Kinetik (KNTK) - 2020 Q1 - Quarterly Report

FORM 10-Q Details This Quarterly Report on Form 10-Q covers the period ended March 31, 2020, filed by Altus Midstream Company - This is a Quarterly Report on Form 10-Q for the period ended March 31, 2020, filed by Altus Midstream Company (Commission File Number: 001-38048)[1][2] Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :--- | :--- | :--- | | Class A common stock, $0.0001 par value | ALTM | Nasdaq Global Select Market | Filer Status | Filer Status | | | :--- | :--- | | Large accelerated filer | ☐ | | Accelerated filer | ☒ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☒ | Shares Outstanding as of April 30, 2020 | Shares Outstanding as of April 30, 2020 | | | :--- | :--- | | Class A common stock | 74,929,305 | | Class C common stock | 250,000,000 | FORWARD-LOOKING STATEMENTS AND RISK This section outlines forward-looking statements, emphasizing their inherent risks and uncertainties that could cause actual results to differ materially - This section outlines forward-looking statements based on historical operating trends and forecasts, identifiable by terms like 'may,' 'will,' 'expect,' 'intend,' etc. These statements are subject to various risks and uncertainties that could cause actual results to differ materially[8] - Key risk factors include: * Scope, duration, and reoccurrence of epidemics or pandemics (e.g., COVID-19) * Market prices of oil, natural gas, and NGLs * Pipeline and gathering system capacity and availability * Production rates, throughput volumes, reserve levels, and development success * Economic and competitive conditions, and availability of capital * Legislative, regulatory, or policy changes, terrorism, or cyberattacks * Impact of environmental, health, and safety regulations * Changes in technology and market-related risks (credit, liquidity, interest rates) - The Company disclaims any duty to update or revise forward-looking statements unless legally required[10] GLOSSARY OF TERMS This section defines key abbreviations and terms used throughout the report and the oil and natural gas industry - This section provides abbreviations and definitions of terms commonly used in the oil and natural gas industry and within this Quarterly Report on Form 10-Q[13] - Key terms defined include: * Bbl: One stock tank barrel (42 U.S. gallons) of crude oil, condensate, or NGLs * Bcf: One billion cubic feet of natural gas * Btu: One British thermal unit * NGLs: Natural gas liquids - References to 'Altus' and the 'Company' encompass Altus Midstream Company and its consolidated subsidiaries[13] PART I — FINANCIAL INFORMATION This part presents Altus Midstream Company's unaudited consolidated financial statements and related disclosures ITEM 1. FINANCIAL STATEMENTS This section presents Altus Midstream Company's unaudited consolidated financial statements and detailed notes for the three months ended March 31, 2020 and 2019 STATEMENT OF CONSOLIDATED OPERATIONS This statement details the company's revenues, costs, operating income, and net income (loss) for the three months ended March 31, 2020 and 2019 Consolidated Operations Summary | Metric (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Revenues | $40,767 | $33,847 | | Total Costs and Expenses | $22,126 | $29,616 | | Operating Income | $18,641 | $4,231 | | Total Other Income (Loss) | $(45,856) | $2,431 | | Net Income (Loss) Before Income Taxes | $(27,488) | $6,154 | | Net Income (Loss) Attributable to Class A Common Shareholders | $(9,853) | $1,100 | | Basic EPS | $(0.13) | $0.01 | | Diluted EPS | $(0.14) | $0.01 | - The company reported a significant unrealized derivative instrument loss of $61.984 million in Q1 2020, contributing to the net loss compared to Q1 2019[17] - Income from equity method interests substantially increased to $16.298 million in Q1 2020 from $0.270 million in Q1 2019[17] STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) This statement presents the company's net income (loss) and other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 Consolidated Comprehensive Income (Loss) | Metric (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Income (Loss) Including Noncontrolling Interests | $(26,792) | $5,728 | | Other Comprehensive Loss, Net of Tax | $(1,184) | — | | Comprehensive Income (Loss) Including Noncontrolling Interests | $(27,976) | $5,728 | | Comprehensive Income (Loss) Attributable to Class A Common Shareholders | $(10,126) | $1,100 | - The company reported a comprehensive loss of $27.976 million in Q1 2020, a significant decline from $5.728 million comprehensive income in Q1 2019, primarily due to net loss[21] CONSOLIDATED BALANCE SHEET This balance sheet provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2020, and December 31, 2019 Consolidated Balance Sheet Summary | Metric (In thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $37,536 | $31,737 | | Total Property, Plant and Equipment, Net | $208,523 | $205,802 | | Equity Method Interests | $1,336,810 | $1,258,048 | | Total Assets | $1,588,533 | $1,500,854 | | Total Current Liabilities | $12,728 | $33,692 | | Long-Term Debt | $468,000 | $396,000 | | Embedded Derivative | $164,913 | $102,929 | | Total Liabilities | $712,985 | $597,330 | | Redeemable Noncontrolling Interest — Apache limited partner | $231,178 | $701,000 | | Redeemable Noncontrolling Interest — Preferred Unit limited partners | $573,861 | $555,599 | | Total Equity | $70,509 | $(353,075) | - Total assets increased by $87.679 million from December 31, 2019, to March 31, 2020, primarily due to higher equity method interests and cash[24] - Total liabilities increased by $115.655 million, largely driven by higher long-term debt and embedded derivative liability[24] - Equity shifted from a deficit of $353.075 million to a positive $70.509 million, influenced by changes in redeemable noncontrolling interests and additional paid-in capital[24][25] STATEMENT OF CONSOLIDATED CASH FLOWS This statement details the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2020 and 2019 Consolidated Cash Flows Summary | Metric (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $51,538 | $10,054 | | Net Cash Used in Investing Activities | $(97,615) | $(282,551) | | Net Cash Provided by Financing Activities | $59,395 | — | | Net Increase (Decrease) in Cash and Cash Equivalents | $13,318 | $(272,497) | | Cash and Cash Equivalents at End of Period | $19,301 | $177,438 | - Operating cash flow significantly increased to $51.538 million in Q1 2020 from $10.054 million in Q1 2019, despite a net loss, due to derivative loss adjustments and equity distributions[27] - Investing activities used $97.615 million in Q1 2020, a decrease from $282.551 million in Q1 2019, primarily due to lower capital expenditures[27] - Financing activities provided $59.395 million in Q1 2020, mainly from revolving credit facility proceeds, compared to no financing cash in Q1 2019[27] STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS This statement outlines changes in the company's equity and noncontrolling interests for the three months ended March 31, 2020 - Total equity increased from a deficit of $353.075 million at December 31, 2019, to $70.509 million at March 31, 2020[29] - The change was significantly influenced by a $433.710 million increase in additional paid-in capital from noncontrolling interest redemption value changes, offsetting net loss[29] Consolidated Changes in Equity and Noncontrolling Interests | Metric (In thousands) | December 31, 2019 | March 31, 2020 | | :--- | :--- | :--- | | Redeemable Noncontrolling Interest — Preferred Unit Limited Partners | $555,599 | $573,861 | | Redeemable Noncontrolling Interest — Apache Limited Partner | $701,000 | $231,178 | | Additional Paid-in Capital | $39,792 | $473,502 | | Accumulated Deficit | $(392,633) | $(402,486) | | Total Equity | $(353,075) | $70,509 | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section details the significant accounting policies used in preparing the consolidated financial statements, including those for redeemable noncontrolling interests and equity method investments - Consolidated financial statements adhere to GAAP, reflecting Altus Midstream LP's operations in Permian Basin gas gathering, processing, transmission, and pipeline equity interests[33][35][40] - Altus Midstream Company consolidates Altus Midstream LP as the primary beneficiary of a Variable Interest Entity[41][44] - Key accounting policies include: * Redeemable Noncontrolling Interest — Apache Limited Partner: Recorded at the higher of initial fair value plus accumulated earnings/losses or redemption value (based on Class A Common Stock fair market value) * Redeemable Noncontrolling Interest — Preferred Unit Limited Partners: Classified as temporary equity, with certain embedded redemption features bifurcated and measured at fair value as a long-term liability embedded derivative * Equity Method Interests: Accounted for when significant influence exists, carried at acquisition cost adjusted for proportionate share of net income/losses and distributions * Fair Value Measurements: Utilizes a hierarchy (Level 1, 2, 3) for valuation techniques (market, income, cost approach) - The Company eliminated a one-month reporting lag for equity method interests effective October 1, 2019, with no material retrospective impact[58][59] - Recently adopted accounting standards (ASU 2016-13 and ASU 2019-12) had no material impact on Q1 2020 financial statements[60][61] 2. TRANSACTIONS WITH AFFILIATES This section describes Altus Midstream's significant transactions and agreements with its affiliate, Apache Corporation, its primary customer and service provider - Altus Midstream's sole significant customer is Apache Corporation, receiving fee-based midstream services for its Alpine High acreage[62][63] Affiliate Transactions: Expenses | Expense Type (In millions) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Operations and Maintenance (to related parties) | $1.4 | $2.9 | | General and Administrative (to related parties) | $2.0 | $1.6 | - Under the COMA with Apache, Altus pays annual fees for operational, maintenance, and management services, increasing from $5.0 million in 2020 to $9.0 million annually thereafter[65] - Altus incurred $0.3 million in Q1 2020 and $0.2 million in Q1 2019 for an operating lease with Apache for facilities[69] 3. REVENUE RECOGNITION This section explains the company's revenue recognition policies for fee-based midstream services provided to Apache Corporation - The Company generates revenue from fee-based contracts with Apache for midstream services based on volumes processed[71][72] Midstream Services Revenue — Affiliate | Service Type (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Gas gathering and compression | $5,720 | $3,613 | | Gas processing | $29,896 | $25,286 | | Transmission | $4,175 | $4,853 | | NGL transmission | $826 | $95 | | Other | $150 | — | | Total Midstream Services Revenue — Affiliate | $40,767 | $33,847 | - Revenue is recognized over time using the output method, as performance directly corresponds to customer value and transaction price is resolved[73] - Revenue receivables from Apache totaled $11.7 million as of March 31, 2020, a decrease from $15.5 million at December 31, 2019[74] 4. PROPERTY, PLANT AND EQUIPMENT This section details the company's property, plant, and equipment, including capital spending and impairment considerations Property, Plant and Equipment, Net | Asset Category (In thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Gathering, processing and transmission systems and facilities | $205,629 | $198,133 | | Construction in progress | $3,327 | $5,443 | | Other property and equipment | $3,984 | $3,694 | | Total Property, Plant and Equipment | $212,940 | $207,270 | | Less: Accumulated depreciation and amortization | $(4,417) | $(1,468) | | Total Property, Plant and Equipment, Net | $208,523 | $205,802 | - Capital spending on gathering, processing, and transmission systems was approximately $7.1 million in Q1 2020[78] - No impairments were recorded in Q1 2020 or Q1 2019, following a $1.3 billion impairment in Q4 2019 due to expected throughput reductions[79] - The Company completed the purchase of power generators in Q1 2020, previously under lease[78] 5. DEBT AND FINANCING COSTS This section outlines the company's revolving credit facility, outstanding debt, and associated financing costs and covenants - Altus Midstream has an $800.0 million revolving credit facility maturing in November 2023, with $468.0 million outstanding as of March 31, 2020[81][88] - The unsecured facility has variable interest rates (base rate or LIBOR plus margin) and a quarterly facility fee[82][83] - The Amended Credit Agreement includes restrictive covenants, with the Leverage Ratio less than 4.00:1.00 as of March 31, 2020[84] Interest and Financing Costs | Metric (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Interest income | $7 | $2,161 | | Interest expense | $3,358 | $709 | | Capitalized interest | $(3,358) | $(394) | | Financing costs, net of capitalized interest | $273 | $508 | 6. OTHER CURRENT LIABILITIES This section details the composition and changes in the company's other current liabilities as of March 31, 2020, and December 31, 2019 Other Current Liabilities | Liability (In thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Accrued capital costs | $4,817 | $17,035 | | Accrued taxes other than income | $3,733 | $689 | | Accrued operations and maintenance expense | $1,380 | $1,520 | | Accrued professional and consulting fees | $1,288 | $158 | | Accrued incentive compensation | $376 | $1,425 | | Accrued finance lease liability | — | $1,989 | | Other | $1,134 | $1,109 | | Total Other Current Liabilities | $12,728 | $23,925 | - Total other current liabilities decreased by $11.197 million from December 31, 2019, to March 31, 2020, mainly due to reduced accrued capital costs and expired finance lease liability[90] 7. COMMITMENTS AND CONTINGENCIES This section outlines the company's contractual obligations, legal proceedings, and environmental compliance, noting no material adverse effects - The Company records loss contingency accruals when probable and estimable, with no such accruals as of March 31, 2020, or December 31, 2019[91] - Management believes existing litigation or claims are unlikely to materially adversely affect the Company's financial position or results of operations[92] - The Company is subject to environmental regulations but is unaware of any material environmental claims as of March 31, 2020[93] - Key contractual obligations include: * Fee-based midstream services agreements with Apache (no minimum volume commitments) * COMA with Apache for G&A support services, with fixed annual fees * Lease Agreement with Apache for facilities * Quarterly distributions to Preferred Unit holders * Pro-rata funding of future capital expenditures for equity method pipeline projects 8. EQUITY METHOD INTERESTS This section details the company's equity interests in Permian Basin pipeline entities, including ownership, contributions, distributions, and equity income - As of March 31, 2020, Altus Midstream Company held equity interests in four Permian Basin long-haul pipeline entities, exercising significant influence[99] Equity Method Interests Summary | Equity Method Interest | Ownership | Amount (March 31, 2020, in thousands) | Amount (December 31, 2019, in thousands) | | :--- | :--- | :--- | :--- | | Gulf Coast Express Pipeline LLC | 16.0% | $289,541 | $291,628 | | EPIC Crude Holdings, LP | 15.0% | $175,549 | $163,199 | | Permian Highway Pipeline LLC | 26.7% | $380,800 | $310,421 | | Breviloba, LLC (Shin Oak NGL Pipeline) | 33.0% | $490,920 | $492,800 | | Total | | $1,336,810 | $1,258,048 | - Total equity method interests increased by $78.762 million from December 31, 2019, to March 31, 2020, primarily due to contributions and equity income[99][100] Equity Method Interests Activity | Activity (In thousands) | Gulf Coast Express Pipeline LLC | EPIC Crude Holdings, LP | Permian Highway Pipeline LLC | Breviloba, LLC | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at December 31, 2019 | $291,628 | $163,199 | $310,421 | $492,800 | $1,258,048 | | Contributions | $919 | $15,000 | $66,908 | — | $82,827 | | Distributions | $(13,462) | — | — | $(9,075) | $(22,537) | | Equity income (loss), net | $10,456 | $(1,466) | $113 | $7,195 | $16,298 | | Balance at March 31, 2020 | $289,541 | $175,549 | $380,800 | $490,920 | $1,336,810 | 9. EQUITY This section describes the company's equity structure, including Apache's redeemable noncontrolling interest and the Series A Cumulative Redeemable Preferred Units - Apache holds 250,000,000 Altus Midstream Common Units (approximately 76.9% of total), classified as a redeemable noncontrolling interest, redeemable for Class A Common Stock or cash[104] - The redeemable noncontrolling interest for Apache was $231.2 million at March 31, 2020, lower than $701.0 million at December 31, 2019[105] - Series A Cumulative Redeemable Preferred Units, issued in June 2019, are exchangeable for Class A Common Stock or redeemable by Altus Midstream[107] 10. SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS This section details the issuance, classification, and fair value measurement of the Series A Cumulative Redeemable Preferred Units and their embedded derivative - On June 12, 2019, Altus Midstream issued 625,000 Series A Cumulative Redeemable Preferred Units at $1,000 per unit, raising $625.0 million gross and $611.2 million net proceeds[108] - Preferred Units are classified as redeemable noncontrolling interest, with embedded redemption features bifurcated and measured at fair value as a long-term liability[109][111] Preferred Units Transaction Price Allocation | Metric (In thousands) | June 12, 2019 | | :--- | :--- | | Transaction price, gross | $625,000 | | Issue discount | $(3,675) | | Transaction costs to other third parties | $(10,076) | | Transaction price, net | $611,249 | | Allocated to Redeemable noncontrolling interest - Preferred Units | $516,790 | | Allocated to Long-term liability: Embedded derivative | $94,459 | - As of March 31, 2020, the redeemable noncontrolling interest for Preferred Units was $573.861 million, with an embedded derivative liability of $164.913 million[114] - Altus Midstream elected to pay the Q1 2020 Preferred Units distribution in-kind, issuing 11,363 additional PIK Units on May 15, 2020[114] 11. INCOME TAXES This section discusses the company's income tax status, tax benefits, and the impact of accounting standard changes on its effective tax rate - Altus Midstream Company is subject to U.S. federal and Texas margin tax, while Altus Midstream LP passes federal taxable income to partners[117] - In Q1 2020, the Company recorded a current income tax benefit of $0.7 million from a net operating loss carryback claim under the CARES Act[118] - The effective income tax rate in Q1 2020 was impacted by the NOL carryback and increased valuation allowance, differing from Q1 2019[119] - Early adoption of ASU 2019-12 in Q1 2020 had no material impact[120] 12. NET INCOME (LOSS) PER SHARE This section details the calculation of basic and diluted net income (loss) per share, including the treatment of various equity instruments - Basic net income (loss) per share is calculated using net income available to Class A common shareholders and weighted average shares outstanding, excluding Class C Common Stock[122] - The 'if-converted method' is used for diluted EPS to account for potential dilution from various equity instruments, while the treasury stock method applies to warrants[123] Net Income (Loss) Per Share | Metric (In thousands, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Basic: | | | | Net income (loss) attributable to Class A common shareholders | $(9,853) | $1,100 | | Basic Weighted Average Shares | 74,929 | 74,929 | | Basic EPS | $(0.13) | $0.01 | | Diluted: | | | | Net income (loss) attributable to Class A common shareholders | $(45,054) | $4,625 | | Diluted Weighted Average Shares | 324,929 | 324,929 | | Diluted EPS | $(0.14) | $0.01 | - Diluted EPS excludes anti-dilutive Preferred Units exchange and outstanding warrants, and Apache earn-out consideration due to unfulfilled issuance conditions[126] 13. FAIR VALUE MEASUREMENTS This section describes the company's fair value measurements for financial assets and liabilities, particularly the embedded derivative related to Preferred Units - The Company's recurring fair value measurements include cash, receivables, Apache accounts, and the Preferred Units embedded derivative liability[127] - The embedded derivative liability, bifurcated from Preferred Units, is measured at fair value using an income approach (Black-Karasinski model) based on interest rates and dividend yields[128] - An unrealized loss of $62.0 million was recognized in Q1 2020 for this derivative liability, primarily due to COVID-19 macroeconomic factors[128] Level 3 Fair Value Measurement | Level 3 Fair Value Measurement (In thousands) | Fair Value at March 31, 2020 | Valuation Technique | Significant Unobservable Inputs | Range/Value | | :--- | :--- | :--- | :--- | :--- | | Preferred Units Embedded Derivative | $164,913 | Option Model | Altus Midstream Company's Imputed Interest Rate | 19.17-26.02% | | | | | Interest Rate Volatility | 33.22% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Altus Midstream's financial condition, operational results, and liquidity for Q1 2020, highlighting COVID-19 impacts and strategic focus Overview This overview describes Altus Midstream's assets, operations, and strategic focus, acknowledging the impact of the COVID-19 pandemic on the energy industry - Altus Midstream owns Permian Basin gas gathering, processing, and transmission assets servicing Apache's Alpine High production, plus equity interests in four pipelines[132] - The Company's assets include 182 miles of natural gas gathering pipelines, 46 miles of residue gas pipelines, 38 miles of NGL pipelines, and three 200 MMcf/d cryogenic processing trains[133] - Equity Method Interest Pipelines owned as of March 31, 2020: * 16% in Gulf Coast Express Pipeline Project (GCX) * 15% in EPIC crude oil pipeline (EPIC) * ~26.7% in Permian Highway Pipeline (PHP) * 33% in Shin Oak NGL Pipeline - The COVID-19 pandemic significantly impacted the global economy and energy industry, causing historic oil price declines and natural gas throughput uncertainty[134] - Altus focuses on increasing third-party processing, has no upcoming debt maturities, and expects to be cash flow positive by Q1 2021[135] Altus Midstream Operational Metrics This section defines key operational metrics, including throughput volumes, revenues, costs, and Adjusted EBITDA, used to assess the company's performance - The Company assesses performance using throughput volumes, associated revenues, costs, and Adjusted EBITDA[137] - Revenues are primarily driven by natural gas volumes processed under fee-based agreements with Apache, with future volumes dependent on production and third-party contracts[137] - Costs and expenses: * Operations and maintenance: Primarily direct labor, supervision, power, repair, and equipment rentals, impacted by commodity prices * Depreciation and accretion: Based on estimated useful lives and asset retirement obligations, expected to increase with infrastructure costs * General and administrative (G&A): Indirect costs and overhead, including fees paid to Apache under the COMA for administrative services * Taxes other than income: Primarily ad valorem taxes on midstream assets - Adjusted EBITDA, a non-GAAP measure, increased to $46.542 million in Q1 2020 from $12.109 million in Q1 2019, reflecting improved operating performance[146][150] Results of Operations This section provides a detailed analysis of the company's financial performance for the three months ended March 31, 2020, compared to the prior year, explaining key revenue and expense drivers Results of Operations Summary | Metric (In thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Midstream services — affiliate revenue | $40,767 | $33,847 | | Operations and maintenance | $10,591 | $16,399 | | General and administrative | $4,178 | $2,991 | | Depreciation and accretion | $3,914 | $7,651 | | Taxes other than income | $3,443 | $2,575 | | Operating Income | $18,641 | $4,231 | | Unrealized derivative instrument loss | $(61,984) | — | | Income from equity method interests, net | $16,298 | $270 | | Net Income (Loss) Before Income Taxes | $(27,488) | $6,154 | | Adjusted EBITDA | $46,542 | $12,109 | | Average throughput volumes of natural gas (MMcf/d) | 577 | 564 | | Average volumes of natural gas processed (MMcf/d) | 572 | 564 | - Midstream services revenue increased by $6.9 million (20.4%) to $40.8 million in Q1 2020, driven by higher rich natural gas throughput from new cryogenic processing trains[153][154] - Costs and Expenses changes (Q1 2020 vs. Q1 2019): * Operations and maintenance: Decreased by $5.8 million (35.4%) due to increased operational efficiency from transitioning to the centralized Diamond cryogenic complex * General and administrative: Increased by $1.2 million (39.7%) due to higher audit/consulting fees, employee-related costs, severance, and insurance * Depreciation and accretion: Decreased by $3.8 million (49.7%) due to impairments recorded in late 2019 * Taxes other than income: Increased by $0.9 million (35.3%) due to higher ad valorem taxes from completed cryogenic plants - Other Income (Loss) and Financing Costs changes (Q1 2020 vs. Q1 2019): * Unrealized derivative instrument loss: $62.0 million loss in Q1 2020 (vs. none in Q1 2019) due to fair value changes in the embedded derivative related to Preferred Units, influenced by macroeconomic factors * Income from equity method interests: Increased by $16.0 million to $16.3 million, primarily from GCX and Shin Oak pipelines being in service * Interest income: Decreased by $2.2 million due to lower cash and cash equivalents * Financing costs, net of capitalized interest: Decreased by $0.2 million due to the expiration of a finance lease obligation, partially offset by higher amortization of fees on increased credit facility drawdowns - The Company recognized a current income tax benefit of $0.7 million in Q1 2020 from a net operating loss carryback claim under the CARES Act[165] - Net loss before income taxes was $27.5 million in Q1 2020, a $33.6 million decrease from Q1 2019, primarily due to the $62.0 million unrealized derivative loss; Adjusted EBITDA increased by $34.4 million[167] Capital Resources and Liquidity This section discusses the company's capital allocation, liquidity position, and future funding plans, including the impact of its revolving credit facility and Preferred Units - Primary capital uses have been for asset construction and Equity Method Interest Pipelines, with 2020 capital primarily funding pipeline equity contributions[169] - The Company expects to be cash flow positive by Q1 2021, with operating cash flows exceeding capital expenditures, supported by reduced capital and equity distributions[170] - Capital spending for midstream infrastructure assets decreased significantly to $19.0 million in Q1 2020 from $164.5 million in Q1 2019, with 2020 focused on maintenance[172] - Cash contributions to Equity Method Interest Pipelines were $82.8 million in Q1 2020, down from $118.0 million in Q1 2019, with sufficient resources for remaining PHP construction[173] Cash Flow Summary | Cash Flow Item (In thousands) | For the Three Months Ended March 31, 2020 | For the Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Sources of cash and cash equivalents: | | | | Proceeds from revolving credit facility | $72,000 | — | | Proceeds from sale of assets | $6,096 | — | | Capital distributions from equity method interests | $1,552 | — | | Net cash provided by operating activities | $51,538 | $10,054 | | Total Sources | $131,186 | $10,054 | | Uses of cash and cash equivalents: | | | | Capital expenditures | $(19,096) | $(164,518) | | Contributions to and acquisition of equity method interests | $(82,827) | $(118,033) | | Finance lease payments | $(11,789) | — | | Deferred facility fees | $(816) | — | | Other | $(3,340) | — | | Total Uses | $(117,868) | $(282,551) | | Increase (decrease) in cash and cash equivalents | $13,318 | $(272,497) | Liquidity Metrics | Liquidity Metric (In thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $19,301 | $5,983 | | Total debt | $468,000 | $405,767 | | Available committed borrowing capacity | $332,000 | $404,000 | - The Company's $800.0 million revolving credit facility has $468.0 million outstanding and $332.0 million available as of March 31, 2020, maturing in November 2023[179] - Preferred Units and Amended Credit Agreement terms restrict distributions, potentially impacting funds available to partners[183] - Altus Midstream was in compliance with the Amended Credit Agreement terms as of March 31, 2020[184] - The $611.2 million net proceeds from Preferred Unit issuance in June 2019 funded capital contributions to Equity Method Interest Pipelines and repaid revolving credit facility debt[186] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details Altus Midstream's exposure to commodity price, interest rate, and credit risks, continuously monitored amidst COVID-19 volatility Commodity Price Risk This section discusses the company's limited direct exposure to commodity price fluctuations and its indirect exposure through customer production decisions - The Company's fee-based midstream service agreements limit direct commodity price exposure to oil, natural gas, or NGLs[189] - Indirect exposure arises from Apache and third-party customer production decisions, influenced by commodity prices[189] - Commodity price fluctuations indirectly impact operating costs such as power, fuel, labor, and equipment rentals[190] Interest Rate Risk This section describes the company's exposure to interest rate fluctuations due to its variable-rate revolving credit facility - With $468.0 million drawn on its variable-rate revolving credit facility as of March 31, 2020, Altus faces increased interest expense if short-term rates rise[191] - A 1.0 percent increase in interest rates would have increased consolidated interest expense by approximately $1.2 million for Q1 2020[191] - The Company currently has no interest rate derivative instruments but monitors exposure and may utilize them in the future[191] Credit Risk This section outlines the company's credit risk exposure from nonpayment or nonperformance by Apache or other customers - Altus is subject to credit risk from nonpayment, nonperformance, insolvency, or liquidation by Apache or potential third-party customers[192] - An increase in such events could adversely affect the Company's results of operations[192] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and procedures as of March 31, 2020, with no material changes in internal control over financial reporting Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as evaluated by management - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020[194] - These controls ensure timely recording, processing, summarizing, and reporting of required information for disclosure decisions[194] Changes in Internal Control Over Financial Reporting This section states that no material changes occurred in the company's internal control over financial reporting during the first quarter of 2020 - No material changes occurred in the Company's internal controls over financial reporting during Q1 2020[196] - This includes no material changes related to the COVID-19 pandemic or the transition to a remote working environment[196] PART II — OTHER INFORMATION This part contains additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS This section confirms Altus Midstream Company is unaware of any pending or threatened legal proceedings against it - The Company is not aware of any pending or threatened legal proceedings against it[199] ITEM 1A. RISK FACTORS This section emphasizes that existing risk factors are amplified by the COVID-19 pandemic, posing significant threats to the Company's business and financial condition - All risk factors from the Annual Report on Form 10-K may be amplified by the COVID-19 pandemic and its unpredictable consequences[200] - The COVID-19 pandemic adversely impacted the global economy, commodity demand and prices, potentially materially affecting the Company's business and financial condition[201] - Operational risks include reliance on Apache's workforce, with potential disruptions from quarantines, illnesses, or governmental restrictions impacting facility and IT access[202] - The Company's ability to utilize net operating losses (NOLs) and other tax attributes may be limited by an 'ownership change' under Section 382[204] ITEM 6. EXHIBITS This section lists exhibits filed with the Quarterly Report on Form 10-Q, including key agreements, corporate documents, and financial statements - Key exhibits include: * Contribution Agreement (Exhibit 2.1) * Second Amended and Restated Certificate of Incorporation (Exhibit 3.1) * Second Amendment to Credit Agreement (Exhibit 10.1) * Certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) * Inline XBRL financial statements and taxonomy documents (Exhibits 101, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) SIGNATURES This section provides the signatures of the principal financial and accounting officers, certifying the accuracy of the report - The report was signed on May 7, 2020, by Ben C. Rodgers (CFO and Treasurer) and Rebecca A. Hoyt (SVP, Chief Accounting Officer, and Controller)[209][210]