Company Quick10K Filing
Quick10K
Rattler Midstream Partners
10-Q 2019-06-30 Quarter: 2019-06-30
8-K 2019-10-03 Regulation FD, Other Events, Exhibits
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-05-22 Enter Agreement, M&A, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Officers, Amend Bylaw, Exhibits
GLD Spdr Gold Trust 36,551
FXE Invesco Currencyshares Euro Trust 215
CRBO Carbon Energy 74
MHTX Manhattan Scientifics 5
FXCH Invesco Currencyshares Chinese Renminbi Trust 3
IMAGE Image International Group 0
REBL Rebel Group 0
CIRT Cirtran 0
DOYU DouYu 0
RGPT Rodin Global Property Trust 0
RTLR 2019-06-30
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 q22019rattler10-qxex311.htm
EX-31.2 q22019rattler10-qxex312.htm
EX-32.1 q22019rattler10-qxex321.htm

Rattler Midstream Partners Earnings 2019-06-30

RTLR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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

 
 
FORM 10-Q

 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2019
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38919
 
 
Rattler Midstream LP
(Exact Name of Registrant As Specified in Its Charter)
 
 
DE
 
83-1404608
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification Number)
 
 
 
 
500 West Texas
 
 
 
Suite 1200
 
 
 
Midland,
TX
 
 
79701
(Address of principal executive offices)
 
 
(Zip code)
(432) 221-7400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Units
RTLR
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   *
*The registrant became subject to such requirements on May 28, 2019, and it has filed all reports so required since that date.

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 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. (Check One):
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   

As of August 2, 2019, the registrant had outstanding 43,700,000 common units representing limited partner interests and 107,815,152 Class B units representing limited partner units.


Table of Contents

RATTLER MIDSTREAM LP
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 


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GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a glossary of certain oil and natural gas industry terms used in this Quarterly Report on Form 10-Q (this “report”):
Basin
A large depression on the earth’s surface in which sediments accumulate.
Bbl or barrel
One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to crude oil, natural gas liquids or other liquid hydrocarbons.
Bbl/d
Bbl per day.
BOE
Barrels of crude oil equivalent, with six thousand cubic feet of natural gas being equivalent to one barrel of oil.
BOE/d
Boe per day.
British Thermal Unit or Btu
The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Completion
The process of treating a drilled well, followed by the installation of permanent equipment for the production of natural gas or oil or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.
Condensate
Liquid hydrocarbons associated with production that is primarily natural gas.
Crude oil
Liquid hydrocarbons found in the earth, which may be refined into fuel sources.
Dry hole or dry well
A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
Field
The general area encompassed by one or more crude oil or natural gas reservoirs or pools that are located on a single geologic feature, or that are otherwise closely related to such geologic feature (either structural or stratigraphic).
Hydraulic Fracturing
The process of creating and preserving a fracture or system of fractures in a reservoir rock, typically by injecting a fluid under pressure through a wellbore and into the targeted formation.
Hydrocarbon
An organic compound containing only carbon and hydrogen.
IRS
The Internal Revenue Service.
MBbl
One thousand barrels.
MBbl/d
One thousand barrels per day.
MBoe
One thousand barrels of crude oil equivalent, determined using a ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Mcf
One thousand cubic feet of natural gas.
Mcf/d
One thousand cubic feet of natural gas per day.
MMBbl
One million barrels.
MMBbl/d
One million barrels per day.
MMBoe
One million barrels of crude oil equivalent.
MMBoe/d
One million barrels of crude oil equivalent per day.
MMBtu
One million British Thermal Units.
MMcf
One million cubic feet of natural gas.
Natural Gas
Hydrocarbon gas found in the earth, composed of methane, ethane, butane, propane and other gases.
NGL
The combination of ethane, propane, butane and natural gasolines that, when removed from natural gas, becomes liquid under various levels of higher pressure and lower temperature.
Operator
The individual or company responsible for the exploration and/or production of a crude oil or natural gas well or lease.
Play
A set of discovered or prospective crude oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, reservoir structure, timing, trapping mechanism and hydrocarbon type.
Plugging and abandonment
Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of all states require plugging of abandoned wells.

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Reserves
Estimated remaining quantities of crude oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering crude oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., potentially recoverable resources from undiscovered accumulations).
Reservoir
A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.
SWD
Saltwater disposal.
Throughput
The volume of product transported or passing through a pipeline, plant, terminal or other facility.


iii

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GLOSSARY OF CERTAIN OTHER TERMS
The following is a glossary of certain other terms used in this report:
Delaware Act
Delaware Revised Uniform Limited Partnership Act.
Diamondback
Diamondback Energy, Inc., a Delaware corporation, and its subsidiaries other than the Partnership and its subsidiaries (including the Operating Company).
Exchange Act
The Securities Exchange Act of 1934, as amended.
FERC
Federal Energy Regulatory Commission.
GAAP
Accounting principles generally accepted in the United States.
General Partner
Rattler Midstream GP LLC, a Delaware limited liability company; the general partner of the Partnership and a wholly-owned subsidiary of Diamondback.
IPO
The Partnership’s initial public offering.
Nasdaq
The Nasdaq Global Select Market.
Operating Company
Rattler Midstream Operating LLC, a Delaware limited liability company and a consolidated subsidiary of the Partnership.
Partnership
Rattler Midstream LP, a Delaware limited partnership.
Predecessor
The Operating Company, prior to May 28, 2019 for accounting purposes.
SEC
Securities and Exchange Commission.
Securities Act
The Securities Act of 1933, as amended.


iv

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed in this report could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements.

Forward-looking statements may include statements about:

Diamondback’s ability to meet its drilling and development plans on a timely basis or at all;

changes in general economic conditions;

competitive conditions in our industry;

actions taken by third party operators, gatherers, processors and transporters;

the demand for and costs of conducting midstream infrastructure services;

our ability to successfully implement our business plan;

our ability to complete internal growth projects on time and on budget;

the price and availability of debt and equity financing;

the availability and price of crude oil and natural gas to the consumer compared to the price of alternative and competing fuels;

competition from the same and alternative energy sources;

energy efficiency and technology trends;

operating hazards and other risks incidental to our midstream services;

natural disasters, weather-related delays, casualty losses and other matters beyond our control;

interest rates;

labor relations;

defaults by Diamondback under our commercial agreements;

our lack of asset and geographic diversification;

changes in availability and cost of capital;

increases in our tax liability;

the effect of existing and future laws and government regulations;


v

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terrorist attacks or cyber threats;

the effects of future litigation; and

certain factors discussed elsewhere in this report.

All forward-looking statements speak only as of the date of this report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities laws. You should not place undue reliance on these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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Rattler Midstream LP
Consolidated Balance Sheets
(Unaudited)


 
June 30,
 
December 31,
 
2019
 
2018*
 
(In thousands, except unit amounts)
Assets
 
 
 
Current assets:
 
 
 
Cash
$
3,737

 
$
8,564

Accounts receivable—related party

 
18,274

Accounts receivable—third party
1,676

 
1,849

Fresh water inventory
12,631

 
9,200

Other current assets
4,718

 
4,209

Total current assets
22,762

 
42,096

Property, plant and equipment:
 
 
 
Land
88,509

 
70,373

Property, plant and equipment
822,307

 
415,888

Accumulated depreciation, amortization and accretion
(44,352
)
 
(28,317
)
Property, plant and equipment, net
866,464

 
457,944

Right of use assets
1,212

 

Equity method investments
186,902

 

Real estate assets, net
100,460

 
93,023

Intangible lease assets, net
9,464

 
10,954

Total assets
$
1,187,264

 
$
604,017




























The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Table of Contents
Rattler Midstream LP
Consolidated Balance Sheets
(Unaudited)

 
June 30,
 
December 31,
 
2019
 
2018*
 
(In thousands, except unit amounts)
Liabilities and Unitholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable—related party
$
17,015

 
$

Accounts payable—third party
246

 
100

Other accrued liabilities
96,511

 
51,804

Taxes payable
31

 
11,514

Short term lease liability
1,126

 

Total current liabilities
114,929

 
63,418

Long-term debt
1,000

 

Asset retirement obligations
4,746

 
561

Long-term lease liability
86

 

Deferred income taxes
1,342

 
12,912

Total liabilities
122,103

 
76,891

Commitment and contingencies (Note 18)
 
 
 
Unitholders' equity:
 
 
 
Limited partners member's equity—Diamondback

 
527,125

General partner—Diamondback
1,000

 

Common units—public (43,700,000 units issued and outstanding as of June 30, 2019)
725,261

 

Class B units—Diamondback (107,815,152 units issued and outstanding as of June 30, 2019)
1,000

 
1

Total Rattler Midstream LP unitholders’ equity
727,261

 
527,126

Non-controlling interest
337,900

 

Total equity
1,065,161

 
527,126

Total liabilities and unitholders’ equity
$
1,187,264

 
$
604,017





















The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Table of Contents
Rattler Midstream LP
Statements of Operations
(Unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018*
 
2019
 
2018*
 
 
 
Predecessor
 
 
 
Predecessor
 
(In thousands, expect per unit amounts)
Revenues:
 
 
 
 
 
 
 
Revenues—related party
$
103,066

 
$
46,741

 
$
191,642

 
$
77,801

Revenues—third party
5,078

 

 
8,565

 
361

Rental income—related party
1,256

 
578

 
1,971

 
1,011

Rental income—third party
2,038

 
2,138

 
4,105

 
3,966

Other real estate income—related party
81

 
41

 
154

 
72

Other real estate income—third party
255

 
290

 
513

 
452

Total revenues
111,774

 
49,788

 
206,950

 
83,663

Costs and expenses:
 
 
 
 
 
 
 
Direct operating expenses
26,406

 
10,992

 
46,592

 
16,198

Cost of goods sold (exclusive of depreciation and amortization shown below)
15,849

 
8,267

 
28,902

 
13,518

Real estate operating expenses
695

 
540

 
1,221

 
818

Depreciation, amortization and accretion
10,158

 
5,975

 
20,062

 
11,791

General and administrative expenses
3,068

 
426

 
4,437

 
680

(Gain) loss on sale of property, plant and equipment
(4
)
 
2,568

 
(4
)
 
2,568

Total costs and expenses
56,172

 
28,768

 
101,210

 
45,573

Income from operations
55,602

 
21,020

 
105,740

 
38,090

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(85
)
 

 
(85
)
 

Expense from equity investments
(114
)
 
(1,459
)
 
(64
)
 

Total other expense
(199
)
 
(1,459
)
 
(149
)
 

Net income before income taxes
55,403

 
19,561

 
105,591

 
38,090

Provision for income taxes
8,724

 
4,089

 
19,556

 
8,222

Net income after taxes
$
46,679

 
$
15,472

 
$
86,035

 
$
29,868

 
 
 
 
 
 
 
 
Net income before initial public offering
$
26,639

 
 
 
$
65,995

 
 
 
 
 
 
 
 
 
 
Net income subsequent to initial public offering
$
20,040

 
 
 
$
20,040

 
 
Net income attributable to non-controlling interest subsequent to initial public offering
15,237

 
 
 
15,237

 
 
Net income attributable to Rattler Midstream LP
$
4,803

 
 
 
$
4,803

 
 
 
 
 
 
 
 
 
 
Net income attributable to common limited partners per unit - subsequent to initial public offering:
 
 
 
 
 
 
 
Basic
$
0.11

 


 
$
0.11

 


Diluted
$
0.11

 


 
$
0.11

 


Weighted average number of limited partner units outstanding:
 
 
 
 
 
 
 
Basic
43,197

 


 
43,197

 


Diluted
44,340

 


 
44,340

 


The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Rattler Midstream LP
Consolidated Statement of Changes in Unitholders’ Equity
(Unaudited)


 
Predecessor
 
Partnership
 
 
 
 
 
Limited Partners Member's Equity
 
Limited Partners
 
General Partner
 
Non-Controlling Interest
 
 
 
Amount
 
Common Units
 
Amount
 
Class B Units
 
Amount
 
Amount
 
Amount
 
Total
 
(In thousands)
Balance at December 31, 2017
$
292,608

 

 
$

 

 
$

 
$

 
$

 
$
292,608

Contributions from Diamondback
175,100

 
 
 

 
 
 

 

 

 
175,100

Net income
14,396

 
 
 

 
 
 

 

 

 
14,396

Balance at March 31, 2018
482,104

 

 

 

 

 

 

 
482,104

Contributions from Diamondback
3,417

 
 
 

 
 
 

 

 

 
3,417

Net income
15,472

 
 
 

 
 
 

 

 

 
15,472

Balance at June 30, 2018
$
500,993

 

 
$

 

 
$

 
$

 
$

 
$
500,993


































The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Table of Contents
Rattler Midstream LP
Consolidated Statement of Changes in Unitholders’ Equity
(Unaudited)


 
Predecessor
 
Partnership
 
 
 
 
 
Limited Partners Member's Equity
 
Limited Partners
 
General Partner
 
Non-Controlling Interest
 
 
 
Amount
 
Common Units
 
Amount
 
Class B Units
 
Amount
 
Amount
 
Amount
 
Total
 
(In thousands)
Balance at December 31, 2018*
$
527,125

 

 
$

 

 
$
1

 
$

 
$

 
$
527,126

Contributions from Diamondback
458,674

 
 
 

 
 
 

 

 

 
458,674

Net income
39,356

 
 
 

 
 
 

 

 

 
39,356

Balance at March 31, 2019
1,025,155

 

 

 

 
1

 

 

 
1,025,156

Net income prior to the offering
26,639

 
 
 

 
 
 

 

 

 
26,639

Distributions prior to the offering
(33,712
)
 
 
 

 
 
 

 

 

 
(33,712
)
Balance at May 28, 2019
1,018,082

 

 

 

 
1

 

 

 
1,018,083

Net proceeds from the offering - public
 
 
43,700

 
719,627

 

 

 

 

 
719,627

Net proceeds from the offering - General Partner
 
 
 
 

 
 
 

 
1,000

 

 
1,000

Net proceeds from the offering - Diamondback
 
 
 
 

 
107,815

 
999

 

 

 
999

Unit-based compensation
 
 

 
831

 
 
 

 

 

 
831

Elimination of current and deferred tax liabilities
31,094

 
 
 

 
 
 

 

 

 
31,094

Allocation of net investment to unitholder
(322,663
)
 
 
 

 
 
 

 

 
322,663

 

Distributions to Diamondback (Note 1)
(726,513
)
 
 
 

 
 
 

 

 

 
(726,513
)
Net income subsequent to the offering
 
 
 
 
4,803

 
 
 

 

 
15,237

 
20,040

Balance at June 30, 2019
$

 
43,700

 
$
725,261

 
107,815

 
$
1,000

 
$
1,000

 
$
337,900

 
$
1,065,161









The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Rattler Midstream LP
Consolidated Statements of Cash Flows
(Unaudited)


 
Six Months Ended June 30,
 
2019
 
2018*
 
 
 
Predecessor
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
86,035

 
$
29,868

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for deferred income taxes
19,556

 
8,222

Depreciation, amortization and accretion
20,062

 
11,791

(Gain) loss on sale of property, plant and equipment
(4
)
 
2,568

Unit-based compensation expense
831

 

Expense from equity method investment
64

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable—related party
(15,439
)
 
29,984

Accounts receivable—third party
173

 

Accounts payable, accrued liabilities and taxes payable
44,842

 
6,370

Other assets, including inventory
(16,723
)
 
338

Net cash provided by operating activities
139,397

 
89,141

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(102,935
)
 
(84,671
)
Contributions to equity method investments
(37,420
)
 

Proceeds from the sale of fixed assets
18

 

Net cash used in investing activities
(140,337
)
 
(84,671
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings from credit facility
10,000

 

Payments on credit facility
(9,000
)
 

Net proceeds from initial public offering - public
719,627

 

Net proceeds from initial public offering - General Partner
1,000

 

Net proceeds from initial public offering - Diamondback
999

 

Distribution to Diamondback (Note 1)
(726,513
)
 

Net cash used in financing activities
(3,887
)
 

Net increase (decrease) in cash
(4,827
)
 
4,470

Cash at beginning of period
8,564

 
8

Cash at end of period
$
3,737

 
$
4,478

Supplemental disclosure of non-cash financing activity:
 
 
 
Contributions from Diamondback
$
456,055

 
$
178,517

Supplemental disclosure of non-cash investing activity:
 
 
 
Increase in long term assets and inventory
$
456,055

 
$
178,517

Change in accrued liabilities related to property, plant and equipment
$
(30,633
)
 
$
(7,039
)




The accompanying notes are an integral part of these financial statements.
*See Note 1 for information regarding the basis of financial statement presentation.

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Rattler Midstream LP
Condensed Notes to Consolidated Financial Statements
(Unaudited)



1.    ORGANIZATION AND BASIS OF PRESENTATION

Organization

Rattler Midstream LP (the “Partnership”) is a publicly traded Delaware limited partnership, the common units of which are listed on the Nasdaq Global Select Market under the symbol “RTLR”. The Partnership was formed on July 27, 2018 by Diamondback Energy, Inc. (“Diamondback”) to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Unless the context requires otherwise, references to “we,” “us,” “our” or “the Partnership” are intended to mean the business and operations of the Partnership and its consolidated subsidiary, Rattler Midstream Partners LLC (the “Operating Company” and, prior to May 28, 2019 for accounting purposes, the "Predecessor").

On January 31, 2018, Diamondback, through its wholly-owned subsidiary Tall City Towers LLC (“Tall Towers”), acquired from Fasken Midland LLC (“Fasken Midland”) certain real property and related assets in Midland, Texas (the “Fasken Center”). Tall Towers was contributed to the Predecessor effective January 31, 2018, see Note 5Acquisitions.

The Predecessor’s assets, contributed from Diamondback, included (i) crude oil and natural gas gathering and transportation systems, (ii) saltwater gathering and disposal systems and (iii) fresh water sourcing and distribution systems. All of the Partnership’s businesses are located or operate in the Permian Basin in West Texas.

Prior to the closing on May 28, 2019 of the Partnership’s initial public offering (the “IPO”) of 38,000,000 common units representing limited partner interests, Diamondback owned all of the general and limited partner interests in the Partnership. On May 30, 2019, the underwriters purchased an additional 5,700,000 common units following the exercise in full of their over-allotment option on the same terms, at a price to the public of $17.50 per common unit. The Partnership received net proceeds of approximately $719.6 million from the sale of these common units after deducting offering expenses and underwriting discounts and commissions.

In connection with the closing of the IPO, the Partnership (i) issued 107,815,152 Class B units representing an aggregate 71% voting limited partner interest in the Partnership in exchange for a $1.0 million cash contribution from Diamondback, (ii) issued a general partner interest in the Partnership to Rattler Midstream GP LLC (the “General Partner”) in exchange for a $1.0 million cash contribution from the General Partner, and (iii) caused the Operating Company to make a distribution of approximately $726.5 million to Diamondback. Diamondback, as the holder of the Class B units, and the General Partner, as the holder of the general partner interest, are entitled to receive cash preferred distributions equal to 8% per annum on the outstanding amount of their respective $1.0 million capital contributions, payable quarterly.

As of June 30, 2019, the General Partner held a 100% general partner interest in the Partnership. Diamondback owns all of the Partnership's 107,815,152 Class B units that provide a 71% voting interest. Diamondback owns and controls the General Partner.

As of June 30, 2019, the Partnership owned a 29% controlling membership interest in the Operating Company and Diamondback owned, through its ownership of the Operating Company units, a 71% economic, non-voting interest in the Operating Company. However, as required by GAAP, the Partnership consolidates 100% of the assets and operations of the Operating Company in its financial statements and reflects a non-controlling interest.

Basis of Presentation

Prior to May 28, 2019, the Partnership's services were performed by the Predecessor. The consolidated financial statements include the results of the Predecessor for the periods presented prior to the closing of the IPO on May 28, 2019. The Predecessor financial statements have been prepared from the separate records maintained by the Partnership and may not necessarily be indicative of the actual results of operations that might have occurred if the Predecessor had been operated separately during the periods reported.


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Rattler Midstream LP
Condensed Notes to Consolidated Financial Statements
(Unaudited)


The consolidated results of operations following the completion of the IPO are presented together with the results of operations pertaining to the Predecessor. The assets of the Predecessor consist of SWD wells and related gathering systems, office buildings, surface land and an oil gathering system and asset retirement obligations related to these assets, which were contributed effective January 1, 2019. See Note 5Acquisitions. The capital contribution of the net proceeds from the IPO to the Operating Company in exchange for 29% of the limited liability company units of the Operating Company was accounted for as a combination of entities under common control, with assets and liabilities transferred at their carrying amounts in a manner similar to a pooling of interests. The Partnership did not own any assets prior to May 28, 2019, the date of the equity contribution agreement by and between the Partnership and the Predecessor. Prior to the IPO, the Predecessor was a wholly owned subsidiary of Diamondback. For periods prior to May 28, 2019, the accompanying consolidated financial statements and related notes thereto represent the financial position, results of operations, cash flows and changes in members’ equity of the Predecessor and, for periods on and after May 28, 2019, the accompanying consolidated financial statements and related notes thereto represent the financial position, results of operations, cash flows and changes in partners’ equity of the Partnership and its partially owned subsidiary.

The consolidated financial statements include the accounts of the Partnership and its subsidiaries after all significant intercompany balances and transactions have been eliminated upon consolidation.

Prior to 2018, the Partnership's operations comprised a single operating business segment; however, with the contribution of Tall Towers, the Partnership's operations are now reported in two operating business segments: (i) midstream services and (ii) real estate operations. See Note 20Report of Operating Business Segments.

These consolidated financial statements have been prepared by the Partnership without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. 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 GAAP have been omitted pursuant to SEC rules and regulations, although the Partnership believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Partnership’s most recent prospectus statement dated May 22, 2019 and filed with the SEC pursuant to Rule 424(b) under the Securities Act on May 24, 2019, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2019, the Partnership's significant accounting policies are consistent with those discussed in Note 2Summary of Significant Accounting Policies of its consolidated financial statements contained in the final prospectus dated May 22, 2019 and filed with the SEC pursuant to Rule 424(b) under the Securities Act on May 24, 2019.

Use of Estimates

Certain amounts included in or affecting the Partnership’s financial statements and related notes must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Partnership reports for assets and liabilities and the Partnership’s disclosure of contingent assets and liabilities at the date of the financial statements.

Management evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods they consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from management’s estimates. Any effects on the Partnership’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, (i) revenue accruals, (ii) the fair value of long-lived assets and (iii) asset retirement obligations (“ARO”).


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Income Taxes

The Partnership is treated as a corporation for U.S. federal income tax purposes as a result of its election to be treated as a corporation effective May 24, 2019. Subsequent to the effective date of the Partnership’s election, it is subject to U.S. federal and state income tax at corporate rates. The Partnership uses the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized.

The Partnership is subject to margin tax in the state of Texas pursuant to the Tax Sharing Agreement with Diamondback, as discussed further in Note 15Income Taxes. The Predecessor’s 2016 through 2018 tax years, the periods during which the Predecessor's sole owner, Diamondback, was responsible for federal income taxes on the Predecessor's taxable income, remain open to examination by tax authorities. As of June 30, 2019, the Partnership had no unrecognized tax benefits that would have a material impact on the effective tax rate. The Partnership is continuing its practice of recognizing interest and penalties related to income tax matters as interest expense and general and administrative expenses, respectively. During the three and six months ended June 30, 2019, there was no interest or penalties associated with uncertain tax positions recognized in the Partnership’s consolidated financial statements.

Capital Contributions

A contribution of a set of assets and related liabilities (a “set”) to the Partnership from Diamondback is analyzed to determine whether the set meets the definition of a business in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”. A contribution of a set of assets that does not constitute a business is recognized at the date of the transfer at its carrying amount in the accounts of Diamondback in accordance with the guidance regarding transactions between entities under common control in ASC 805-50. Management then evaluates whether the asset contribution results in a change in the reporting entity, as defined in ASC Topic 250, “Accounting Changes and Error Corrections”. An asset contribution that does not constitute a change in the reporting entity is accounted for prospectively from the date of the transfer, while an asset contribution that constitutes a change in the reporting entity would result in retrospective application of the transaction.

For the six months ended June 30, 2019, the total capital contributions by Diamondback to the Predecessor were $456.1 million, of which $9.2 million related to an office building located in Midland Texas, $18.1 million related to land, $9.4 million related to fresh water assets, $228.3 million related to SWD assets, $35.8 million related to crude oil assets, $149.5 million related to the equity method investments in the EPIC and Gray Oak projects, $31.1 million related to elimination of current and deferred liabilities, and $(25.3) million in additional assets and liabilities, net, related to operations.

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, “Leases (Topic 842)”. This update, codified in ASC Topic 842 "Leases" ("ASC Topic 842"), applies to any entity that enters into a lease, with some specified scope exemptions. Under this update, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. While there were no major changes to lessor accounting, changes were made to align key aspects with the revenue recognition guidance. This update was effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Entities were required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In the normal course of business, the Partnership enters into lease agreements and land easements to support its midstream operations. The Partnership adopted this update effective January 1, 2019. Upon adoption effective January 1, 2019, the Partnership recognized approximately $1.2 million of right-of-use assets, of which the total amount relates to the Partnership’s operating leases. See Note 17Leases.

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In January 2018, the FASB issued ASU 2018-01, “Leases - Land Easement Practical Expedient for Transition to Topic 842”. This update applies to any entity that holds land easements. The update allows entities to adopt a practical expedient to not evaluate existing or expired land easements under Topic 842 that were not previously accounted for as leases under the current leases guidance. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. This update provides clarification and corrects unintended application of certain sections in the new lease guidance. This update was effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In July 2018, the FASB issued ASU 2018-11, “Lease (Topic 842): Targeted Improvements”. This update provides another transition method of allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This update was effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In December 2018, the FASB issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors”. This update provides a practical expedient for lessors to elect not to evaluate whether sales taxes and other similar taxes are lessor costs. The update also requires a lessor to exclude from variable payments those costs paid directly by the lessee to third parties and include lessor costs paid by the lessor and reimbursed by the lessee. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In January 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements”. This update clarifies certain presentation and transition disclosures under Topic 842. This update was effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In June 2018, the FASB issued ASU 2018-07, “Stock Compensation - Improvements to Nonemployee Share-Based Payment Accounting”. This update applies the existing employee guidance to nonemployee share-based transactions, with the exception of specific guidance related to the attribution of compensation cost. This update was effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”. This update provides clarification and corrects unintended application of the guidance in various sections. This update was effective for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Partnership adopted this update effective January 1, 2019. It did not have a material impact on its financial position, results of operations or liquidity.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses”. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This update will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

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The Partnership does not believe the adoption of this standard will have an impact on its financial statements since it does not have a history of credit losses.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. This update clarifies that receivables arising from operating leases are not in scope of this topic, but rather ASC Topic 842. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This update will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We do not believe the adoption of this standard will have an impact on our financial statements since we do not have a history of credit losses.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. This update clarifies guidance previously issued in ASU 2016-01, ASU 2016-13 and ASU 2017-12. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Partnership does not believe the updates to the referenced standards will have an impact on its financial position, results of operations or liquidity.
In May 2019, the FASB issued ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326)”. This update allows a fair value option to be elected for certain financial assets, other than held-to-maturity debt securities, that were previously required to be measured at amortized cost basis. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Partnership does not believe the adoption of this standard will have an impact on its financial position, results of operations or liquidity.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the fair value measurement disclosure requirements specifically related to Level 3 fair value measurements and transfers between levels. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This update will be applied prospectively. The Partnership is currently evaluating the impact of the adoption of this update, but does not believe it will have a material impact on its financial position, results of operations or liquidity.


3.    REVENUE FROM CONTRACTS WITH CUSTOMERS

The Partnership generates revenues by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, recycling and disposing of produced water. The Partnership adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”) on January 1, 2018, using the modified retrospective method. Under ASC Topic 606, performance obligations are the unit of account and generally represent distinct goods or services that are promised to customers. The adoption of ASC Topic 606 did not have a material impact on the recognition, measurement and presentation of the Partnership’s revenues and expenses.

Performance Obligations: For gathering crude oil and natural gas, delivering fresh water, and collecting, recycling and disposing of produced water, the Partnership’s performance obligations are satisfied over time using volumes delivered to measure progress. The Partnership records revenue related to the volumes delivered at the contract price at the time of delivery.

The Partnership began generating revenue from water sales during first quarter 2018 upon the contribution of fresh water assets from Diamondback. For its water sales, each unit sold is generally considered a distinct good and the related performance obligation is generally satisfied at a point in time (i.e. at the time control of the water is transferred to the customer). The Partnership recognizes revenue from the sale of water when its contracted performance obligation to deliver water is satisfied and control of the water is transferred to the customer. This usually occurs when the water is delivered to the location specified in the contract and the title and risks of rewards and ownership are transferred to the customer.


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Transaction Price Allocated to Remaining Performance Obligations: The majority of the Partnership’s revenue agreements have a term greater than one year and, as such, the Partnership has utilized the practical expedient in ASC Topic 606, which states that the Partnership is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under its revenue agreements, each delivery generally represents a separate performance obligation; therefore, future volumes delivered are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

The remainder of the Partnership’s revenue agreements, which relate to agreements with third parties, are short-term in nature with a term of one year or less. The Partnership has utilized an additional practical expedient in ASC Topic 606 which exempts it from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of an agreement that has an original expected duration of one year or less.

Contract Balances: Under the Partnership’s revenue agreements, the Partnership invoices customers after our performance obligations have been satisfied, at which point payment is unconditional. As such, the Partnership’s revenue agreements do not give rise to contract assets or liabilities under ASC Topic 606.

The following is a summary of the Partnership’s types of revenue agreements:

Crude Oil Gathering Agreement. Under the crude oil gathering agreement, the Partnership receives a volumetric fee per barrel (Bbl) for gathering and delivering crude oil produced by Diamondback within the dedicated acreage.

Gas Gathering and Compression Agreement. Under the gas gathering and compression agreement, the Partnership receives a volumetric fee per million British Thermal Unit (MMBtu) for gathering and processing all natural gas produced by Diamondback within the dedicated acreage.

Produced and Flowback Water Gathering and Disposal Agreement. Under the produced and flowback water gathering and disposal agreement, the Partnership receives a fee for gathering or disposing of water produced from operating crude oil and natural gas wells within the dedicated acreage. The fee is comprised of a volumetric fee per Bbl for the produced water services the Partnership provides. In addition, the Partnership retains the skim oil that is a part of the produced water. The skim oil is processed by a third party, which provides the Partnership a volumetric fee per Bbl.

Fresh water Purchase and Services Agreement. Under the fresh water purchase and services agreement, the Partnership receives a fee for sourcing, transporting and delivering all raw fresh water and recycled fresh water required by Diamondback to carry out its oil and natural gas activities within the dedicated acreage. The fee is comprised of a volumetric fee per Bbl for the type of fresh water services the Partnership provides.

Real Estate Contracts: The Partnership recognizes rental revenue from tenants on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased asset. Rental income—related party is comprised of revenues earned from lease agreements with Diamondback and its affiliates. Other real estate revenue is derived from tenants’ use of parking, telecommunications and miscellaneous services. Parking and other miscellaneous service revenue is recognized when the related services are utilized by the tenants. Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. The reimbursements are recognized and presented gross, as the Partnership is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.

It is noted that surface revenue, rental and real estate income and amortization of out of market leases is outside the scope of ASC Topic 606.


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Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and type of fee. The table also identifies the reportable segment to which the disaggregated revenues relate. For more information on reportable segments, see Note 20Report of Operating Business Segments.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
(In thousands)
2019
 
2018
 
2019
 
2018
 
Segment
Type of Service:
 
 
 
 
 
 
 
 
 
Fresh water services
$
32,585

 
$
19,001

 
$
57,481

 
$
34,764

 
Midstream
Saltwater disposal services
65,638

 
22,750

 
124,416

 
34,184

 
Midstream
Crude oil gathering
6,071

 
3,552

 
11,983

 
6,266

 
Midstream
Natural gas gathering
3,585

 
1,314

 
6,037

 
2,454

 
Midstream
Surface revenue (non ASC 606 revenues)
265

 
124

 
290

 
494

 
Midstream
Real estate contracts (non ASC 606 revenues)
3,630

 
3,047

 
6,743

 
5,501

 
Real Estate
Total revenues
$
111,774

 
$
49,788

 
$
206,950

 
$
83,663

 
 


4.    INITIAL PUBLIC OFFERING OF RATTLER MIDSTREAM LP

On August 7, 2018, a Registration Statement on Form S-1 (File No. 333-226645) was filed with the SEC relating to the proposed underwritten IPO of the Partnership. Prior to the completion of the IPO, the Predecessor was a wholly-owned subsidiary of Diamondback.

On May 22, 2019, the Partnership priced 38,000,000 common units in its IPO at a price of $17.50 per share, and on May 23, 2019, the Partnership's common units began trading on the Nasdaq Global Select Market under the symbol “RTLR”. On May 28, 2019, the Partnership closed its IPO. On May 30, 2019, the underwriters purchased an additional 5,700,000 common units following the exercise in full of their over-allotment option. The Partnership received estimated net proceeds of $719.6 million from the sale of these of common units, after deducting the underwriting discount and offering expenses.

In connection with the completion of IPO, the Partnership (i) issued 107,815,152 Class B units representing an aggregate 71% voting limited partner interest in the Partnership in exchange for a $1.0 million cash contribution from Diamondback, (ii) issued the general partner interest in the Partnership to its General Partner in exchange for a $1.0 million cash contribution from the General Partner, and (iii) caused the Operating Company to make a distribution of approximately $726.5 million to Diamondback. Diamondback, as the holder of the Class B units, and the General Partner, as the holder of the general partner interest, are entitled to receive cash preferred distributions equal to 8% per annum on the outstanding amount of their respective $1.0 million capital contributions, payable quarterly.

5.    ACQUISITIONS

Ajax and Energen Assets

Effective January 1, 2019, Diamondback contributed to the Predecessor certain midstream assets (the “Ajax Assets”) within the Permian Basin that it acquired from Ajax Resources LLC ("Ajax") as part of an upstream acquisition in the fourth quarter of 2018. These assets included 17 water wells, four SWD wells and one related gathering system, a field office, surface land, five hydraulic fracturing pits and one related fresh water transportation system. Prior to their contribution, these assets were fully integrated into the upstream business acquired from Ajax. The carrying value of assets included in this contribution was $21.5 million. The contributed assets were recognized by the Predecessor at Diamondback’s historical basis due to the entities being under common control.


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Effective January 1, 2019, Diamondback contributed to the Predecessor certain midstream assets ("the Energen Assets”) within the Permian Basin that it acquired from Energen Corporation ("Energen") as part of an upstream acquisition in the fourth quarter of 2018. These assets included 56 SWD wells and related gathering systems, an office building located in Midland Texas, surface land and an oil gathering system and asset retirement obligations related to these assets. Prior to their contribution, these assets were fully integrated into the upstream business acquired from Energen. The carrying value of assets included in this contribution was $279.0 million, net of $3.0 million in associated asset retirement obligations. The contributed assets were recognized by the Predecessor at Diamondback’s historical basis due to the entities being under common control.

The contribution of the Ajax and Energen Assets was an asset contribution that did not result in a change in the reporting entity at the Predecessor. As a result, the Ajax and Energen Assets were initially recognized at the date of the transfer at their carrying amounts in the accounts of Diamondback, and presented prospectively from that date.

Fresh Water Assets

In connection with its business operations, Diamondback constructed and/or acquired various fresh water assets, including certain freshwater wells, fresh water transportation lines and related assets (the “Fresh Water Assets”), located in the Delaware and Midland Basins of the Permian Basin. Effective January 1, 2018, Diamondback contributed the Fresh Water Assets to the Predecessor. The carrying value of assets included in this contribution was $32.8 million and $6.0 million of that amount related to fresh water inventory. The contributed assets were recognized by the Partnership at Diamondback’s historical basis due to the entities being under common control.

The contribution of the Fresh Water Assets was an asset contribution that did not result in a change in the reporting entity at the Predecessor. As a result, the Fresh Water Assets were initially recognized at the date of the transfer at their carrying amounts in the accounts of Diamondback, and presented prospectively from that date.

Tall Towers

On January 31, 2018, Diamondback, through Tall Towers, acquired from Fasken Midland certain real property and related assets in Midland, Texas for a purchase price of approximately $110.0 million. All of the membership interests in Tall Towers were contributed to the Predecessor effective January 31, 2018. Diamondback allocated the purchase price between the tangible assets, consisting of land and two office towers, and to identified intangible lease assets. The contributed assets were recognized by the Predecessor at Diamondback’s historical basis due to the entities being under common control.

Midstream Assets and Land

In connection with its business operations, Diamondback constructed and/or acquired various midstream assets located in the Delaware and Midland Basins of the Permian Basin. Upon asset completion dates during 2018, Diamondback contributed the midstream assets to the Predecessor. Such midstream assets include SWD gathering assets and wells with a carrying value of $18.2 million, land valued at $1.5 million, and a field office valued at $1.3 million. The contributed assets were recognized by the Predecessor at Diamondback’s historical basis due to the entities being under common control.


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6.    REAL ESTATE ASSETS

In conjunction with Diamondback’s contribution of Tall Towers, the Predecessor allocated the $110.0 million purchase price between real estate assets and intangible lease assets related to in-place and above-market leases. During the year ended December 31, 2018, Diamondback also contributed a field office with a fair value of $1.3 million to the Operating Company. During the three months ended March 31, 2019, as part of the Energen contribution, Diamondback contributed an office building located in Midland Texas with a value of $9.2 million. The following schedules present the cost and related accumulated depreciation or amortization (as applicable) of the Partnership’s real estate assets and intangible lease assets:

 
As of
 
Estimated Useful Lives
 
June 30, 2019
 
December 31, 2018
 
(Years)
 
(In thousands)
Buildings
30
 
$
102,061

 
$
92,349

Tenant improvements
15
 
4,182

 
4,160

Land improvements
15
 
484

 
484

Total real estate assets
 
 
106,727

 
96,993

Less: accumulated depreciation
 
 
(6,267
)
 
(3,970
)
Total investment in real estate, net
 
 
$
100,460

 
$
93,023

 
As of
 
Weighted Average Useful Lives
 
June 30, 2019
 
December 31, 2018
 
(Months)
 
(In thousands)
In-place lease intangibles
45
 
$
11,203

 
$
10,866

Less: accumulated amortization
 
 
(4,648
)
 
(3,076
)
In-place lease intangibles, net
 
 
6,555

 
7,790

 
 
 
 
 
 
Above-market lease intangibles
45
 
3,623

 
3,623

Less: accumulated amortization
 
 
(714
)
 
(459
)
Above-market lease intangibles, net
 
 
2,909

 
3,164

Total intangible lease assets, net
 
 
$
9,464

 
$
10,954



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7.    PROPERTY, PLANT AND EQUIPMENT

The following table sets forth the Partnership’s property, plant and equipment:
 
 
 
As of
 
Estimated
 
June 30,
 
December 31,
 
Useful Lives
 
2019
 
2018
 
(Years)
 
(In thousands)
Saltwater disposal systems
10-30
 
$
522,821

 
$
220,084

Crude oil gathering systems(1)
30
 
123,690

 
66,760

Natural gas gathering and compression systems(1)
10-30
 
84,750

 
60,350

Fresh water gathering systems(1)