Note 6 – Investing Activities

Brazos Permian II Equity-Method Investment

During the fourth quarter of 2018, we contributed the majority of our existing Delaware basin assets and $27 million in cash in exchange for a 15 percent interest in the Brazos Permian II, which consists of gas and crude oil gathering pipelines, natural gas processing, and oil storage facilities. We recorded a deconsolidation gain of $141 million reflected in Other investing income (loss) – net in the Consolidated Statement of Operations reflecting the excess of the fair value of our acquired interest over the carrying value of the assets contributed. We estimated the fair value of our interest to be $192 million primarily using a market approach (a Level 3 measurement within the fair value hierarchy). This approach involved the observation of recent transaction multiples in the Permian basin, including recent acquisitions consummated during 2018. Our interest in Brazos Permian II is considered an equity-method investment due to the fact that we are able to exert significant influence over its operating and financial policies.

RMM Equity-Method Investment

During the third quarter of 2018, our joint venture, RMM, purchased a natural gas and oil gathering and natural gas processing business in Colorado’s Denver-Julesburg basin. Our initial economic ownership was 40 percent, which has since increased to 50 percent at December 31, 2018, based on additional capital contributions made since the initial purchase.

Jackalope Deconsolidation

During the second quarter of 2018, we deconsolidated our interest in Jackalope (see Note 4 – Variable Interest Entities). We recorded our interest in Jackalope as an equity-method investment at its estimated fair value, resulting in a deconsolidation gain of $62 million reflected in Other investing income (loss) – net in the Consolidated Statement of Operations. We estimated the fair value of our interest to be $310 million using an income approach based on expected future cash flows and an appropriate discount rate (a Level 3 measurement within the fair value hierarchy). The determination of expected future cash flows involved significant assumptions regarding gathering and processing volumes and related capital spending. A 10.9 percent discount rate was utilized and reflected our estimate of the cost of capital as impacted by market conditions and risks associated with the underlying business. The deconsolidated carrying value of the net assets of Jackalope included $47 million of goodwill.

Acquisition of Additional Interests in Appalachia Midstream Investments

During the first quarter of 2017, we exchanged all of our 50 percent interest in DBJV for an increased interest in two natural gas gathering systems that are part of the Appalachia Midstream Investments and $155 million in cash. This transaction was recorded based on our estimate of the fair value of the interests received as we have more insight to this value as we operate the underlying assets. Following this exchange, we have an approximate average 66 percent interest in the Appalachia Midstream Investments. We continue to account for this investment under the equity method of accounting due to the significant participatory rights of our partners such that we do not exercise control. We also sold all of our interest in Ranch Westex JV LLC (Ranch Westex) for $45 million. These transactions resulted in a total gain of $269 million reflected in Other investing income (loss) – net in the Consolidated Statement of Operations.

The fair value of the increased interests in the Appalachia Midstream Investments received as consideration was estimated to be $1.1 billion using an income approach based on expected cash flows and an appropriate discount rate (a Level 3 measurement within the fair value hierarchy). The determination of estimated future cash flows involved significant assumptions regarding gathering volumes, rates, and related capital spending. A 9.5 percent discount rate was utilized and reflected our estimate of the cost of capital as impacted by market conditions and risks associated with the underlying business.

Impairment of equity-method investments

The following table presents other-than-temporary impairment charges related to certain equity-method investments (see Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk):



	Years Ended December 31,
	2018		2017		2016
	(Millions)
Northeast G&P
UEOM	$	32	$	—	$	—
Appalachia Midstream Investments	—		—		294
Laurel Mountain	—		—		50
West
DBJV	—		—		59
Ranch Westex	—		—		24
Other	—		—		3
	$	32	$	—	$	430

Other investing income (loss) – net

In 2016, we recognized a $27 million gain from the sale of an equity-method investment interest in a gathering system that was part of the Appalachia Midstream Investments.

Other investing income (loss) – net also includes $36 million of interest income for 2016 associated with a receivable related to the sale of certain former Venezuela assets. Due to changes in circumstances that led to late payments and increased uncertainty regarding the recovery of the receivable, we began accounting for the receivable under a cost recovery model in first quarter 2015. Subsequently, we received payments greater than the remaining carrying amount of the receivable, which resulted in the recognition of interest income.

Investments



	Ownership Interest at December 31, 2018	December 31,
	Ownership Interest at December 31, 2018	2018		2017
		(Millions)
Equity-method investments:
Appalachia Midstream Investments	(1)	$	3,218	$	3,104
UEOM	62%	1,293		1,383
RMM	50%	776		—
Discovery	60%	507		534
OPPL	50%	415		422
Caiman II	58%	412		429
Jackalope	50%	343		—
Laurel Mountain	69%	314		309
Gulfstream	50%	225		244
Brazos Permian II	15%	191		—
Other	Various	127		127
		$	7,821	$	6,552

___________


(1)	Includes equity-method investments in multiple gathering systems in the Marcellus Shale with an approximate average 66 percent interest.

We have differences between the carrying value of our equity-method investments and the underlying equity in the net assets of the investees of $1.8 billion at December 31, 2018 and 2017. These differences primarily relate to our investments in Appalachia Midstream Investments and UEOM resulting from property, plant, and equipment, as well as customer-based intangible assets and goodwill.

Purchases of and contributions to equity-method investments

We generally fund our portion of significant expansion or development projects of these investees through additional capital contributions. These transactions increased the carrying value of our investments and included:



	Years Ended December 31,
	2018		2017		2016
	(Millions)
RMM	$	795	$	—	$	—
Appalachia Midstream Investments	246		70		28
Jackalope	42		—		—
Brazos Permian II	27		—		—
Laurel Mountain	16		—		—
Discovery	5		1		—
DBJV	—		32		105
Caiman II	—		24		22
Other	1		5		22
	$	1,132	$	132	$	177

Dividends and distributions

The organizational documents of entities in which we have an equity-method investment generally require distribution of available cash to members on at least a quarterly basis. These transactions reduced the carrying value of our investments and included:



	Years Ended December 31,
	2018		2017		2016
	(Millions)
Appalachia Midstream Investments	$	297	$	270	$	211
Gulfstream	93		92		100
OPPL	73		68		69
UEOM	70		80		92
Caiman II	46		49		40
Discovery	45		127		141
DBJV	—		39		39
Laurel Mountain	23		32		28
Other	46		27		22
	$	693	$	784	$	742

In addition, on September 24, 2015, we received a special distribution of $396 million from Gulfstream reflecting our proportional share of the proceeds from new debt issued by Gulfstream. The new debt was issued to refinance Gulfstream’s debt maturities. Subsequently, we contributed $248 million and $148 million to Gulfstream for our proportional share of amounts necessary to fund debt maturities of $500 million due on November 1, 2015, and $300 million due on June 1, 2016, respectively.

Summarized Financial Position and Results of Operations of All Equity-Method Investments



	December 31,
	2018			2017
	(Millions)
Assets (liabilities):
Current assets	$	834		$	447
Noncurrent assets	13,199			9,181
Current liabilities	(605		)	(295		)
Noncurrent liabilities	(2,491		)	(1,538		)



	Years Ended December 31,
	2018		2017		2016
	(Millions)
Gross revenue	$	2,411	$	1,961	$	1,883
Operating income	804		871		799
Net income	795		806		726