Goodwill and Intangible Assets (Notes)

3 Months Ended

Mar. 31, 2020

Goodwill

We perform our annual goodwill assessment during the third quarter at the reporting unit level, and update the test during interim periods when we believe events or changes in circumstances indicate that it is more likely than not that an impairment exists. During the first quarter of 2020, certain areas of our business, as well as those of other midstream companies in our peer group, suffered a significant decline in market value. This indicated both a reduction of estimated enterprise value and an increase to our estimated discount rate. Our goodwill impairment assessment is conducted by assessing whether (i) the components of our operating segments constitute businesses for which discrete financial information is available, (ii) segment management regularly reviews the operating results of those components and (iii) the economic and regulatory characteristics are similar. As a result of the increase in our estimated discount rate coupled with a decline in forecasted cash flows due to commodity pricing, we concluded the carrying value of goodwill in the North reporting unit within our Gathering and Processing segment was more likely than not impaired. Therefore, we performed an analysis to determine the estimated fair value of the North reporting unit as of March 31, 2020 and concluded that its carrying value exceeded its fair value by more than the recorded amount of goodwill within the reporting unit, resulting in an impairment charge of $159 million.

The significant decline in commodity prices and demand have decreased forecasted cash flows such that, while in excess of asset book value on an undiscounted basis, they were not sufficient to recover the value of allocated goodwill in the North reporting unit.

We primarily used a discounted cash flow analysis, supplemented by a market approach analysis, to perform our goodwill assessment. Key assumptions in the analysis include the use of an appropriate discount rate, a terminal year multiple, and estimated future cash flows, including an estimate of operating and general and administrative costs. In estimating cash flows, we incorporate current market information (including forecasted volumes and commodity prices), as well as historical and other factors. To estimate the discount rate, we used a capital asset pricing model to calculate a rate believed to be consistent with those utilized by market participants.

The carrying amount of goodwill in each of our reportable segments was as follows:


	As of March 31, 2020										As of March 31, 2019
	Gathering and Processing		Logistics and Marketing		Total		Gathering and Processing		Logistics and Marketing		Total
	(millions)
Balance, beginning of period	$	159	$	—	$	159	$	159	$	72	$	231
Impairment	(159)		—		(159)		—		—		—
Dispositions	—		—		—		—		(37)		(37)

Balance, end of period	$	—	$	—	$	—	$	159	$	35	$	194

Intangible assets consist of customer contracts, including commodity purchase, transportation and processing contracts and related relationships. The gross carrying amount and accumulated amortization of these intangible assets are included in the accompanying consolidated balance sheets as intangible assets, net, and are as follows:


	March 31,		December 31,
	2020		2019
	(millions)
Gross carrying amount	$	145	$	145
Accumulated amortization	(86)		(84)
Accumulated impairment	(11)		—
Intangible assets, net	$	48	$	61