3. ACQUISITIONS AND DIVESTITURES

Carnero Processing Acquisition

On November 22, 2016, we completed the acquisition of 50% of the outstanding membership interests in Carnero Processing, LLC (“Carnero Processing”) from Sanchez Energy and SN Midstream, LLC, (“SN Midstream”) a wholly-owned subsidiary of Sanchez Energy, for aggregate cash consideration of approximately $55.5 million and the assumption of approximately $24.5 million of remaining capital contribution commitments (the “Carnero Processing Transaction”). The membership interests acquired constitute 50% of the outstanding membership interests in Carnero Processing, with the other 50% of the membership interests being owned by TPL SouthTex Processing Company LP. Carnero Processing is constructing a cryogenic gas processing facility located in La Salle County, Texas. See Note 11. “Investments” for additional information relating to the Carnero Processing Transaction.

Production Acquisition

On November 22, 2016, we completed the acquisition from SN Cotulla Assets, LLC and SN Palmetto, LLC, each a wholly-owned subsidiary of Sanchez Energy, of working interests in 23 producing Eagle Ford Shale wellbores located in Dimmit and Zavala counties in South Texas together with escalating working interests in an additional 11 producing wellbores located in the Palmetto Field in Gonzales County, Texas (together, the “Production Acquisition”) for aggregate cash consideration of $25.6 million after $1.4 million in normal and customary closing adjustments. The effective date of the transaction was July 1, 2016. The Production Acquisition included initial conveyed working interests and net revenue interests for each property which escalate on January 1 for 2017 and 2018, at which point, SPP’s interests in the Production Acquisition properties will stay constant for the remainder of the respective lives of the assets.

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	$	26,454
Fair value of assets acquired		26,454
Asset retirement obligations		(832)
Fair value of net assets acquired	$	25,622

Carnero Gathering Transaction

On July 5, 2016, the Partnership purchased from Sanchez Energy and 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 Sanchez Energy (“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. See Note 11. “Investments” for additional information relating to the Carnero Gathering Transaction.

The Partnership made capital contributions to Carnero Gathering totaling $3.3 million between July 5, 2016 and December 31, 2016.

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 Sanchez Energy 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 Sanchez Energy.

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 Sanchez Energy		1,065
Fair value of assets acquired	$	345,840

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 Shale properties,” and such acquisition, the “Eagle Ford Acquisition”) located in the Eagle Ford Shale in Gonzales County, Texas from Sanchez Energy 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 Eagle Ford Acquisition included initial conveyed working interests and net revenue interests for each property which escalate on January 1 for each year from 2016 through 2019, at which point, SPP’s interests in the Eagle Ford Shale 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 (pre reverse unit split), 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 reverse unit split) to Sanchez Energy, 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

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 natural 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.

Results of Operations and Pro Forma Information (Unaudited)

The following unaudited pro forma combined financial information for the year ended December 31, 2015 reflect the consolidated results of operations of the Partnership as if the Western Catarina Midstream Acquisition and 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 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 Class A Preferred Units to finance a portion of the Eagle Ford Acquisition, and the related adjustments to preferred paid-in-kind distributions.

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).


	Year Ended
	December 31,
	2015
Revenues	$	105,204
Net loss attributable to common unitholders	$	(157,161)
Net loss per unit prior to conversion
Class A units - Basic and diluted	$	(17.72)
Class B units - Basic and diluted	$	(14.10)
Net loss per unit after conversion
Common units - Basic and diluted	$	(40.32)

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 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 consolidated statements of operations for the year ended December 31, 2016, for the Western Catarina Midstream Acquisition and Eagle Ford Acquisition are shown in the table that follows. As the income from the Carnero Gathering Transaction and Carnero Processing Transaction are 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 and Carnero Processing Transaction were $2.3 million for the year ended December 31, 2016. Direct operating expenses include lease operating expenses and production and ad valorem taxes (in thousands):



	Year Ended
	December 31, 2016
Revenues	$	64,243
Excess of revenues over direct operating expenses	$	47,444