Company Quick10K Filing
Quick10K
Kayne Anderson Acquisition
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.81 325 $3,188
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
8-K 2019-09-12 Code of Ethics
8-K 2019-08-08 Officers
8-K 2019-07-31 M&A, Regulation FD, Exhibits
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-06-12 Enter Agreement, Sale of Shares, Exhibits
8-K 2019-05-30 Officers, Shareholder Vote, Exhibits
8-K 2019-05-29 Other Events, Exhibits
8-K 2019-05-24 Officers, Exhibits
8-K 2019-05-08 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-04-12 Officers, Exhibits
8-K 2019-02-27 Earnings, Exhibits
8-K 2019-01-15 Officers, Exhibits
8-K 2018-12-19 Other Events, Exhibits
8-K 2018-12-17 Accountant, Exhibits
8-K 2018-11-09 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Control, Officers, Amend Bylaw, Shell Status, Exhibits
8-K 2018-11-06 Shareholder Vote
8-K 2018-10-17 Other Events, Exhibits
8-K 2018-10-09 Other Events, Exhibits
8-K 2018-10-01 Other Events
8-K 2018-08-31 Other Events
8-K 2018-08-13 Other Events
8-K 2018-08-08 Enter Agreement, Sale of Shares, Regulation FD, Other Events, Exhibits
8-K 2018-08-08 Other Events, Exhibits
ATXG Addentax Group 1,926
TOGL Toga 1,120
CORI Corium 295
EMRN Emarine Global 35
LCTC Lifeloc Technologies 13
MTGA Mohegan Tribal Gaming Authority 0
VRIAC Voya Retirement Insurance & Annuity 0
FUTL Futureland 0
PGAS Petrogress 0
NEST Nestbuilder.com 0
KAAC 2019-06-30
Part I
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
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 altmexhibit311201910-q.htm
EX-31.2 altmexhibit312201910-q.htm
EX-32.1 altmexhibit321201910-q.htm

Kayne Anderson Acquisition Earnings 2019-06-30

KAAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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 June 30, 2019
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 July 31, 2019
74,929,305

Number of shares of registrant’s Class C common stock, par value $0.0001 per share issued and outstanding as of July 31, 2019

250,000,000





TABLE OF CONTENTS
 
Item
 
Page
 
PART I — FINANCIAL INFORMATION
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
PART II — OTHER INFORMATION
 
 
 
 
1.
 
 
 
1A.
 
 
 
6.
 


i


FORWARD-LOOKING STATEMENTS AND RISK
This report 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. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our 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 our examination of historical operating trends, production and growth forecasts of Apache Corporation’s Alpine High field development and other data in our 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,” or “continue” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about:
the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;
pipeline and gathering system capacity;
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 expenditures and other contractual obligations;
weather conditions;
inflation rates;
the availability of goods and services;
legislative, regulatory, or policy changes;
terrorism or cyber attacks;
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;
the impact of environmental, health and safety, and other governmental regulations and of current or pending legislation;
environmental risks;
effects of competition;
our ability to retain key members of our senior management and key technical employees;
increases in interest rates;
the effectiveness of our business strategy;
changes in technology;
market-related risks such as general credit, liquidity and interest-rate risks;
the timing, amount and terms of our future issuances of equity and debt securities; and

ii


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 our most recently filed Annual Report on Form 10-K, other risks and uncertainties in our second-quarter 2019 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 we make with the Securities and Exchange Commission.
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. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.



iii


GLOSSARY OF TERMS

The following are abbreviations and definitions of certain terms used in this report 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 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.
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.
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.
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 Alpine High Entities’ names were changed to replace “Alpine High” in each name with “Altus Midstream.” As such, references to the Altus Midstream Entities and Altus Midstream Operating shall have the same meanings as ascribed to the Alpine High Entities and Alpine High Midstream, respectively, in the Company’s most recently filed Annual Report on Form 10-K.


iv


PART I

ITEM 1. FINANCIAL STATEMENTS

ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands, except per share data)
REVENUES:
 
 
 
 
 
 
 
Midstream services revenue — affiliate (Note 3)
$
24,139

 
$
12,517

 
$
57,985

 
$
24,616

Total revenues
24,139

 
12,517

 
57,985

 
24,616

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Operations and maintenance (1)
14,005

 
11,227

 
30,403

 
22,219

General and administrative (2)
2,081

 
1,644

 
5,072

 
3,261

Depreciation and accretion
9,107


5,216


16,758


8,921

Taxes other than income
3,888

 
1,898

 
6,463

 
5,253

Total costs and expenses
29,081

 
19,985

 
58,696

 
39,654

Operating loss
(4,942
)
 
(7,468
)
 
(711
)
 
(15,038
)
Interest income
806




2,967



Loss from equity method interests
(1,297
)



(1,028
)


Other
(17
)
 

 
(17
)
 

Total other income (loss)
(508
)
 

 
1,922

 

Financing costs, net of capitalized interest
478




986



NET INCOME (LOSS) BEFORE INCOME TAXES
(5,928
)
 
(7,468
)
 
225

 
(15,038
)
Deferred income tax (benefit) expense
(430
)

4,153


(5
)

9,190

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
(5,498
)

(11,621
)

230


(24,228
)
Net income attributable to Preferred Unit limited partners
4,143

 

 
4,143

 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(9,641
)
 
(11,621
)
 
(3,913
)
 
(24,228
)
Net loss attributable to Apache limited partner
(7,348
)
 

 
(2,720
)
 

NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
$
(2,293
)
 
$
(11,621
)
 
$
(1,193
)
 
$
(24,228
)
 
 
 
 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS, PER SHARE(3)
 
 
 
 
 
 
 
Basic and Diluted
$
(0.03
)
 
$
(0.06
)
 
$
(0.02
)
 
$
(0.15
)
WEIGHTED AVERAGE SHARES (3)
 
 
 
 
 
 
 
Basic and Diluted
74,929

 
179,206

 
74,929

 
159,682


(1)
Includes amounts of $2.0 million and $2.0 million to related parties for the three months ended June 30, 2019 and 2018, respectively, and $4.9 million and $4.3 million for the six months ended June 30, 2019 and 2018, respectively. Refer to Note 3 — Transactions with Affiliates.
(2)
Includes amounts of $1.0 million and $1.6 million to related parties for the three months ended June 30, 2019 and 2018, respectively, and $2.6 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively. Refer to Note 3 — Transactions with Affiliates.
(3)
For periods prior to the Business Combination (as defined below), the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.



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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(In thousands)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
$
(5,498
)
 
$
(11,621
)
 
$
230

 
$
(24,228
)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
 
 
 
 
 
 
 
Share of equity method interests other comprehensive loss
(1,043
)
 

 
(1,043
)
 

COMPREHENSIVE LOSS INCLUDING NONCONTROLLING INTERESTS
(6,541
)
 
(11,621
)
 
(813
)
 
(24,228
)
Comprehensive income attributable to Preferred Unit limited partners
4,143

 

 
4,143

 

Comprehensive loss attributable to Apache limited partner
(8,191
)
 

 
(3,563
)
 

COMPREHENSIVE LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS
$
(2,493
)
 
$
(11,621
)
 
$
(1,393
)
 
$
(24,228
)















































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

2



ALTUS MIDSTREAM COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
June 30,
 
December 31,
 
 
2019
 
2018
 
 
(In thousands, except per share data)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
376,920

 
$
449,935

Accounts receivable from Apache Corporation (Note 1)
 
145

 

Revenue receivables (Note 3)
 
8,998

 
10,914

Inventories and other
 
6,286

 
5,802

Prepaid assets and other
 
1,697

 
1,379

 
 
394,046

 
468,030

PROPERTY, PLANT AND EQUIPMENT:
 
 
 
 
Property, plant and equipment
 
1,489,640

 
1,251,217

Less: Accumulated depreciation and amortization
 
(40,333
)
 
(24,320
)
 
 
1,449,307

 
1,226,897

OTHER ASSETS:
 
 
 
 
Equity method interests
 
527,379

 
91,100

Deferred tax asset
 
67,971

 
67,558

Deferred charges and other
 
6,031

 
3,734

 
 
601,381

 
162,392

Total assets
 
$
2,444,734

 
$
1,857,319

 
 
 
 
 
LIABILITIES, NONCONTROLLING INTERESTS, AND EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable to Apache Corporation (Note 1)
 
$

 
$
13,595

Current debt (Note 6)
 
23,310

 

Other current liabilities (Note 7)
 
47,241

 
84,926

 
 
70,551

 
98,521

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Asset retirement obligation
 
32,611

 
29,369

Deferred tax liability
 
2,998

 
2,643

Embedded derivative
 
94,459

 

Other non-current liabilities
 
1,352

 

 
 
131,420

 
32,012

Total liabilities
 
201,971

 
130,533

 
 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 9)
 

 

 
 
 
 
 
Redeemable noncontrolling interest — Apache limited partner
 
1,272,652

 
1,940,500

Redeemable noncontrolling interest — Preferred Unit limited partners
 
520,933

 

 
 
 
 
 
EQUITY:
 
 
 
 
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 74,929,305 shares issued and outstanding at June 30, 2019 and December 31, 2018
 
7

 
7

Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 250,000,000 shares issued and outstanding at June 30, 2019 and December 31, 2018
 
25

 
25

Additional paid-in capital
 
473,502

 

Accumulated deficit
 
(24,156
)
 
(213,746
)
Accumulated other comprehensive loss
 
(200
)
 

 
 
449,178

 
(213,714
)
Total liabilities, noncontrolling interests, and equity
 
$
2,444,734

 
$
1,857,319



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

3



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
 
 
2019
 
2018 (1)
 
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) including noncontrolling interests
 
$
230

 
$
(24,228
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and accretion
 
16,758

 
8,921

Deferred income tax (benefit) expense
 
(5
)
 
9,190

Loss from equity method interests
 
1,028

 

Adjustment for non-cash transactions with affiliate(1)
 

 
(1,345
)
Other
 
(564
)
 

Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in inventories and other
 
(484
)
 
(267
)
(Increase) decrease in prepaid and other
 
(311
)
 

(Increase) decrease in revenue receivables (Note 3)
 
1,930

 
1,055

(Increase) decrease in account receivables from/payable to affiliate
 
(3,347
)
 

Increase (decrease) in accrued expenses
 
6,453

 
6,674

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
21,688

 

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures (2)
 
(259,295
)
 

Contributions to equity method interests
 
(210,238
)
 

Acquisition of equity method interests
 
(228,165
)
 

NET CASH USED IN INVESTING ACTIVITIES
 
(697,698
)
 

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Redeemable noncontrolling interest - Preferred Unit limited partners, net

611,249

 

Finance lease
 
(7,462
)
 

Deferred facility fees
 
(792
)
 

NET CASH PROVIDED BY FINANCING ACTIVITIES
 
602,995

 

 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(73,015
)
 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
449,935

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
376,920


$

SUPPLEMENTAL CASH FLOW DATA:
 
 
 
 
Accrued capital expenditures (3)
 
$
30,330

 
$
69,501

Finance lease liability(4)
 
29,000

 

Interest paid, net of capitalized interest
 
$
1,493

 
$


(1)
In all periods prior to the Business Combination, the Company had no banking or cash management activities. Transactions with Apache and asset transfers to and from the Company were not settled in cash and are therefore reflected as a component of equity and redeemable noncontrolling interests on the consolidated balance sheet. In addition, Apache contributed its investments in gas gathering, processing and transmission facilities of approximately $283.9 million that is included within equity and redeemable noncontrolling interests for the six months ended June 30, 2018. Refer to Note 3 — Transactions with Affiliates for more information.
(2)
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 3 — Transactions with Affiliates for more information.
(3)
Includes $3.6 million due from Apache pursuant to the terms of the COMA. Refer to Note 3 — Transactions with Affiliates for more information.
(4)
The Company entered into a finance lease in the first quarter of 2019. Refer to Note 1 — Summary of Significant Accounting Policies for more information.



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
 
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(1)
 
Amount(1)
 
Shares(1)
 
Amount(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
$

 
$

 
 
5,081

 
$

 
173,693

 
$
18

 
$
702,378

 
$
(31,182
)
 
$

 
$
671,214

Issuance of shares

 

 
 
1,116

 

 
38,153

 
4

 
154,748

 

 

 
154,752

Net loss

 

 
 

 

 

 

 

 
(11,621
)
 

 
(11,621
)
Balance at June 30, 2018
$

 
$

 
 
6,197

 
$

 
211,846

 
$
22

 
$
857,126

 
$
(42,803
)
 
$

 
$
814,345

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$

 
$
1,504,500

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
440,628

 
$
(212,646
)
 
$

 
$
228,014

Issuance of Series A Cumulative Redeemable Preferred Units(2)
516,790

 

 
 

 

 

 

 

 

 

 

Net income (loss)
3,364

 
(7,348
)
 
 

 

 

 

 

 
(1,514
)
 

 
(1,514
)
Accretion of redeemable noncontrolling interest
779

 

 
 

 

 

 

 

 
(779
)
 

 
(779
)
Change in redemption value of noncontrolling interests

 
(223,657
)
 
 

 

 

 

 
32,874

 
190,783

 

 
223,657

Accumulated other comprehensive loss

 
(843
)
 
 

 

 

 

 

 

 
(200
)
 
(200
)
Balance at June 30, 2019
$
520,933

 
$
1,272,652

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
473,502

 
$
(24,156
)
 
$
(200
)
 
$
449,178

(1)
For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
(2)
Certain redemption features embedded within the Preferred Unit purchase agreement require bifurcation and measurement at fair value. For further detail, refer to Note 12 — Series A Cumulative Redeemable Preferred Units.




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

5



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS — (Continued)
(Unaudited)
 
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners
 
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(1)
 
Amount(1)
 
Shares(1)
 
Amount(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$

 
$

 
 
3,965

 
$

 
135,540

 
$
14

 
$
574,611

 
$
(18,575
)
 
$

 
$
556,050

Issuance of shares

 

 
 
2,232

 

 
76,306

 
8

 
282,515

 

 

 
282,523

Net loss

 

 
 

 

 

 

 

 
(24,228
)
 

 
(24,228
)
Balance at June 30, 2018
$

 
$

 
 
6,197

 
$

 
211,846

 
$
22

 
$
857,126

 
$
(42,803
)
 
$

 
$
814,345

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$

 
$
1,940,500

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$

 
$
(213,746
)
 
$

 
$
(213,714
)
Issuance of Series A Cumulative Redeemable Preferred Units(2)
516,790

 

 
 

 

 

 

 

 

 

 

Net income (loss)
3,364

 
(2,720
)
 
 

 

 

 

 

 
(414
)
 

 
(414
)
Accretion of redeemable noncontrolling interest
779

 

 
 

 

 

 

 

 
(779
)
 

 
(779
)
Change in redemption value of noncontrolling interests

 
(664,285
)
 
 

 

 

 

 
473,502

 
190,783

 

 
664,285

Accumulated other comprehensive loss

 
(843
)
 
 

 

 

 

 

 

 
(200
)
 
(200
)
Balance at June 30, 2019
$
520,933

 
$
1,272,652

 
 
74,929

 
$
7

 
250,000

 
$
25

 
$
473,502

 
$
(24,156
)
 
$
(200
)
 
$
449,178

(1)
For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
(2)
Certain redemption features embedded within the Preferred Unit purchase agreement require bifurcation and measurement at fair value. For further detail, refer to Note 12 — Series A Cumulative Redeemable Preferred Units.











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

6



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, 2018 (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, “we,” “us,” “our,” 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, the Company owns, or has options to own, equity interests in a total of five Permian Basin pipelines. 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. The Company closed 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 the Company. 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 (Alpine High).
On November 9, 2018 (the Closing Date) and pursuant to the terms of that certain 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 equity consideration, comprising economic voting and non-economic voting shares in KAAC, and common units representing limited partner interests in Altus Midstream (Common Units). Following the Closing Date and in connection with the completion of the Business Combination, KAAC changed its name to Altus Midstream Company. Refer to Note 2 — Recapitalization Transaction, for further discussion.
Ownership of Altus Midstream LP
Upon the closing of the Business Combination and as of June 30, 2019, Altus’ wholly-owned subsidiary, Altus Midstream GP LLC (Altus Midstream GP), was the sole general partner of Altus Midstream. The Company held approximately 23.1 percent of the outstanding Common Units of Altus Midstream, while Apache held the remaining 76.9 percent. Additionally, as of the Closing Date and as of June 30, 2019, Apache was the largest single holder of the Company’s voting common stock, comprising 100 percent of non-economic Class C Common Stock and approximately 9.8 percent of economic Class A Common Stock.
On June 12, 2019, Altus Midstream issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) in a private offering. Concurrently, the Preferred Units were established as a new class of partnership unit representing limited partner interests in Altus Midstream pursuant to the terms of a Second Amended and Restated Agreement of Limited Partnership of Altus Midstream (the Amended LPA), and the purchasers were admitted as limited partners of Altus Midstream. For further

7



details on the terms of the Preferred Units and the rights of the holders thereof, refer to Note 12 — Series A Cumulative Redeemable Preferred Units.
The Amended LPA contains certain provisions intended to ensure that a one-to-one ratio is maintained, at all times and subject only to limited exceptions, between (i) the number of outstanding shares of Class A Common Stock and the number of Altus Midstream Common Units held by Altus and (ii) the number of outstanding shares of Class C Common Stock and the number of Altus Midstream Common Units held by Apache.
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. Altus Midstream Company’s only material net assets separate from Altus Midstream relate to deferred taxes and the current and deferred income tax expense (benefit) associated with its investment in Altus Midstream. The deferred tax asset balance was $68.0 million and $67.6 million as of June 30, 2019 and December 31, 2018, respectively. 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 Preferred Unit holders. Refer to Note 13 — Income Taxes, Note 11 — Equity and Note 12 — 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, 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.
Financial Statement Presentation
While Altus Midstream Company (formerly KAAC) was the surviving legal entity, the Business Combination was accounted for as a reverse recapitalization. As such, Altus Midstream Company was treated as the acquired company for financial reporting purposes.
As a result of the Altus Midstream Entities being the accounting acquirer, the historical operations of the Altus Midstream Entities are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of the Altus Midstream Entities prior to the Business Combination; (ii) the net assets of the Altus Midstream Entities at their historical cost; (iii) the consolidated results of the Company and the Altus Midstream Entities following the closing of the Business Combination; and (iv) the Company’s equity structure for all periods presented. No step-up in basis of the contributed assets and no intangible assets or goodwill was recorded in the Business Combination.
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.

8



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

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 15 — Fair Value Measurements.
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 COMA. Generally, cash in this amount will be transferred to 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 3 — Transactions with Affiliates.
Leases

On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize separate right-of-use (ROU) assets and lease liabilities for most leases classified as operating leases under previous GAAP. Prior to adoption, the Financial Accounting Standards Board (FASB) issued transition guidance permitting an entity the option to not evaluate under ASU 2016-02 those existing or expired land easements that were not previously accounted for as leases, as well as an option to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the consolidated financial statements. The Company elected both transitional practical expedients. Under these transition options, comparative reporting was not required, and the provisions of the standard were applied prospectively to leases in effect at the date of adoption.

As allowed under the standard, the Company also applied practical expedients to carry forward its historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. The Company also elected to exclude short-term leases (those with terms of 12 months or less) from the balance sheet presentation and accounts for non-lease and lease components as a single lease component for all asset classes. Short-term lease expense was not material for the second quarter of 2019.

The Company determines if an arrangement is an operating or finance lease at the inception of each contract. If the contract is classified as an operating lease, Altus records a ROU asset and corresponding liability reflecting the total remaining present value of fixed lease payments over the expected term of the lease agreement. The expected term of the lease may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. In the normal course of business, the Company enters into various lease agreements for real estate and equipment related to its midstream activities which are typically classified as operating leases under the provisions of the standard. ROU assets are reflected within “Deferred charges and other” on the Company’s consolidated balance sheet, and the associated operating lease liabilities are reflected within “Other current liabilities” and “Other noncurrent liabilities,” as applicable.

Operating lease expense associated with the ROU assets is recognized on a straight-line basis over the lease term. Lease expense is reflected on the statement of consolidated operations commensurate with the leased activities and nature of the services performed. Fixed operating lease expense was $0.2 million and $0.3 million for the three and six months ended June 30, 2019, respectively.

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In addition, the Company periodically enters into finance leases that are similar to those leases classified as capital leases under previous GAAP. The Company currently has one short-term finance lease, which is included in “Property, Plant and Equipment” on the consolidated balance sheet, and the associated finance lease liability is reflected within “Current debt.” The associated interest expense is reflected in the statement of consolidated operations within “Financing costs, net of capitalized interest.” Depreciation on the Company's finance lease asset was $1.2 million and $2.5 million for the three and six months ended June 30, 2019, respectively. Interest on the Company's finance lease assets was $0.3 million and $0.6 million for the three and six months June 30, 2019, respectively.

The following table represents the Company’s weighted average lease term and discount rate as of June 30, 2019:
 
 
Operating Leases
 
Finance Lease
Weighted average remaining lease term
 
3.2 years

 
0.5 years

Weighted average discount rate
 
4.2
%
 
4.2
%

The undiscounted future minimum lease payments reconciled to the carrying value of the lease liabilities as of June 30, 2019 (in thousands) were as follows:
Net Minimum Commitments
 
Operating Leases(1)
 
Finance Lease(2)
 
 
(In thousands)
2019
 
$
326

 
$
13,920

2020
 
652

 
9,800

2021
 
622

 

2022
 
445

 

2023
 

 

Thereafter
 

 

Total future minimum lease payments
 
2,045

 
23,720

Less: imputed interest
 
(124
)
 
(410
)
Total lease liabilities
 
1,921

 
23,310

Current portion
 
(591
)

(23,310
)
Non-current portion
 
$
1,330

 
$

(1)
Amounts are primarily associated with the Lease Agreement (as defined below) entered into with Apache relating to the use of certain office buildings, warehouse and storage facilities as described in Note 3 — Transactions with Affiliates.
(2)
Amounts represent the Company’s finance lease obligation entered into during the first quarter of 2019 related to physical power generators being leased on a one-year term with the right to purchase.
The lease liability reflected in the table above represents the Company’s fixed minimum payments that are settled in accordance with the lease terms. Actual lease payments during the period may also include variable lease components such as common area maintenance, usage-based sales taxes and rate differentials, or other similar costs that are not determinable at the inception of the lease. Variable lease payments for the three and six months ended June 30, 2019 were $0.1 million and $0.2 million, respectively.
Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses.” This standard changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans, and certain other financial assets measured at amortized cost. The ASU requires the use of a new forward-looking "expected loss" model compared to the current "incurred loss" model; resulting in the earlier recognition of credit losses. This update is effective for us beginning in the first quarter of 2020, with early adoption permitted. We have developed and are in the process of executing a project plan for the implementation of the ASU and continue to evaluate and monitor standard setting activity. We do not believe the adoption and implementation of this ASU will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. ASU 2018-13 is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.

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2.    RECAPITALIZATION TRANSACTION
Background and Summary
On August 8, 2018, KAAC and its then wholly-owned subsidiary, Altus Midstream LP, entered into the Contribution Agreement with certain wholly-owned subsidiaries of Apache, including the Altus Midstream Entities. The terms of the Contribution Agreement included that Altus Midstream would acquire from Apache, all of the outstanding equity interests in each of the Altus Midstream Entities and the Pipeline Options to acquire equity interests in certain third-party pipelines that are expected to be placed into service in 2019 and 2020.
The Company consummated the Business Combination and certain other transactions contemplated by the Contribution Agreement on the Closing Date. On the Closing Date:
Altus Midstream issued Common Units to Apache, and the Company issued to Apache an equivalent number of shares of a newly-created class of voting-only common stock (Class C Common Stock).
The Company issued to Apache (i) newly issued shares of Class A Common Stock, (ii) warrants exercisable for shares of Class A Common Stock, and (iii) the right to receive additional shares of Class A Common Stock, based upon the achievement of certain price and operational thresholds.
The Company contributed $628.2 million in cash to Altus Midstream and in return, Altus Midstream issued to the Company a number of Common Units equal to the total number of shares of the Company’s Class A Common Stock outstanding as of the Closing Date.
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 partnership interests of Altus Midstream in future periods, please see Note 11 — Equity.
Number of Shares at the Closing Date

The number of shares issued and outstanding immediately following the closing of the Business Combination is summarized in the table below.
number of shares
Class A Common Stock
 
Class B Common Stock(1)
 
Class C Common Stock
Shares outstanding prior to the Business Combination
37,732,112

 
9,433,028

 

Less: redemption of public shares (2)
(29,469,858
)
 

 

Add: shares issued in private placement
57,234,023

 

 

Total shares outstanding prior to the Business Combination
65,496,277

 
9,433,028

 

Shares, in connection with the Business Combination:
 
 
 
 
 
Forfeited (3)

 
(7,313,028
)
 

Converted (1)
2,120,000

 
(2,120,000
)
 

Total shares outstanding immediately prior to the Closing Date
67,616,277

 

 

Issued as consideration to Apache (4)
7,313,028

 

 
250,000,000

Total shares outstanding at the Closing Date
74,929,305

 

 
250,000,000

(1)
Shares of Class B Common Stock, $0.0001 par value (“Class B Common Stock”), were purchased by the Sponsor upon the Company’s incorporation in December 2016. Class B Common Stock is identical to Class A Common Stock except that they automatically converted to Class A Common Stock at the time of the Business Combination.
(2)
Pursuant to the terms of KAAC’s amended and restated certificate of incorporation, public stockholders had the opportunity, in connection with the Business Combination, to redeem shares of Class A Common Stock. A total of 29,469,858 shares were redeemed for an aggregate amount of approximately $298.8 million.
(3)
In connection with the Business Combination, the Sponsor agreed to forfeit shares of Class B Common Stock. As part of the consideration transferred in the Business Combination, 7,313,028 newly issued shares of Class A Common Stock were issued to Apache, equivalent to the number of shares of Class B Common Stock forfeited by the Sponsor. Additionally, the Sponsor forfeited a number of warrants originally issued simultaneously with the public offering.

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(4)
The equity structure of the Altus Midstream Entities (the accounting acquirer) has been restated to reflect the number of shares of Altus Midstream Company (the accounting acquiree) issued in the recapitalization transaction. Please refer to the section below entitled “Basis of presentation of equity structure” for further discussion.
Basis of Presentation of Equity Structure
As discussed in Note 1 — Summary of Significant Accounting Policies, the Business Combination was accounted for as a reverse recapitalization, with Altus Midstream Company treated as the acquired company, and the Altus Midstream Entities treated as the acquirer, for financial reporting purposes. Therefore, the equity structure in the consolidated financial statements is that of the Company restated for all periods presented.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares issued to Apache in connection with the recapitalization transaction. The value allocated to the shares issued to Apache reflects the capital structure of the Altus Midstream Entities prior to the Business Combination, which solely comprised capital contributions from Apache. Accordingly, shares of common stock issued to Apache in exchange for its ownership interests in the Altus Midstream Entities are retroactively restated from May 26, 2016 (inception), proportionate to the capital contributions made by Apache to the Altus Midstream Entities up to the Closing Date.
3.    TRANSACTIONS WITH AFFILIATES
Revenues
The Company has contracted to provide services including gas gathering, compression, processing, transportation, and NGL transportation, 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 customer was Apache, although Altus Midstream is pursuing contracts with third-parties that could be accommodated by existing and planned capacity.
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.”
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 $2.0 million and $2.0 million for the three months ended June 30, 2019 and 2018, respectively, and $4.9 million and $4.3 million for the six months ended June 30, 2019 and 2018, respectively. The Company incurred general and administrative (G&A) expenses of $1.0 million and $1.6 million for the three months ended June 30, 2019 and 2018, respectively, and $2.6 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively, including expenses related to the operational service agreement and COMA as further described below.
Further information on the related-party agreements in place during the period is provided below.
Operational Services Agreement
Prior to the Business Combination, Apache provided operations, maintenance and management services to Altus Midstream Operating, pursuant to a service agreement (the Services Agreement). In accordance with the terms of the Services Agreement, Apache received a fixed fee per month for its overhead and indirect costs incurred on behalf of Altus Midstream Operating. All costs incurred by Altus Midstream Operating were paid by Apache.
Construction, Operations and Maintenance Agreement
At the closing of the Business Combination, the Company entered into the COMA with Apache, which superseded the Services Agreement. Under the terms of the COMA, Apache will provide 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 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, as may be adjusted upwards based on actual incurred costs, until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for indirect costs incurred in performing administrative corporate functions

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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 directly incurred in connection with its role as service provider under the COMA. Apache records costs directly associated with midstream activity, where substantially all the services are rendered for Altus Midstream, to unique midstream cost centers that are subsequently charged to Altus Midstream on a monthly basis.
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 $0.5 million for the three and six months ended June 30, 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.
Capitalized Interest

Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a portion of interest on its corporate debt in determining capitalized interest associated with the development of Altus Midstream Operating. Commensurate with Apache’s calculation, interest is capitalized as part of the historical cost of developing and constructing assets. Significant midstream development assets that have not commenced operations qualify for interest capitalization. The associated capitalized interest was determined by multiplying Apache’s weighted-average borrowing cost of debt by the average amount of qualifying midstream assets. The amount of interest allocated and capitalized was $2.1 million and $4.6 million for the three and six months ended June 30, 2018, respectively. Following the closing of the Business Combination, capitalized interest is determined based on interest expense incurred by Altus Midstream. Refer to Note 6 — Debt and Financing Costs for further information.


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4.    REVENUE RECOGNITION
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standard Update (ASU) 2014-09, “Revenue from Contracts with Customers (ASC 606),” using the modified retrospective method. The Company elected to evaluate all contracts at the date of initial application. There was no impact to the opening balance of retained earnings as a result of the adoption.
The following table presents a disaggregation of the Company’s midstream services revenue by service type.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In thousands)
MIDSTREAM SERVICES REVENUE — AFFILIATE:
 
 
 
 
 
 
 
 
Gas gathering
 
$
2,697

 
$
1,406

 
$
6,310

 
$
2,015

Gas processing
 
18,395

 
7,802

 
43,679

 
15,507

Transmission
 
2,977

 
3,300

 
7,831

 
7,085

NGL transmission
 
70

 
9

 
165

 
9

 
 
$
24,139

 
$
12,517

 
$
57,985

 
$
24,616


The Company currently generates all its revenues by providing the above services, pursuant to separate midstream service agreements entered into with Apache. These midstream service agreements have no minimum volume commitments or firm transportation commitments, instead they are underpinned by acreage dedications covering Alpine High. Pursuant to these agreements, Altus Midstream is obligated to perform services on all volumes produced from the dedicated acreage, so long as Apache has the right to market such gas. In exchange for the above services and in accordance with the terms of the midstream service agreements, the Company charges a fixed fee on a per unit basis.
These performance obligations are satisfied over time as Apache simultane