employers with one hundred or more employees with respect to vaccinations, testing and paid time off. We monitor mandates related to COVID-19 at both the
federal and state levels on an ongoing basis and continue to assess the potential impacts of those mandates. Despite improvements in global economic activity levels and higher energy demand compared to 2020, the impacts of COVID-19
continue to be unpredictable, including the impacts of new virus strains, the risk of renewed restrictions and the uncertainty of successful administration of effective treatments and vaccines. We are unable to reasonably estimate the period of time that related conditions could exist or the extent to which they could impact our business, results of operations, financial condition or cash flows. In response to the current economic environment and impacts of COVID-19, we have adjusted our business to expected lower levels of activity and operate in a sustainable and cost-efficient manner.
We are focused on the safety of our employees, contractors, and communities where we work as we continue to operate during the COVID-19 pandemic. We have deployed additional safety protocols and training procedures, including enhanced daily cleaning in common spaces, use of face coverings, restricting use of conference rooms and group gatherings
and adherence to social distancing requirements. We continue to monitor public health data and guidance, engage with peer companies, and participate with industry associations to ensure alignment with guidance for employee health and safety.
•Declared the quarterly cash distribution of $0.56 per unit for the third quarter of 2021 .
•Net income was $37.6 million and net cash from operating activities was $62.1 million.
•Adjusted
EBITDA was $58.2 million and Distributable Cash Flow was $42.9 million.
The following table summarizes the throughput volumes, operating income (loss), depreciation, amortization and impairment and capital expenditures of each of our DevCos for the periods presented. The amounts shown in the table below are presented on a gross basis.
QTD
YTD
Q3
2021
Q2 2021
Q3 2021
Q3 2020
(In thousands, except throughput volumes)
Bighorn DevCo
Crude
oil volumes (MBpd)
31.6
25.6
28.3
33.8
Natural gas volumes (MMscfpd)
192.4
191.5
196.5
203.6
Operating
income
$
16,066
$
15,273
$
48,206
$
26,987
Depreciation, amortization and impairment
2,583
2,610
7,697
30,534
Capital
expenditures
6,358
474
6,952
6,297
Bobcat DevCo
Crude
oil volumes (MBpd)
21.9
17.9
19.8
26.9
Natural gas volumes (MMscfpd)
234.5
232.8
238.4
242.5
Water
volumes (MBpd)
45.7
41.5
43.4
52.8
Operating income
$
24,575
$
22,513
$
70,625
$
50,698
Depreciation,
amortization and impairment
4,189
4,222
12,410
29,657
Capital
expenditures
5,532
8,982
15,000
10,356
Beartooth DevCo
Water
volumes (MBpd)
74.4
84.9
76.9
85.0
Operating income (loss)
$
6,485
$
8,314
$
21,889
$
(11,323)
Depreciation,
amortization and impairment
2,329
2,342
6,945
40,180
Capital
expenditures(1)
2,323
32
1,992
(756)
Panther DevCo
Fluid
volumes (MBpd)
57.3
39.1
44.7
49.7
Operating income (loss)
$
2,607
$
1,406
$
5,164
$
(28,037)
Depreciation,
amortization and impairment
248
236
687
34,231
Capital expenditures
1,869
3,733
5,542
6,193
Oasis
Midstream Partners LP
DevCo operating income
$
49,733
$
47,506
$
145,884
$
38,325
Public
company expenses
1,055
1,122
3,767
2,924
Operating income
48,678
46,384
142,117
35,401
Depreciation,
amortization and impairment
9,357
9,418
27,761
134,602
Equity-based
compensation expenses
144
16
647
201
Capitalized interest
—
—
—
322
Maintenance
capital expenditures
4,673
2,109
7,084
2,934
Expansion capital expenditures(2)
11,409
11,112
253,912
19,156
Total
capital expenditures
16,082
13,221
260,996
22,412
___________________
(1) Negative amount reflects differences between the estimated capital expenditures accrued in a reporting period and actual capital expenditures recognized in a subsequent reporting period.
(2) The nine months ended September 30, 2021 includes $231.5 million related to the cash distribution to Oasis Petroleum associated with the Simplification Transaction composed of the following: (i) $229.0 million cash component of the purchase price, (ii) upward adjustment to the purchase price of $10.1 million related to the expanded project dedication to the Partnership in South Nesson, and (iii) downward adjustment to the purchase price of $7.6 million related to activity between the effective date of January 1, 2021 and the close date of March 30, 2021.
Results of Operations
Revenues
We
categorize our revenues as either service revenues or product sales to the respective line items described below:
•Midstream services - Oasis Petroleum.We record service revenues for fee-based arrangements with Oasis Petroleum for midstream services, including: (i) natural gas gathering, compression, processing, gas lift supply and natural gas liquid (“NGL”) storage services; (ii) crude oil gathering, terminaling and transportation services; and (iii) produced and flowback water gathering and disposal services.
•Midstream services - third parties. We record service revenues for fee-based arrangements with third parties for crude oil and produced and flowback water services provided to non-affiliated customers.
•Product
sales - Oasis Petroleum. We record product sales to Oasis Petroleum for the sale of crude oil and residue gas and NGLs to certain subsidiaries of Oasis Petroleum, which we generate from purchase agreements with third parties. We also record product sales to Oasis Petroleum for the supply and distribution of freshwater to Oasis Petroleum.
•Product sales - third parties. We record product sales to third parties for the supply and distribution of freshwater to non-affiliated customers.
The following table summarizes our revenues for the periods presented:
Total revenues. Total midstream revenues increased $10.1 million to $105.4 million during the three months ended September 30, 2021 as compared to the three months ended June 30, 2021. This increase was driven by a $5.1 million increase in service revenues and a $5.0 million increase in product sales.
Service revenues. The $5.1 million increase in service revenues was driven by a $4.3 million increase in revenues from third parties and a $0.8 million increase in revenues from Oasis Petroleum. The $4.3 million increase in revenues from third parties was primarily
driven by Oasis Petroleum selling its Permian Basin acreage position to a third party producer in the second quarter of 2021. As a result, there was a $2.9 million increase in third party revenues for produced and flowback water services and a $1.4 million increase in third party revenues for crude oil services. The $0.8 million increase in revenues from Oasis Petroleum was driven by a $1.8 million increase in natural gas revenues due to higher throughput volumes, partially offset by a $1.1 million decrease in produced and flowback water revenues.
Product sales. The $5.0 million increase in product sales was driven by a $6.4 million increase in natural gas product sales to Oasis Petroleum due to an increase in residue gas and NGL prices, partially offset by a $1.6 million decrease in freshwater product sales due to a decrease in freshwater deliveries to Oasis Petroleum for well completions.
Total revenues. Total midstream revenues increased $43.8 million to $301.0 million during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. This increase was driven by a $55.5 million increase in product sales, partially offset by $11.7 million decrease in service revenues.
Service revenues. The $11.7 million decrease in service revenues was driven by an $8.3 million decrease in revenues from Oasis Petroleum and a $3.5 million decrease in
revenues from third parties. The $8.3 million decrease in revenues from Oasis Petroleum was driven by an $8.5 million decrease in produced and flowback water revenues and a $4.3 million decrease in crude oil revenues, partially offset by a $4.5 million increase in natural gas revenues. The $3.5 million decrease in revenues from third parties was driven by a $4.4 million decrease in third party revenues for natural gas services, partially offset by a $1.5 million increase in third party revenues for crude oil services.
Product sales. The $55.5 million increase in product sales was driven by a $57.0 million increase in natural gas product sales to Oasis Petroleum driven by an increase in residue gas and NGL prices and an increase in volumes gathered and processed that were purchased from third party producers. This was partially offset by a $1.7 million decrease in freshwater product sales due to a decrease
in freshwater deliveries to Oasis Petroleum for well completions.
Operating expenses and other expenses
The following table summarizes our operating expenses and other expenses for the periods presented:
Costs of product sales. Costs of product sales increased $6.9 million to $26.1 million for the three months ended September 30, 2021 as compared to the three months ended June 30, 2021. The increase was driven by a $7.2 million increase in natural gas costs of product sales due primarily to an increase in residue gas and NGL prices, offset by a $0.5 million decrease in freshwater costs of product sales due primarily to lower activity.
Operating and maintenance. Operating and maintenance expenses increased $2.5 million
to $14.7 million for the three months ended September 30, 2021 as compared to the three months ended June 30, 2021. The increase was driven by a $1.5 million
increase in produced and flowback water operating and maintenance expenses, coupled with a $0.9 million increase in crude oil and natural gas operating and maintenance expenses.
General and administrative (“G&A”) expenses. G&A expenses decreased $1.5 million to $6.6 million for the three months ended September
30, 2021 as compared to the three months ended June 30, 2021. The decrease was primarily a result of a reduction in allocated charges from Oasis Petroleum for G&A services due to cost savings.
Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, decreased $0.1 million to $11.1 million for the three months ended September 30, 2021 as compared to the three months ended June 30, 2021. The decrease was due primarily to a reduction in interest expense associated with fewer outstanding borrowings under the Revolving Credit Facility (defined below) quarter over quarter.
Costs of product sales. Cost of product sales increased $51.4 million to $68.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily driven by a $53.2 million increase in natural gas costs of product sales primarily due to an increase in residue gas and NGL prices and an increase in volumes purchased from third party producers. This increase was partially offset by a $1.8 million decrease in freshwater costs of product sales due to lower activity.
Operating and maintenance. Operating and maintenance expenses decreased
$4.0 million to $40.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease was driven by a $2.6 million decrease in natural gas operating and maintenance expenses and a $1.7 million decrease in produced and flowback water operating and maintenance expenses.
Impairment. We recorded an impairment loss of $101.8 million for the nine months ended September 30, 2020 to adjust the carrying value of our property, plant and equipment to fair value due to lower forecasted throughput volumes.
Depreciation and amortization. Depreciation and amortization expenses decreased $3.4 million
to $27.8 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease was driven by a reduction in the carrying value of assets following impairment charges taken in 2020.
G&A expenses. G&A expenses decreased $3.5 million to $23.1 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease was primarily a result of a reduction in allocated charges from Oasis Petroleum for G&A services due to cost savings.
Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, decreased
$11.8 million to $26.4 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease was primarily due to a specified default interest charge of $28.0 million recorded during the nine months ended September 30, 2020 which was subsequently waived in the fourth quarter of 2020. This decrease was partially offset by an increase in interest expense of $18.1 million related to the Senior Notes (defined below) issued in the first quarter of 2021.
Liquidity and Capital Resources
Our primary sources of liquidity during the period covered by this report have been
from cash flows generated from operations, borrowings under the Revolving Credit Facility (defined below), the issuance of the Senior Notes (defined below) and our underwritten public offering of common units. We believe cash generated from these sources will be sufficient to meet our short-term working capital needs, long-term capital expenditure requirements and quarterly cash distributions. We expect to fund future expansion capital expenditures and acquisitions primarily through a combination of borrowings under the Revolving Credit Facility and, if necessary, the issuance of additional equity or debt securities.
Our primary uses of cash have been for capital expenditures to develop our midstream infrastructure, dropdown acquisitions from Oasis Petroleum, distributions to our unitholders, the redemption of common units from Oasis Petroleum, interest payments associated with our long-term debt and payments associated with
cash requirements for working capital. We expect our future cash requirements relating to working capital, maintenance capital expenditures and quarterly cash distributions to our unitholders will be funded from cash flows internally generated from our operations.
Revolving credit facility. At September 30, 2021, we had $450.0 million of commitments under a revolving credit facility among OMP Operating, as borrower, Wells Fargo Bank, N.A., as administrative agent and the lenders party thereto (as amended, the “Revolving Credit Facility”). The Revolving Credit Facility is available to fund working capital and to finance acquisitions and other capital expenditures. The Revolving Credit Facility does not mature until at least September 30, 2024.
At September
30, 2021, we had $210.0 million of borrowings outstanding under the Revolving Credit Facility and $5.5 million of outstanding letters of credit, resulting in an unused borrowing capacity of $234.5 million. For the nine months ended
September 30, 2021 and 2020, the weighted average interest rate incurred on borrowings under the Revolving Credit Facility was 2.4% and 2.6%, respectively. On March 22, 2021, we entered into the Fourth Amendment to the Revolving Credit Facility. See “Item 1. — Financial
Statements (Unaudited) — Note 7 — Long-Term Debt” for more information.
Senior unsecured notes. On March 30, 2021, we issued $450.0 million of 8.00% senior unsecured notes due April 1, 2029 (the “Senior Notes”). The Senior Notes were issued at par and resulted in net proceeds of $442.1 million. We used the net proceeds from the Senior Notes to: (i) make a distribution to Oasis Petroleum of $231.5 million in connection with the Simplification Transaction, (ii) repay $204.0 million of outstanding principal borrowings and $0.5 million of accrued interest under the Revolving Credit Facility and (iii) pay approximately $6.1 million in fees and other expenses. See “Item 1. — Financial Statements (Unaudited) — Note 7 — Long-Term
Debt” for more information.
Equity offering and redemption of common units. On June 29, 2021, we completed the Equity Offering and received net proceeds of $87.0 million after deducting underwriting discounts and commissions. We used the net proceeds from the Equity Offering to redeem 3,623,188 common units held by Oasis Petroleum for $87.0 million. Following the redemption of common units, Oasis Petroleum owns approximately 70% of our outstanding common units. See “Item 1. — Financial Statements (Unaudited) — Note 10 — Partnership Equity and Distributions” for more information.
Cash flows
Our cash flows for the nine months ended September 30, 2021 and 2020
are presented below:
Net cash provided by operating activities was $160.1 million and $166.4 million for the nine months ended September 30, 2021 and 2020, respectively. The $6.3 million decrease in cash flows from operating activities for the nine months ended September 30, 2021, as compared to 2020, was due primarily to net changes in working capital, offset by higher net income after adjusting for non-cash items.
Working capital. Our working capital is driven by changes in accounts receivable and accounts payable and other factors, such as credit extended to, and the timing of collections from our customers. As of September 30, 2021, we had a working capital balance of
$40.0 million, and we had $264.2 million of liquidity available, including $29.7 million in cash and cash equivalents and $234.5 million in unused borrowing capacity on the Revolving Credit Facility.
We expect to have adequate liquidity to meet our future working capital requirements; however, extended disruptions in the financial markets and/or energy price volatility that adversely affect our business may have a material adverse effect on our financial position, results of operations or cash flows.
Cash flows used in investing activities
Net cash used in investing activities was $20.5 million and $52.2 million for the nine months ended September 30, 2021 and 2020, respectively. The $31.7 million decrease in net cash used in investing activities
for the nine months ended September 30, 2021, as compared to 2020, was primarily attributable to capital spending in the first quarter of 2020 related to the construction of two additional compressor stations in Wild Basin.
Cash flows used in financing activities
Net cash used in financing activities was $115.1 million for the nine months ended September 30, 2021 and $83.7 million for the nine months ended September 30, 2020. The $31.4 million increase in net cash used in financing activities was primarily attributable to the cash distribution of $231.5 million to Oasis Petroleum in connection with the Simplification Transaction and an increase in net repayments of outstanding borrowings under the Revolving Credit Facility of $269.0 million,
partially offset by cash proceeds from the issuance of the Senior Notes in the first quarter of 2021.
(1)Includes
$231.5 million incurred in the first quarter of 2021 related to the cash distribution to Oasis Petroleum associated with the Simplification Transaction composed of the following: (i) $229.0 million cash component of the purchase price, (ii) $10.1 million upward adjustment to the purchase price related to the expanded project dedication to the Partnership in South Nesson and (iii) $7.6 million downward adjustment to the purchase price related to activity between the effective date of January 1, 2021 and the close date of March 30, 2021.
Capital expenditures by DevCo are summarized in the following table for the periods presented (in thousands):
(1)Negative
amounts reflect differences between the estimated capital expenditures accrued in a reporting period and actual capital expenditures recognized in a subsequent reporting period.
(2)Includes $231.5 million incurred in the first quarter of 2021 related to the cash distribution to Oasis Petroleum associated with the Simplification Transaction composed of the following: (i) $229.0 million cash component of the purchase price, (ii) $10.1 million upward adjustment to the purchase price related to the expanded project dedication to the Partnership in South Nesson and (iii) $7.6 million downward adjustment to the purchase price related to activity between the effective date of January 1, 2021 and the close date of March 30, 2021.
2021 Revised Capital Program.
Our revised 2021 capital program, excluding acquisitions, will accommodate a capital expenditure level of approximately $73.0 million to $78.0 million, which was adjusted upward from the previous range of $53.0 million to $58.0 million to reflect incremental activity. We expect our 2021 capital program to accommodate maintenance capital expenditures of approximately 7% to 8% of EBITDA, and maintenance capital expenditures in the second half of 2021 of approximately 12% of EBITDA, which reflects maintenance capital associated with a planned turnaround at our gas plant complex in Wild Basin.
We will continue to evaluate the level of capital spending throughout the year based on the following factors, among others:
•pace of our customers’ development;
•operating and construction costs;
•our
ability to achieve material supplier price reductions;
•indebtedness levels; and
•impact of new laws and regulations on our business practices.
We expect to fund our capital expenditures with cash on hand, cash generated from operating activities and borrowings under the Revolving Credit Facility.
On October 25, 2021, the Board of Directors of the General Partner
declared the quarterly distribution for the third quarter of 2021 of $0.56 per unit. This distribution will be payable on November 29, 2021 to unitholders of record as of November 15, 2021.
The Board of Directors of the General Partner may change our cash distribution policy at any time, and we do not have a legal or contractual obligation to pay cash distributions quarterly or on any other basis or at our minimum quarterly distribution rate.
Non-GAAP Financial Measures
Cash Interest, Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow are supplemental non-GAAP financial measures that are used by management and external
users of our financial statements, such as industry analysts, investors, lenders and rating agencies. These non-GAAP financial measures should not be considered in isolation or as a substitute for interest expense, net income (loss), operating income (loss), net cash provided by (used in) operating activities or any other measures prepared under GAAP. Because Cash Interest, Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow exclude some but not all items that affect interest expense, net income (loss) and net cash provided by (used in) operating activities and may vary among companies, the amounts presented may not be comparable to similar metrics of other companies.
Cash Interest
We define Cash Interest as interest expense plus capitalized interest less amortization of deferred financing costs included in interest expense. Cash Interest is not a measure of interest expense
as determined by GAAP. Management believes that the presentation of Cash Interest provides useful additional information to investors and analysts for assessing the interest charges incurred on our debt, excluding non-cash amortization, and our ability to maintain compliance with our debt covenants.
The following table presents a reconciliation of the GAAP financial measure of interest expense, net of capitalized interest, to the non-GAAP financial measure of Cash Interest for the periods presented:
Less: Cash Interest attributable to non-controlling interests(2)
—
(3)
(3)
(9)
Cash
Interest attributable to Oasis Midstream Partners LP
$
10,606
$
2,481
$
24,088
$
37,694
__________________
(1)For
the nine months ended September 30, 2020, interest expense, Cash Interest and Cash Interest attributable to Oasis Midstream Partners LP included a specified default interest charge of $28.0 million, which was subsequently waived in the fourth quarter of 2020.
(2)Amounts represent Cash Interest attributable to non-controlling interests associated with finance leases prior to the closing of the Simplification Transaction on March 30, 2021.
Adjusted EBITDA
We define Adjusted EBITDA as earnings before interest expense (net of capitalized interest), income taxes, depreciation, amortization, equity-based compensation expenses and other similar non-cash adjustments. We define Adjusted EBITDA attributable to Oasis Midstream
Partners LP as Adjusted EBITDA less Adjusted EBITDA attributable to Oasis Petroleum’s retained interests in two of our DevCos. Adjusted EBITDA should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Management believes that the presentation of Adjusted EBITDA provides information useful to investors and analysts for assessing our results of operations, financial performance and our ability to generate cash from our business operations without regard to our financing methods or capital structure coupled with our ability to maintain compliance with our debt covenants. The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities.
We define Distributable Cash Flow as Adjusted EBITDA attributable to Oasis Midstream Partners LP less Cash Interest and maintenance capital expenditures attributable to Oasis Midstream Partners LP. We define Free Cash Flow as Distributable Cash Flow less expansion capital expenditures attributable to Oasis Midstream Partners LP less distributions to our unitholders. Distributable Cash Flow and Free Cash Flow should not be considered an alternative to net income (loss), net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Management believes that the presentation of Distributable Cash Flow and Free Cash Flow provides information useful to investors and analysts for assessing our results of operations, financial performance and
our ability to generate cash from our business operations without regard to our financing methods or capital structure, coupled with our ability to make distributions to our unitholders. The GAAP measures most directly comparable to Distributable Cash Flow and Free Cash Flow are net income (loss) and net cash provided by (used in) operating activities.
The following table presents reconciliations of the GAAP financial measures of net income (loss) and net cash provided by operating activities to the non-GAAP financial measure of Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow for the periods presented.
Less:
Adjusted EBITDA attributable to non-controlling interests
—
19,808
20,572
60,553
Adjusted EBITDA attributable to Oasis Midstream Partners LP
58,178
37,298
149,884
109,501
Cash
interest attributable to Oasis Midstream Partners LP
10,606
2,481
24,088
37,694
Maintenance capital expenditures attributable to Oasis Midstream Partners LP
4,673
767
6,956
2,660
Distributable
Cash Flow
42,899
34,050
118,840
69,147
Expansion capital expenditures attributable to Oasis Midstream Partners LP(1)
11,409
(4,352)
253,835
12,962
LP
distributions
27,232
18,258
72,244
54,774
GP distributions
—
1,027
1,027
3,061
Free
Cash Flow
$
4,258
$
19,117
$
(208,266)
$
(1,650)
Net
cash provided by operating activities
$
62,083
$
53,260
$
160,140
$
166,405
Interest expense, net of capitalized interest
11,081
2,753
26,372
38,196
Changes
in working capital
(14,511)
1,367
(13,789)
(33,732)
Other non-cash adjustments
(475)
(274)
(2,267)
(815)
Adjusted
EBITDA
58,178
57,106
170,456
170,054
Less: Adjusted EBITDA attributable to non-controlling interests
—
19,808
20,572
60,553
Adjusted
EBITDA attributable to Oasis Midstream Partners LP
58,178
37,298
149,884
109,501
Cash interest attributable to Oasis Midstream Partners LP
10,606
2,481
24,088
37,694
Maintenance
capital expenditures attributable to Oasis Midstream Partners LP
4,673
767
6,956
2,660
Distributable Cash Flow
42,899
34,050
118,840
69,147
Expansion
capital expenditures attributable to Oasis Midstream Partners LP(1)
11,409
(4,352)
253,835
12,962
LP distributions
27,232
18,258
72,244
54,774
GP
distributions
—
1,027
1,027
3,061
Free Cash Flow
$
4,258
$
19,117
$
(208,266)
$
(1,650)
___________________
(1)
Negative amount reflects differences between the estimated capital expenditures accrued in a reporting period and actual capital expenditures recognized in a subsequent reporting period.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from those disclosed in our 2020 Annual Report.
Item 3.
— Quantitative and Qualitative Disclosures About Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.
Concentration of customer credit risk. We are dependent on Oasis Petroleum as our most significant customer, and we expect to derive a substantial majority of our revenues from Oasis Petroleum for the foreseeable future. As a result, any event, whether in our dedicated
areas or otherwise, that adversely affects Oasis Petroleum’s production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and cash available for distribution. Further, we are subject to the risk of non-payment or non-performance by Oasis Petroleum. We cannot predict the extent to which Oasis Petroleum’s business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Oasis Petroleum’s ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Oasis Petroleum could reduce our ability to make distributions to our unitholders. We did not experience any significant defaults on accounts receivable during the nine months ended September 30, 2021.
Commodity
price risk. We have limited direct exposure to risks associated with fluctuating commodity prices due to the nature of our business and our long-term, fixed-fee arrangements with Oasis Petroleum. However, to the extent that our future contractual arrangements with Oasis Petroleum or third parties do not provide for fixed-fee structures, we may become subject to commodity price risk. Additionally, as a substantial portion of our revenues are derived from Oasis Petroleum, we will be indirectly subject to risks associated with fluctuating commodity prices to the extent that lower commodity prices adversely affect Oasis Petroleum’s production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows.
Interest rate risk. At September 30, 2021, we had $450.0 million of senior
unsecured notes outstanding at a fixed cash interest rate of 8.00% per annum. At September 30, 2021 we had $210.0 million of borrowings outstanding under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the applicable margin (as described below) plus (i) with respect to Eurodollar Loans, the Adjusted LIBO Rate (as defined in the Revolving Credit Facility) or (ii) with respect to ABR Loans (as defined in the Revolving Credit Facility), the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1.00% or (c) the Adjusted LIBO Rate for a one-month interest period on such day plus 1.00% (each as defined in the Revolving Credit Facility). The applicable margin for borrowings under the Revolving Credit Facility is based on the Partnership’s most recently tested consolidated total leverage
ratio and varies from (a) in the case of Eurodollar Loans, 2.25% to 3.25%, and (b) in the case of ABR Loans or swingline loans, 1.25% to 2.25%. The unused portion of the Revolving Credit Facility is subject to a commitment fee ranging from 0.375% to 0.500%.
At September 30, 2021, the outstanding borrowings under our Revolving Credit Facility bore interest at the London Interbank Offered Rate plus a 2.25% margin. We do not currently, but may in the future, utilize interest rate derivatives to reduce interest rate exposure in an attempt to reduce interest rate expense related to debt issued under our Revolving Credit Facility. Interest rate derivatives would be used solely to modify interest rate exposure and not to modify the overall leverage of the debt portfolio.
Item 4.
— Controls and Procedures
Evaluation of disclosure controls and procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”), our principal executive officer, and our Chief Financial Officer (“CFO”), our principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective at September 30, 2021.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
See “Part I, Item 1. — Financial Statements (Unaudited) — Note 9 — Commitments and Contingencies”which is incorporated herein by reference, for a description of material legal proceedings.
Item 1A. — Risk Factors
Our business faces many risks. Any of the risks discussed elsewhere in this Form 10-Q and our other SEC filings could have a material
impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
For a discussion of our potential risks and uncertainties, see the information in Item 1A. “Risk Factors” in our 2020 Annual Report. There have been no material changes in our risk factors from those described in our 2020 Annual Report and subsequent SEC filings.
Agreement and Plan of Merger, dated October
25, 2021, by and among Crestwood Equity Partners LP, Project Falcon Merger Sub LLC, Project Phantom Merger Sub LLC, Oasis Midstream Partners LP, OMP GP LLC and, solely for purposes of Section 2.1(a)(i), Crestwood Equity GP LLC (incorporated herein by reference to Exhibit 2.1 to the form 8-K filed by the Partnership on October 28, 2021).
Crude
Oil Gathering and Storage Agreement, dated October 25, 2021, among OMP Operating LLC, Oasis Petroleum North America LLC and Oasis Petroleum Marketing LLC.
Amended and Restated Produced and Flowback Water Gathering and Disposal Agreement, dated October 25, 2021, between OMP Operating LLC and Oasis Petroleum North America LLC.
Amended
and Restated Crude Oil Gathering and Storage Agreement, dated October 25, 2021, between OMP Operating LLC, Oasis Petroleum North America LLC and Oasis Petroleum Marketing LLC.
Gas Gathering, Compression and Processing Agreement, dated October 25, 2021, between OMP Operating LLC, Oasis Petroleum North America LLC and Oasis Petroleum Marketing LLC.
Sarbanes-Oxley Section 906 certification of Principal Financial Officer.
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Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
