Revenue Recognition

12 Months Ended

Dec. 31, 2021

Revenue Recognition

Revenue Recognition

4. REVENUE RECOGNITION

Revenue from Contracts with Customers

The majority of our revenues are accounted for under ASC 842, “Leases,” however, to a limited extent, some revenues are accounted for under ASC 606, “Revenue from Contracts with Customers.”

The unit of account in ASC 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided over a period of time. ASC 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied.

Disaggregation of Revenue

We recognized revenue of approximately $51.5 million and $44.7 million for the years ended December 31, 2021 and 2020, respectively related to lease revenue under ASC 842. As of December 31, 2021 and 2020, our accounts receivable from lease revenue were approximately $19.1 million and $3.3 million, respectively. Mesquite accounted for 93% and 80% of total revenue for the years ended December 31, 2021 and 2020, respectively. We are highly dependent upon Mesquite as our most significant customer.  

During the year ended December 31, 2021, we did not record any revenue under ASC 606.  We recognized approximately $0.8 million of revenue under ASC 606 for the year ended December 31, 2020. We disaggregate revenue

based on revenue and product type. In selecting the disaggregation categories, we considered a number of factors, including disclosures presented outside the financial statements, such as in our earnings release and investor presentations, information reviewed internally for evaluating performance, and other factors used by the Partnership or the users of its financial statements to evaluate performance or allocate resources.  We have concluded that disaggregating revenue by revenue and product type appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Firm Transportation Service Agreement, dated September 1, 2017, by and between Seco Pipeline, LLC and SN Catarina, LLC (the “Seco Pipeline Transportation Agreement”) is the only contract that we historically accounted for under ASC 606. The Seco Pipeline Transportation Agreement was terminated by Mesquite effective February 12, 2020. The Gathering Agreement is classified as an operating lease and is accounted for under ASC 842, “Leases” and is reported as gathering and transportation lease revenues in our condensed consolidated statements of operations.

We account for income from our unconsolidated equity method investments as earnings from equity investments in our condensed consolidated statements of operations. Earnings from these equity method investments are further discussed in Note 12 “Investments.”

Performance Obligations

Pursuant to the Seco Pipeline Transportation Agreement, we agreed to provide transportation services of certain quantities of natural gas from the receipt point to the delivery point. Each MMBtu of natural gas transported is distinct and the transportation services performed on each distinct molecule of product is substantially the same in nature. We applied the series guidance and treat these services as a single performance obligation satisfied over time using volumes delivered as the measure of progress. The Seco Pipeline Transportation Agreement requires payment within 30 days following the calendar month of delivery.

The Seco Pipeline Transportation Agreement contains variable consideration in the form of volume variability. As the distinct goods or services (rather than the series) are considered for the purpose of allocating variable consideration, we have taken the optional exception under ASC 606 which is available only for wholly unsatisfied performance obligations for which the criteria in ASC 606 have been met. Under this exception, neither estimation of variable consideration nor disclosure of the transaction price allocated to the remaining performance obligations is required. Revenue is alternatively recognized in the period that control is transferred to the customer and the respective variable component of the total transaction price is resolved.

For forms of variable consideration that are not associated with a specific volume (such as late payment fees) and thus do not meet allocation exception, estimation is required. These fees, however, are immaterial to our consolidated financial statements and have a low probability of occurrence. As significant reversals of revenue due to this variability are not probable, no estimation is required.

Contract Balances

At December 31, 2021, and 2020 our accounts receivable from contracts with customers were approximately $19.1 million and approximately $3.3 million, respectively, under ASC 842. The gathering and transportation lease revenues utilized to determine net loss for the year ended December 31, 2021 do not net out the approximately $16.2 million of such revenues that have not been collected from Mesquite. As previously disclosed, on June 24, 2021, we increased the tariff rate for interruptible throughput volumes from Eastern Catarina. Despite the increase, Mesquite continues to short-pay invoices and is currently paying the fees being charged for throughput volumes from Western Catarina for all throughput volumes from Eastern Catarina. As previously disclosed, we are currently engaged in the Catarina Arbitration with Mesquite, which seeks to bring commercial resolution to the tariff rate on Eastern Catarina and all disputed amounts are being held in suspense during the pendency of the Catarina Arbitration. We continue to evaluate the collectability of the amounts being held in suspense. Additionally, we are also involved in the Mesquite Adversary. There can be no guarantee that we are able to reach any commercial resolution and our failure to do so could adversely affect our business, financial condition, cash flows and results of operations.

Under our sales contracts, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. At December 31, 2021, and 2020 our accounts receivable from contracts with customers were zero and approximately $1.9 million, respectively, and are presented within accounts receivable – related entities on the consolidated balance sheets.