Business Combinations

12 Months Ended

Dec. 31, 2024

Note 12. Business Combinations

Acquisition of Pinon Midstream

On October 28, 2024, we acquired Pinon Midstream for $953 million in cash consideration. We funded this transaction using cash on hand.

Pinon Midstream’s assets include 43 miles of natural gas gathering and redelivery pipelines, five 3-stage compressor stations, 270 million cubic feet per day (“MMcf/d”) of hydrogen sulfide and carbon dioxide treating facilities and two high capacity acid gas injection wells.

The acquisition of Pinon Midstream was accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The preliminary allocation of purchase consideration was based upon the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The preliminary allocation was made to major categories of assets and liabilities based on management’s best estimates.

The following table presents the preliminary fair value allocation of assets acquired and liabilities assumed in the acquisition at October 28, 2024 (the effective date of the acquisition). The allocation is provisional and subject to ongoing efforts to clarify the values assigned to tangible and identifiable intangible assets.

Purchase price for 100% interest in Pinon Midstream	$	953
Recognized amounts of identifiable assets acquired and liabilities assumed (1):
Cash and cash equivalents	$	4
Property, plant and equipment		410
Contract-based intangible asset		435
Total identifiable net assets	$	849
Goodwill	$	104

(1)

As part of this transaction, we acquired other assets and assumed liabilities that net to a negligible amount. Acquired other assets primarily included accounts receivable and ROU assets. Assumed liabilities primarily included accounts payable and operating lease liabilities. None of these amounts were considered individually significant.

The estimated fair value of the acquired property, plant and equipment was determined using the cost approach. The fair value of the property, plant and equipment primarily consisted of personal property of $354 million, real property of $11 million and construction in progress of $45 million. See Note 4 for additional information regarding our property, plant and equipment.

The contract-based intangible asset represents the estimated value we assigned to the acquired long-term contracts with customers that are expected to renew in approximately 10 years at similar commercial terms. The estimated fair value of the acquired contract-based intangible assets was determined using an income approach, specifically a discounted cash flow analysis. The fair value estimate incorporates Level 3 inputs including: (i) management’s long-term forecast of cash flows generated by Pinon Midstream based on the estimated economic life of the hydrocarbon resource basin served, resource depletion rates, and expected contract renewals; and (ii) a discount rate of 16.5%, which is based on a benchmarking analysis with reference to the implied rate of return on the Pinon Midstream acquisition and a market participant weighted average cost of capital. We will amortize the value assigned to this intangible asset using a units-of-production method. The estimated useful life of the acquired contract-based intangible asset is approximately 25 years.

We recorded $104 million of goodwill in connection with this transaction. In general, we attribute this goodwill to our ability to expand the acquired sour gas gathering and treating system as well as our ability to leverage the acquired business with our existing NGL asset base to create future business opportunities.

The financial results for the acquired business will be reported as a component of our Delaware Basin Gathering System under the Natural Gas Pipelines & Services business segment.

The contribution of this newly acquired business to our consolidated revenues and net income was not material during the year ended December 31, 2024. Additionally, acquisition related costs were not material during the year ended December 31, 2024.

On a historical pro forma basis, our revenues, costs and expenses, operating income, net income attributable to common unitholders and earnings per unit for the years ended December 31, 2024 and 2023 would not have differed materially from those we actually reported had the acquisition been completed on January 1, 2023 rather than October 28, 2024.

Acquisition of Navitas Midstream

On February 17, 2022, an affiliate of Enterprise acquired all of the member interests in Navitas Midstream Partners, LLC (“Navitas Midstream”) for $3.2 billion in cash. We funded the cash consideration using proceeds from the issuance of short-term notes under EPO’s commercial paper program and cash on hand.

Navitas Midstream's assets (the “Midland Basin System”) include approximately 1,750 miles of pipelines and over 1.0 Bcf/d of cryogenic natural gas processing capacity. The acquired business expands our natural gas processing and NGL businesses to the Midland Basin in West Texas.

We engaged an independent third party business valuation expert to assist us in estimating the fair values of the tangible and intangible assets of Navitas Midstream. The following table summarizes the final fair value allocation of assets acquired and liabilities assumed in the acquisition at February 17, 2022 (the effective date of the acquisition).

Purchase price for 100% interest in Navitas Midstream	$	3,231
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	27
Property, plant and equipment		2,080
Contract-based intangible asset		989
Assumed liabilities, net of acquired other assets (1)		(24	)
Total identifiable net assets	$	3,072
Goodwill	$	159

(1)	Assumed liabilities primarily include accounts payable, other current liabilities, lease liabilities and asset retirement obligations. Acquired other assets primarily include accounts receivable, other current assets and ROU assets. None of these amounts were considered individually significant.

The contribution of this newly acquired business to our consolidated revenues and net income was not material during the year ended December 31, 2022. Additionally, acquisition related costs were not material during the year ended December 31, 2022.

On a historical pro forma basis, our revenues, costs and expenses, operating income, net income attributable to common unitholders and earnings per unit for the year ended December 31, 2022 would not have differed materially from those we actually reported had the acquisition been completed on January 1, 2022 rather than February 17, 2022.