Company Quick10K Filing
Kayne Anderson
Price9.71 EPS0
Shares47 P/E394
MCap458 P/FCF-616
Net Debt-0 EBIT1
TEV458 TEV/EBIT394
TTM 2018-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-03-01
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-07-27
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-27
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-15
8-K 2020-05-01
8-K 2020-03-31
8-K 2019-12-19
8-K 2019-10-30
8-K 2019-09-12
8-K 2019-08-08
8-K 2019-07-31
8-K 2019-07-31
8-K 2019-06-12
8-K 2019-05-30
8-K 2019-05-29
8-K 2019-05-24
8-K 2019-05-08
8-K 2019-05-01
8-K 2019-04-12
8-K 2019-02-27
8-K 2019-01-15
8-K 2018-12-19
8-K 2018-12-17
8-K 2018-11-09
8-K 2018-11-06
8-K 2018-10-17
8-K 2018-10-09
8-K 2018-10-01
8-K 2018-08-31
8-K 2018-08-13
8-K 2018-08-08
8-K 2018-08-08

KAAC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 altmexhibit31120201q10.htm
EX-31.2 altmexhibit31220201q10.htm
EX-32.1 altmexhibit32120201q10.htm

Kayne Anderson Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
3853082311547702015201620172019
Assets, Equity
1.10.70.3-0.2-0.6-1.02015201620172019
Rev, G Profit, Net Income
3803032271517502015201620172019
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-38048
Altus Midstream Company
(Exact name of registrant as specified in its charter)
Delaware
81-4675947
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices) (Zip Code)
(713296-6000
(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
Class A common stock, $0.0001 par value
  
ALTM
 
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Number of shares of registrant’s Class A common stock, par value $0.0001 per share issued and outstanding as of April 30, 2020
74,929,305

Number of shares of registrant’s Class C common stock, par value $0.0001 per share issued and outstanding as of April 30, 2020
250,000,000





TABLE OF CONTENTS
 
 


i


FORWARD-LOOKING STATEMENTS AND RISK
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the Company’s future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on the Company’s examination of historical operating trends, production and growth forecasts of Apache Corporation’s Alpine High field development and other data in the Company’s possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “should,” “would,” or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable under the circumstances, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, its assumptions about:
the scope, duration, and reoccurrence of any epidemics or pandemics (including specifically the coronavirus disease 2019 (COVID-19) pandemic) and the actions taken by third parties, including, but not limited to, governmental authorities, customers, contractors, and suppliers, in response to such epidemics or pandemics;
the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;
pipeline and gathering system capacity and availability;
production rates, throughput volumes, reserve levels and development success of dedicated oil and gas fields;
economic and competitive conditions;
the availability of capital;
cash flow and the timing of expenditures;
capital expenditure and other contractual obligations;
weather conditions;
inflation rates;
the availability of goods and services;
legislative, regulatory, or policy changes;
terrorism or cyberattacks;
occurrence of property acquisitions or divestitures;
the integration of acquisitions;
a decline in oil, natural gas, and NGL production, and the impact of general economic conditions on the demand for oil, natural gas, and NGLs;
impact of environmental, health and safety, and other governmental regulations and of current or pending legislation;
environmental risks;
effects of competition;
its ability to retain key members of its senior management and key technical employees;
increases in interest rates;

ii


the effectiveness of its business strategy;
changes in technology;
market-related risks such as general credit, liquidity and interest-rate risks;
the timing, amount and terms of the Company’s future issuances of equity and debt securities;
other factors disclosed under Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in the Company’s most recently filed Annual Report on Form 10-K;
other risks and uncertainties in its first-quarter 2020 earnings release;
other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q; and
any other factors disclosed in the other filings that the Company makes with the Securities and Exchange Commission.
Other factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, the Company assumes no duty to update or revise its forward-looking statements, whether based on changes in internal estimates or expectations, new information, future developments, or otherwise.



iii


GLOSSARY OF TERMS

The following are abbreviations and definitions of certain terms used in this Quarterly Report on Form 10-Q and certain terms which are commonly used in the exploration, production and midstream sectors of the oil and natural gas industry:
Bbl. One stock tank barrel of 42 United States (U.S.) gallons liquid volume used herein in reference to crude oil, condensate or NGLs.
Bbl/d. One Bbl per day.
Bcf. One billion cubic feet of natural gas.
Bcf/d. One Bcf per day.
Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.
Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
Formation. A layer of rock which has distinct characteristics that differs from nearby rock.
MBbl. One thousand barrels of crude oil, condensate or NGLs.
MBbl/d. One MBbl per day.
Mcf. One thousand cubic feet of natural gas.
Mcf/d. One Mcf per day.
MMBbl. One million barrels of crude oil, condensate or NGLs.
MMBtu. One million British thermal units.
MMcf. One million cubic feet of natural gas.
MMcf/d. One MMcf per day.
NGLs. Natural gas liquids. Hydrocarbons found in natural gas, which may be extracted as liquefied petroleum gas and natural gasoline.

Effective February 14, 2019, each of the Altus Midstream Entities’ (as defined herein) names were changed to replace “Alpine High” in each name with “Altus Midstream.”

References to “Altus” and the “Company” include Altus Midstream Company and its consolidated subsidiaries, unless otherwise specifically stated.



iv


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands, except per share data)
REVENUES:
 
 
 
 
Midstream services revenue — affiliate (Note 2)
 
$
40,767

 
$
33,847

Total revenues
 
40,767

 
33,847

COSTS AND EXPENSES:
 
 
 
 
Operations and maintenance(1)
 
10,591

 
16,399

General and administrative(2)
 
4,178

 
2,991

Depreciation and accretion

3,914


7,651

Taxes other than income
 
3,443

 
2,575

Total costs and expenses
 
22,126

 
29,616

OPERATING INCOME
 
18,641

 
4,231

OTHER INCOME (LOSS):
 
 
 
 
Unrealized derivative instrument loss
 
(61,984
)
 

Interest income

7


2,161

Income from equity method interests, net

16,298


270

Other
 
(177
)
 

Total other income (loss)
 
(45,856
)
 
2,431

Financing costs, net of capitalized interest

273


508

NET INCOME (LOSS) BEFORE INCOME TAXES
 
(27,488
)
 
6,154

Current income tax benefit
 
(696
)
 

Deferred income tax expense



426

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS

(26,792
)

5,728

Net income attributable to Preferred Unit limited partners
 
18,262

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
 
(45,054
)
 
5,728

Net income (loss) attributable to Apache limited partner
 
(35,201
)
 
4,628

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
 
$
(9,853
)
 
$
1,100

 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS, PER SHARE
 
 
 
 
Basic
 
$
(0.13
)
 
$
0.01

Diluted
 
$
(0.14
)
 
$
0.01

WEIGHTED AVERAGE SHARES
 
 
 
 
Basic
 
74,929

 
74,929

Diluted
 
324,929

 
324,929


(1)
Includes amounts of $1.4 million and $2.9 million to related parties for the three months ended March 31, 2020 and 2019, respectively. Refer to Note 2—Transactions with Affiliates.
(2)
Includes amounts of $2.0 million and $1.6 million to related parties for the three months ended March 31, 2020 and 2019, respectively. Refer to Note 2—Transactions with Affiliates.






The accompanying notes to consolidated financial statements are an integral part of this statement.

1



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
 
$
(26,792
)
 
$
5,728

OTHER COMPREHENSIVE LOSS, NET OF TAX:
 
 
 
 
Share of equity method interests other comprehensive loss
 
(1,184
)
 

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
 
(27,976
)
 
5,728

Comprehensive income attributable to Preferred Unit limited partners
 
18,262

 

Comprehensive income (loss) attributable to Apache limited partner
 
(36,112
)
 
4,628

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
 
$
(10,126
)
 
$
1,100


















































The accompanying notes to consolidated financial statements are an integral part of this statement.

2



ALTUS MIDSTREAM COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
March 31,
 
December 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
19,301

 
$
5,983

Accounts receivable from Apache Corporation (Note 1)
 
1,066

 
5,195

Revenue receivables (Note 3)
 
11,709

 
15,461

Inventories
 
4,209

 
4,027

Prepaid assets and other
 
1,251

 
1,071

 
 
37,536

 
31,737

PROPERTY, PLANT AND EQUIPMENT:
 
 
 
 
Property, plant and equipment
 
212,940

 
207,270

Less: Accumulated depreciation and amortization
 
(4,417
)
 
(1,468
)
 
 
208,523

 
205,802

OTHER ASSETS:
 
 
 
 
Equity method interests
 
1,336,810

 
1,258,048

Deferred charges and other
 
5,664

 
5,267

 
 
1,342,474

 
1,263,315

Total assets
 
$
1,588,533

 
$
1,500,854

 
 
 
 
 
LIABILITIES, NONCONTROLLING INTERESTS, AND EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Current debt (Note 5)
 
$

 
$
9,767

Other current liabilities (Note 6)
 
12,728

 
23,925

 
 
12,728

 
33,692

LONG-TERM DEBT
 
468,000

 
396,000

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Asset retirement obligation
 
61,059

 
60,095

Embedded derivative
 
164,913

 
102,929

Other non-current liabilities
 
6,285

 
4,614

 
 
232,257

 
167,638

Total liabilities
 
712,985

 
597,330

 
 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 7)
 

 

 
 
 
 
 
Redeemable noncontrolling interest — Apache limited partner
 
231,178

 
701,000

Redeemable noncontrolling interest — Preferred Unit limited partners
 
573,861

 
555,599

 
 
 
 
 
EQUITY:
 
 
 
 
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 74,929,305 shares issued and outstanding at March 31, 2020 and December 31, 2019
 
7

 
7

Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 250,000,000 shares issued and outstanding at March 31, 2020 and December 31, 2019
 
25

 
25

Additional paid-in capital
 
473,502

 
39,792

Accumulated deficit
 
(402,486
)
 
(392,633
)
Accumulated other comprehensive loss
 
(539
)
 
(266
)
 
 
70,509

 
(353,075
)
Total liabilities, noncontrolling interests, and equity
 
$
1,588,533

 
$
1,500,854





The accompanying notes to consolidated financial statements are an integral part of this statement.

3



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) including noncontrolling interests
 
$
(26,792
)
 
$
5,728

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Unrealized derivative instrument loss
 
61,984

 

Depreciation and accretion
 
3,914

 
7,651

Deferred income tax expense
 

 
426

Income from equity method interests, net
 
(16,298
)
 
(270
)
Distributions from equity method interests
 
20,985

 

Other
 
461

 
(201
)
Changes in operating assets and liabilities:
 
 
 
 
Increase in inventories
 
(182
)
 
(139
)
(Increase) decrease in prepaid assets and other
 
(180
)
 
(809
)
(Increase) decrease in revenue receivables (Note 2)
 
3,752

 
(612
)
Increase in account receivables from/payable to affiliate
 
(948
)
 
(4,371
)
Increase in accrued expenses
 
3,017

 
2,651

Increase deferred credits and noncurrent liabilities
 
1,825

 

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
51,538

 
10,054

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures(1)
 
(19,096
)
 
(164,518
)
Proceeds from sale of assets
 
6,096

 

Contributions to equity method interests
 
(82,827
)
 
(66,224
)
Distributions from equity method interests
 
1,552

 

Acquisition of equity method interests
 

 
(51,809
)
Capitalized interest paid
 
(3,340
)
 

NET CASH USED IN INVESTING ACTIVITIES
 
(97,615
)
 
(282,551
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from revolving credit facility
 
72,000

 

Finance lease
 
(11,789
)
 

Deferred facility fees
 
(816
)
 

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 BEGINNING OF YEAR
 
5,983

 
449,935

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
19,301


$
177,438

SUPPLEMENTAL CASH FLOW DATA:
 
 
 
 
Accrued capital expenditures(2)
 
$
6,557

 
$
29,792

Finance lease liability(3)
 

 
29,000

Interest paid, net of capitalized interest
 

 
232


(1)
Following the Business Combination, capital expenditure amounts represent the portion of the total settlements with Apache in the period that are capital in nature, pursuant to the terms of the Construction, Operations and Maintenance Agreement (COMA). Refer to Note 1—Summary of Significant Accounting Policies and Note 2—Transactions with Affiliates for more information.
(2)
Includes $1.7 million due to Apache and $33.2 million due from Apache for the three months ended March 31, 2020 and 2019, respectively, pursuant to the terms of the COMA. Refer to Note 2—Transactions with Affiliates for more information.
(3)
The Company entered into a finance lease in the first quarter of 2019 for power generators, which ended during the first quarter of 2020. The Company then exercised its option to purchase the generators.

The accompanying notes to consolidated financial statements are an integral part of this statement.

4



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
(Unaudited)
 
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(1)
 
Redeemable Noncontrolling Interest — Apache Limited Partner
 
 
Class A Common Stock
 
Class C Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Loss
 
Total Equity
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$

 
$
1,940,500

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$

 
$
(213,746
)
 
$

 
$
(213,714
)
Net income

 
4,628

 
 

 

 

 

 

 
1,100

 

 
1,100

Change in redemption value of noncontrolling interests

 
(440,628
)
 
 

 

 

 

 
440,628

 

 

 
440,628

Balance at March 31, 2019
$

 
$
1,504,500

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
440,628

 
$
(212,646
)
 
$

 
$
228,014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
555,599

 
$
701,000

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
39,792

 
$
(392,633
)
 
$
(266
)
 
$
(353,075
)
Net income (loss)
18,262

 
(35,201
)
 
 

 

 

 

 

 
(9,853
)
 

 
(9,853
)
Change in redemption value of noncontrolling interests

 
(433,710
)
 
 

 

 

 

 
433,710

 

 

 
433,710

Accumulated other comprehensive loss

 
(911
)
 
 

 

 

 

 

 

 
(273
)
 
(273
)
Balance at March 31, 2020
$
573,861

 
$
231,178

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
473,502

 
$
(402,486
)
 
$
(539
)
 
$
70,509


(1)
Certain redemption features embedded within the Preferred Unit purchase agreement require bifurcation and measurement at fair value. For further detail, refer to Note 10—Series A Cumulative Redeemable Preferred Units.













The accompanying notes to consolidated financial statements are an integral part of this statement.

5



ALTUS MIDSTREAM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These consolidated financial statements have been prepared by Altus Midstream Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited financial statements, with the exception of recently adopted accounting pronouncements discussed below. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Altus Midstream Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (Form 10-K), which contains a summary of the Company’s significant accounting policies and other disclosures. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Form 10-K.
Unless the context otherwise requires, the “Company,” “ALTM” and “Altus” refers to Altus Midstream Company and its consolidated subsidiaries. “Altus Midstream” refers to Altus Midstream LP and its consolidated subsidiaries.
Nature of Operations
    
Through its consolidated subsidiaries, Altus Midstream Company owns gas gathering, processing and transmission assets in the Permian Basin of West Texas. Construction on the assets began in the fourth quarter of 2016, and operations commenced in the second quarter of 2017. Additionally, Altus owns equity interests in four separate Permian Basin pipeline entities that will have access to various points along the Texas Gulf Coast, providing the Company with additional access to fully integrated, wellhead-to-water connectivity. The Company’s operations consist of one reportable segment.  
Organization
Altus originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (KAAC), for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. KAAC completed its initial public offering in the second quarter of 2017.
On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and wholly-owned subsidiary of KAAC. On August 8, 2018, KAAC and Altus Midstream LP entered into a contribution agreement (the Contribution Agreement) with certain wholly-owned subsidiaries of Apache Corporation (Apache), including the Altus Midstream Entities. The Altus Midstream Entities comprise four Delaware limited partnerships (collectively, Altus Midstream Operating) and their general partner (Altus Midstream Subsidiary GP LLC, a Delaware limited liability company), formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing, and operating midstream oil and gas assets in the Alpine High resource play and surrounding areas (Alpine High).
On November 9, 2018 (the Closing Date) and pursuant to the terms of the Contribution Agreement, KAAC acquired from Apache the entire equity interests of the Altus Midstream Entities and options to acquire equity interests in five separate third-party pipeline projects (the Pipeline Options). The acquisition of the entities and the Pipeline Options is referred to herein as the Business Combination. In exchange, the consideration provided to Apache included economic voting and non-economic voting shares in KAAC and common units representing limited partner interests in Altus Midstream LP (Common Units). Following the Closing Date and in connection with the completion of the Business Combination, KAAC changed its name to Altus Midstream Company.
Ownership of Altus Midstream LP
Following the Closing Date and in connection with the completion of the Business Combination, Altus Midstream Company’s wholly-owned subsidiary, Altus Midstream GP LLC, a Delaware limited liability company (Altus Midstream GP), is the sole general partner of Altus Midstream LP. Altus Midstream Company operates its business through Altus Midstream LP and its subsidiaries, which include Altus Midstream Operating (collectively Altus Midstream). Altus Midstream Company held approximately 23.1 percent of the outstanding Common Units, and a controlling interest in Altus Midstream, while Apache held the remaining 76.9 percent. Altus Midstream Company’s Class A $0.0001 par value (Class A Common Stock), continued trading on the Nasdaq under the new symbol “ALTM.”


6



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).
Principles of Consolidation
The consolidated financial results of Altus Midstream are included in Altus Midstream Company’s consolidated financial statements due to Altus Midstream Company’s 100 percent ownership interest in Altus Midstream GP, and Altus Midstream GP’s control of Altus Midstream.
Altus Midstream Company has no independent operations or material assets other than its partnership interests in Altus Midstream, which constitutes all of its business. Additionally, Altus Midstream Company’s balance sheet reflects the presentation of noncontrolling interest ownership attributable to the limited partner interests in Altus Midstream held by Apache and the Series A Cumulative Redeemable Preferred Units holders (the Preferred Units). Refer to Note 9—Equity and Note 10—Series A Cumulative Redeemable Preferred Units for further information.
Variable Interest Entity
Altus Midstream is a variable interest entity (VIE) because the partners in Altus Midstream with equity at risk lack the power, through voting or similar rights, to direct the activities that most significantly impact Altus Midstream’s economic performance.
A reporting entity that concludes it has a variable interest in a VIE must evaluate whether it has a controlling financial interest in the VIE, such that it is the VIE’s primary beneficiary and should consolidate. Altus Midstream Company is the primary beneficiary of the VIE, and therefore should consolidate Altus Midstream because (i) Altus Midstream Company has the ability to direct the activities of Altus Midstream that most significantly affect its economic performance, and (ii) Altus Midstream Company has the right to receive benefits or the obligation to absorb losses that could be potentially significant to Altus Midstream.
Redeemable Noncontrolling Interest — Apache Limited Partner
Altus Midstream Company’s redeemable noncontrolling interest presented in the consolidated financial statements consists of Common Units representing limited partner interests in Altus Midstream held by Apache. Pursuant to certain provisions of the partnership agreement of Altus Midstream (as amended in connection with the Business Combination, and subsequent issuance of Preferred Units, the Amended LPA), the limited partner interests held by Apache are equal to the number of shares of the Company’s Class C common stock, $0.0001 par value (Class C Common Stock) held by Apache.
The Company initially recorded the redeemable noncontrolling interest upon the issuance of the common units to Apache as part of the Business Combination and based on the recapitalization value ascribed at the Closing Date to the limited partner interest. All or a portion of these Common Units may be redeemed at Apache’s option. The Company has the ability to settle the redemption option either (i) in shares of Class A Common Stock on a one-for-one basis or (ii) in cash (based on the fair market value of the Class A Common Stock as determined pursuant to the Contribution Agreement), subject to customary conversion rate adjustments for stock splits, stock dividends, and reclassifications. Upon the future redemption or exchange of Common Units held by Apache, a corresponding number of shares of Class C Common Stock will be cancelled.
The Company’s policy is to record the redeemable noncontrolling interest represented by the Common Units held by Apache at the higher of (i) its initial fair value plus accumulated earnings/losses associated with the noncontrolling interest or (ii) the redemption value as of the balance sheet date.
See discussion and additional detail further discussed in Note 9—Equity.
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners
On June 12, 2019, Altus Midstream issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) in a private offering, and the purchasers of the Preferred Units were admitted as limited partners of Altus Midstream. The Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders after the seventh anniversary of Closing or upon the occurrence of specified events, unless otherwise redeemed by Altus Midstream.

7



The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of the Preferred Units. Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value and are accounted for on the Company’s consolidated balance sheet as a long-term liability embedded derivative.
See discussion and additional detail further discussed in Note 10—Series A Cumulative Redeemable Preferred Units.
Equity Method Interests
The Company follows the equity method of accounting when it does not exercise control over its equity interests, but can exercise significant influence over the operating and financial policies of the entity. Under this method, the equity interests are carried originally at acquisition cost, increased by Altus’ proportionate share of the equity interest’s net income and contributions made by Altus, and decreased by Altus’ proportionate share of the equity interest’s net losses and distributions received by Altus. Please refer to Note 8—Equity Method Interests, for further details of the Company’s equity method interests.
Use of Estimates
Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of its financial statements, and changes in these estimates are recorded when known.
Fair Value Measurements
Accounting Standards Codification (ASC) 820-10-35, “Fair Value Measurement” (ASC 820), provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models, and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Embedded features identified within the Company’s agreements are bifurcated and measured at fair value at the end of each period on the Company’s consolidated balance sheet. Such recurring fair value measurements are presented in further detail in Note 13—Fair Value Measurements. The Company also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment.
Accounts Receivable From/Payable To Apache
The accounts receivable from or payable to Apache represent the net result of Altus Midstream’s monthly revenue, capital and operating expenditures, and other miscellaneous transactions to be settled with Apache as provided under the Construction, Operations, and Maintenance Agreement (COMA) between the two entities. Generally, cash in this amount will be transferred to or from Apache in the month after the Company’s transactions are processed and the net results of operations are determined. However, from time to time, the Company may estimate and transfer the cash settlement amount in the month the transactions are processed, in order to minimize related-party working capital balances. See discussion and additional detail in Note 2—Transactions with Affiliates.
Change in Accounting Policy
Historically, the Company reported income and loss from equity method interests on a one-month reporting lag. Effective October 1, 2019, the Company had eliminated this one-month reporting lag. In accordance with ASC 810-10-45-13, “A Change in the Fiscal Year-End Lag Between Subsidiary and Parent” (ASC 810),the elimination of this previously existing reporting lag is considered a voluntary change in accounting principle in accordance with ASC 250-10-50, “Change in Accounting Principle.” The Company believes that this change in accounting principle is preferable as it provides the Company with the ability to present

8



the results of its equity method interests for the same period as all other consolidated results of the Company, which improves overall financial reporting to investors by providing the most current information available. The Company has not retrospectively applied the change in accounting principle since its impact to the consolidated balance sheet and related statements of operations and cash flows was immaterial for all periods. For more information on equity method interests owned by the Company, please refer to Note 8—Equity Method Interests.
Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments-Credit Losses.” The standard changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans, and other financial assets measured at amortized cost. This ASU requires the use of a new forward-looking “expected loss” model compared to the current “incurred loss” model; resulting in accelerated recognition of credit losses. The Company has adopted this standard in the first quarter of 2020 with no material impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This pronouncement is part of the Simplification Initiative and simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC Topic 740 “Income Taxes.” In addition, the amendment improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This update is effective for the Company beginning in the first quarter of 2021, with early adoption permitted. The Company early adopted this standard in the first quarter of 2020 with no material impact on its financial statements.
2.    TRANSACTIONS WITH AFFILIATES
Revenues
The Company has contracted to provide services including gas gathering, compression, processing, transmission, and NGL transmission, pursuant to acreage dedications provided by Apache, comprising the entire Alpine High acreage. In accordance with the terms of these agreements, the Company receives prescribed fees based on the type and volume of product for which the services are provided. For all of the periods presented, the Company’s only significant customer was Apache.
Revenues generated under these agreements are presented on the Company’s statement of consolidated operations as “Midstream services revenue — affiliate.” Revenues earned that have not yet been invoiced to Apache are presented on the Company’s consolidated balance sheet as “Revenue receivables.” Refer to Note 3—Revenue Recognition for further discussion.
Cost and Expenses
The Company has no employees, and prior to the Business Combination, the Company had no banking or cash management facilities. As such, the Company has contracted with Apache to receive certain operational, maintenance, and management services. In accordance with the terms of these agreements, the Company incurred operations and maintenance expenses of $1.4 million and $2.9 million for the three months ended March 31, 2020 and 2019, respectively. The Company incurred general and administrative (G&A) expenses of $2.0 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively, including expenses related to the operational services agreement and the COMA as further described below. Further information on the related-party operating lease agreement in place during the period is also provided below.
Construction, Operations and Maintenance Agreement
At the closing of the Business Combination, the Company entered into the COMA with Apache. Under the terms of the COMA, Apache provides certain services related to the design, development, construction, operation, management and maintenance of certain gathering, processing and other midstream assets, on behalf of the Company. In return, the Company paid or will pay fees to Apache of (i) $3.0 million for the period beginning on the execution of the COMA at the closing of the Business Combination through December 31, 2019, (ii) $5.0 million for the period of January 1, 2020 through December 31, 2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021 and (iv) $9.0 million annually thereafter, adjusted based on actual internal overhead and general and administrative costs incurred, until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for indirect costs of performing administrative corporate functions for the Company, including services for information technology, risk management, corporate planning, accounting, cash management, and others.
In addition, Apache may be reimbursed for certain internal costs and third-party costs incurred in connection with its role as service provider under the COMA. Costs incurred by Apache directly associated with midstream activity, where substantially all the services are rendered for Altus Midstream, are charged to Altus Midstream on a monthly basis.

9



The COMA stipulates that the Company shall provide reimbursement of amounts owing to Apache attributable to a particular month by no later than the last day of the immediately following month. Unpaid amounts accrue interest until settled.
The COMA will continue to be effective until terminated (i) upon the mutual consent of Altus and Apache, (ii) by either of Altus and Apache, at its option, upon 30 days’ prior written notice in the event Apache or an affiliate no longer owns a direct or indirect interest in at least 50 percent of the voting or other equity securities of Altus, or (iii) by Altus if Apache fails to perform any of its covenants or obligations due to willful misconduct of certain key personnel and such failure has a material adverse financial impact on Altus.
Lease Agreement
Concurrent with the closing of the Business Combination, Altus Midstream entered into an operating lease agreement with Apache (the Lease Agreement) relating to the use of certain office buildings, warehouse and storage facilities located in Reeves County, Texas. Under the terms of the Lease Agreement, Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s estimate of the annual costs it expects to incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. The Company incurred total expenses of $0.3 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively, in relation to the Lease Agreement, which are included within operations and maintenance expenses. Unpaid amounts accrue interest until settled. The initial term of the Lease Agreement is for four years and may be extended by Altus Midstream for three additional, consecutive periods of twenty-four months.
3.    REVENUE RECOGNITION
Revenue Recognition
The following table presents a disaggregation of the Company’s midstream services revenue by service type.
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
MIDSTREAM SERVICES REVENUE — AFFILIATE:
 
 
 
 
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

 

 
 
$
40,767

 
$
33,847


The Company generates revenue from its contracts with customers for the gathering, compression, processing, and transmission of natural gas and natural gas liquids in exchange for a fee per unit of volumes processed during a given month. For all periods presented, revenues recorded on the Company’s consolidated statement of operations were attributable to services performed by Altus Midstream for Apache pursuant to separate long-term commercial midstream agreements comprising acreage dedications in Apache’s entire Alpine High resource play.
As part of these agreements, substantially all of Apache’s natural gas production from its existing and future owned or controlled properties within the dedicated area is provided to the Company, so long as Apache has the right to market such product. There are no provisions for minimum volume commitments under the existing agreements, and the Company does not own or take title to the volumes it services under these agreements. Altus Midstream, in return for its performance, receives a fee per unit of natural gas or natural gas liquid received during a given month. The service fee charged per unit is set forth for each contract year, subject to yearly fee escalation recalculations.

10



Providing the related service on each volumetric unit represents a single, distinct performance obligation that is satisfied over time as services are rendered. As the amount of volumes serviced are not subject to minimum commitments and each midstream service agreement contains provisions for fee recalculations, substantially all of the transaction price is variable at inception of each contract term. Revenue is measured using the output method based on the amount of volumes serviced each month and the applicable service fee and recognized over time in the amount to which Altus Midstream has the right to invoice, as performance completed to date corresponds directly with the value to its customers. The transaction price is not constrained as variability is resolved prior to the recognition of revenue.
Payment under the midstream service agreements are due the month immediately following the month of service. Amounts settled with Apache each month are based on the net amount owed to Altus Midstream or owed to Apache. Revenue receivables from the Company’s contracts with Apache totaled $11.7 million and $15.5 million as of March 31, 2020 and December 31, 2019, respectively, as presented on the Company’s consolidated balance sheet.
In accordance with the provisions of ASC Topic 606, “Revenue from Contracts with Customers,”a variable transaction price for each short-term sale is allocated to each performance obligation as the terms of payment relate specifically to the Company’s efforts to satisfy its obligations. As such, the Company has elected the practical expedients available under the standard to not disclose the aggregate transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations as of the end of the reporting period.
4.    PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at carrying value, is as follows:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
Gathering, processing and transmission systems and facilities
 
$
205,629

 
$
198,133

Construction in progress (1)
 
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

(1)
Included in the Company’s construction in progress was capitalized interest of $0.6 million at December 31, 2019. There was no capitalized interest included in the Company’s construction in progress as of March 31, 2020.

The cost of property classified as “Construction in progress” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet available to be placed into productive service as of the respective balance sheet date.
The Company’s costs incurred for capital spending on its gathering, processing, and transmissions system and facilities were approximately $7.1 million in the first quarter of 2020. During the first quarter of 2020, the Company also exercised its option to purchase power generators previously being leased on a one-year term that expired in January 2020.
Property, plant, and equipment are evaluated for potential impairment when events or changes in circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset group. In conjunction with Apache’s decision in the fourth quarter of 2019 to materially reduce funding to Alpine High, Altus management assessed its long-lived infrastructure assets for impairment given the expected reduction to future throughput volumes. As a result of this assessment, Altus recorded impairments totaling $1.3 billion on its gathering, processing, and transmission assets in the fourth quarter of 2019. The fair values of the impaired assets were determined to be $203.6 million as of the time of the impairment and were estimated using the income approach. Altus has classified these nonrecurring fair value measurements as Level 3 in the fair value hierarchy. No impairments were recorded for the three months ended March 31, 2020 and 2019.

11



The Company also elected to cancel construction on a compressor station in the third quarter of 2019, and as a result certain of its components were marketed for sale. Accordingly, Altus management reclassified these assets to current assets held for sale, and they were measured at fair value less costs to sell. The Company recorded an impairment of $9.3 million on these assets, which were written down to their fair value of $18.2 million. The fair value of the assets was determined using the market approach based on estimated sales proceeds, classified as Level 1 inputs in the fair value hierarchy. These assets were sold during the fourth quarter of 2019, and $13.3 million of cash proceeds have been received as of December 31, 2019. The Company received the remaining cash proceeds in the first quarter of 2020.
5.    DEBT AND FINANCING COSTS
In November 2018, Altus Midstream entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream’s two, one year extension options). The agreement for this revolving credit facility, as amended (the Amended Credit Agreement), provides aggregate commitments from a syndicate of banks of $800.0 million. The aggregate commitments include a letter of credit subfacility of up to $100.0 million and a swingline loan subfacility of up to $100.0 million. Altus Midstream may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of March 31, 2020 and December 31, 2019, total outstanding borrowings were $468.0 million and $396.0 million, respectively, and no letters of credit were outstanding under this facility.
Altus Midstream’s revolving credit facility is unsecured and is not guaranteed by the Company, Apache, or any of their respective subsidiaries.
At Altus Midstream’s option, the interest rate per annum for borrowings under this facility is either a base rate, as defined, plus a margin, or the London Interbank Offered Rate (LIBOR), plus a margin. Altus Midstream also pays quarterly a facility fee at a rate per annum on total commitments. The margins and the facility fee vary based upon (i) the Leverage Ratio until Altus Midstream has a senior long-term debt rating and (ii) such senior long-term debt rating once it exists. The Leverage Ratio is the ratio of (1) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (2) EBITDA (as defined in the Amended Credit Agreement) of Altus Midstream and its restricted subsidiaries for the 12-month period ending immediately before the determination date. At March 31, 2020, the base rate margin was 0.15 percent, the LIBOR margin was 1.15 percent, and the facility fee was 0.225 percent. In addition, a commission is payable quarterly to the lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks.
The Amended Credit Agreement contains restrictive covenants that may limit the ability of Altus Midstream and its restricted subsidiaries to, among other things, incur additional indebtedness or guaranty indebtedness, sell assets, make investments in unrestricted subsidiaries, enter into mergers, make certain payments and distributions, incur liens on certain property securing indebtedness, and engage in certain other transactions without the prior consent of the lenders. Altus Midstream also is subject to a financial covenant under the Amended Credit Agreement, which requires it to maintain a Leverage Ratio not exceeding 5.00:1.00 at the end of any fiscal quarter, starting with the quarter ended December 31, 2019 except that during the period of up to one year following a qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of any fiscal quarter. Unless the Leverage Ratio is less than or equal to 4.00:1.00, the Amended Credit Agreement limits distributions in respect of Altus Midstream LP’s capital to $30 million per calendar year until either (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the Amended Credit Agreement, for three consecutive calendar months equals or exceeds $350.0 million on an annualized basis or (ii) Altus Midstream LP has a specified senior long-term debt rating; in addition, before the occurrence of one of those events, the Leverage Ratio must be less than or equal to 5.00:1.00. In no event can any distribution be made that would, after giving effect to it on a pro forma basis, result in a Leverage Ratio greater than (i) 5.00:1.00 or (ii) for a specified period after a qualifying acquisition, 5.50:1.00. The Leverage Ratio as of March 31, 2020 was less than 4.00:1.00.
The terms of Altus Midstream’s Preferred Units also contain certain restrictions on distributions on Altus Midstream LP’s Common Units, including the Common Units held by the Company, and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further information. In addition, the amount of any cash distributions to Altus Midstream LP by any entity in which it has an interest accounted for by the equity method is subject to such entity’s compliance with the terms of any debt or other agreements by which it may be bound, which in turn may impact the amount of funds available for distribution by Altus Midstream LP to its partners.
There are no clauses in the Amended Credit Agreement that permit the lenders to accelerate payments or refuse to lend based on unspecified material adverse changes. The Amended Credit Agreement has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. However, the agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other breaches, and if Altus Midstream or any of its restricted subsidiaries

12



defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and terminate lending and issuance commitments if Altus Midstream undergoes a specified change in control or has specified pension plan liabilities in excess of the stated threshold. Altus Midstream was in compliance with the terms of the Amended Credit Agreement as of March 31, 2020.
As of March 31, 2020 and December 31, 2019, the Company had debt outstanding totaling $468.0 million and $405.8 million, respectively. At December 31, 2019, $9.8 million of debt outstanding was related to a finance lease obligation for which the term ended in the first quarter of 2020.
Interest Income and Financing Costs, Net of Capitalized Interest
The following table presents the components of Altus Midstream’s interest income and financing costs, net of capitalized interest:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
 
 
 
 
 
(In thousands)
Interest income
 
$
7

 
$
2,161

Interest income
 
$
7

 
$
2,161

 
 
 
 
 
Interest expense
 
$
3,358

 
$
709

Amortization of deferred facility fees
 
273

 
193

Capitalized interest
 
(3,358
)
 
(394
)
Financing costs, net of capitalized interest
 
$
273

 
$
508


6.    OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities at March 31, 2020 and December 31, 2019:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
 
 
 
 
 

 
(In thousands)
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



13



7.    COMMITMENTS AND CONTINGENCIES

Accruals for loss contingencies arising from claims, assessments, litigation, environmental, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. As of March 31, 2020 and December 31, 2019, there were no accruals for loss contingencies.
Litigation
The Company is subject to governmental and regulatory controls arising in the ordinary course of business. It is the opinion of management that any existing litigation or claims involving the Company are not likely to have a material adverse effect on the Company’s reported position or results of operations.
Environmental Matters
As an owner of the infrastructure assets and with rights to surface lands, the Company is subject to various local and federal laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the Company for the cost of pollution clean-up resulting from operations and subject the Company to liability for pollution damages. In some instances, Altus Midstream may be directed to suspend or cease operations. The Company maintains insurance coverage, which management believes is customary in the industry, although insurance does not fully cover against all environmental risks. Additionally, there can be no assurance that current regulatory requirements will not change or past non-compliance with environmental laws will not be discovered. The Company is not aware of any environmental claims existing as of March 31, 2020, that have not been provided for or would otherwise have a material impact on its financial position, results of operations, or liquidity.
Contractual Obligations
Altus Midstream’s existing fee-based midstream services agreements, which have no minimum volume commitments or firm transportation commitments, are underpinned by acreage dedications covering Alpine High. Pursuant to these agreements, Altus Midstream is obligated to perform low and high pressure gathering, processing, dehydration, compression, treating, conditioning, and transportation on all volumes produced from the dedicated acreage, so long as Apache has the right to market such gas.
Pursuant to the COMA with Apache, Altus Midstream indirectly receives G&A support services including information technology, risk management, corporate planning, accounting, cash management, human resources, and other general corporate services. The COMA established a fixed annual support services fee to Apache of $3.0 million for the period from the execution of the COMA at the closing of the Business Combination through December 31, 2019, $5.0 million in 2020, and $7.0 million in 2021. Beginning in 2022 through the term of the COMA, the associated fee will be $9.0 million annually thereafter, adjusted based on actual internal overhead and general and administrative costs incurred, until terminated.
Concurrent with the closing of the Business Combination, Altus Midstream entered into the Lease Agreement with Apache, relating to the use of certain office buildings, warehouse, and storage facilities located in Reeves County, Texas. Under the terms of the Lease Agreement, Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s estimate of the annual costs it expects to incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. The initial term of the Lease Agreement is four years and may be extended by Altus Midstream for three additional, consecutive periods of twenty-four months.

In the second quarter of 2019, Altus Midstream issued and sold the Preferred Units. Under the terms of the Amended LPA, the Preferred Unit holders are entitled to receive quarterly distributions until such time as the Preferred Units are redeemed or exchanged. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further discussion regarding the terms of the Preferred Units and the rights of the holders thereof.

Additionally, the Company is required to fund its pro-rata portion of any future capital expenditures for the development of the pipeline projects as referenced in Note 8—Equity Method Interests.
At March 31, 2020 and December 31, 2019, there were no other material contractual obligations related to the entities included in the consolidated financial statements other than the performance of asset retirement obligations and required credit facility fees discussed in Note 5—Debt and Financing Costs.

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8.    EQUITY METHOD INTERESTS
As of March 31, 2020, the Company owned the following equity method interests in Permian Basin long-haul pipeline entities. For each of the equity method interests, the Company has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the equity method interests. The table below presents the ownership percentage held by the Company for each entity:
 
 
 
March 31, 2020
 
December 31, 2019
 
Ownership
 
Amount
 
Amount
 
 
 
 
 
 
 
 
 
(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
33.0%
 
490,920

 
492,800

 
 
 
$
1,336,810

 
$
1,258,048


As of March 31, 2020 and December 31, 2019, unamortized basis differences included in the equity method interest balances were $32.8 million and $29.7 million, respectively. These amounts represent differences in the Company’s contributions to date and Altus’ underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into net income over the useful lives of the underlying pipeline assets when they are placed into service.
The following table presents the activity in the Company’s equity method interests for the three months ended March 31, 2020:
 
Gulf Coast Express Pipeline LLC
 
EPIC Crude Holdings, LP
 
Permian Highway Pipeline LLC
 
Breviloba, LLC
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
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
)
Capitalized interest(1)

 

 
3,358

 

 
3,358

Equity income (loss), net(2)
10,456

 
(1,466
)
 
113

 
7,195

 
16,298

Accumulated other comprehensive loss

 
(1,184
)
 

 

 
(1,184
)
Balance at March 31, 2020
$
289,541

 
$
175,549

 
$
380,800

 
$
490,920

 
$
1,336,810


(1)
Altus’ proportionate share of the Permian Highway Pipeline (PHP) construction costs is funded with the revolving credit facility. Accordingly, Altus capitalized $3.4 million of related interest expense during the three months ended March 31, 2020, which is included in the basis of the PHP equity interest.
(2)
As of March 31, 2020, the amount of consolidated retained earnings, net of amortized basis differences, which represents undistributed earnings was $1.6 million from Breviloba, LLC..

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Summarized Financial Information
The following table represents aggregated selected income statement data for the Company’s equity method interests (on a 100 percent basis):
 
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019(1)
 
 
Gulf Coast Express Pipeline LLC
 
EPIC Crude Holdings, LP
 
Permian Highway Pipeline LLC
 
Breviloba, LLC
 
Gulf Coast Express Pipeline LLC
 
EPIC Crude Holdings, LP
 
Permian Highway Pipeline LLC
 
Breviloba, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenues
 
$
92,205

 
$
40,759

 
$

 
$
42,818

 
$
1,643

 
$

 
$

 
$
10,378

Operating expenses
 
26,499

 
46,430

 
23

 
17,229

 
(395
)
 
3,181

 
10

 
5,159

Operating income (loss)
 
65,706

 
(5,671
)
 
(23
)
 
25,589

 
2,038

 
(3,181
)
 
(10
)
 
5,219

Net income (loss)
 
65,658

 
(10,944
)
 
425

 
22,184

 
2,707

 
(7,601
)
 
(10
)
 
5,219

Other comprehensive loss
 

 
(7,887
)
 

 

 

 

 

 
 

(1)
Although the Company’s interests in EPIC Crude Holdings, LP, Permian Highway Pipeline LLC, and Breviloba, LLC were acquired in March, May, and July of 2019, respectively, the financial results are presented for the three months ended March 31, 2019 for comparability.
9. EQUITY
Redeemable Noncontrolling Interest — Apache Limited Partner
In conjunction with the issuance of the Class C Common Stock, Apache received 250,000,000 Altus Midstream Common Units, approximately 76.9 percent of the total Common Units issued and outstanding. The financial results of Altus Midstream and its subsidiaries are included in the Company’s consolidated financial statements as detailed in Note 1—Summary of Significant Accounting Policies, under the section titled “Principles of Consolidation.”
Apache has the right, at any time, to cause Altus Midstream to redeem all or a portion of the Common Units issued to Apache, in exchange for shares of the Company’s Class A Common Stock on a one-for-one basis or, at Altus Midstream’s option, an equivalent amount of cash; provided that the Company may, at its option, effect a direct exchange of cash or Class A Common Stock for such Common Units in lieu of such a redemption by Altus Midstream. Upon the future redemption or exchange of Common Units held by Apache, a corresponding number of shares of Class C Common Stock held by Apache will be cancelled.
Apache’s limited partner interest associated with the Common Units issued with the Class C Common Stock is reflected as a redeemable noncontrolling interest in the Company. The redeemable noncontrolling interest is recognized at the higher of (i) its initial fair value plus accumulated earnings/losses associated with the noncontrolling interest or (ii) the maximum redemption value as of the balance sheet date. The redemption value is determined based on a 5-day volume weighted average closing price of the Class A Common Stock (5-day VWAP) as defined in the Amended LPA, a Level 1 non-recurring fair value measurement. At March 31, 2020, the redeemable noncontrolling interest was recorded based on the initial fair value plus accumulated earnings and losses to date of $231.2 million. The maximum redemption value at March 31, 2020 based on the 5-day VWAP was $182 million. At December 31, 2019, the redeemable noncontrolling interest was recorded at the maximum redemption value based on the 5-day VWAP of $701.0 million.
For further discussion of Apache’s right to receive additional shares of Class A Common Stock, and other outstanding equity instruments that may impact ownership interests and the limited partner interests of Altus Midstream in future periods, see Note 12—Net Income (Loss) Per Share.
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering, and the purchasers of the Preferred Units were admitted as limited partners of Altus Midstream. The Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders after the seventh anniversary of Closing (as defined below) or upon the occurrence of specified events, unless otherwise redeemed by Altus Midstream. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further discussion.

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10.    SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Closing). The Closing occurred pursuant to a Preferred Unit Purchase Agreement among Altus Midstream, the Company, and the purchasers party thereto, dated as of May 8, 2019. A total of 625,000 Preferred Units were sold at a price of $1,000 per Preferred Unit, for an aggregate issue price of $625.0 million. Altus Midstream received approximately $611.2 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers.
Accounting for the Preferred Units
Classification
The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of the Preferred Units, including the redemption rights with respect thereto.
Initial Measurement
The net transaction price as shown below was based on the negotiated transaction price, less issue discounts and transaction costs.
 
 
June 12, 2019
 
 
(In thousands)
Transaction price, gross
 
$
625,000

Issue discount
 
(3,675
)
Transaction costs to other third parties
 
(10,076
)
Transaction price, net
 
$
611,249

Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. As such, the net transaction price shown in the table above was allocated to the preferred redeemable noncontrolling interest and the embedded features according to the associated initial fair value measurements as follows:
 
 
June 12, 2019
 
 
(In thousands)
Redeemable noncontrolling interest - Preferred Units
 
$
516,790

Long-term liability: Embedded derivative(1)
 
94,459

 
 
$
611,249

(1)
See Note 13—Fair Value Measurements for further discussion on the nature and recognition of the embedded derivative.
Subsequent Measurement
The Company applies a two-step approach to subsequently measure the redeemable noncontrolling interest related to the Preferred Units, by first allocating a portion of the net income of Altus Midstream in accordance with the terms of the Amended LPA described above.
After consideration of the foregoing, the Company records an additional adjustment to the carrying value of the Preferred Unit redeemable noncontrolling interest at each period end, if applicable. The amount of such adjustment is determined based upon the accreted value method to reflect the passage of time until the Preferred Units are exchangeable at the option of the holder. Pursuant to this method, the net transaction price is accreted using the effective interest method, to the Redemption Price calculated at the seventh anniversary of Closing. The total adjustment is limited to an amount such that the carrying amount of the Preferred Unit redeemable noncontrolling interest at each period end is equal to the greater of (a)(i) the carrying amount of the Preferred Units determined in accordance with ASC 810, plus (ii) the fair value of the embedded derivative liability or (b) the accreted value of the net transaction price.

17



Activity related to the Preferred Units during the three months ended March 31, 2020 is as follows:
 
 
Three Months Ended March 31, 2020
 
 
Units Outstanding
 
Financial Position(3)
 
 
(In thousands, except for unit data)
Redeemable noncontrolling interest — Preferred Units: at December 31, 2019
 
638,163

 
$
555,599

Distribution of in-kind additional Preferred Units(1)
 
11,168

 

Allocation of Altus Midstream net income
 
N/A

 
18,262

Redeemable noncontrolling interest — Preferred Units: at March 31, 2020
 
649,331

 
$
573,861

Embedded derivative liability(2)
 
 
 
164,913

 
 
 
 
$
738,774


(1)
Subsequent to the balance sheet date, Altus Midstream provided notice to the Preferred Unit holders of record at March 31, 2020 of the amount of the distribution on the Preferred Units for the quarter ended March 31, 2020. The holders also were notified that Altus Midstream elected to pay the entire amount of the approximate $11.4 million distribution in-kind in additional Preferred Units (PIK Units) on May 15, 2020. In total, 11,363 PIK Units will be issued in satisfaction of the required distribution.
(2)
See Note 13—Fair Value Measurements for discussion of the fair value changes in the embedded derivative liability during the period.