June 2011 And August 2010 Contract Operations Acquisition

6 Months Ended

Jun. 30, 2011

June 2011 And August 2010 Contract Operations Acquisition [Abstract]

June 2011 And August 2010 Contract Operations Acquisition

2. JUNE 2011 AND AUGUST 2010 CONTRACT OPERATIONS ACQUISITION

In June 2011, we acquired from Exterran Holdings contract operations customer service agreements with 34 customers and a fleet of 407 compressor units used to provide compression services under those agreements, comprising approximately 289,000 horsepower, or 8% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the “June 2011 Contract Operations Acquisition”). In addition, the acquired assets included 207 compressor units, comprising approximately 98,000 horsepower previously leased from Exterran Holdings to us, and a natural gas processing plant with a capacity of 8 million cubic feet per day used to provide processing services pursuant to a long-term services agreement. At the date of acquisition, the acquired fleet assets had a net book value of $191.4 million, net of accumulated depreciation of $85.5 million. Total consideration for the transaction was approximately $223.0 million, excluding transaction costs. In connection with this acquisition, we assumed $159.4 million of Exterran Holdings debt, paid $62.2 million in cash and issued approximately 51,000 general partner units to our general partner, a wholly-owned subsidiary of Exterran Holdings.

In connection with this acquisition, we were allocated $6.4 million finite life intangible assets associated with customer relationships of Exterran Holdings’ North America contract operations segment. The amounts allocated were based on the ratio of fair value of the net assets transferred to us to the total fair value of Exterran Holdings’ North America contract operations segment. These intangible assets are being amortized through 2024, based on the present value of expected income to be realized from these intangible assets.

In August 2010, we acquired from Exterran Holdings contract operations customer service agreements with 43 customers and a fleet of approximately 580 compressor units used to provide compression services under those agreements having a net book value of $121.8 million, net of accumulated depreciation of $53.6 million, and comprising approximately 255,000 horsepower, or 6% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the “August 2010 Contract Operations Acquisition”) for approximately $214.0 million, excluding transaction costs. In connection with this acquisition, we issued approximately 8.2 million common units and approximately 167,000 general partner units to Exterran Holdings’ wholly-owned subsidiaries.

In connection with this acquisition, we were allocated $5.9 million finite life intangible assets associated with customer relationships of Exterran Holdings’ North America contract operations segment. The amounts allocated were based on the ratio of fair value of the net assets transferred to us to the total fair value of Exterran Holdings’ North America contract operations segment. These intangible assets are being amortized through 2024, based on the present value of expected income to be realized from these intangible assets.

An acquisition of a business from an entity under common control is generally accounted for under GAAP by the acquirer with retroactive application as if the acquisition date was the beginning of the earliest period included in the financial statements. Retroactive effect to the June 2011 Contract Operations Acquisition and the August 2010 Contract Operations Acquisition was impracticable because such retroactive application would have required significant assumptions in a prior period that cannot be substantiated. Accordingly, our financial statements include the assets acquired, liabilities assumed, revenues and direct operating expenses associated with the acquisition beginning on the date of such acquisition. However, the preparation of pro forma financial information allows for certain assumptions that do not meet the standards of financial statements prepared in accordance with GAAP.

Unaudited Pro Forma Financial Information

Pro forma financial information for the three and six months ended June 30, 2011 and 2010 has been included to give effect to the expansion of our compressor fleet and service contracts and addition of a natural gas processing plant as a result of the June 2011 Contract Operations Acquisition and the August 2010 Contract Operations Acquisition. The June 2011 Contract Operations Acquisition and the August 2010 Contract Operations Acquisition are presented in the pro forma financial information as though the transactions occurred as of January 1, 2010. The unaudited pro forma financial information reflect the following transactions:

As related to the June 2011 Contract Operations Acquisition:

• our acquisition in June 2011 of certain contract operations customer service agreements, compression equipment and a natural gas processing plant from Exterran Holdings;

• our assumption of $159.4 million of Exterran Holdings’ long-term debt;

• our payment of $62.2 million in cash to Exterran Holdings; and

• our issuance of approximately 51,000 general partner units to our general partner, a wholly-owned subsidiary of Exterran Holdings.

As related to the August 2010 Contract Operations Acquisition:

• our acquisition in August 2010 of certain contract operations customer service agreements and compression equipment from Exterran Holdings; and

• our issuance of approximately 8.2 million common units and approximately 167,000 general partner units to Exterran Holdings’ wholly-owned subsidiaries.

The unaudited pro forma financial information below is presented for informational purposes only and is not necessarily indicative of the results of operations that would have occurred had the transaction been consummated at the beginning of the period presented, nor is it necessarily indicative of future results. The unaudited pro forma consolidated financial information below was derived by adjusting our historical financial statements.

The following table presents unaudited pro forma financial information for the three and six months ended June 30, 2011 and 2010 (in thousands, except per unit amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
Revenue	$	82,295		$	79,677	$	164,276		$	158,693
Net income (loss)	$	(1,841	)	$	3,586	$	(1,191	)	$	10,850
Basic earnings (loss) per common and subordinated limited partner unit	$	(0.07	)	$	0.10	$	(0.07	)	$	0.30
Diluted earnings (loss) per common and subordinated limited partner unit	$	(0.07	)	$	0.10	$	(0.07	)	$	0.30

Pro forma net income (loss) per limited partner unit is determined by dividing the pro forma net income (loss) that would have been allocated to the common and subordinated unitholders by the weighted average number of common and subordinated units expected to be outstanding after the completion of the transactions included in the pro forma consolidated financial statements. All units issued in connection with the June 2011 Contract Operations Acquisition and the August 2010 Contract Operations Acquisition were assumed to have been outstanding since the beginning of the period presented. Pursuant to our partnership agreement, to the extent that the quarterly distributions exceed certain targets, our general partner is entitled to receive certain incentive distributions that will result in more net income proportionately being allocated to our general partner than to the holders of our common and subordinated units. The pro forma net earnings (loss) per limited partner unit calculations reflect pro forma incentive distributions to our general partner. There was no additional pro forma reduction of net income (loss) allocable to our limited partners, including the amount of additional incentive distributions that would have occurred, for the three and six months ended June 30, 2011. The pro forma net earnings (loss) per limited partner unit calculations reflect pro forma incentive distributions to our general partner, including an additional pro forma reduction of net income (loss) allocable to our limited partners of approximately $0.1 million and $0.3 million for the three and six months ended June 30, 2010, respectively, which includes the amount of additional incentive distributions that would have occurred during the period.