Revenue Recognition

3 Months Ended

Mar. 31, 2022

Revenue Recognition

Revenue Recognition

4. REVENUE RECOGNITION

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

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.

During the three months ended March 31, 2022 and 2021, we recognized revenue of approximately $15.1 million and $9.3 million, respectively, under ASC 842. Mesquite accounted for 100% and 79% of total revenue for the three months ended March 31, 2022, and 2021, respectively. We are highly dependent upon Mesquite as our most significant customer.

During the three months ended March 31, 2022 and 2021, we did not record any revenue under ASC 606. 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.

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 11 “Investments.”

Contract Balances

At March 31, 2022 and December 31, 2021, our accounts receivable from contracts with customers were approximately $27.8 million and $19.1 million, respectively, under ASC 842. The gathering and transportation lease revenues utilized to determine net loss for the three months ended March 31, 2022 do not net out the approximately $9.6 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. At March 31, 2022 and December 31, 2021, the amount Mesquite continues to short-pay invoices is approximately $25.8 million and $16.2 million, respectively. As previously disclosed, on August 30, 2021, Catarina Midstream, LLC, our wholly owned subsidiary (“Catarina Midstream”) initiated a non-administered arbitration against SN Catarina, LLC pursuant to the International Institute for Conflict Prevention & Resolution Non-Administered Arbitration Rules (the “Catarina Arbitration”). The Catarina Arbitration seeks to bring commercial resolution to the tariff rate on Eastern Catarina and all disputed amounts are being held in accounts receivable during the pendency of the Catarina Arbitration. We continue to evaluate the collectability of the amounts being held in accounts receivable. Additionally, we are also involved in adversary proceeding 21-03931 (MI), which Mesquite and SN Catarina, LLC initiated against us and Catarina Midstream in the Bankruptcy Court (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 March 31, 2022 and December 31, 2021, our accounts receivables from contracts with customers was zero.