17. 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 (“CODM”) 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.

We realigned the composition of our operating segments to reflect management's view of the operating results during the fourth quarter 2017. The following tables present financial information for each operating segment for the periods indicated based on the realignment of our operating segments (in thousands):


	Three Months Ended March 31, 2018
	Production		Midstream		Total
Segment revenues
Natural gas sales	$	473	$	—	$	473
Oil sales		3,462		—		3,462
Natural gas liquid sales		595		—		595
Gathering and transportation sales		—		1,688		1,688
Gathering and transportation lease revenues		—		12,318		12,318
Total segment revenues		4,530		14,006		18,536

Segment operating costs
Lease operating expenses		1,752		219		1,971
Transportation operating expenses		—		2,847		2,847
Production taxes		322		—		322
Depreciation, depletion and amortization		1,363		5,265		6,628
Accretion expense		54		72		126
Total segment operating costs		3,491		8,403		11,894

Segment other income
Earnings from equity investments		—		4,272		4,272
Total segment other income		—		4,272		4,272

Segment operating income	$	1,039	$	9,875	$	10,914


	Three Months Ended March 31, 2017
	Production		Midstream		Total
Segment operating revenues
Natural gas sales	$	2,779	$	—	$	2,779
Oil sales		11,350		—		11,350
Natural gas liquid sales		467		—		467
Gathering and transportation sales		—		11,211		11,211
Total segment operating revenues		14,596		11,211		25,807

Segment operating costs
Lease operating expenses		4,724		259		4,983
Transportation operating expenses		—		3,296		3,296
Cost of sales		37		—		37
Production taxes		473		—		473
Depreciation, depletion and amortization		3,281		8,900		12,181
Asset impairments		4,688		—		4,688
Accretion expense		192		66		258
Total segment operating costs		13,395		12,521		25,916

Segment other income
Earnings from equity investments		(136)		618		482
Total segment other income (loss)		(136)		618		482

Segment operating income (loss)	$	1,065	$	(692)	$	373


	Three Months Ended
	March 31,
	2018		2017
Reconciliation of segment operating income to net income (loss)
Total segment operating income	$	10,914	$	373
General and administrative		(5,165)		(5,609)
Unit-based compensation expense		(1,438)		(540)
Interest expense, net		(2,599)		(1,883)
Other income (expense)(a)		(270)		—
Net income (loss)	$	1,442	$	(7,659)

(a)

Other expense in 2017 excludes earnout rebate. As the rebate is reviewed by the CODM at the segment level, it was included in the Midstream segment operating costs.

The following table summarizes the total assets and capital expenditures by operating segment based on the segment realignment as of March 31, 2018 and 2017 (in thousands):


	March 31, 2018
	Production		Midstream		Corporate (a)		Total
Other financial information
Total assets	$	54,799	$	455,388	$	2,775	$	512,962
Capital expenditures(b)	$	3	$	701	$	—	$	704


	December 31, 2017
	Production		Midstream		Corporate (a)		Total
Other financial information
Total assets	$	58,623	$	468,656	$	1,144	$	528,423
Capital expenditures(b)	$	441	$	46,452	$	—	$	46,893

	(a)		Corporate assets not reviewed by the CODM on a segment basis consists of cash, certain prepaids, office furniture, and other assets.
	(b)		Inclusive of capital contributions made to equity method investments.