16. REPORTING SEGMENTS

“Midstream” and “Production” best describe the operating segments of the businesses that we separately report. The factors used to identify these reporting segments are based on the nature of the operations that are undertaken by each segment. The Midstream segment operates the gathering, processing and transportation of crude oil, natural gas and NGLs. The Production segment operates to produce crude oil and natural gas. These segments are broadly understood across the petroleum and petrochemical industries.

These functions have been defined as the operating segments of the Partnership because they are the segments (1) that engage in business activities from which revenues are earned and expenses are incurred; (2) whose operating results are regularly reviewed by the Partnership’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance; and (3) for which discrete financial information is available. Operating segments are evaluated for their contribution to the Partnership’s consolidated results based on operating income, which is defined as segment operating revenues less expenses.

The following tables set forth our segment information for the periods indicated (in thousands):


	Three Months Ended September 30, 2017
	Production		Midstream		Total
Operating revenues
Natural gas sales	$	787	$	—	$	787
Oil sales		3,061		—		3,061
Natural gas liquids sales		514		—		514
Gathering and transportation sales		—		14,234		14,234
Total operating revenues		4,362		14,234		18,596

Operating expenses:
Lease operating expenses		1,585		150		1,735
Transportation operating expenses		—		2,661		2,661
Production taxes		340		—		340
General and administrative		4,199		1,415		5,614
Unit-based compensation expense		631		—		631
Gain on sale of assets		(2,546)		—		(2,546)
Depreciation, depletion and amortization		1,756		5,143		6,899
Accretion expense		80		69		149
Total operating expenses		6,045		9,438		15,483

Operating income (loss)	$	(1,683)	$	4,796	$	3,113


	Three Months Ended September 30, 2016
	Production		Midstream		Total
Operating revenues
Natural gas sales	$	4,434	$	—	$	4,434
Oil sales		2,159		—		2,159
Natural gas liquids sales		264		—		264
Gathering and transportation sales		—		12,997		12,997
Total operating revenues		6,857		12,997		19,854

Operating expenses:
Lease operating expenses		2,650		117		2,767
Transportation operating expenses		—		3,111		3,111
Cost of sales		99		—		99
Production taxes		290		—		290
General and administrative		4,778		1,508		6,286
Unit-based compensation expense		90		—		90
Loss on sale of assets		219		—		219
Depreciation, depletion and amortization		2,411		5,096		7,507
Accretion expense		207		64		271
Total operating expenses		10,744		9,896		20,640

Operating income (loss)	$	(3,887)	$	3,101	$	(786)


	Nine Months Ended September 30, 2017
	Production		Midstream		Total
Operating revenues
Natural gas sales	$	5,818	$	—	$	5,818
Oil sales		22,520		—		22,520
Natural gas liquids sales		1,473		—		1,473
Gathering and transportation sales		—		39,621		39,621
Total operating revenues		29,811		39,621		69,432

Operating expenses:
Lease operating expenses		9,957		642		10,599
Transportation operating expenses		—		8,989		8,989
Cost of sales		77		—		77
Production taxes		1,166		—		1,166
General and administrative		13,195		4,381		17,576
Unit compensation expense		1,951		—		1,951
Gain on sale of assets		(2,546)		—		(2,546)
Depreciation, depletion and amortization		7,961		20,056		28,017
Asset impairments		4,688		—		4,688
Accretion expense		444		203		647
Total operating expenses		36,893		34,271		71,164

Operating income (loss)	$	(7,082)	$	5,350	$	(1,732)


	Nine Months Ended September 30, 2016
	Production		Midstream		Total
Operating revenues
Natural gas sales	$	8,709	$	—	$	8,709
Oil sales		4,746		—		4,746
Natural gas liquids sales		784		—		784
Gathering and transportation sales		—		41,130		41,130
Total operating revenues		14,239		41,130		55,369

Operating expenses:
Lease operating expenses		11,430		488		11,918
Transportation operating expenses		—		9,179		9,179
Cost of sales		292		—		292
Production taxes		837		—		837
General and administrative		12,762		4,221		16,983
Unit-based compensation expense		1,619		—		1,619
Loss on sale of assets		219		—		219
Depreciation, depletion and amortization		5,560		15,264		20,824
Asset impairments		1,309		—		1,309
Accretion expense		714		187		901
Total operating expenses		34,742		29,339		64,081

Operating income (loss)	$	(20,503)	$	11,791	$	(8,712)

The following table summarizes the total assets by operating segment as of September 30, 2017 and December 31, 2016 (in thousands):


	September 30,		December 31,
	2017		2016
Segment Assets
Production	$	189,374	$	207,219
Midstream		344,310		332,486
Total assets	$	533,684	$	539,705