3. ACQUISITIONS AND DIVESTITURES

Our acquisitions are accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” A business combination may result in the recognition of a gain or goodwill based on the measurement of the fair value of the assets acquired at the acquisition date as compared to the fair value of consideration transferred, adjusted for purchase price adjustments. The initial accounting for acquisitions may not be complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition dates. The results of operations of the properties acquired in our acquisitions have been included in the condensed consolidated financial statements since the closing dates of the acquisitions.

Eagle Ford Acquisition

On March 31, 2015, we completed an acquisition of wellbore interests in certain producing oil and natural gas properties in Gonzales County, Texas (the “Eagle Ford Properties,” and such acquisition, the “Eagle Ford Acquisition”) located in the Eagle Ford Shale in Gonzales County, Texas from SN for a purchase price of $85 million, subject to normal and customary closing adjustments. The effective date of the transaction was January 1, 2015. The acquisition included initial conveyed working interests and net revenue interests for each property that escalate on January 1 for each year from 2016 through 2019, at which point, SPP’s interests in the Eagle Ford Properties will stay constant for the remainder of the respective lives of the assets.

The adjusted purchase price of $83.4 million was funded at closing with net proceeds from the private placement of 10,625,000 newly created Class A Preferred Units, which were issued for a cash purchase price of $1.60 per unit, resulting in gross proceeds to SPP of $17.0 million, the issuance of 1,052,632 common units (approximately 105,263 common units after adjusting for a reverse unit split) to SN, borrowings under the Partnership’s Credit Agreement (as defined in Note 6, “Long-Term Debt”), and available cash. The total purchase price was allocated to the assets purchased and liabilities assumed based upon their fair values on the date of acquisition as follows (in thousands):


Proved developed reserves	$	72,889
Facilities		8,002
Fair value of hedges assumed		3,408
Fair value of assets acquired		84,299
Asset retirement obligations		(877)
Ad valorem tax liability		(44)
Fair value of net assets acquired	$	83,378

Western Catarina Midstream Acquisition

On October 14, 2015, we completed an acquisition of midstream assets located in Western Catarina, in the Eagle Ford Shale in South Texas from SN for a purchase price of $345.8 million, subject to normal and customary closing adjustments (the “Western Catarina Midstream Acquisition”). The purchase price was funded at closing with net proceeds from the sale of Class B Preferred Units to Stonepeak Catarina Holdings LLC, an affiliate of Stonepeak Infrastructure Partners (“Stonepeak”), and available cash. Additionally, as a result of the Western Catarina Midstream Acquisition, we repurchased 105,263 common units previously held by a subsidiary of SN.

The total purchase price was allocated to the assets purchased and liabilities assumed based upon their fair values on the date of acquisition as follows (in thousands):


Fixed assets	$	142,887
Contractual customer relationships		201,888
Purchase of SPP common units from SN		1,065
Fair value of assets acquired	$	345,840

Carnero Gathering Transaction

On July 5, 2016, the Partnership purchased from SN and SN Midstream, LLC, a wholly-owned subsidiary of SN (“SN Midstream”), 50% of the issued and outstanding membership interests in Carnero Gathering for total consideration of approximately $37.0 million, plus the assumption of approximately $7.4 million of remaining capital contribution commitments (the “Carnero Gathering Transaction”). In addition, the Partnership is required to pay an earnout based on gas received at the delivery points from SN Catarina, LLC, a wholly-owned subsidiary of SN (“SN Catarina”), and other producers. The membership interests acquired constitute 50% of the outstanding membership interests in Carnero Gathering, with the other 50% of the membership interests being owned by TPL SouthTex Processing Company LP. Carnero Gathering operates a gas gathering pipeline from an interconnection in Webb County, Texas to interconnection(s) with a gas processing facility being developed and constructed by Carnero Processing, LLC (“Carnero Processing”). See Note 10. “Investments” for additional information relating to the Carnero Gathering Transaction.

The Partnership made capital contributions to Carnero Gathering totaling $3.0 million between July 5, 2016 and September 30, 2016.

Mid-Continent Divestiture

On June 15, 2016, certain wholly-owned subsidiaries of the Partnership entered into an agreement with Gateway Resources U.S.A., Inc. (“Gateway”) to sell substantially all of the Partnership’s operated oil and gas wells, leases and other associated assets and interests in Oklahoma and Kansas (other than those arising under or related to a concession agreement with the Osage Nation) (the “Mid-Continent Divestiture”) for cash consideration of $7,120, subject to adjustment for title and environmental defects, effective as of August 1, 2016 (the “Effective Time”). In addition, Gateway agreed to assume all obligations relating to the assets arising after the Effective Time and all plugging and abandonment costs relating to the assets arising prior to the Effective Time. The Partnership closed the sale of this transaction on July 15, 2016. The Partnership recorded a $0.2 million loss related to an intangible asset balance comprised of marketing contracts from the 2007 Newfield acquisition which were included in the Mid-Continent Divestiture.

Pro Forma Operating Results (Unaudited)

The following unaudited pro forma combined financial information for the three and nine months ended September 30, 2016 and 2015 reflect the consolidated results of operations of the Partnership as if the Western Catarina Midstream Acquisition, the Carnero Gathering Transaction, and the Eagle Ford Acquisition and related financings had occurred on January 1, 2015. The pro forma information includes adjustments primarily for revenues and expenses from the acquired properties, depreciation, depletion, amortization and accretion, interest expense and debt issuance cost amortization for acquisition debt, amortization of customer contract intangible assets acquired and paid-in-kind units issued in connection with the Class A Preferred Units.

The unaudited pro forma combined financial statements give effect to the events set forth below:

The Canero Gathering Transaction completed on July 5, 2016.

The Western Catarina Midstream Acquisition completed on October 14, 2015.

Issuance of Class B Preferred Units to finance the Western Catarina Midstream Acquisition.

Repurchase of common units issued to finance a portion of the Eagle Ford Acquisition as a part of the Western Catarina Midstream Acquisition, and the related effect on net income (loss) per common unit.

The Eagle Ford Acquisition completed on March 31, 2015.

The increase in borrowings under the Credit Agreement to finance a portion of the Eagle Ford Acquisition, and the related adjustments to interest expense.

Issuance of common units to finance a portion of the Eagle Ford Acquisition and the related effect on net income (loss) per common unit (in thousands, except per unit amounts).


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenues	$	19,854	$	36,219	$	55,369	$	77,341
Net income (loss) attributable to common unitholders	$	9,519	$	(5,054)	$	(16,114)	$	(130,036)
Net income (loss) per unit prior to conversion
Class A units - Basic and diluted	$	—	$	—	$	—	$	(23.87)
Class B units - Basic and diluted	$	—	$	—	$	—	$	(18.99)
Net income (loss) per unit after conversion
Common units - Basic	$	2.38	$	(1.18)	$	(4.08)	$	(16.64)
Common units - Diluted	$	1.21	$	(1.18)	$	(4.08)	$	(16.64)

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Partnership would have reported had the Carnero Gathering Transaction, Western Catarina Midstream Acquisition, and Eagle Ford Acquisition and related financings been completed as of the date set forth in this unaudited pro forma combined financial information and should not be taken as indicative of the Partnership’s future combined results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

Post-Acquisition Operating Results

The amounts of revenue and excess of revenues over direct operating expenses included in the Partnership’s condensed consolidated statements of operations for the three and nine months ended September 30, 2016, for the Eagle Ford Acquisition and Western Catarina Midstream Acquisition are shown in the table that follows. As the income from the Carnero Gathering Transaction is classified under earnings from equity investments on the income statement, it is not included in operating results below. However, earnings resulting from the Carnero Gathering Transaction were $1.3 million for the three and nine months ended September 30, 2016. Direct operating expenses include lease operating expenses and production and ad valorem taxes (in thousands):


	Three
	Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2016
Revenues	$	15,208	$	47,365
Excess of revenues over direct operating expenses	$	11,415	$	35,086