Business Combinations

6 Months Ended

Jun. 30, 2014

Business Combination

Business Combination

5.  Business Combination

Buffalo Creek Acquisition

On May 8, 2013, the Partnership acquired natural gas gathering and processing assets from Chesapeake Energy Corporation (“Chesapeake”) for a cash purchase price of approximately $225.2 million. The acquired assets include a 200 MMcf/d cryogenic gas processing plant under construction (which commenced operation in February 2014), known as the Buffalo Creek Plant, 22 miles of gas gathering pipeline in Hemphill County, Texas and approximately 30 miles of rights-of-way associated with the future construction of a trunk line. Additional assets acquired from Chesapeake consist of an amine treating facility and a five-mile gas gathering pipeline in Washita County, Oklahoma. This acquisition is referred to as the “Buffalo Creek Acquisition.”

Concurrently with the closing of the Buffalo Creek Acquisition, the Partnership entered into a long-term fee-based agreement to provide treating, processing and certain gathering and compression services for natural gas owned or controlled by Chesapeake at the acquired facilities. Chesapeake has dedicated 130,000 acres throughout the Anadarko Basin to the Partnership as part of this long-term agreement. As a result of the acquisition, the Partnership has expanded its presence in the Granite Wash and Hogshooter formations in Oklahoma.

Contemporaneously with the Buffalo Creek Acquisition, Chesapeake agreed to extend a keep-whole processing agreement for natural gas produced in the Appalachia Basin area of the Partnership’s Northeast segment for five additional years, to 2020. The Partnership paid an additional $20.0 million of cash upon closing the Buffalo Creek Acquisition as consideration for the extension and has recorded it as Deferred contract cost in the accompanying Consolidated Balance Sheets. The deferred contract cost is being amortized over the extension term. This $20.0 million is not considered to be part of the purchase price of the Buffalo Creek Acquisition and is not included in the purchase price allocation table below.

The goodwill recognized from the Buffalo Creek Acquisition results primarily from the Partnership’s ability to grow its business in the liquids-rich gas areas of the Granite Wash and Hogshooter formations in Oklahoma and access additional markets in a competitive environment as a result of securing the gathering and processing rights for a large area of dedicated acreage. All of the goodwill is deductible for tax purposes.

The following table summarizes the purchase price allocation for the Buffalo Creek Acquisition (in thousands):

Assets:
Property, plant and equipment	144,115
Goodwill	2,682
Intangible asset	84,500
Liabilities:
Accounts payable	(6,087		)
Total	$	225,210