Kinetik (KNTK) - 2021 Q1 - Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q This section identifies the registrant, filing period, and key filer status information for the quarterly report - Registrant: Altus Midstream Company, Delaware, Commission File Number: 001-38048[2] - Filing Period: Quarterly Report for the period ended March 31, 2021[2] Filer Status | Filer Status | | | | |---|---|---|---| | Large accelerated filer | ☐ | Accelerated filer | ☒ | | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | | Emerging growth company | ☒ | | | Shares Outstanding as of April 30, 2021 | Class of Stock | Shares Outstanding | |---|---| | Class A common stock | 3,746,460 | | Class C common stock | 12,500,000 | TABLE OF CONTENTS This section outlines the main components of the 10-Q report, including financial statements and other disclosures - The table of contents lists the main sections of the 10-Q report, including financial information (Items 1-4) and other information (Items 1, 1A, 6)[7] FORWARD-LOOKING STATEMENTS AND RISK This section cautions that forward-looking statements are subject to risks, including the COVID-19 pandemic and market volatility, which may cause actual results to differ - The report contains forward-looking statements based on historical trends and forecasts, but actual results may differ due to various factors[9] - Key risk factors include the scope and duration of the COVID-19 pandemic, market prices of oil, natural gas, and NGLs, pipeline capacity, economic conditions, capital availability, and legislative/regulatory changes[10][11] GLOSSARY OF TERMS This section provides definitions for key abbreviations and industry-specific terms used throughout the report - The glossary defines key abbreviations and terms used in the report and the oil and natural gas industry, such as Bbl (barrel), Bcf (billion cubic feet), Btu (British thermal unit), and NGLs (Natural gas liquids)[13][14] PART I — FINANCIAL INFORMATION This part contains the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements of Altus Midstream Company for the period ended March 31, 2021, compared to the prior year, along with detailed notes STATEMENT OF CONSOLIDATED OPERATIONS This statement details the company's revenues, expenses, and net income (loss) for the three months ended March 31, 2021 and 2020 Key Financial Highlights (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Total Revenues | $34,146 | $40,869 | -$6,723 | | Total Costs and Expenses | $21,099 | $22,217 | -$1,118 | | Operating Income | $13,047 | $18,652 | -$5,605 | | Unrealized derivative instrument loss | $(16,529) | $(61,984) | +$45,455 | | Income from equity method interests, net | $21,688 | $15,842 | +$5,846 | | Net Income (Loss) Before Income Taxes | $22,489 | $(26,067) | +$48,556 | | Net Income (Loss) Including Noncontrolling Interests | $22,489 | $(25,371) | +$47,860 | | Net Income (Loss) Attributable to Class A Common Shareholders | $180 | $(8,081) | +$8,261 | | Basic EPS | $0.05 | $(2.16) | +$2.21 | | Diluted EPS | $0.05 | $(2.69) | +$2.74 | - Net income (loss) attributable to Class A common shareholders improved significantly from a loss of $8.081 million in Q1 2020 to a gain of $0.180 million in Q1 2021[17] - The company's total revenues decreased by $6.7 million, while total costs and expenses decreased by $1.1 million[17] STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) This statement presents the company's comprehensive income (loss), including other comprehensive income (loss) from equity method interests, for the three months ended March 31, 2021 and 2020 Comprehensive Income (Loss) (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Net Income (Loss) Including Noncontrolling Interests | $22,489 | $(25,371) | +$47,860 | | Share of equity method interests other comprehensive income (loss) | $630 | $(1,184) | +$1,814 | | Comprehensive Income (Loss) Including Noncontrolling Interests | $23,119 | $(26,555) | +$49,674 | | Comprehensive Income (Loss) Attributable to Class A Common Shareholders | $325 | $(8,354) | +$8,679 | - Comprehensive income attributable to Class A common shareholders improved from a loss of $8.354 million in Q1 2020 to an income of $0.325 million in Q1 2021[22] CONSOLIDATED BALANCE SHEET This statement provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2021, and December 31, 2020 Key Balance Sheet Items (As of March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | |---|---|---|---| | Cash and cash equivalents | $51,306 | $24,188 | +$27,118 | | Total Current Assets | $76,194 | $42,769 | +$33,425 | | Property, Plant and Equipment, net | $193,416 | $195,836 | -$2,420 | | Equity method interests | $1,566,672 | $1,555,182 | +$11,490 | | Total Assets | $1,842,576 | $1,799,630 | +$42,946 | | Total Current Liabilities | $21,884 | $29,983 | -$8,099 | | Long-Term Debt | $657,000 | $624,000 | +$33,000 | | Embedded derivative | $155,538 | $139,009 | +$16,529 | | Total Liabilities | $906,429 | $863,478 | +$42,951 | | Redeemable noncontrolling interest — Apache limited partner | $662,432 | $575,125 | +$87,307 | | Redeemable noncontrolling interest — Preferred Unit limited partners | $604,749 | $608,381 | -$3,632 | | Total Equity | $(331,034) | $(247,354) | -$83,680 | - Cash and cash equivalents increased significantly by $27.1 million, from $24.2 million at year-end 2020 to $51.3 million at March 31, 2021[25] - Long-term debt increased by $33.0 million, and the embedded derivative liability increased by $16.5 million[25] STATEMENT OF CONSOLIDATED CASH FLOWS This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021 and 2020 Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Net Cash Provided by Operating Activities | $43,272 | $51,538 | -$8,266 | | Net Cash Used in Investing Activities | $(13,222) | $(97,615) | +$84,393 | | Net Cash Provided by (Used in) Financing Activities | $(2,932) | $59,395 | -$62,327 | | Increase in Cash and Cash Equivalents | $27,118 | $13,318 | +$13,800 | | Cash and Cash Equivalents at End of Period | $51,306 | $19,301 | +$32,005 | - Capital expenditures decreased substantially from $19.1 million in Q1 2020 to $1.3 million in Q1 2021[29] - Distributions paid to Preferred Unit limited partners and Apache limited partner totaled $11.6 million and $18.8 million, respectively, in Q1 2021, with no such payments in Q1 2020[29] STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS This statement details the changes in the company's equity and noncontrolling interests for the three months ended March 31, 2021 Changes in Equity and Noncontrolling Interests (Three Months Ended March 31, 2021) | Item | Redeemable Noncontrolling Interest — Preferred Unit Limited Partners (in thousands) | Redeemable Noncontrolling Interest — Apache Limited Partner (in thousands) | Additional Paid-in Capital (in thousands) | Accumulated Deficit (in thousands) | Total Equity (in thousands) | |---|---|---|---|---|---| | Balance at Dec 31, 2020 (Revised) | $608,381 | $575,125 | $122,222 | $(369,433) | $(247,354) | | Distributions paid to Preferred Unit limited partners | $(11,562) | — | — | — | — | | Distributions payable to Preferred Unit limited partners | $(11,562) | — | — | — | — | | Net income | $19,492 | $2,817 | — | $180 | $180 | | Change in redemption value of noncontrolling interests | — | $84,005 | $(84,005) | — | $(84,005) | | Accumulated other comprehensive income | — | $485 | — | — | $145 | | Balance at March 31, 2021 | $604,749 | $662,432 | $38,217 | $(369,253) | $(331,034) | - Redeemable noncontrolling interest for Apache limited partner increased by $87.3 million, while additional paid-in capital decreased by $84.0 million due to changes in redemption value[32] - Total equity decreased from $(247.3) million at December 31, 2020, to $(331.0) million at March 31, 2021[32] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and disclosures supporting the consolidated financial statements, including accounting policies and specific financial items 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the consolidated financial statements Basis of Presentation This section describes the framework for preparing the consolidated financial statements in accordance with GAAP - The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP)[43] Principles of Consolidation This section explains the criteria for including subsidiaries and other entities in the consolidated financial statements - The consolidated financial results of Altus Midstream are included in the Company's consolidated financial statements due to 100% ownership of Altus Midstream GP and its control of Altus Midstream[44] Variable Interest Entity This section details the company's accounting for Altus Midstream as a variable interest entity and its role as primary beneficiary - Altus Midstream is a variable interest entity (VIE) because its partners lack power to direct activities that significantly impact economic performance[46] - The Company is the primary beneficiary of Altus Midstream and consolidates it, having the ability to direct activities and the right to receive benefits or absorb losses[47] Redeemable Noncontrolling Interest — Apache Limited Partner This section describes the accounting treatment for Apache's redeemable noncontrolling interest in Altus Midstream - The redeemable noncontrolling interest consists of Common Units in Altus Midstream held by Apache, equal to the number of Class C Common Stock shares held by Apache[48] - These Common Units may be redeemed at Apache's option for Class A Common Stock (one-for-one) or cash, with corresponding Class C Common Stock cancellation[49] - The redeemable noncontrolling interest is recorded at the higher of its initial fair value plus accumulated earnings/losses or its redemption value as of the balance sheet date[50] Redeemable Noncontrolling Interest — Preferred Unit Limited Partners This section explains the accounting for Preferred Units issued by Altus Midstream as a redeemable noncontrolling interest - Altus Midstream issued Preferred Units in a private offering on June 12, 2019, which are exchangeable for Class A Common Stock after seven years or upon specified events[52] - Preferred Units are accounted for as a redeemable noncontrolling interest (temporary equity) and certain embedded redemption features are bifurcated and measured at fair value as a long-term liability embedded derivative[53] Equity Method Interests This section outlines the accounting policy for investments where the company exercises significant influence but not control - The Company uses the equity method for interests where it has significant influence but not control, carrying them at acquisition cost adjusted for proportionate share of net income/losses and distributions[55] Use of Estimates This section acknowledges that financial statement preparation involves management estimates and assumptions that may differ from actual results - Preparation of financial statements requires management to make estimates and assumptions, which are evaluated regularly, and actual results may differ[56] Revision of Previously Issued Consolidated Financial Statements for Immaterial Adjustment This section details the revision of prior financial statements to correct an immaterial error in accounting for warrants as a derivative liability - The Company revised prior financial statements to account for warrants as a derivative liability under ASC 815, rather than equity, following SEC Staff guidance, correcting an immaterial error[58] Impact of Revision on Statement of Consolidated Operations (Three Months Ended March 31, 2020) | Item | As Reported (in thousands) | Change (in thousands) | As Revised (in thousands) | |---|---|---|---| | Income from equity method interests, net | $16,298 | $(456) | $15,842 | | Warrants valuation adjustment | — | $1,877 | $1,877 | | Net income (loss) attributable to Class A common shareholders | $(9,853) | $1,772 | $(8,081) | | Basic EPS | $(2.63) | $0.47 | $(2.16) | Impact of Revision on Consolidated Balance Sheet (December 31, 2020) | Item | As Reported (in thousands) | Change (in thousands) | As Revised (in thousands) | |---|---|---|---| | Other non-current liabilities | $5,539 | $885 | $6,424 | | Additional paid-in-capital | $144,716 | $(22,494) | $122,222 | | Accumulated equity (deficit) | $(391,042) | $21,609 | $(369,433) | Fair Value Measurements This section describes the fair value hierarchy used for financial assets and liabilities, including Level 3 valuations for embedded derivatives and private warrants - The Company uses a fair value hierarchy (Level 1, 2, 3) for financial assets and liabilities, with Level 3 valuations for embedded derivatives and private warrants based on unobservable inputs[63][65] Accounts Receivable From/Payable To Apache This section explains the nature of receivables and payables with Apache arising from monthly revenue and expenditure settlements - These represent the net result of Altus Midstream's monthly revenue, capital, and operating expenditures with Apache under the COMA, typically settled in the month following processing[66] Other Income This section details the recognition of other income, including a significant power contract credit earned in February 2021 - In February 2021, the Company earned an estimated credit of approximately $7.2 million from an electrical power contract due to increased power pricing and underutilization of fixed purchase volumes during the Texas freeze event[67] 2. TRANSACTIONS WITH AFFILIATES This note describes the company's significant transactions with affiliated entities, primarily Apache Corporation Revenues This section details revenues generated from midstream services provided to Apache under acreage dedications - The Company provides gas gathering, compression, processing, transmission, and NGL transmission services to Apache under acreage dedications in the Alpine High area, generating 'Midstream services revenue — affiliate'[68][69] Cost and Expenses This section outlines operational, maintenance, and management expenses incurred from services provided by Apache - Apache provides operational, maintenance, and management services to Altus under the COMA. In Q1 2021, Altus incurred $0.8 million in O&M expenses and $2.2 million in G&A expenses from related parties[70] Construction, Operations and Maintenance Agreement This section describes the terms of the COMA under which Apache provides services for midstream asset development and maintenance - Under the COMA, Apache provides services for design, development, construction, operation, management, and maintenance of midstream assets, with Altus paying annual fees ($7.0 million for 2021, $9.0 million annually thereafter)[71] Distributions to Apache This section reports the distributions paid to Apache based on its ownership of Altus Midstream Common Units - In Q1 2021, Altus Midstream paid $18.8 million in distributions to Apache due to its 76.9% ownership of outstanding Common Units[75] 3. REVENUE RECOGNITION This note disaggregates the company's total revenues by type, highlighting affiliate midstream services and third-party product sales Revenue Disaggregation (Three Months Ended March 31) | Revenue Type | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Midstream services revenue — affiliate | $31,529 | $40,767 | -$9,238 | | Product sales — third parties | $2,617 | $102 | +$2,515 | | Total revenues | $34,146 | $40,869 | -$6,723 | - Midstream services revenue from affiliate decreased by $9.2 million due to lower natural gas throughput volumes from Apache[77] - Product sales to third parties significantly increased by $2.5 million, driven by NGLs and condensates purchased and processed from a third party starting in March 2020[77][161] 4. PROPERTY, PLANT AND EQUIPMENT This note provides a breakdown of the company's property, plant, and equipment, including gathering systems and construction in progress Property, Plant and Equipment (As of March 31, 2021 vs. December 31, 2020) | Item | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | |---|---|---|---| | Gathering, processing and transmission systems and facilities | $206,044 | $204,643 | +$1,401 | | Construction in progress | $40 | $904 | -$864 | | Total property, plant and equipment, net | $193,416 | $195,836 | -$2,420 | - Construction in progress decreased substantially from $0.9 million to $0.04 million, indicating completion of projects[80] - Compressors under lease to Apache increased from $6.2 million to $10.2 million, net[80] 5. DEBT AND FINANCING COSTS This note details the company's revolving credit facility, outstanding borrowings, compliance with covenants, and financing costs - Altus Midstream has an $800.0 million revolving credit facility maturing in November 2023[82] Revolving Credit Facility Status | Metric | March 31, 2021 (in millions) | December 31, 2020 (in millions) | |---|---|---| | Borrowings Outstanding | $657.0 | $624.0 | | Letter of Credit Outstanding | $2.0 | $0 | - The company was in compliance with its financial covenant, maintaining a Leverage Ratio less than 4.00:1.00 as of March 31, 2021, well below the 5.00:1.00 limit[86][87][89] Financing Costs, Net of Capitalized Interest (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Interest expense | $2,306 | $3,358 | -$1,052 | | Amortization of deferred facility fees | $292 | $273 | +$19 | | Capitalized interest | $0 | $(3,358) | +$3,358 | | Total Financing costs, net of capitalized interest | $2,598 | $273 | +$2,325 | 6. OTHER CURRENT LIABILITIES This note provides a detailed breakdown of other current liabilities, including accrued taxes, operations and maintenance, and incentive compensation Other Current Liabilities (As of March 31, 2021 vs. December 31, 2020) | Item | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | |---|---|---|---| | Accrued taxes other than income | $3,865 | $165 | +$3,700 | | Accrued operations and maintenance expense | $1,775 | $926 | +$849 | | Accrued capital costs | $576 | $360 | +$216 | | Accrued incentive compensation | $365 | $1,466 | -$1,101 | | Other | $3,381 | $2,275 | +$1,106 | | Total other current liabilities | $10,322 | $5,613 | +$4,709 | - Accrued taxes other than income saw a significant increase of $3.7 million[91] - Accrued incentive compensation decreased by $1.1 million[91] 7. COMMITMENTS AND CONTINGENCIES This note discloses the company's contractual obligations and potential liabilities, including fee-based agreements and funding for equity method pipelines - No accruals for loss contingencies or material environmental claims existed as of March 31, 2021[92][94] - Contractual obligations include fee-based midstream service agreements with Apache (no minimum volume commitments), management fees under the COMA, quarterly distributions to Preferred Unit holders, and pro-rata funding for equity method pipeline capital expenditures[95][96][97][98] 8. EQUITY METHOD INTERESTS This note details the company's investments in unconsolidated affiliates, including ownership percentages and changes in their carrying values Equity Method Interests Ownership and Value | Entity | Ownership | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | |---|---|---|---| | Gulf Coast Express Pipeline LLC | 16.0% | $280,787 | $283,530 | | EPIC Crude Holdings, LP | 15.0% | $172,592 | $176,640 | | Permian Highway Pipeline LLC | 26.7% | $638,723 | $615,186 | | Breviloba, LLC | 33.0% | $474,570 | $479,826 | | Total | | $1,566,672 | $1,555,182 | Activity in Equity Method Interests (Three Months Ended March 31, 2021) | Item | Total (in thousands) | |---|---| | Balance at December 31, 2020 | $1,555,182 | | Contributions | $20,522 | | Distributions | $(31,350) | | Equity income (loss), net | $21,688 | | Accumulated other comprehensive income | $630 | | Balance at March 31, 2021 | $1,566,672 | - Permian Highway Pipeline LLC received $20.5 million in contributions and generated $11.2 million in equity income, while Gulf Coast Express Pipeline LLC and Breviloba, LLC had significant distributions[101] 9. EQUITY This note describes the company's equity structure, including common stock, noncontrolling interests, and dividend declarations - A one-for-twenty reverse stock split for Class A and Class C Common Stock was effected on June 30, 2020, with all share amounts retroactively restated[103] - Apache owns 12.5 million Altus Midstream Common Units (76.9% of total), which are redeemable for Class A Common Stock or cash at Apache's option[104] Redeemable Noncontrolling Interest — Apache Limited Partner | Date | Redemption Value (in millions) | |---|---| | March 31, 2021 | $662.4 | | December 31, 2020 | $575.1 | - In Q1 2021, the Company paid a $1.50 per share cash dividend on Class A Common Stock, totaling $5.6 million, funded by a $24.4 million distribution from Altus Midstream to its common unitholders[108] 10. SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS This note explains the issuance and accounting treatment of the Series A Cumulative Redeemable Preferred Units, including their classification as temporary equity - Altus Midstream issued 625,000 Preferred Units for $625.0 million in June 2019, receiving $611.2 million in cash proceeds after transaction costs[110] - Preferred Units are classified as redeemable noncontrolling interest (temporary equity) and measured using an accreted value method[111][113] Redeemable Noncontrolling Interest — Preferred Units (March 31, 2021) | Item | Amount (in thousands) | |---|---| | Redeemable noncontrolling interest — Preferred Units: at March 31, 2021 | $604,749 | | Embedded derivative liability | $155,538 | | Total | $760,287 | - The Redemption Price for Preferred Units as of March 31, 2021, was $812.5 million, based on a 1.3 times multiple of invested capital[115] 11. INCOME TAXES This note outlines the company's income tax position, including its partnership status and the impact of valuation allowances on the effective tax rate - Altus Midstream LP is a partnership for federal income tax purposes, passing taxable income to its partners; the Company is subject to U.S. federal and Texas margin tax[117] - In Q1 2020, the Company recorded a $0.7 million current income tax benefit due to a net operating loss carryback claim under the CARES Act[118][119] - The effective income tax rate in Q1 2021 was primarily impacted by a decrease in valuation allowance[119] 12. NET INCOME (LOSS) PER SHARE This note details the calculation of basic and diluted earnings per share, considering common units, warrants, and preferred units - Basic EPS is calculated using net income attributable to Class A common shareholders and weighted average Class A shares outstanding[122] - Diluted EPS uses the 'if-converted method' for Common Units, warrants, and Preferred Units, but these were anti-dilutive for most periods presented[123][126][127] Net Income (Loss) Per Share (Three Months Ended March 31) | Metric | 2021 | 2020 | Change | |---|---|---|---| | Basic EPS | $0.05 | $(2.16) | +$2.21 | | Diluted EPS | $0.05 | $(2.69) | +$2.74 | 13. FAIR VALUE MEASUREMENTS This note provides further details on fair value measurements, particularly for embedded derivatives and warrants, using various valuation techniques - The embedded derivative associated with Preferred Units is a Level 3 fair value measurement, valued using an income approach (Black-Karasinski model) based on expected future interest rates, volatility, and timing of exchange[130][131] Unrealized Derivative Instrument Loss (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Unrealized derivative instrument loss | $(16,529) | $(61,984) | +$45,455 | - Public warrants are Level 1 (quoted market prices), while private warrants are Level 3 (option pricing model). Fair value changes for warrants resulted in $0.7 million expense in Q1 2021 and $1.9 million income in Q1 2020[133] 14. SUBSEQUENT EVENTS This note discloses significant events that occurred after the balance sheet date, including dividend declarations - On May 4, 2021, the Board declared a $1.50 per share cash dividend on Class A Common Stock ($5.6 million total), payable June 30, 2021[135] - The dividend will be funded by a $24.4 million distribution from Altus Midstream to its common unitholders[135] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Altus Midstream Company's financial condition and operational results for the three months ended March 31, 2021, highlighting key metrics and liquidity Overview This section provides a high-level summary of Altus Midstream's assets, strategy, and financial outlook, including its Permian Basin operations and pipeline equity interests - Altus Midstream owns gas gathering, processing, and transmission assets in the Permian Basin, anchored by service agreements with Apache Corporation for its Alpine High resource play[138] - The company holds equity interests in four intrastate Permian Basin pipelines: GCX (16%), EPIC (15%), PHP (26.7%), and Shin Oak (33%)[140] - PHP was placed in service in January 2021 with a total capacity of 2.1 Bcf/d, fully subscribed under long-term contracts[140] - Altus is projected to remain cash flow positive for the remainder of 2021, with minimal expected future capital requirements, and sufficient liquidity to fund capital expenditures and dividends[141] Altus Midstream Operational Metrics This section details key operational drivers, including throughput volumes, cost components, and the reconciliation of Adjusted EBITDA Throughput Volumes and Associated Revenues This section discusses how natural gas volumes gathered, processed, and transmitted primarily drive the company's operating results - Operating results are primarily driven by natural gas volumes gathered, processed, compressed, and/or transmitted, substantially all from fee-based agreements with Apache[143] - The company is actively pursuing new supplies of natural gas and processing arrangements with third parties to increase throughput volumes[144] Costs and Expenses This section analyzes the components of costs and expenses, including product sales, operations and maintenance, and general and administrative fees - Costs of product sales represent purchases of NGLs from a third party, fluctuating with market conditions and product prices[145] - Operations and maintenance expenses are primarily direct labor, power, repair, and equipment rentals, impacted by commodity prices[146] - General and administrative expenses primarily comprise fixed fees under the COMA with Apache[148] Adjusted EBITDA This section defines and reconciles Adjusted EBITDA, a non-GAAP measure used to evaluate the company's operating performance - Adjusted EBITDA is defined as net income (loss) including noncontrolling interests before financing costs, interest income, income taxes, depreciation, accretion, and adjustments for equity method interests, impairments, unrealized derivative gains/losses, and other items[150] - Adjusted EBITDA is a non-GAAP measure used to evaluate operating performance and compare results, but should not be considered an alternative to GAAP net income (loss)[150][151] Reconciliation of Net Income (Loss) to Adjusted EBITDA (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | |---|---|---| | Net income (loss) including noncontrolling interests | $22,489 | $(25,371) | | Financing costs, net of capitalized interest | $2,598 | $273 | | Depreciation and accretion | $4,000 | $3,914 | | Unrealized derivative instrument loss | $16,529 | $61,984 | | Equity method interests Adjusted EBITDA | $39,911 | $23,686 | | Adjusted EBITDA | $65,036 | $46,542 | Results of Operations This section provides a detailed comparative analysis of the company's revenues, costs, and other income (loss) for the reporting periods Revenues This section analyzes the changes in midstream services revenue from affiliates and product sales to third parties Revenues (Three Months Ended March 31) | Revenue Type | 2021 (in thousands) | 2020 (in thousands) | |---|---|---| | Midstream services revenue — affiliate | $31,529 | $40,767 | | Product sales — third parties | $2,617 | $102 | | Total revenues | $34,146 | $40,869 | - Midstream services revenue from affiliate decreased by $9.3 million due to lower natural gas throughput volumes from Apache[160] - Product sales revenues increased by $2.5 million, driven by NGLs and condensates purchased and processed from a third party starting in March 2020[161] Costs and Expenses This section examines the fluctuations in various cost categories, including operations and maintenance, general and administrative, and taxes Costs and Expenses (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | |---|---|---| | Costs of product sales | $1,993 | $91 | | Operations and maintenance | $7,402 | $10,591 | | General and administrative | $3,455 | $4,178 | | Depreciation and accretion | $4,000 | $3,914 | | Impairments | $441 | — | | Taxes other than income | $3,808 | $3,443 | | Total costs and expenses | $21,099 | $22,217 | - Operations and maintenance expenses decreased by $3.2 million due to increased operational efficiency from transitioning to the Diamond cryogenic complex, resulting in lower employee-related costs, contract labor, and chemical expenses[165] - General and administrative expense decreased by $0.7 million, primarily due to lower professional fees, partially offset by higher COMA fees[166] - Taxes other than income increased by $0.3 million due to adjustments in estimated ad valorem tax assessments related to asset completion and utilization[167] Other Income (Loss) and Financing Costs, Net of Capitalized Interest This section discusses the impact of unrealized derivative instrument losses, equity method income, and other income on overall financial results Other Income (Loss) and Financing Costs (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | |---|---|---| | Unrealized derivative instrument loss | $(16,529) | $(61,984) | | Income from equity method interests, net | $21,688 | $15,842 | | Other income | $7,544 | $(188) | | Total other income (loss) | $12,040 | $(44,446) | | Total Financing costs, net of capitalized interest | $2,598 | $273 | - Unrealized derivative instrument loss decreased by $45.5 million, primarily due to changes in expected future interest rates and the estimated timing to exercise the exchange option for Preferred Units[170] - Income from equity method interests increased by $5.9 million, mainly due to the Permian Highway Pipeline being placed into service in January 2021, partially offset by impacts from the Texas freeze event[171] - Other income increased by $7.7 million, primarily from an estimated $7.2 million power credit earned in February 2021 due to increased power pricing and under-usage of contractual electricity volumes[172] Capital Resources and Liquidity This section assesses the company's ability to fund its operations, capital expenditures, and distributions, including its revolving credit facility Altus Midstream Capital Requirements This section details the company's capital spending for midstream assets and contributions to equity method interest pipelines - Capital spending for midstream infrastructure assets decreased significantly from $19.1 million in Q1 2020 to $1.3 million in Q1 2021[181] - Cash contributions to Equity Method Interest Pipelines totaled $20.5 million in Q1 2021, down from $82.8 million in Q1 2020[182] - The company estimates approximately $10 million of additional capital contributions for joint venture pipelines for the remainder of 2021[182] Altus Midstream Class A Common Stock Dividend and Common Units Distributions This section outlines the company's dividend policy for Class A Common Stock and distributions to common unitholders - In Q1 2021, the Company paid $24.4 million related to its quarterly dividend program[183] - On May 4, 2021, a cash dividend of $1.50 per share ($5.6 million total) on Class A Common Stock was declared, to be funded by a $24.4 million distribution from Altus Midstream to its common unitholders[184] Series A Cumulative Redeemable Preferred Units This section describes the terms and distribution entitlements of the Series A Cumulative Redeemable Preferred Units - Altus Midstream issued 625,000 Preferred Units for $625.0 million in June 2019[185] - Preferred Unit holders are entitled to quarterly distributions at 7% per annum, increasing to 10% after the fifth anniversary or specified events[186] Sources and Uses of Cash This section provides a detailed breakdown of the company's cash inflows and outflows from various activities, including debt and capital expenditures Sources and Uses of Cash (Three Months Ended March 31) | Item | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) (in thousands) | |---|---|---|---| | Proceeds from revolving credit facility | $33,000 | $72,000 | -$39,000 | | Net cash provided by operating activities | $43,272 | $51,538 | -$8,266 | | Total Sources of Cash and Cash Equivalents | $84,902 | $131,186 | -$46,284 | | Capital expenditures | $(1,330) | $(19,096) | +$17,766 | | Contributions to equity method interests | $(20,522) | $(82,827) | +$62,305 | | Distributions paid to Preferred Unit limited partners | $(11,562) | $0 | -$11,562 | | Distributions paid to Apache limited partner | $(18,750) | $0 | -$18,750 | | Total Uses of Cash and Cash Equivalents | $(57,784) | $(117,868) | +$60,084 | | Increase in cash and Cash Equivalents | $27,118 | $13,318 | +$13,800 | - Capital expenditures decreased significantly from $19.1 million in Q1 2020 to $1.3 million in Q1 2021[189] - Contributions to equity method interests decreased substantially from $82.8 million in Q1 2020 to $20.5 million in Q1 2021[189] Liquidity This section evaluates the company's short-term financial health, including cash position, total debt, and available borrowing capacity Key Liquidity Indicators (As of March 31, 2021 vs. December 31, 2020) | Item | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | |---|---|---| | Cash and cash equivalents | $51,306 | $24,188 | | Total debt | $657,000 | $624,000 | | Available committed borrowing capacity | $141,000 | $176,000 | - Cash and cash equivalents increased by $27.1 million to $51.3 million[190][191] - The revolving credit facility has $657.0 million in borrowings outstanding and $141.0 million in available capacity, with the company in compliance with all covenants[192][198] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses Altus Midstream Company's exposure to various market risks, including commodity price risk, interest rate risk, and credit risk Commodity Price Risk This section explains the company's indirect exposure to commodity price fluctuations through customer production decisions - The Company's midstream service agreements are primarily fee-based, with no direct commodity price exposure to oil, natural gas, or NGLs[203] - Indirect exposure to commodity prices exists through Apache and third-party customers' decisions to develop and produce oil and natural gas, impacting Altus' revenues[203] Interest Rate Risk This section details the company's exposure to interest rate changes due to its variable-rate revolving credit facility - The Company is exposed to interest rate risk due to its variable-rate revolving credit facility, with $657.0 million drawn as of March 31, 2021[205] - A 1.0% increase in interest rates would have increased annual consolidated interest expense by approximately $1.6 million for the quarter ended March 31, 2021[205] Credit Risk This section addresses the risk of nonpayment or nonperformance by key customers and affiliates - The Company is subject to credit risk from nonpayment or nonperformance by, or insolvency of, Apache or third-party customers[206] ITEM 4. CONTROLS AND PROCEDURES This section reports a material weakness in Altus Midstream Company's disclosure controls and procedures related to warrant accounting, necessitating a revision of financial statements - A material weakness was identified in controls over accounting for public and private warrants, leading to an immaterial error in applying ASC 815-40[208][209] - The company's internal control over financial reporting was deemed not effective as of March 31, 2021[209] - Remediation efforts include additional review procedures, training, and enhancements to accounting policies for equity and liability instruments[210] PART II — OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, and a list of exhibits filed with the quarterly report ITEM 1. LEGAL PROCEEDINGS This section refers to Note 7 for legal proceedings information, stating no material pending or threatened legal actions - The company is not aware of any pending or threatened legal proceedings that would materially impact its financial position, results of operations, or liquidity[93][214] ITEM 1A. RISK FACTORS This section directs readers to the comprehensive discussion of risk factors in the Company's Annual Report on Form 10-K for a full understanding of potential risks affecting the business - For a comprehensive list of risk factors, refer to Part I, Item 1A—Risk Factors of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020[215] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including various agreements, certificates, and XBRL financial statements - The exhibits include key corporate documents such as the Contribution Agreement, Certificate of Incorporation, and Bylaws[216] - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a) and 18 U.S.C. 1350) are filed/furnished[216] - Financial statements for the quarter ended March 31, 2021, are provided in Inline XBRL format[216] SIGNATURES This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report - The report is signed by Ben C. Rodgers, Chief Financial Officer and Treasurer, and Rebecca A. Hoyt, Senior Vice President, Chief Accounting Officer, and Controller, on May 10, 2021[222]