10-K 1 a14-24877_110k.htm 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file no.: 001-33078

Exterran Partners, L.P.

(Exact name of registrant as specified in its charter)

Delaware		22-3935108
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

16666 Northchase Drive, Houston, Texas		77060
(Address of principal executive offices)		(Zip code)

(281) 836-7000

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Units representing limited partner interests		NASDAQ Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of common units held by non-affiliates of the registrant (treating directors and executive officers of the registrant’s general partner and holders of 5% or more of the common units outstanding, for this purpose, as if they were affiliates of the registrant) as of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, was $763,172,309. This calculation does not reflect a determination that such persons are affiliates for any other purpose.

As of February 19, 2015, there were 55,666,044 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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		Page
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	34
Item 2.	Properties	34
Item 3.	Legal Proceedings	34
Item 4.	Mine Safety Disclosures	36

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	37
Item 6.	Selected Financial Data	39
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 8.	Financial Statements and Supplementary Data	58
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	58
Item 9A.	Controls and Procedures	59
Item 9B.	Other Information	61

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	61
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86
Item 13.	Certain Relationships and Related Transactions and Director Independence	88
Item 14.	Principal Accountant Fees and Services	92

PART IV
Item 15.	Exhibits and Financial Statement Schedules	92
	SIGNATURES	96

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PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements.” All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding Exterran Partners, L.P.’s (together with its subsidiaries, “we,” “our,” “us” or “the Partnership”) business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations and make cash distributions; the expected amount of our capital expenditures; future revenue, gross margin and other financial or operational measures related to our business; the future value of our equipment; plans and objectives of our management for our future operations; and any potential contribution of additional assets from Exterran Holdings, Inc. (individually, and together with its wholly-owned subsidiaries, “Exterran Holdings”) to us. You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “will continue” or similar words or the negative thereof.

Known material factors that could cause our actual results to differ from those in these forward-looking statements are described below, in Part I, Item 1A (“Risk Factors”) and Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of this report. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

· conditions in the oil and natural gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained low price of oil or natural gas, which could cause a decline in the demand or pricing for our natural gas compression services;

· our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

· our dependence on Exterran Holdings to provide services and compression equipment, including its ability to hire, train and retain key employees and to timely and cost effectively obtain compression equipment and components necessary to conduct our business;

· changes in economic or political conditions, including terrorism and legislative changes;

· the inherent risks associated with our operations, such as equipment defects, impairments, malfunctions and natural disasters;

· loss of our status as a partnership for United States of America (“U.S.”) federal income tax purposes;

· the risk that counterparties will not perform their obligations under our financial instruments;

· the financial condition of our customers;

· our ability to implement certain business and financial objectives, such as:

· growing our asset base and asset utilization;

· winning profitable new business;

· integrating acquired businesses;

· generating sufficient cash;

· accessing the capital markets at an acceptable cost; and

· purchasing additional contract operations contracts and equipment from Exterran Holdings;

· liability related to the provision of our services;

· changes in governmental safety, health, environmental or other regulations, which could require us to make significant expenditures; and

· our level of indebtedness and ability to fund our business.

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All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

Item 1. Business

General

We are a Delaware limited partnership formed in June 2006 to provide natural gas contract operations services to customers throughout the U.S. We completed our initial public offering in October 2006. We are the market leader in the U.S. full-service natural gas compression business. As of December 31, 2014, public unitholders held a 63% ownership interest in us and Exterran Holdings owned our remaining equity interests, including our general partner interest and all of the incentive distribution rights. Exterran General Partner, L.P., our general partner, is an indirect, wholly-owned subsidiary of Exterran Holdings and has sole responsibility for conducting our business and for managing our operations, which are conducted through our wholly-owned limited liability company, EXLP Operating LLC. Because our general partner is a limited partnership, its general partner, Exterran GP LLC, conducts our business and operations. Exterran GP LLC’s board of directors and officers, which we sometimes refer to as our board of directors and our officers, make decisions on our behalf. All of those directors are elected by Exterran Holdings.

Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers. We monitor our customers’ compression services requirements over time and, as necessary, modify the level of services and related equipment we employ to address changing operating conditions. We only operate in one segment; see the Consolidated Financial Statements included in Part II, Item 8 (“Financial Statements”) of this report for more information on results of operations and financial condition.

We are a party to an omnibus agreement with Exterran Holdings, our general partner and others (as amended and/or restated, the “Omnibus Agreement”), which includes, among other things:

· certain agreements not to compete between Exterran Holdings and its affiliates, on the one hand, and us and our affiliates, on the other hand;

· Exterran Holdings’ obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Exterran Holdings for such services;

· the terms under which we, Exterran Holdings, and our respective affiliates may transfer, exchange or lease compression equipment among one another;

· the terms under which we may purchase newly-fabricated contract operations equipment from Exterran Holdings;

· Exterran Holdings’ grant to us of a license to use certain intellectual property, including our logo; and

· Exterran Holdings’ and our obligations to indemnify each other for certain liabilities.

Our general partner does not receive any compensation for managing our business, but it is entitled to reimbursement of all direct and indirect expenses incurred on our behalf. Exterran Holdings and our general partner are also entitled to distributions on their limited partner interest and general partner interest, respectively and, if specified requirements are met, our general partner is entitled to distributions on its incentive distribution rights. From January 1, 2014 through December 31, 2014, our general partner received $10.6 million in distributions on its incentive distribution rights. For further discussion of our cash distribution policy, see “Cash Distribution Policy” included in Part II, Item 5 (“Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”) of this report.

During each of the years ended December 31, 2013 and 2012, we acquired from Exterran Holdings contract operations service agreements and a fleet of compressor units used to provide compression services under those agreements (the 2013 and 2012 acquisitions are referred to as the “March 2013 Contract Operations Acquisition” and the “March 2012 Contract Operations Acquisition,” respectively).

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Billiton”) to provide compression services. In connection with the acquisition, the contract operations services agreement with BHP Billiton was assigned to us effective as of the closing. During the year ended December 31, 2014, we incurred transaction costs of approximately $1.0 million related to the August 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our consolidated statements of operations.

In accordance with the terms of the Purchase and Sale Agreement relating to this acquisition, we directed MidCon to sell a tract of real property and the facility located thereon, a fleet of vehicles, personal property and parts inventory to a wholly-owned subsidiary of Exterran Holdings that is our indirect parent company for $4.1 million.

On April 10, 2014, we completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon for $352.9 million (the “April 2014 MidCon Acquisition”). The purchase price was funded with the net proceeds from the sale, pursuant to a public underwritten offering, of 6.2 million common units and a portion of the net proceeds from the issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the “2014 Notes”). The compressor units were previously used by MidCon to provide compression services to a subsidiary of Access Midstream Partners LP (“Access”). Effective as of the closing of the acquisition, we and Access entered into a seven-year contract operations services agreement under which we provide compression services to Williams Partners, L.P. (“Williams,” formerly Access). During the year ended December 31, 2014, we incurred transaction costs of approximately $1.5 million related to the April 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our consolidated statements of operations.

Exterran Holdings intends for us to be the primary long-term growth vehicle for its U.S. contract operations business and may, but is not obligated to, offer us the opportunity to purchase additional portions of its U.S. contract operations business over time. Likewise, we are not required to purchase any additional portions of such business. The consummation of any future purchase of additional portions of Exterran Holdings’ U.S. contract operations business and the timing of any such purchase will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of such purchase, which will require the approval of the conflicts committee of our board of directors. The timing of such transactions would also depend on, among other things, market and economic conditions and our access to additional debt and equity capital. Future acquisitions of assets from Exterran Holdings may increase or decrease our operating performance, financial position and liquidity. Unless otherwise indicated, this discussion in Part I, Item 1 (“Business”) excludes any future potential transfers of additional contract operations customer service agreements and equipment from Exterran Holdings to us.

Proposed Exterran Holdings Spinoff Transaction

On November 17, 2014, Exterran Holdings announced that it will pursue a plan to separate (the “Spinoff”) its international contract operations, international aftermarket services and global fabrication businesses into an independent, publicly traded company (“Spinco”). To effect the Spinoff, Exterran Holdings intends to distribute, on a pro rata basis, all of the shares of Spinco common stock to its stockholders as of the record date for the Spinoff. The Spinoff is subject to market conditions, the execution of separation and intercompany agreements and certain other conditions and approvals. Upon completion of the Spinoff, Exterran Holdings and Spinco will be independent, publicly traded companies with separate public ownership, boards of directors and management, and Exterran Holdings will own and operate the remaining U.S. contract operations and U.S. aftermarket services businesses that Exterran Holdings currently owns. In addition, Exterran Holdings will continue to hold its equity interests in us, including our general partner interest and certain limited partner interests, and all of the incentive distribution rights. Although Exterran Holdings currently intends to complete the Spinoff in the second half of 2015, there are no assurances as to when the proposed Spinoff will be completed, if at all, or if the Spinoff will be completed based on the expected plans.

Natural Gas Compression Industry Overview

Natural gas compression is a mechanical process whereby the pressure of a given volume of natural gas is increased to a desired higher pressure for transportation from one point to another. It is essential to the production and transportation of natural gas. Compression is typically required several times during the natural gas production and transportation cycle, including (i) at the wellhead, (ii) throughout gathering and distribution systems, (iii) into and out of processing and storage facilities and (iv) along intrastate and interstate pipelines.

· Wellhead and Gathering Systems — Natural gas compression is used to transport natural gas from the wellhead through the gathering system. At some point during the life of natural gas wells reservoir, pressures typically fall below the line pressure

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of the natural gas gathering or pipeline system used to transport the natural gas to market. At that point, natural gas no longer naturally flows into the pipeline. Compression equipment is applied in both field and gathering systems to boost the pressure levels of the natural gas flowing from the well allowing it to be transported to market. Changes in pressure levels in natural gas fields require periodic changes to the size and/or type of on-site compression equipment. Additionally, compression is used to reinject natural gas into producing oil wells to maintain reservoir pressure and help lift liquids to the surface, which is known as secondary oil recovery or natural gas lift operations. Typically, these applications require low- to mid-range horsepower compression equipment located at or near the wellhead. Compression equipment is also used to increase the efficiency of a low-capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing.

· Pipeline Transportation Systems — Natural gas compression is used during the transportation of natural gas from the gathering systems to storage or the end user. Natural gas transported through a pipeline loses pressure over the length of the pipeline. Compression is staged along the pipeline to increase capacity and boost pressure to overcome the friction and hydrostatic losses inherent in normal operations. These pipeline applications generally require larger horsepower compression equipment (1,500 horsepower and higher).

· Storage Facilities — Natural gas compression is used in natural gas storage projects for injection and withdrawals during the normal operational cycles of these facilities.

· Processing Applications — Compressors may also be used in combination with natural gas production and processing equipment and to process natural gas into other marketable energy sources. In addition, compression services are used for compression applications in refineries and petrochemical plants.

Many natural gas producers, transporters and processors outsource their compression services due to the benefits and flexibility of contract compression. Changing well and pipeline pressures and conditions over the life of a well often require producers to reconfigure or replace their compressor units to optimize the well production or gathering system efficiency.

We believe outsourcing compression operations to compression service providers such as us offers customers:

· the ability to efficiently meet their changing compression needs over time while limiting the underutilization of their owned compression equipment;

· access to the compression service provider’s specialized personnel and technical skills, including engineers and field service and maintenance employees, which we believe generally leads to improved production rates and/or increased throughput;

· the ability to increase their profitability by transporting or producing a higher volume of natural gas through decreased compression downtime and reduced operating, maintenance and equipment costs by allowing the compression service provider to efficiently manage their compression needs; and

· the flexibility to deploy their capital on projects more directly related to their primary business by reducing their compression equipment and maintenance capital requirements.

We believe the U.S. natural gas compression services industry continues to have growth potential over time due to, among other things, increased natural gas production from unconventional sources and aging producing natural gas fields that will require more compression to continue producing the same volume of natural gas.

Contract Operations Services Overview

We provide comprehensive contract operations services, including the personnel, equipment, tools, materials and supplies to meet our customers’ natural gas compression needs. Based on the operating specifications at the customer’s location and the customer’s unique compression needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment. When providing contract operations services, we work closely with a customer’s field service personnel so that the compression services can be adjusted to efficiently match changing characteristics of the natural gas reservoir and the natural gas produced. We routinely repackage or reconfigure a portion of our existing fleet to adapt to our customers’ compression services needs. We utilize both slow and high speed reciprocating compressors primarily driven by internal natural gas fired combustion engines. We also utilize rotary screw compressors for specialized applications.

Our equipment is maintained in accordance with established maintenance schedules. These maintenance procedures are updated as technology changes and as Exterran Holdings develops new techniques and procedures. Because Exterran Holdings’ field technicians provide maintenance on substantially all of our contract operations equipment, they are familiar with the condition of our equipment

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and can readily identify potential problems. In our and Exterran Holdings’ experience, these maintenance procedures maximize equipment life and unit availability, minimize avoidable downtime and lower the overall maintenance expenditures over the equipment life. Generally, each of our compressor units undergoes a major overhaul once every three to seven years, depending on the type, size and utilization of the unit. If a unit requires maintenance or reconfiguration, Exterran Holdings’ maintenance personnel service it as quickly as possible to meet our customers’ needs.

Our customers typically contract for our contract operations services on a site-by-site basis for a specific monthly service rate that is generally reduced if we fail to operate in accordance with the contract requirements. Following the initial minimum term for our contract compression services, which is typically between six and twelve months, contract compression services generally continue until terminated by either party with 30 days’ advance notice. Our customers generally are required to pay our monthly service fee even during periods of limited or disrupted natural gas flows, which enhances the stability and predictability of our cash flows. Additionally, because we typically do not take title to the natural gas we compress, and the natural gas we use as fuel for our compressors is supplied by our customers, we have limited direct exposure to commodity price fluctuations. See “General Terms of our Contract Operations Customer Service Agreements,” below, for a more detailed description.

We intend to continue to work with Exterran Holdings to manage our respective U.S. fleets as one pool of compression equipment from which we can each readily fulfill our respective customers’ service needs. When one of Exterran Holdings’ salespersons is advised of a new contract operations services opportunity allocable to us, he or she will obtain relevant information concerning the project, including natural gas flow, pressure and natural gas composition, and then review our and Exterran Holdings’ fleets for an available and appropriate compressor unit. If we have enough lead time for a potential project, we may choose to purchase newly-fabricated equipment from Exterran Holdings or others to fulfill our customers’ needs. Please read Part III, Item 13 (“Certain Relationships and Related Transactions and Director Independence”) of this report for additional information regarding our ability to share or exchange compression equipment with, or purchase equipment from, Exterran Holdings.

The size and horsepower of our natural gas compressor fleet on December 31, 2014 is summarized in the following table:

Range of Horsepower Per Unit	Number of Units	Aggregate Horsepower (in thousands)	% of Horsepower
0-200	2,737	317	10	%
201-500	1,899	506	16	%
501-800	408	255	8	%
801-1,100	213	202	7	%
1,101-1,500	924	1,257	40	%
1,501 and over	291	602	19	%
Total(1)	6,472	3,139	100	%

(1) Includes 229 compressor units, comprising approximately 79,000 horsepower, leased from Exterran Holdings and excludes 1 compressor unit, comprising approximately 100 horsepower, leased to Exterran Holdings (see Note 3 to the Financial Statements).

Over the last several years, Exterran Holdings has undertaken efforts to standardize its compressor fleet around major components and key suppliers. Because a significant portion of our fleet consists of Exterran Holdings’ former fleet, we benefit from these efforts, as well. Standardization of our fleet:

· enables us to minimize our fleet operating costs and maintenance capital requirements;

· facilitates low-cost compressor resizing; and

· allows us to develop improved technical proficiency in our maintenance and overhaul operations, which enables us to achieve high run-time rates while maintaining lower operating costs.

As mentioned above, pursuant to the Omnibus Agreement, Exterran Holdings provides us with all operational staff, corporate staff and support services necessary to run our business.

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Business Strategy

We intend to continue to capitalize on our competitive strengths to meet our customers’ needs through the following key strategies:

· Leverage our relationship with Exterran Holdings. Our relationship with Exterran Holdings provides us numerous revenue and cost advantages, including the ability to access new and idle compression equipment, deploy that equipment in most of the major natural gas producing regions in the U.S. and provide maintenance and operational support on a more cost effective basis than we could without this relationship.

· Build our business organically by capitalizing on the long-term fundamentals for the U.S. natural gas compression industry. We believe our ability to efficiently meet our customers’ evolving compression needs, our long-standing customer relationships and our large compressor fleet will enable us to capitalize on what we believe are long-term fundamentals for the U.S. natural gas compression industry. These fundamentals include increased unconventional natural gas production, decreasing natural reservoir pressures, significant natural gas resources in the U.S. and the continued need for compression services.

· Grow our business through acquisitions. We plan to grow over time through accretive acquisitions of assets from Exterran Holdings, third-party compression providers and natural gas transporters or producers. Including our initial public offering, we have completed eight acquisitions from Exterran Holdings of compressor units comprising approximately 2.4 million horsepower, and during 2014, we completed two third-party acquisitions from MidCon that included a fleet of compressor units comprising approximately 0.6 million horsepower. Exterran Holdings may, but is not obligated to, offer us the opportunity to purchase additional portions of its U.S. contract operations business over time. The consummation of any future purchase of additional portions of Exterran Holdings’ business and the timing of any such purchase will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of such purchase, which will require the approval of the conflicts committee of our board of directors. The timing of such transactions would also depend on, among other things, market and economic conditions and our access to additional debt and equity capital.

Competitive Strengths

We believe we have the following key competitive strengths:

· Our relationship with Exterran Holdings. Our relationship with Exterran Holdings and our access to its personnel, fabrication operations, logistical capabilities, geographic scope and operational efficiencies allow us to provide a full complement of contract operations services. We and Exterran Holdings intend to continue to manage our respective U.S. compression fleets as one pool of compression equipment from which we can more easily fulfill our respective customers’ needs. This relationship also gives us an advantage in pursuing compression opportunities throughout the U.S. As of December 31, 2014, Exterran Holdings owned approximately 1.1 million horsepower of compression equipment, excluding the compression equipment owned by us, in its U.S. contract operations business. We believe we will benefit from the opportunity to purchase additional portions of that business from Exterran Holdings over time. Exterran Holdings also intends, but is not obligated, to offer us the opportunity to purchase newly-fabricated compression equipment.

· Focus on providing superior customer service. We believe that our regionally-based network, local presence, experience and in-depth knowledge of customers’ operating needs and growth plans enable us to respond to our customers’ needs and meet their evolving demands on a timely basis. In addition, we focus on achieving a high level of mechanical reliability for the services we provide in order to maximize our customers’ production levels. Our sales efforts concentrate on demonstrating our commitment to enhancing our customers’ cash flow through superior customer service.

· Stable fee-based cash flows. We charge a fixed monthly fee for our contract operations services that our customers are generally required to pay, regardless of the volume of natural gas we compress in that month. We believe this fee structure reduces volatility and enhances our ability to generate relatively stable and predictable cash flows.

· Large fleet in many major producing regions. Our large fleet and numerous operating locations throughout the U.S. combined with our ability, as a result of our relationship with Exterran Holdings, to efficiently move equipment among producing regions, means that we are not dependent on production activity in any particular region.

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Oil and Natural Gas Industry Cyclicality and Volatility

Changes in oil and natural gas exploration and production spending normally results in changes in demand for our services; however, we believe our contract operations business is typically less impacted by commodity prices than certain other energy products and service providers because:

· compression is necessary for natural gas to be delivered from the wellhead to end users;

· the need for compression services and equipment has grown over time due to the increased production of natural gas, the natural pressure decline of natural gas producing basins and the increased percentage of natural gas production from unconventional sources; and

· our contract operations business is tied primarily to natural gas production and consumption, which are generally less cyclical in nature than exploration activities.

Because we typically do not take title to the natural gas we compress, and the natural gas we use as fuel for our compressors is supplied by our customers, our direct exposure to commodity price risk is further reduced.

Seasonal Fluctuations

Our results of operations have not historically reflected any material seasonal tendencies and we currently do not believe that seasonal fluctuations will have a material impact on us in the foreseeable future.

Customers

Our current customer base consists of companies engaged in various aspects of the oil and natural gas industry, including natural gas producers, processors, gatherers, transporters and storage providers. We have entered into preferred vendor arrangements with some of our customers that give us preferential consideration for the compression needs of these customers. In exchange, we provide these customers with enhanced product availability, product support and favorable pricing. During the year ended December 31, 2014, Access accounted for approximately 12% of our consolidated revenue. Access merged with Williams in February 2015 and, when combined, Access and Williams would have accounted for approximately 15% of our consolidated revenue during the year ended December 31, 2014. No other customer accounted for more than 10% of our consolidated revenue in 2014. The loss of our business with Williams, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Williams to meet their payment obligations could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Sales and Marketing

Our marketing and client service functions are coordinated and performed by Exterran Holdings’ sales and field service personnel. Salespeople and field service personnel regularly visit our customers to ensure customer satisfaction, to determine customer needs as to services currently being provided and to ascertain potential future compression services requirements. This ongoing communication allows us to quickly identify and respond to customer requests.

General Terms of our Contract Operations Customer Service Agreements

The following discussion describes select material terms common to our standard contract operations service agreements. We typically enter into a master service agreement with each customer that sets forth the general terms and conditions of our services, and then enter into a separate supplemental service agreement for each distinct site at which we will provide contract operations services.

Term and Termination. Our customers typically contract for our contract operations services on a site-by-site basis. Following the initial minimum term for our contract compression services, which is typically between six and twelve months, contract compression services generally continue until terminated by either party with 30 days’ advance notice.

Fees and Expenses. Our customers pay a fixed monthly fee for our contract operations services, which generally is based on expected natural gas volumes and pressures associated with a specific application. Our customers generally are required to pay our monthly fee even during periods of limited or disrupted natural gas flows. We are typically responsible for the costs and expenses associated with our compression equipment used to provide the contract operations services, other than fuel gas, which is provided by our customers.

Service Standards and Specifications. We provide contract operations services according to the particular specifications of each job, as set forth in the applicable contract. These are typically turn-key service contracts under which we supply all service and support and

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use our own compression equipment to provide the contract operations services as necessary for a particular application. In certain circumstances, if the availability of our services does not meet certain percentages specified in our contracts, our customers are generally entitled, upon request, to specified credits against our service fees.

Title; Risk of Loss. We own and retain title to or have an exclusive possessory interest in all compression equipment used to provide the contract operations services and we generally bear risk of loss for such equipment to the extent not caused by gas conditions, our customers’ acts or omissions or the failure or collapse of the customer’s over-water job site upon which we provide the contract operations services.

Insurance. Typically, both we and our customers are required to carry general liability, worker’s compensation, employers’ liability, automobile and excess liability insurance. Exterran Holdings insures our property and operations and is substantially self-insured for worker’s compensation, employer’s liability, property, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles Exterran Holdings absorbs under its insurance arrangements for these risks.

Suppliers

Currently, our sole supplier of newly-fabricated equipment is Exterran Holdings. Pursuant to the Omnibus Agreement, we may purchase newly-fabricated compression equipment from Exterran Holdings or its affiliates at Exterran Holdings’ cost to fabricate such equipment plus a fixed margin, which may be modified with the approval of Exterran Holdings and the conflicts committee of our board of directors. In connection with the Spinoff transaction, Exterran Holdings intends to contribute its global fabrication business to Spinco. We currently intend to negotiate an agreement with Spinco, pursuant to which we may continue to purchase newly fabricated compression equipment from Spinco following the Spinoff. There are no assurances that we will be able to negotiate such an agreement on terms comparable to the terms of the Omnibus Agreement. We may also transfer, exchange or lease compression equipment with Exterran Holdings. Alternatively, we can purchase newly-fabricated or already existing compression equipment from third parties.

We rely on Exterran Holdings, who in turn relies on a limited number of suppliers, for some of the components used in our products. We and Exterran Holdings believe alternative sources of these components are generally available but at prices that may not be as economically advantageous to us as those offered by our existing suppliers. We believe Exterran Holdings’ relations with its suppliers are satisfactory.

Competition

The natural gas compression services business is highly competitive. Overall, we experience considerable competition from companies that may be able to more quickly adapt to changes within our industry and changes in economic conditions as a whole, more readily take advantage of available opportunities and adopt more aggressive pricing policies. We believe we are competitive with respect to price, equipment availability, customer service, flexibility in meeting customer needs, technical expertise, quality and reliability of our compressors and related services.

Increased size and geographic scope offer compression services providers operating and cost advantages. As the number of compression applications and size of the compression fleet increases, the number of required sales, administrative and maintenance personnel increases at a lesser rate, resulting in operational efficiencies and potential cost advantages. Additionally, broad geographic scope allows compression service providers to more efficiently provide services to all customers, particularly those with compression applications in remote locations. Our relationship with Exterran Holdings allows us to access a large, diverse fleet of compression equipment and a broad geographic base of operations and related operational personnel that we believe gives us more flexibility in meeting our customers’ needs than many of our competitors. We also believe that our relationship with Exterran Holdings provides us with resources that allow us to efficiently manage our customers’ compression services needs.

Non-competition Arrangement with Exterran Holdings

Under the Omnibus Agreement, subject to the provisions described below, Exterran Holdings has agreed not to offer or provide compression services in the U.S. to our contract operations services customers that are not also contract operations services customers of Exterran Holdings. Compression services include natural gas contract compression services, but exclude fabrication of compression equipment, sales of compression equipment or material, parts or equipment that are components of compression equipment, leasing of compression equipment without also providing related compression equipment service, gas processing operations services and operation, maintenance, service, repairs or overhauls of compression equipment owned by third parties. Similarly, we have agreed not to offer or provide compression services to Exterran Holdings’ U.S. contract operations services customers that are not also our contract operations services customers.

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Some of our customers are also Exterran Holdings’ contract operations services customers, which we refer to as overlapping customers. We and Exterran Holdings have agreed, subject to the exceptions described below, not to provide contract operations services to an overlapping customer at any site at which the other was providing such services to an overlapping customer on the date of the most recent amendment to the Omnibus Agreement, each being referred to as a “Partnership site” or an “Exterran site.” Pursuant to the Omnibus Agreement, if an overlapping customer requests contract operations services at a Partnership site or an Exterran site, whether in addition to or in replacement of the equipment existing at such site on the date of the most recent amendment to the Omnibus Agreement, we may provide contract operations services if such overlapping customer is a Partnership overlapping customer, and Exterran Holdings will be entitled to provide such contract operations services if such overlapping customer is an Exterran overlapping customer. Additionally, any additional contract operations services provided to a Partnership overlapping customer will be provided by us and any additional services provided to an Exterran overlapping customer will be provided by Exterran Holdings.

Exterran Holdings also has agreed that new customers for contract compression services are for our account unless the new customer is unwilling to contract with us or unwilling to do so under our form of compression services agreement. In that case, Exterran Holdings may provide compression services to the new customer. If we or Exterran Holdings enter into a compression services contract with a new customer, either we or Exterran Holdings, as applicable, will receive the protection of the applicable non-competition arrangements described above in the same manner as if such new customer had been a compression services customer of either us or Exterran Holdings on the date of the Omnibus Agreement.

The non-competition arrangements described above do not apply to:

· our provision of contract compression services to a particular Exterran Holdings customer or customers, with the approval of Exterran Holdings;

· Exterran Holdings’ provision of contract compression services to a particular customer or customers of ours, with the approval of the conflicts committee of our board of directors;

· our purchase and ownership of not more than five percent of any class of securities of any entity that provides contract compression services to Exterran Holdings’ contract compression services customers;

· Exterran Holdings’ purchase and ownership of not more than five percent of any class of securities of any entity that provides contract compression services to our contract compression services customers;

· Exterran Holdings’ ownership of us;

· our acquisition, ownership and operation of any business that provides contract compression services to Exterran Holdings’ contract compression services customers if Exterran Holdings has been offered the opportunity to purchase the business for its fair market value from us and Exterran Holdings declines to do so. However, if neither the Omnibus Agreement nor the non-competition arrangements described above have already terminated, we will agree not to provide contract compression services to Exterran Holdings’ customers that are also customers of the acquired business at the sites at which Exterran Holdings is providing contract operations services to them at the time of the acquisition;

· Exterran Holdings’ acquisition, ownership and operation of any business that provides contract compression services to our contract operations services customers if we have been offered the opportunity to purchase the business for its fair market value from Exterran Holdings and we decline to do so with the concurrence of the conflicts committee of our board of directors. However, if neither the Omnibus Agreement nor the non-competition arrangements described above have already terminated, Exterran Holdings will agree not to provide contract operations services to our customers that are also customers of the acquired business at the sites at which we are providing contract operations services to them at the time of the acquisition; or

· a situation in which one of our customers (or its applicable business) and a customer of Exterran Holdings (or its applicable business) merge or are otherwise combined, in which case, each of we and Exterran Holdings may continue to provide contract operations services to the applicable combined entity or business without being in violation of the non-competition provisions, but Exterran Holdings and the conflicts committee of our board of directors must negotiate in good faith to implement procedures or such other arrangements, as necessary, to protect the value to each of Exterran Holdings and us of the business of providing contract operations services to each such customer or its applicable business.

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Omnibus Agreement nor the non-competition arrangements have already terminated, Exterran Holdings will agree for the remaining term of the non-competition arrangements not to provide contract operations services to our customers at any site where we are providing contract operations services at the time of the change of control.

Environmental and Other Regulations

Government Regulation

Our operations are subject to stringent and complex U.S. federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of the environment and to occupational safety and health. Compliance with these environmental laws and regulations may expose us to significant costs and liabilities and cause us to incur significant capital expenditures in our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory and remedial obligations, and the issuance of injunctions delaying or prohibiting operations. We believe that our operations are in substantial compliance with applicable environmental and safety and health laws and regulations and that continued compliance with currently applicable requirements would not have a material adverse effect on us. However, the clear trend in environmental regulation is to place more restrictions on activities that may affect the environment, and thus, any changes in these laws and regulations that result in more stringent and costly waste handling, storage, transport, disposal, emission or remediation requirements could have a material adverse effect on our results of operations and financial position.

The primary U.S. federal environmental laws to which our operations are subject include the Clean Air Act (“CAA”) and regulations thereunder, which regulate air emissions; the Clean Water Act (“CWA”) and regulations thereunder, which regulate the discharge of pollutants in industrial wastewater and storm water runoff; the Resource Conservation and Recovery Act (“RCRA”) and regulations thereunder, which regulate the management and disposal of hazardous and non-hazardous solid wastes; and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and regulations thereunder, known more commonly as “Superfund,” which imposes liability for the remediation of releases of hazardous substances in the environment. We are also subject to regulation under the U.S. federal Occupational Safety and Health Act (“OSHA”) and regulations thereunder, which regulate the protection of the safety and health of workers. Analogous state and local laws and regulations may also apply.

Air Emissions

The CAA and analogous state laws and their implementing regulations regulate emissions of air pollutants from various sources, including natural gas compressors, and also impose various monitoring and reporting requirements. Such laws and regulations may require a facility to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce air emissions or result in the increase of existing air emissions, obtain and strictly comply with air permits containing various emissions and operational limitations, or utilize specific emission control technologies to limit emissions. Our standard contract operations contract typically provides that the customer will assume permitting responsibilities and certain environmental risks related to site operations.

On August 20, 2010, the U.S. Environmental Protection Agency (“EPA”) published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule would have required us to undertake certain expenditures and activities, including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at certain sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. Following legal challenges to the 2010 rule, the EPA reconsidered the rule and published revisions to the rule on January 30, 2013. The revised rule requires management practices for all covered engines but requires catalyst installation only on larger equipment at sites that are not deemed to be “remote.” Compliance with the final rule was required by October 2013 and the rule has not had and is not expected to have a material adverse impact on our business, financial condition, results of operations or ability to make cash distributions to our unitholders.

On May 21, 2012, the EPA issued new ozone nonattainment designations for all areas except Chicago, in relation to the 2008 national ambient air quality standard (“NAAQS”) for ozone. Among other things, these new designations add Wise County to the Dallas-Fort Worth (“DFW”) nonattainment area. This new designation will require Texas to modify its State Implementation Plan (“SIP”) to include a plan for Wise County, Texas to come into compliance with the ozone NAAQS. This modification process started in January 2014, and the State of Texas anticipates having new regulations in place by mid-2015. If Texas implements the same control requirements in Wise County that are already in place in the other counties in the DFW nonattainment area, we could be required to modify or remove and replace a significant amount of equipment we currently utilize in Wise County. However, at this point we cannot predict what Texas’ new SIP will require or what equipment will still be operating in Wise County when it comes into effect and, as a result, we cannot currently accurately predict the impact or cost to comply.

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On August 16, 2012, the EPA published final rules that establish new air emission controls for natural gas and natural gas liquids production, processing and transportation activities, including New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds, and a separate set of emission standards to address hazardous air pollutants frequently associated with production and processing activities. Among other things, the rules establish specific requirements regarding emissions from compressors and controllers at natural gas gathering and boosting stations and processing plants together with dehydrators and storage tanks at natural gas processing plants, compressor stations and gathering and boosting stations. In addition, the rules establish new requirements for leak detection and repair of leaks at natural gas processing plants that exceed 500 parts per million in concentration. The rule has not had and is not expected to have a material adverse impact on our business, financial condition, results of operations or ability to make cash distributions to our unitholders.

In addition, in January 2011, the Texas Commission on Environmental Quality (“TCEQ”) finalized revisions to certain air permit programs that significantly increase air emissions-related requirements for new and certain existing oil and gas production and gathering sites in the Barnett Shale production area. The final rule established new emissions standards for engines, which could impact the operation of specific categories of engines by requiring the use of alternative engines, compressor packages or the installation of aftermarket emissions control equipment. The rule became effective for the Barnett Shale production area in April 2011, and the lower emissions standards will become applicable between 2020 and 2030 depending on the type of engine and the permitting requirements. A number of other states where our engines are operated have adopted or are considering adopting additional regulations that could impose new air permitting or pollution control requirements for engines, some of which could entail material costs to comply. At this point, however, we cannot predict whether any such rules would require us to incur material costs.

These new regulations and proposals, when finalized, and any other new regulations requiring the installation of more sophisticated pollution control equipment or the adoption of other environmental protection measures, could have a material adverse impact on our business, financial condition, results of operations and ability to make cash distributions to our unitholders.

Climate change legislation and regulatory initiatives could result in increased compliance costs.

The U.S. Congress has previously considered legislation to restrict or regulate emissions of greenhouse gases, such as carbon dioxide and methane. One bill, passed by the House of Representatives in 2009, but never adopted by the full Congress, would have required greenhouse gas emissions reductions by covered sources of as much as 17% from 2005 levels by 2020 and by as much as 83% by 2050. It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future, although energy legislation and other initiatives continue to be proposed that may be relevant to greenhouse gas emissions issues. In addition, almost half of the states, either individually or through multi-state regional initiatives, have begun to address greenhouse gas emissions, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs. Although most of the state-level initiatives have to date been focused on large sources of greenhouse gas emissions, such as electric power plants, it is possible that smaller sources such as our gas-fired compressors could become subject to greenhouse gas-related regulation. Depending on the particular program, we could be required to control emissions or to purchase and surrender allowances for greenhouse gas emissions resulting from our operations.

Independent of Congress, the EPA has been pursuing regulations controlling greenhouse gas emissions under its existing CAA authority. The EPA has adopted rules requiring many facilities, including petroleum and natural gas systems, to inventory and report their greenhouse gas emissions. These rules triggered reporting obligations for some sites we operated in 2014.

In addition, the EPA in June 2010 published a final rule providing for the tailored applicability of air permitting requirements for greenhouse gas emissions. The EPA reported that the rulemaking was necessary because without it certain permitting requirements would apply as of January 2011 at an emissions level that would have greatly increased the number of required permits and, among other things, imposed undue costs on small sources and overwhelmed the resources of permitting authorities. In the rule, the EPA established two initial steps of phase-in to minimize those burdens, excluding certain smaller sources from greenhouse gas permitting until at least April 30, 2016. On January 2, 2011, the first step of the phase-in applied only to new projects at major sources (as defined under those CAA permitting programs) that, among other things, increase net greenhouse gas emissions by 75,000 tons per year. On July 1, 2011, the second step of the phase-in began requiring permitting for otherwise minor sources of air emissions that have the potential to emit at least 100,000 tons per year of greenhouse gases. On June 29, 2012, the EPA issued final regulations for “Phase III” of its program, retaining the permitting thresholds established in Phases I and II. On June 23, 2014, the U.S. Supreme Court held that greenhouse gas emissions alone cannot trigger an obligation to obtain such an air permit even if the project will substantially increase the source’s greenhouse gas emissions. However, for those sources that trigger such air permitting requirements based on their traditional criteria pollutant emissions, the permit must include a limit for greenhouse gases. In addition, the Court concluded that the rule was flawed because the EPA failed to identify a de minimis threshold for greenhouse gases below which Best Available Control Technology would not be required. The EPA has yet to set this threshold. This rule affects some of our and our customers’ largest new or modified facilities going forward.

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Although it is not currently possible to predict how any proposed or future greenhouse gas legislation or regulation by Congress, the states or multi-state regions will impact our business, any legislation or regulation of greenhouse gas emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions or reduced demand for our services, and could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders.

Water Discharges

The CWA and analogous state laws and their implementing regulations impose restrictions and strict controls with respect to the discharge of pollutants into state waters or waters of the U.S. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. In addition, the CWA regulates storm water discharges associated with industrial activities depending on a facility’s primary standard industrial classification. Many of Exterran Holdings’ facilities on which we may store inactive compression units have applied for and obtained industrial wastewater discharge permits as well as sought coverage under local wastewater ordinances. In addition, many of those facilities have filed notices of intent for coverage under statewide storm water general permits and developed and implemented storm water pollution prevention plans, as required. U.S. federal laws also require development and implementation of spill prevention, controls, and countermeasure plans, including appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture, or leak at such facilities.

Waste Management and Disposal

The RCRA and analogous state laws and their implementing regulations govern the generation, transportation, treatment, storage and disposal of hazardous and non-hazardous solid wastes. During the course of our operations, we generate wastes (including, but not limited to, used oil, antifreeze, filters, sludges, paints, solvents and abrasive blasting materials) in quantities regulated under RCRA. The EPA and various state agencies have limited the approved methods of disposal for these types of wastes. CERCLA and analogous state laws and their implementing regulations impose strict, and under certain conditions, joint and several liability without regard to fault or the legality of the original conduct on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include current and past owners and operators of the facility or disposal site where the release occurred and any company that transported, disposed of, or arranged for the transport or disposal of the hazardous substances released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, where contamination may be present, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs allegedly caused by hazardous substances or other pollutants released into the environment.

While we do not own any material facilities or properties, we use Exterran Holdings’ properties for the storage and maintenance and repair of inactive compressor units and lease some properties used in support of our operations. Although we have utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons, hazardous substances, or other regulated wastes may have been disposed of or released on or under the properties used or leased by us or on or under other locations where such materials have been taken for disposal by companies sub-contracted by us. In addition, many of these properties have been previously owned or operated by third parties whose treatment and disposal or release of hydrocarbons, hazardous substances or other regulated wastes was not under our control. These properties and the materials released or disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove or remediate historical property contamination, or to perform certain operations to prevent future contamination. At certain of such sites, Exterran Holdings is currently working with the prior owners who have undertaken to monitor and clean up contamination that occurred prior to Exterran Holdings’ acquisition of these sites. We are not currently under any order requiring that we undertake or pay for any cleanup activities. However, we cannot provide any assurance that we will not receive any such order in the future.

Occupational Safety and Health

We are subject to the requirements of OSHA and comparable state statutes. These laws and the implementing regulations strictly govern the protection of the safety and health of employees. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations.

Indemnification for Environmental Liabilities

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indemnification obligations under the Omnibus Agreement cannot exceed $5 million, and Exterran Holdings will not have any obligation under the environmental or any other indemnification until our aggregate losses exceed $250,000. Exterran Holdings will have no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after such acquisition date. We have agreed to indemnify Exterran Holdings against environmental liabilities occurring on or after the applicable acquisition date related to our assets to the extent Exterran Holdings is not required to indemnify us.

Employees and Labor Relations

We do not have any employees. Under the Omnibus Agreement, we reimburse Exterran Holdings for the allocated costs of its personnel who provide direct or indirect support for our operations. Exterran Holdings considers its employee relations to be satisfactory.

Available Information

Our website address is www.exterran.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our website, without charge, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (“SEC”). Information on our website is not incorporated by reference in this report or any of our other securities filings. Paper copies of our filings are also available, without charge, from Exterran Partners, L.P., 16666 Northchase Drive, Houston, Texas 77060, Attention: Investor Relations. Alternatively, the public may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers who file electronically with the SEC. The SEC’s website address is www.sec.gov.

Additionally, we make available free of charge on our website:

· the Code of Business Conduct and Ethics of Exterran GP LLC; and

· the charters of the audit, conflicts and compensation committees of Exterran GP LLC.

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Item 1A. Risk Factors

As described in Part I (“Disclosure Regarding Forward-Looking Statements”), this report contains forward-looking statements regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward-looking statements. If any of the following risks actually occurs, our business, financial condition, results of operations and our ability to make cash distributions to our unitholders could be negatively impacted.

Risks Related to Our Business

We have been in the past dependent on our cost caps from Exterran Holdings to generate sufficient cash from operating surplus to enable us to make cash distributions approximating our current distribution rate. These cost caps were in effect through December 31, 2014; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement terminated. Their termination may reduce the amount of cash flow available to unitholders in the future and, accordingly, could impair our ability to maintain or increase our distributions.

Our cost of sales exceeded the cap provided in the Omnibus Agreement by $2.5 million, $12.4 million and $16.6 million during 2014, 2013, and 2012, respectively. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $11.4 million, $12.8 million and $8.2 million during 2014, 2013 and 2012, respectively. Accordingly, our EBITDA, as further adjusted, and our distributable cash flow (please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report for a discussion of EBITDA, as further adjusted, and distributable cash flow) would have been approximately $13.9 million, $25.2 million and $24.8 million lower during 2014, 2013 and 2012, respectively, without the benefit of the cost caps. As a result, without the benefit of the cost caps, our distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) would have been 1.20x, 1.13x and 1.02x during 2014, 2013 and 2012, respectively, rather than the actual distributable cash flow coverage (which includes the benefit of cost caps) of 1.30x, 1.36x and 1.29x during 2014, 2013, and 2012, respectively.

These cost caps were in effect through December 31, 2014; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement terminated. Their termination could reduce the amount of cash flow available to unitholders in the future and, accordingly, could impair our ability to maintain or increase our distributions.

Continued low oil and natural gas prices in the U.S. could decrease demand for our natural gas compression services and, as a result, adversely affect our business and decrease our revenue and cash available for distribution.

Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas compression services. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a sustained reduction in oil or natural gas prices or significant instability in energy markets. Even the perception of longer-term lower oil or natural gas prices by oil and natural gas exploration, development and production companies can result in their decision to cancel, reduce or postpone major expenditures or to reduce or shut in well production. In April 2012, natural gas prices in the U.S. fell to their lowest levels in more than a decade with the Henry Hub spot price at around $2.00 per MMBtu. As a result, certain companies reduced their natural gas drilling and production activities, particularly in more mature and predominantly dry gas areas, where we provide a significant amount of contract operations services, which led to a decline in our business in these areas during 2012. Since then, natural gas prices in the U.S. improved somewhat and generally were near or above $4.00 per MMBtu for much of 2014, but natural gas prices in 2014 continued to cause certain companies to reduce their natural gas drilling and production activities in more mature and predominantly dry gas areas in the U.S., which led to a continued decline in our contract operations business in these areas in 2014. Global oil prices have fallen significantly recently. West Texas Intermediate crude oil spot prices as of December 31, 2014 were approximately 41% and 46% lower than prices at September 30, 2014 and December 31, 2013, respectively, which is expected to lead to reduced drilling of oil wells in 2015. Because we provide a significant amount of contract operations services related to the production of associated gas from oil wells and a significant amount of contract operations services related to the use of gas lift to enhance production of oil from oil wells, our operations and our levels of operating horsepower are also impacted by crude oil drilling and production activity. In addition, the Henry Hub spot price for natural gas was approximately $3.10 per MMBtu at December 31, 2014, which was approximately 24% and 27% lower than prices at September 30, 2014 and December 31, 2013, respectively, and the

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U.S. natural gas liquid composite price was approximately $7.84 per MMBtu for the month of November 2014, which was approximately 20% and 27% lower than prices for the months of September 2014 and December 2013, respectively, which is expected to lead to reduced drilling of gas wells in 2015. If oil or natural gas production growth moderates or declines in the U.S., the level of production activity and the demand for our contract operations services could decrease, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders. A reduction in demand for our services could also force us to reduce our pricing substantially, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders. Moreover, a reduction in demand for our services could result in our customers seeking to preserve capital by canceling month-to-month contracts, determining not to enter into new contract operations service contracts, or canceling or delaying orders for our contract operations services, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders. Additionally, compression services for unconventional natural gas sources constitute an increasing percentage of our business. Some of these unconventional sources are less economic to produce in lower natural gas price environments.

Due to our significant relationship with Exterran Holdings, adverse developments concerning Exterran Holdings could adversely affect us, even if we have not suffered any similar developments.

Through its subsidiaries, Exterran Holdings owns all of our general partner interests, including all of the incentive distribution rights, and a significant amount of our limited partner interests. Our access to Exterran Holdings’ personnel, fabrication operations, logistical capabilities, geographic scope and operational efficiencies allows us to provide a full complement of contract operations services. In addition, we benefit from a number of arrangements in the Omnibus Agreement between us and Exterran Holdings (please see Note 3 to the Financial Statements for further discussion of the Omnibus Agreement). A material adverse effect upon Exterran Holding’s assets, liabilities, financial condition, business or operations could impact Exterran Holdings’ ability to continue to provide these benefits to us. As a result, we could experience a material adverse effect upon our business, results of operations, financial condition and ability to make cash distributions to our unitholders, even if we have not suffered any similar developments.

Following the closing of the Spinoff transaction, certain of Exterran Holdings’ fabrication operations, logistical capabilities, geographic scope and operational efficiencies will be contributed to Spinco. Certain key personnel of Exterran Holdings may become employees of Spinco. Exterran Holdings’ loss of these capabilities and key personnel could have a material adverse effect upon our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

As we continue to acquire additional compression equipment from Exterran Holdings we expect that our maintenance capital expenditures will increase, which could reduce the amount of cash available for distribution.

Exterran Holdings manages its and our respective U.S. fleets as one pool of compression equipment from which we can each readily fulfill our respective customers’ service needs. When we or Exterran Holdings are advised of a contract operations services opportunity, Exterran Holdings reviews both our and its fleet for an available and appropriate compressor unit. Given that the majority of the idle compression equipment has been and is currently held by Exterran Holdings, much of the idle compression equipment required for these contract operations services opportunities has been held by Exterran Holdings. Under the Omnibus Agreement, the owner of the equipment being transferred is required to pay the costs associated with making the idle equipment suitable for the proposed customer and then has generally leased the equipment to the recipient of the equipment or exchanged the equipment for other equipment of the recipient. Since Exterran Holdings has owned the majority of such equipment, Exterran Holdings has generally had to bear a larger portion of the maintenance capital expenditures associated with making transferred equipment ready for service. For equipment that is then leased to the recipient, the maintenance capital cost is a component of the lease rate that is paid under the lease. As we acquire more compression equipment, we expect that more of our equipment will be available to satisfy our or Exterran Holdings’ customer requirements. As a result, we expect that our maintenance capital expenditures will increase, which could reduce our cash available for distribution.

We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure to risk during adverse economic conditions.

At December 31, 2014, we had approximately $1.3 billion in outstanding debt obligations. Many factors, including factors beyond our control, may affect our ability to make payments on our outstanding indebtedness. These factors include those discussed elsewhere in these Risk Factors and those listed in the Disclosure Regarding Forward-Looking Statements section included in Part I of this report.

Our substantial debt and associated commitments could have important adverse consequences. For example, these commitments could:

· make it more difficult for us to satisfy our contractual obligations;

· increase our vulnerability to general adverse economic and industry conditions;

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· limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements;

· increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based upon our credit statistics;

· limit our flexibility in planning for, or reacting to, changes in our business and our industry;

· place us at a disadvantage compared to our competitors that have less debt or less restrictive covenants in such debt; and

· limit our ability to refinance our debt in the future or borrow additional funds.

A substantial portion of our cash flow must be used to service our debt obligations, and future interest rate increases could reduce the amount of our cash available for distribution.

At December 31, 2014, we had $1.3 billion in outstanding debt obligations, consisting of $344.8 million net of the unamortized discount outstanding under the 2014 Notes, $345.5 million net of the unamortized discount outstanding under our 6% senior notes due April 2021 (the “2013 Notes”), $460.0 million outstanding under our revolving credit facility and $150.0 million outstanding under our term loan. The senior secured credit agreement (the “Credit Agreement”), which consists of a revolving credit facility and term loan facility, requires that we make mandatory prepayments of the term loan with the net cash proceeds of certain asset transfers. Borrowings under our senior secured credit facility bear interest at floating rates. We have effectively fixed a portion of the floating rate debt through the use of interest rate swaps; however, changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and reducing our funds available for capital investment, operations or distributions to our unitholders. As of December 31, 2014, after taking into consideration interest rate swaps, we had $210.0 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates at December 31, 2014 would result in an annual increase in our interest expense of approximately $2.1 million. Any such increase in our interest expense could reduce the amount of cash we have available for distribution.

Covenants in our Credit Agreement may impair our ability to operate our business.

The Credit Agreement contains various covenants with which we must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. We must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Credit Agreement) to Total Interest Expense (as defined in the Credit Agreement) of not less than 2.75 to 1.0, a ratio of Total Debt (as defined in the Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, our Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. As of December 31, 2014, we maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio, a 4.3 to 1.0. Total Debt to EBITDA ratio and a 2.0 to 1.0 Senior Secured Debt to EBITDA ratio. A material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under the Credit Agreement, could lead to a default under that agreement.

The breach of any of our covenants could result in a default under our Credit Agreement which could cause our indebtedness under our Credit Agreement to become due and payable. A default under one of our debt agreements would trigger cross-default provisions under our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. If the repayment obligations on any of our indebtedness were to be so accelerated, we may not be able to repay the debt or refinance the debt on acceptable terms, and our financial position would be materially adversely affected. As of December 31, 2014, we are in compliance with all financial covenants under our Credit Agreement.

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We are engaged in ongoing litigation regarding our qualification as a Heavy Equipment Dealer, the qualification of our natural gas compressors as Heavy Equipment and the resulting appraisal of our natural gas compressors for ad valorem tax purposes under revised Texas statutes. If this litigation is resolved against us, or if in the future we do not qualify as a Heavy Equipment Dealer or our compressors do not qualify as Heavy Equipment because of new or revised Texas statutes, we will incur additional taxes which would adversely impact our results of operations and cash available for distribution.

As a result of the new methodology, our ad valorem tax expense (which is reflected in our consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $10.2 million during the year ended December 31, 2014. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $20.7 million as of December 31, 2014, of which approximately $4.6 million has been agreed to by a number of appraisal review boards and county appraisal districts and $16.1 million has been disputed and is currently in litigation. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, we have reached, or intend to reach, agreements with some of the appraisal districts to stay or abate certain of these pending district court cases. If we are unsuccessful in our litigation with the appraisal districts, we would be required to pay ad valorem taxes up to the aggregate benefit we have recorded, and the additional ad valorem tax payments may also be subject to substantial penalties and interest. Also, if we are unsuccessful in our litigation with the appraisal districts, or if legislation is enacted in Texas that repeals or alters the Heavy Equipment Statutes such that in the future we do not qualify as a Heavy Equipment Dealer or our compressors do not qualify as Heavy Equipment, then we would likely be required to pay these ad valorem taxes under the old methodology going forward, which would increase our quarterly cost of sales expense up to approximately the amount of our then most recent quarterly benefit recorded, and as a result impact our future results of operations and cash flows, including our cash available for distribution and accordingly, could impair our ability to maintain or increase our distributions.

Our inability to fund purchases of additional compression equipment could adversely impact our results of operations and cash available for distribution.

We may not be able to maintain or grow our asset and customer base unless we have access to sufficient capital to purchase additional compression equipment. Cash flow from our operations and availability under our senior secured credit facility may not provide us with sufficient cash to fund our capital expenditure requirements, including any funding requirements related to acquisitions. Additionally, pursuant to our partnership agreement, we intend to distribute all of our “available cash,” as defined in our partnership agreement, to our unitholders on a quarterly basis. Therefore, a significant portion of our cash flow from operations will be used to fund such distributions. As a result, we intend to fund our growth capital expenditures and acquisitions, including future acquisitions of compression services contracts and equipment from Exterran Holdings, with external sources of capital including additional borrowings under our senior secured credit facility and/or public or private offerings of equity or debt. Our ability to grow our asset and customer base could be impacted by any limits on our ability to access equity and debt capital.

We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner, to enable us to make cash distributions to holders of our common units at our current distribution rate.

We may not have sufficient available cash from operating surplus each quarter to enable us to make cash distributions at our current distribution rate. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things, the risks described in this section.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, including:

· the level of capital expenditures we make;

· the cost of acquisitions;

· our debt service requirements and other liabilities;

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· fluctuations in our working capital needs;

· our ability to refinance our debt in the future or borrow funds and access capital markets;

· restrictions contained in our debt agreements; and

· the amount of cash reserves established by our general partner.

Failure to generate sufficient cash flow, together with the absence of alternative sources of capital, could adversely impact our results of operations and cash available for distribution to our unitholders.

The erosion of the financial condition of our customers could adversely affect our business.

Many of our customers finance their exploration and development activities through cash flow from operations, the incurrence of debt or the issuance of equity. During times when the oil or natural gas markets weaken, our customers are more likely to experience a downturn in their financial condition. A reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing could result in a reduction in our customers’ spending for our services. For example, our customers could seek to preserve capital by canceling month-to-month contracts or determining not to enter into any new natural gas compression service contracts, thereby reducing demand for our services. Reduced demand for our services could adversely affect our business, financial condition, results of operations and ability to make cash distributions to our unitholders. In addition, in the event of the financial failure of a customer, we could experience a loss on all or a portion of our outstanding accounts receivable associated with that customer.

Our agreement not to compete with Exterran Holdings could limit our ability to grow.

We have entered into an Omnibus Agreement with Exterran Holdings and several of its subsidiaries. The Omnibus Agreement includes certain agreements not to compete between us and our affiliates, on the one hand, and Exterran Holdings and its affiliates, on the other hand. This agreement not to compete with Exterran Holdings could limit our ability to grow. For further discussion of the Omnibus Agreement, please see Note 3 to the Financial Statements.

We face significant competitive pressures that may cause us to lose market share and harm our financial performance.

Our business is highly competitive and there are low barriers to entry. We experience competition from companies that may be able to adapt more quickly to technological changes within our industry and changes in economic and market conditions, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies. Our ability to renew or replace existing contracts with our customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of our competitors. If our competitors substantially increase the resources they devote to the development and marketing of competitive services or substantially decrease the prices at which they offer their services, we may not be able to compete effectively. In addition, we could face significant competition from new entrants into our industry. Some of our existing competitors or new entrants may expand or fabricate new compressor units that would create additional competition for the services we provide to our customers. In addition, our customers may purchase and operate their own compressor fleets in lieu of using our natural gas compression services. Any of these competitive pressures could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Threats of cyber attacks or terrorism could affect our business.

We may be threatened by problems such as cyber attacks, computer viruses or terrorism that may disrupt our operations and harm our operating results. Our industry requires the continued operation of sophisticated information technology systems and network infrastructure. Despite our implementation of security measures, our technology systems are vulnerable to disability or failures due to hacking, viruses, acts of war or terrorism and other causes. If our information technology systems were to fail and we were unable to recover in a timely way, we might be unable to fulfill critical business functions, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

In addition, our assets may be targets of terrorist activities that could disrupt our ability to service our customers. We may be required by our regulators or by the future terrorist threat environment to make investments in security that we cannot currently predict. The implementation of security guidelines and measures and maintenance of insurance, to the extent available, addressing such activities could increase costs. These types of events could materially adversely affect our business and results of operations. In addition, these types of events could require significant management attention and resources, and could adversely affect our reputation among customers and the public.

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We depend on Williams Partners, L.P. (“Williams”) for a significant portion of our revenue. The loss of our business with Williams or the inability or failure of Williams to meet its payment obligations may adversely affect our financial results.

For the year ended December 31, 2013, no customer individually accounted for 10% or more of our total revenue. In connection with the April 2014 MidCon Acquisition, we and Access Midstream Partners, L.P. (“Access”) entered into a seven-year contract operations services agreement under which we provided contract compression services in 2014 to Access in regions including the Permian, Eagle Ford, Barnett, Anadarko, Mississippi Lime, Granite Wash, Woodford, Haynesville and Niobrara Basins. During the year ended December 31, 2014, Access accounted for approximately 12% of our consolidated revenue. Access merged with Williams in February 2015 and, when combined, Access and Williams would have accounted for approximately 15% of our consolidated revenue during the year ended December 31, 2014. The loss of our business with Williams, unless offset by additional contract compression services revenue from other customers, or the inability or failure of Williams to meet their payment obligations could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We may not be able to grow our cash flows if we do not expand our business, which could limit our ability to maintain or increase distributions to our unitholders.

Our ability to grow the per unit distribution on our units is dependent in part upon our ability to expand our business. Our future growth will depend upon a number of factors, some of which we cannot control. These factors include our ability to:

· acquire additional U.S. contract operations services business from Exterran Holdings;

· consummate accretive acquisitions;

· enter into contracts for new services with our existing customers or new customers; and

· obtain required financing for our existing and new operations.

A deficiency in any of these factors could adversely affect our ability to achieve growth in the level of our cash flows or realize benefits from acquisitions.

If we do not make acquisitions on economically acceptable terms, our future growth and our ability to maintain or increase distributions to our unitholders could be limited.

Our ability to grow depends, in part, on our ability to make accretive acquisitions. If we are unable to make accretive acquisitions either because we are: (i) unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them, (ii) unable to obtain financing for these acquisitions on economically acceptable terms, or (iii) outbid by competitors, then our future growth and ability to maintain or increase distributions could be limited. Furthermore, even if we make acquisitions that we believe will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations per unit.

Any acquisition involves potential risks, including, among other things:

· an inability to integrate successfully the businesses we acquire;

· the assumption of unknown liabilities;

· limitations on rights to indemnity from the seller;

· mistaken assumptions about the cash generated or anticipated to be generated by the business acquired or the overall costs of equity or debt;

· the diversion of management’s attention from other business concerns;

· unforeseen operating difficulties; and

· customer or key employee losses at the acquired businesses.

If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our future funds and other resources. In addition, competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

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Exterran Holdings continues to own and operate a substantial U.S. contract compression business, competition from which could adversely impact our results of operations and cash available for distribution.

Exterran Holdings and its affiliates, other than us, are prohibited from competing directly or indirectly with us with respect to certain of our existing customers and certain locations where we currently conduct business, and with respect to any new contract compression services customer that approaches either Exterran Holdings or ourselves, until the earlier of December 31, 2015, a change of control of Exterran Holdings or our general partner, or the removal or withdrawal of our general partner. Otherwise, Exterran Holdings is not prohibited from owning assets or engaging in businesses that compete directly or indirectly with us. Exterran Holdings continues to own and operate a U.S. contract operations business, including natural gas compression, and continues to engage in international contract operations, fabrication and aftermarket service activities. Exterran Holdings is a large, established participant in the contract operations business, and has significantly greater resources, including idle compression equipment, operating personnel, fabrication operations, vendor relationships and experience, than we have, which factors may make it more difficult for us to compete with it with respect to commercial activities as well as for acquisition candidates. Exterran Holdings and its affiliates may acquire, fabricate or dispose of additional natural gas compression or other assets in the future without any obligation to offer us the opportunity to purchase any of those assets. As a result, competition from Exterran Holdings could adversely impact our results of operations and cash available for distribution.

We may be unable to grow through acquisitions of Exterran Holdings’ U.S. contract operations business, which could limit our ability to maintain or increase distributions to our unitholders.

Exterran Holdings is under no obligation to offer us the opportunity to purchase any of its U.S. contract operations business, and its board of directors owes fiduciary duties to the stockholders of Exterran Holdings, and not our unitholders, in making any decision to offer us this opportunity. Likewise, we are not required to purchase any additional portions of such business.

The consummation of any such purchases will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of such purchases (which will require the approval of the conflicts committee of our board of directors) and our ability to finance such purchases on acceptable terms. Additionally, Exterran Holdings may be limited in its ability to consummate sales of additional portions of such business to us by the terms of its existing or future credit facilities or indentures. Furthermore, our senior secured credit facility includes covenants that may limit our ability to finance acquisitions. If a sale of any additional portion of Exterran Holdings’ U.S. contract operations business would be restricted or prohibited by such covenants, we or Exterran Holdings may be required to seek waivers of such provisions or refinance those debt instruments in order to consummate a sale, neither of which may be accomplished timely, if at all. If we are unable to grow through additional acquisitions of Exterran Holdings’ U.S. contract operations business, our ability to maintain or increase distributions to our unitholders may be limited.

Many of our compression services contracts with customers have short initial terms, and after the initial term are cancelable on short notice, and we cannot be sure that such contracts will be extended or renewed after the end of the initial contractual term. Any such nonrenewals, or renewals at reduced rates, or the loss of contracts with any significant customer, could adversely impact our results of operations and cash available for distribution.

The length of our compression services contracts with customers varies based on operating conditions and customer needs. Our initial contract terms are not long enough to enable us to recoup the cost of acquiring the equipment we use to provide compression services, and these contracts are typically cancelable on short notice after the initial term. We cannot be sure that a substantial number of these contracts will be extended or renewed by our customers or that any of our customers will continue to contract with us. The inability to negotiate extensions or renew a substantial portion of our compression services contracts, the renewal of such contracts at reduced rates, the inability to contract for additional services with our customers or the loss of all or a significant portion of our services contracts with any significant customer could lead to a reduction in revenue and net income and could require us to record additional asset impairments. This could have a material adverse effect upon our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Our ability to manage and grow our business effectively may be adversely affected if Exterran Holdings loses management or operational personnel.

Most of our officers are also officers or employees of Exterran Holdings. Additionally, we do not have any of our own employees, but rather rely on Exterran Holdings’ employees to operate our business. We believe that Exterran Holdings’ ability to hire, train and retain qualified personnel will continue to be challenging and important as we grow. When general industry conditions are good, the supply of experienced operational, fabrication and field personnel, in particular, decreases as other energy and manufacturing companies’ needs for the same personnel increase. Our ability to grow and to continue our current level of service to our customers will be adversely impacted if Exterran Holdings is unable to successfully hire, train and retain these important personnel.

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If we are unable to purchase compression equipment from Exterran Holdings or others, we may not be able to retain existing customers or compete for new customers, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Exterran Holdings is under no obligation to offer or sell to us newly-fabricated or idle compression equipment and may choose not to do so timely or at all. We may not be able to purchase newly-fabricated or idle compression equipment from third-party producers or marketers of such equipment or from our competitors. If we are unable to purchase compression equipment on a timely basis to meet the demands of our customers, our existing customers may terminate their contractual relationships with us, or we may not be able to compete for business from new or existing customers, either of which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Our reliance on Exterran Holdings as an operator of our assets and our limited ability to control certain costs could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Pursuant to the Omnibus Agreement, Exterran Holdings provides us with all administrative and operational services, including without limitation all operations, marketing, maintenance and repair, periodic overhauls of compression equipment, inventory management, legal, accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes and engineering services necessary to run our business. Our operational success and ability to execute our growth strategy depends significantly upon Exterran Holdings’ satisfactory operation of our assets and performance of these services. Our reliance on Exterran Holdings as an operator of our assets and our resulting limited ability to control certain costs could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

We indirectly depend on particular suppliers and are vulnerable to product shortages and price increases, which could have a negative impact on our results of operations.

Some of the components used in our compressors are obtained by Exterran Holdings from a single source or a limited group of suppliers. Exterran Holdings’ reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. Exterran Holdings does not have long-term contracts with some of these sources, and its partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, since any increase in component prices for compression equipment fabricated by Exterran Holdings for us will be passed on to us, a significant increase in the price of one or more of these components could have a negative impact on our results of operations.

From time to time, we are subject to various claims, litigation and other proceedings that could ultimately be resolved against us, requiring material future cash payments or charges, which could impair our financial condition or results of operations.

The size, nature and complexity of our business make us susceptible to various claims, both in litigation and binding arbitration proceedings. We are currently, and may in the future become, subject to various claims, which, if not resolved within amounts we have accrued, could have a material adverse effect on our financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders. Similarly, any claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future. See Part I, Item 3 (“Legal Proceedings”) and also Note 15 (“Commitments and Contingencies”) to the Financial Statements included in this report for additional information regarding certain legal proceedings to which we are a party, including ongoing litigation regarding our qualification as a heavy equipment dealer, the qualification of our natural gas compressors as heavy equipment and the resulting appraisal of our natural gas compressors for ad valorem tax purposes under revised Texas statutes.

U.S. Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing as well as governmental reviews of such activities could result in increased costs and additional operating restrictions or delays in the completion of oil and natural gas wells and adversely affect demand for our contract operations services.

Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from dense subsurface rock formations. Hydraulic fracturing involves the injection of water, sand or alternative proppant and chemicals under pressure into target geological formations to fracture the surrounding rock and stimulate production. Recently, there has been increased public concern regarding an alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate U.S. federal, state and local legislation that would increase the regulatory burden imposed on hydraulic fracturing.

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At the U.S. federal level, the EPA has asserted U.S. federal regulatory authority pursuant to the U.S. federal Safe Drinking Water Act (the “SDWA”) over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2013 addressing the performance of such activities. Also, in May 2014, the EPA issued an Advance Notice of Proposed Rulemaking to collect data on chemicals used in hydraulic fracturing operations under Section 8 of the Toxic Substances Control Act. To date, no other action has been taken. Further, the EPA has announced its intention to propose regulations under the CWA by sometime in 2015 governing wastewater discharges from hydraulic fracturing and certain other natural gas operations. In addition, the EPA is conducting a study of the potential impacts of hydraulic fracturing activities on water resources and a draft final report is anticipated sometime in 2015 for peer review and public comment. The results of this study or similar governmental review could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Also, the U.S. Department of the Interior published a revised proposed rule on May 16, 2013, that would update exiting regulation of hydraulic fracturing activities on U.S. federal lands, including requirements for chemical disclosure, wellbore integrity and handling of flowback water.

At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. For example in May 2013, the Texas Railroad Commission adopted new rules governing well casing, cementing and other standards for ensuring that hydraulic fracturing operations do not contaminate nearby water resources. Local governments may also seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular or prohibit the performance of well drilling in general or hydraulic fracturing in particular. If new or more stringent U.S. federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where our natural gas exploration and production customers operate, those customers could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of exploration, development or production activities and perhaps even be precluded from drilling wells. Any such restrictions could reduce demand for our contract operations services, and as a result could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders.

New regulations, proposed regulations and proposed modifications to existing regulations under the CAA, if implemented, could result in increased compliance costs.

On August 20, 2010, the EPA published new regulations under the CAA to control emissions of hazardous air pollutants from existing stationary reciprocal internal combustion engines. The rule would have required us to undertake certain expenditures and activities, including purchasing and installing emissions control equipment, such as oxidation catalysts or non-selective catalytic reduction equipment, on a portion of our engines located at certain sources of hazardous air pollutants and all our engines over a certain size regardless of location, following prescribed maintenance practices for engines (which are consistent with our existing practices), and implementing additional emissions testing and monitoring. Following legal challenges to the 2010 rule, the EPA reconsidered the rule and published revisions to the rule on January 30, 2013. The revised rule requires management practices for all covered engines but requires catalyst installation only on larger equipment at sites that are not deemed to be “remote.” Compliance with the final rule was required by October 2013.

On May 21, 2012, the EPA issued new ozone nonattainment designations for all areas except Chicago, in relation to the 2008 NAAQS for ozone. Among other things, these new designations add Wise County, Texas to the DFW nonattainment area. This new designation will require Texas to modify its SIP to include a plan for Wise County to come into compliance with the ozone NAAQS. This modification process started in January 2014, and the State of Texas anticipates having new regulations in place by mid-2015. If Texas implements the same control requirements in Wise County that are already in place in the other counties in the DFW nonattainment area, we could be required to modify or remove and replace a significant amount of equipment we currently utilize in Wise County. However, at this point we cannot predict what Texas’ new SIP will require or what equipment will still be operating in Wise County when it comes into effect and, as a result, we cannot currently accurately predict the impact or cost to comply.

In addition, in January 2011, the TCEQ finalized revisions to certain air permit programs that significantly increase air emissions-related requirements for new and certain existing oil and gas production and gathering sites in the Barnett Shale production area. The final rule established new emissions standards for engines, which could impact the operation of specific categories of engines by

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requiring the use of alternative engines, compressor packages or the installation of aftermarket emissions control equipment. The rule became effective for the Barnett Shale production area in April 2011, and the lower emissions standards will become applicable between 2020 and 2030 depending on the type of engine and the permitting requirements. A number of other states where our engines are operated have adopted or are considering adopting additional regulations that could impose new air permitting or pollution control requirements for engines, some of which could entail material costs to comply. At this point, however, we cannot predict whether any such rules would require us to incur material costs.

We are subject to a variety of governmental regulations; failure to comply with these regulations may result in administrative, civil and criminal enforcement measures and changes in these regulations could increase our costs or liabilities.

We are subject to a variety of U.S. federal, state and local laws and regulations, including relating to the environment, health and safety, labor and employment and taxation. Many of these laws and regulations are complex, change frequently, are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time to time, as part of our operations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities in the various states in which we operate.

Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, which may render us liable for remediation costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact our financial condition, profitability and results of operations. Moreover, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties and the issuance of injunctions delaying or prohibiting operations.

We may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us to new or revised permitting conditions that may be onerous or costly to comply with. In addition, certain of our customer service arrangements may require us to operate, on behalf of a specific customer, petroleum storage units such as underground tanks or pipelines and other regulated units, all of which may impose additional compliance and permitting obligations.

We conduct operations at numerous facilities in a wide variety of locations across the continental U.S. The operations at many of these facilities require U.S. federal, state or local environmental permits or other authorizations. Additionally, natural gas compressors at many of our customers’ facilities require individual air permits or general authorizations to operate under various air regulatory programs established by rule or regulation. These permits and authorizations frequently contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits. Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations that are applicable to our operations, we may occasionally identify or be notified of technical violations of certain requirements existing in various permits or other authorizations. Occasionally, we have been assessed penalties for our non-compliance, and we could be subject to such penalties in the future.

We routinely deal with natural gas, oil and other petroleum products. Hydrocarbons or other hazardous substances or wastes may have been disposed or released on, under or from properties used by us to provide contract operations services or inactive compression storage or on or under other locations where such substances or wastes have been taken for disposal. These properties may be subject to investigatory, remediation and monitoring requirements under U.S. federal, state and local environmental laws and regulations.

The modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production, gathering and pipeline companies, including our customers, which in turn could have a negative impact on us.

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Climate change legislation and regulatory initiatives could result in increased compliance costs.

Our operations entail inherent risks that may result in substantial liability. We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.

Our operations entail inherent risks including equipment defects, malfunctions and failures and natural disasters which could result in uncontrollable flows of natural gas or well fluids, fires and explosions. These risks may expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages. Exterran Holdings insures our property and operations against many of these risks; however, the insurance it carries may not be adequate to cover our claims or losses. Exterran Holdings currently has minimal amount of insurance on our offshore assets. In addition, Exterran Holdings is substantially self-insured for worker’s compensation, employer’s liability, property, auto liability, general liability and employee group health claims in view of the relatively high per-incident deductibles it absorbs under its insurance arrangements for these risks. Further, insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be negatively impacted.

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Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.

We operate in locations throughout the United States and, as a result, we are subject to the tax laws and regulations of U.S. federal, state, and local governments. From time to time, various legislative or administrative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our tax provision or tax payments will not be adversely affected by these initiatives. In addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

Risks Inherent in an Investment in Our Common Units

Exterran Holdings controls our general partner, which has sole responsibility for conducting our business and managing our operations. Exterran Holdings has conflicts of interest, which may permit it to favor its own interests to our unitholders’ detriment.

Exterran Holdings owns and controls our general partner. Most of our executive officers are officers of Exterran Holdings. Therefore, conflicts of interest may arise between Exterran Holdings and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:

· neither our partnership agreement nor any other agreement requires Exterran Holdings to pursue a business strategy that favors us. Exterran Holdings’ directors and officers have a fiduciary duty to make these decisions in the best interests of the owners of Exterran Holdings, which may be contrary to our interests;

· our general partner controls the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and Exterran Holdings, on the other hand, including provisions governing administrative services, acquisitions and transfers of compression equipment and non-competition provisions;

· our general partner controls whether we agree to acquire additional contract operations customers or assets from Exterran Holdings that are offered to us by Exterran Holdings and the terms of such acquisitions;

· our general partner is allowed to take into account the interests of parties other than us, such as Exterran Holdings and its affiliates, in resolving conflicts of interest;

· other than as provided in our Omnibus Agreement with Exterran Holdings, Exterran Holdings and its affiliates are not limited in their ability to compete with us. Exterran Holdings will continue to engage in U.S. and international contract operations services as well as third-party sales coupled with aftermarket service contracts and may, in certain circumstances, compete with us with respect to any future acquisition opportunities;

· Exterran Holdings’ U.S. and international contract compression services businesses and its third-party equipment customers may compete with us for newly-fabricated and idle compression equipment and Exterran Holdings is under no obligation to offer equipment to us for purchase or use;

· all of the officers and employees of Exterran Holdings who provide services to us also will devote significant time to the business of Exterran Holdings, and will be compensated by Exterran Holdings for the services rendered to it;

· our general partner has limited its liability and reduced its fiduciary duties, and has also restricted the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;

· our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities and reserves, each of which can affect the amount of cash that is distributed to unitholders;

· our general partner determines the amount and timing of any capital expenditures and whether a capital expenditure is a maintenance capital expenditure, which reduces operating surplus, or a growth capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders;

· our general partner determines which costs incurred by it and its affiliates are reimbursable by us and Exterran Holdings determines the allocation of shared overhead expenses;

· our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

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· our general partner intends to limit its liability regarding our contractual and other obligations and, in some circumstances, is entitled to be indemnified by us;

· our general partner may exercise its limited right to call and purchase common units if it and its affiliates own more than 80% of the common units; and

· our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

Cost reimbursements due to our general partner and its affiliates for services provided, which are determined by our general partner, are substantial and reduce our cash available for distribution to our unitholders.

Pursuant to the Omnibus Agreement we entered into with Exterran Holdings, our general partner, and others, Exterran Holdings receives reimbursement for the payment of operating expenses related to our operations and for the provision of various general and administrative services for our benefit. Payments for these services are substantial and reduce the amount of cash available for distribution to unitholders. Following the closing of the Spinoff transaction, Exterran Holdings will continue to provide these services for our benefit. However, the Spinoff transaction could materially affect Exterran Holdings’ costs for performing these services and could cause Exterran Holdings to alter its methodologies of allocating costs for performing services to us. Any such increase in costs or change in allocation methodologies could, in turn, increase the amount that we reimburse Exterran Holdings for performing these services. In addition, under Delaware partnership law, our general partner has unlimited liability for our obligations, such as our debts and environmental liabilities, except for our contractual obligations that are expressly made without recourse to our general partner. To the extent our general partner incurs obligations on our behalf, we are obligated to reimburse or indemnify it. If we are unable or unwilling to reimburse or indemnify our general partner, our general partner may take actions to cause us to make payments of these obligations and liabilities. Any such payments could reduce the amount of cash otherwise available for distribution to our unitholders.

Our partnership agreement limits our general partner’s fiduciary duties to holders of our common units and restricts the remedies available to holders of our common units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that reduce the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty laws. For example, our partnership agreement:

· permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited call right, the exercise of its rights to transfer or vote the units it owns, the exercise of its registration rights and its determination whether or not to consent to any merger or consolidation of the partnership or amendment to our partnership agreement;

· provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decision was in the best interests of our partnership;

· generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our board of directors acting in good faith and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or must be “fair and reasonable” to us, as determined by our general partner in good faith and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us;

· provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

· provides that in resolving conflicts of interest, it will be presumed that in making its decision the general partner acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.

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Holders of our common units have limited voting rights and are not entitled to elect our general partner or its general partner’s directors, which could reduce the price at which the common units will trade.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders do not elect our general partner or its general partner’s board of directors, and have no right to elect our general partner or its general partner’s board of directors on an annual or other continuing basis. Our board of directors is chosen by its sole member, a subsidiary of Exterran Holdings. Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they have little ability to remove our general partner. As a result of these limitations, the price at which the common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Even if holders of our common units are dissatisfied, they cannot currently remove our general partner without its consent.

Unitholders are unable to remove our general partner without its consent because our general partner and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common units voting together as a single class is required to remove our general partner. As of December 31, 2014, our general partner and its affiliates owned 35% of our aggregate outstanding common units.

Control of our general partner may be transferred to a third party without unitholder consent.

Our general partner, which is indirectly wholly owned by Exterran Holdings, may transfer its general partner interest to a third party in a merger, or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, our partnership agreement does not restrict the ability of Exterran Holdings, the owner of our general partner, from transferring all or a portion of its ownership interest in our general partner to a third party. The new owners of our general partner would then be in a position to replace the board of directors and officers of our general partner’s general partner with its own choices and thereby influence the decisions taken by the board of directors and officers.

We may issue additional units without unitholder approval, which would dilute our unitholders’ existing ownership interests.

Our partnership agreement does not limit the number of additional limited partner interests that we may issue at any time without the approval of our unitholders. The issuance of additional common units or other equity securities of equal or senior rank by us will have the following effects:

· our unitholders’ proportionate ownership interest in us will decrease;

· the amount of cash available for distribution on each unit may decrease;

· the ratio of taxable income to distributions may increase;

· the relative voting strength of each previously outstanding unit may be diminished; and

· the market price of the common units may decline.

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units, other than our general partner and its affiliates, including Exterran Holdings.

Unitholders’ voting rights are further restricted by our partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates, including Exterran Holdings, their transferees and persons who acquired such units with the prior approval of our board of directors, cannot vote on any matter. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions.

Affiliates of our general partner may sell common units in the public or private markets, which could have an adverse impact on the trading price of the common units.

At December 31, 2014, Exterran Holdings and its affiliates held 19,618,918 common units. The sale of these common units in the public or private markets could have an adverse impact on the price of the common units or on any trading market that may develop.

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Our general partner has a limited call right that may require unitholders to sell their units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Unitholders may also incur a tax liability upon a sale of their units. At December 31, 2014, our general partner and its affiliates owned 35% of our aggregate outstanding common units.

Unitholder liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. Unitholders could be liable for any and all of our obligations as if they were a general partner if:

· a court or government agency determined that we were conducting business in a state but had not complied with that particular state’s partnership statute; or

· a unitholder’s right to act with other unitholders to remove or replace our general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitutes “control” of our business.

Unitholders may have liability to repay distributions that were wrongfully distributed to them.

Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the substituted limited partner at the time it became a limited partner and for unknown obligations if the liabilities could be determined from our partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

The market price of our common units may be influenced by many factors.

Our common units are traded publicly on the NASDAQ Global Select Market under the symbol “EXLP.”

The market price of our common units may be influenced by many factors, some of which are beyond our control, including:

· our quarterly distributions;

· our quarterly or annual earnings or those of other companies or partnerships in our industry;

· changes in commodity prices, including oil, natural gas and natural gas liquids;

· changes in demand for natural gas in the U.S.;

· loss of a large customer;

· changes in interest rates;

· announcements by us or our competitors of significant contracts or acquisitions;

· changes in accounting standards, policies, guidance, interpretations or principles;

· tax legislation;

· general economic conditions;

· the failure of securities analysts to cover our common units or changes in financial estimates by analysts;

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· future sales of our common units; and

· the other factors described in these Risk Factors.

Increases in interest rates could adversely impact our unit price, our ability to issue additional equity or incur debt to make acquisitions or for other purposes, and our ability to make distributions to our unitholders.

As with other yield-oriented securities, our unit price is impacted by the level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank related yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse impact on our unit price, our ability to issue additional equity or incur debt to make acquisitions or for other purposes and our ability to make distributions to our unitholders.

Tax Risks to Common Unitholders

Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. We could lose our status as a partnership for a number of reasons, including not having enough “qualifying income.” If the Internal Revenue Service (“IRS”) were to treat us as a corporation for U.S. federal income tax purposes, our cash available for distribution would be substantially reduced.

The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes. The IRS has made no determination on our partnership status or any other tax matter affecting us.

Despite the fact that we are a limited partnership under Delaware law, a publicly traded partnership such as us will be treated as a corporation for U.S. federal income tax purposes unless 90% or more of its gross income from its business activities is “qualifying income” under Section 7704(d) of the Internal Revenue Code. “Qualifying income” includes income and gains derived from the exploration, development, production, processing, transportation, storage and marketing of natural gas and natural gas products or other passive types of income such as interest and dividends. Although we do not believe based upon our current operations that we are treated as a corporation, we could be treated as a corporation for U.S. federal income tax purposes or otherwise subject to taxation as an entity if our gross income is not properly classified as qualifying income, there is a change in our business or there is a change in current law.

If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state income tax at varying rates. Because a tax would be imposed upon us as a corporation, our cash available for distribution would be substantially reduced. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to additional entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us. Further, distributions to unitholders would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to our unitholders. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our common units.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.

The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, the Obama administration’s budget proposal for fiscal year 2016 recommends that certain publicly traded partnerships earning income from activities related to fossil fuels be taxed as corporations beginning in 2021. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that could affect publicly traded partnerships. If successful, the Obama administration’s proposal or other similar proposals could eliminate the qualifying income exception to the treatment of all publicly-traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.

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Any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes, or other proposals, will be reconsidered or will ultimately be enacted. Any such changes or differing judicial interpretations of existing laws could negatively impact the value of an investment in our common units. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to additional entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.

If we were subjected to additional entity-level taxation by individual states, it would reduce our cash available for distribution.

Changes in current state law may subject us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Currently we are subject to income and franchise taxes in several states. Imposition of such taxes on us reduces the cash available for distribution to our unitholders and may adversely affect the value of our common units. Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to additional amounts of entity-level taxation, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.

If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely affected, and the costs of any IRS contest will reduce our cash available for distribution.

The IRS has made no determination with respect to our treatment as a partnership for U.S. federal income tax purposes, the classification of any of the gross income from our business operations as “qualifying income” under Section 7704 of the Internal Revenue Code, or any other matter affecting us. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take, and a court may not agree with some or all of those positions. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS will result in a reduction in cash available for distribution and thus will be borne indirectly by our unitholders and our general partner.

Unitholders are required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

Because our unitholders are treated as partners to whom we will allocate taxable income, which could be different in amount than the cash we distribute, they will be required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on their share of our taxable income even if they receive no cash distributions from us. Unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.

Tax gain or loss on the disposition of our common units could be more or less than expected.

Unitholders who sell common units recognize a gain or loss equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the common units they sell will, in effect, become taxable income to them if they sell such common units at a price greater than their tax basis in those common units, even if the price received is less than the original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, unitholders who sell their units may incur a tax liability in excess of the amount of cash they receive from the sale.

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (“IRAs”), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes imposed at the highest applicable effective tax rate, and non-U.S. persons will be required to file U.S. federal tax returns and pay tax on their share of our taxable income. Tax-exempt entities or a non-U.S. persons should consult their tax advisors before investing in our common units.

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We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Due to a number of factors, including our inability to match transferors and transferees of common units, we have adopted depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to unitholders. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to unitholders’ tax returns.

We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The use of this proration method may not be permitted under existing Treasury regulations. The U.S. Treasury Department’s proposed Treasury Regulations allowing a similar monthly simplifying convention are not final and do not specifically authorize the use of the proration method we have adopted. If the IRS were to successfully challenge this method or new Treasury Regulations were issued, we could be required to change the allocation of items of income, gain, loss and deduction among our unitholders.

A unitholder whose units are the subject of a securities loan (e.g. a loan to a “short seller” to cover a short sale of units) may be considered to have disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.

Because there are no specific rules governing the U.S. federal income consequences of loaning a partnership interest, a unitholder whose units are the subject of securities loan may be considered to have disposed of the loaned units. In that case, the unitholder may no longer be treated as a partner for tax purposes with respect to those units and may recognize gain or loss from such disposition during the period of the loan. Moreover, during the period of such loan to the short seller, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder for those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.

We have adopted certain valuation methodologies in determining unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methods or the resulting allocations, and such a challenge could adversely affect the value of our common units.

In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our respective assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our respective assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.

A successful IRS challenge to these methods or allocations could adversely affect the amount, character and timing of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for U.S. federal income tax purposes.

We will be considered to have constructively terminated as a partner for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of determining whether the 50% threshold has been met, multiple sales of the same unit will count only once. Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns for one calendar year. However, pursuant to an IRS relief procedure, the IRS may allow, among other things, a constructively terminated partnership to

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provide a single Schedule K-1 for the calendar year in which a termination occurs. Our termination could also result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a calendar year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for U.S. federal income tax purposes, but instead, we would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax elections and could be subject to penalties if we are unable to determine that a termination occurred. The Spinoff transaction is expected to result in a constructive termination on the date of the transaction for U.S. federal income tax purposes. As a result, our taxable year for all unitholders during the year the Spinoff transaction is consummated is expected to end on the date of the Spinoff transaction and may result in a deferral of depreciation deductions. Any such deferral could result in increased taxable income to unitholders in the year the Spinoff transaction is consummated.

Unitholders may become subject to international, state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire property.

In addition to U.S. federal income taxes, unitholders will likely be subject to other taxes, including international, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own or acquire property now or in the future, even if they do not live in any of those jurisdictions. Unitholders will likely be required to file international, state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, they may be subject to penalties for failure to comply with those requirements. We conduct business and/or own assets in the states of Alabama, Arkansas, California, Colorado, Illinois, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, West Virginia, Wisconsin and Wyoming. Each of these states, other than Tennessee, Texas and Wyoming, currently imposes a personal income tax on individuals. A majority of these states impose an income tax on corporations and other entities that may be unitholders. As we make acquisitions or expand our business, we may conduct business or own assets in additional states that impose a personal income tax or that impose entity level taxes to which certain unitholders could be subject. It is each unitholder’s responsibility to file all applicable U.S. federal, international, state and local tax returns.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our executive office is located at 16666 Northchase Drive, Houston, Texas 77060 and our telephone number is 281-836-7000. We do not own or lease any material facilities or properties. Pursuant to our Omnibus Agreement, we reimburse Exterran Holdings for the cost of our pro rata portion of the properties we utilize in connection with our business.

Item 3. Legal Proceedings

In 2011, the Texas Legislature enacted changes related to the appraisal of natural gas compressors for ad valorem tax purposes by expanding the definitions of “Heavy Equipment Dealer” and “Heavy Equipment” effective from the beginning of 2012 (the “Heavy Equipment Statutes”). Under the revised statutes, we believe we are a Heavy Equipment Dealer, that our natural gas compressors are Heavy Equipment and that we, therefore, are required to file our ad valorem tax renditions under this new methodology. As a result of this new methodology, our ad valorem tax expense (which is reflected in our consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $10.2 million during the year ended December 31, 2014. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $20.7 million as of December 31, 2014. A large number of appraisal review boards denied our position, although some accepted it, and we filed 82 petitions for review in the appropriate district courts with respect to the 2012 tax year, 92 petitions for review in the appropriate district courts with respect to the 2013 tax year, and 121 petitions for review in the appropriate district courts with respect to the 2014 tax year. Since we filed the petitions, many of the cases, pending in the same county, have been consolidated. Only five cases have advanced to the point of trial or submission of summary judgment motions on the merits, and only three cases have been decided, with two decisions rendered by the same presiding judge. One other case was dismissed without reaching the merits.

On October 17, 2013, the 143rd Judicial District Court of Loving County, Texas ruled in EXLP Leasing LLC & EES Leasing LLC v. Loving County Appraisal District that our wholly-owned subsidiary EXLP Leasing LLC (“EXLP Leasing”) and EES Leasing LLC (“EES Leasing”), a subsidiary of Exterran Holdings, are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the district court further held that the Heavy Equipment Statutes were unconstitutional as applied to EXLP Leasing’s and EES Leasing’s compressors. EES Leasing and EXLP Leasing appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas. The case has been fully briefed and was argued before the Court of Appeals on October 9, 2014. No decision has been issued.

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On October 28, 2013, the 143rd Judicial District Court of Ward County, Texas ruled in EES Leasing LLC & EXLP Leasing LLC v. Ward County Appraisal District that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the court held that the Heavy Equipment Statutes were unconstitutional as applied to their compressors. EXLP Leasing and EES Leasing have appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas, and the Ward County Appraisal District has cross-appealed the district court’s ruling that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment. The case has been fully briefed and was also argued before the Court of Appeals on October 9, 2014. No decision has been issued.

On March 18, 2014, the 10th Judicial District Court in Galveston, Texas ruled in EXLP Leasing LLC & EES Leasing LLC v. Galveston Central Appraisal District that EXLP Leasing and EES Leasing are Heavy Equipment Dealers and that their compressors qualify as Heavy Equipment, but the court held the Heavy Equipment Statutes unconstitutional as applied to their compressors. EXLP Leasing and EES Leasing have filed their appellate brief challenging the district court’s constitutionality holding with the Fourteenth Court of Appeals in Houston, Texas. The case has been fully briefed and was argued before the Court of Appeals on February 12, 2015. No decision has been issued.

In EES Leasing v. Irion County Appraisal District, EES Leasing and the appraisal district each filed motions for summary judgment concerning the applicability and constitutionality of the Heavy Equipment Statutes in the 51st Judicial District Court of Irion County, Texas. On May 20, 2014, the district court entered an order denying both EES Leasing’s and the appraisal district’s motions for summary judgment, holding that a fact issue existed as to the applicability of the Heavy Equipment Statutes to the one compressor at issue. At a hearing on December 1, 2014, the presiding judge for the 51st District Court indicated that she would consolidate this 2012 tax year case with a 2013 tax year case. EES Leasing LLC and EXLP Leasing LLC v. Irion County Appraisal District, and set the consolidated case for trial on August 10-11, 2015.

EES Leasing and EXLP Leasing also filed a motion for summary judgment in EES Leasing LLC & EXLP Leasing LLC v. Harris County Appraisal District, pending in the 189th Judicial District Court of Harris County, Texas. The court heard arguments on the motion on December 6, 2013 but has yet to rule. No trial date has been set.

One court has dismissed EXLP Leasing’s and EES Leasing’s tax appeals for lack of jurisdiction without reaching the merits of the appeal. In EXLP Leasing LLC et. al v. Webb County Appraisal District, filed in the 406th Judicial District Court in Webb County, United Independent School District (“United ISD”) intervened as a party in interest and sought to dismiss the lawsuit arguing that the district court was without jurisdiction to hear the appeal. Under Section 42.08(b) of the Texas Tax Code, a property owner must pay before the delinquency date the lesser of (1) the amount of taxes due on the portion of the taxable value of the property that is not in dispute or (2) the amount of taxes due on the property under the order from which the appeal is taken. EXLP Leasing and EES Leasing paid zero taxes to Webb County because the entire amount of tax assessed by Webb County was in dispute. Instead, as required by the Heavy Equipment Statutes and Texas Comptroller forms, EXLP Leasing and EES Leasing paid taxes on the compressors at issue to Victoria County, where they maintain their inventory and place of business. The Webb County Appraisal District and United ISD contest EXLP Leasing’s and EES Leasing’s position that the Heavy Equipment Statutes have special situs provisions requiring that taxes be paid where the dealer has a business location and keeps its inventory, instead arguing that taxes are payable to the county where each compressor is located as of January 1 of the tax year at issue. The court granted United ISD’s motion to dismiss on April 1, 2014 and declined EXLP Leasing’s and EES Leasing’s motion to reconsider. EXLP Leasing and EES Leasing have appealed the dismissal order to the Fourth Court of Appeals in San Antonio, Texas. The case has been fully briefed, and it will be decided on submission.

In Webb County, United ISD has four delinquency lawsuits pending against EXLP Leasing and EES Leasing in the 49th District Court of Webb County, Texas (“49th District Court”). In light of the pending appeal of the 406th District Court of Webb County, the 49th District Court granted the motion to continue these delinquency lawsuits filed by EXLP Leasing and EES Leasing, and there is no current trial date for the delinquency lawsuits.

We continue to believe that the revised statutes are constitutional as applied to natural gas compressors. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, we have reached, or intend to reach, agreements with some of the appraisal districts to stay or abate certain of these pending 2012, 2013, and 2014 district court cases. Please see Note 15 (“Commitments and Contingencies”) to the Financial Statements included in this report for a discussion of our ad valorem tax expense and benefit relating to the Heavy Equipment Statutes, which is incorporated by reference into this Item 3.

In the ordinary course of business, we are also involved in various other pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these other actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders. However, because of the inherent uncertainty of litigation, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders.

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Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common units trade on the NASDAQ Global Select Market under the symbol “EXLP.” On February 19, 2015, the closing price of a common unit was $23.09. At the close of business on February 12, 2015, based upon information received from our transfer agent and brokers and nominees, we had 14 registered common unitholders and approximately 15,450 street name holders. The following table sets forth the range of high and low sale prices for our common units and cash distributions declared per common unit for the periods indicated.

	Price Range				Cash Distribution Declared per
	High		Low		Common Unit(1)
Year Ended December 31, 2013:
First Quarter	$	26.45	$	20.50	$	0.5175
Second Quarter	$	31.44	$	26.11	$	0.5225
Third Quarter	$	32.39	$	26.77	$	0.5275
Fourth Quarter	$	31.48	$	25.61	$	0.5325
Year Ended December 31, 2014:
First Quarter	$	31.00	$	27.94	$	0.5375
Second Quarter	$	30.17	$	27.10	$	0.5425
Third Quarter	$	30.64	$	27.61	$	0.5525
Fourth Quarter	$	30.14	$	19.01	$	0.5575

(1) Cash distributions declared for each quarter are paid in the following calendar quarter.

For disclosures regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12 (“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”) of this report.

Cash Distribution Policy

Within 45 days after the end of each quarter, we will distribute all of our available cash (as defined in our partnership agreement) to unitholders of record on the applicable record date. However, there is no guarantee that we will pay any specific distribution level on the units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. We will be prohibited from making any distributions to unitholders if doing so would cause an event of default, or an event of default exists, under our senior secured credit facility.

We make distributions of available cash (as defined in our partnership agreement) from operating surplus in the following manner:

· first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;

· second, 98% to common unitholders, pro rata, and 2% to our general partner, until each unit has received a distribution of $0.4025;

· third, 85% to all common unitholders, pro rata, and 15% to our general partner, until each unit has received a distribution of $0.4375;

· fourth, 75% to all common unitholders, pro rata, and 25% to our general partner, until each unit has received a total of $0.5250; and

· thereafter, 50% to all common unitholders, pro rata, and 50% to our general partner.

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Unregistered Sales of Equity Securities and Use of Proceeds

Repurchase of Equity Securities

The following table summarizes our repurchases of equity securities during the three months ended December 31, 2014:

Period	Total Number of Units Repurchased (1)	Average Price Paid Per Unit		Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Units yet to be Purchased Under the Publicly Announced Plans or Programs
October 1, 2014 - October 31, 2014	—	$	—	N/A	N/A
November 1, 2014 - November 30, 2014	—	—		N/A	N/A
December 1, 2014 - December 31, 2014	1,311	20.85		N/A	N/A
Total	1,311	$	20.85	N/A	N/A

(1) Represents units withheld to satisfy employees’ tax withholding obligations in connection with vesting of phantom units during the period.

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Item 6. Selected Financial Data

The table below shows selected financial data for Exterran Partners, L.P. for each of the five years in the period ended December 31, 2014, which has been derived from our audited Financial Statements. The following information should be read together with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements contained in this report (in thousands, except per unit data):

	Years Ended December 31,
	2014(1)			2013(2)			2012(2)			2011(2)			2010(2)
Statement of Operations Data
Revenue	$	581,036		$	466,193		$	387,493		$	308,274		$	237,636
Gross margin(3)	342,998			264,148			204,333			145,349			113,394
Depreciation and amortization	128,196			103,711			88,298			67,930			52,518
Long-lived asset impairment(4)	12,810			5,350			29,560			1,060			24,976
Restructuring charges	702			—			—			—			—
Selling, general and administrative — affiliates	80,521			61,971			49,889			39,380			34,830
Interest expense	57,811			37,068			25,167			30,400			24,037
Other (income) expense, net	(74		)	(9,481		)	(35		)	(392		)	(314		)
Provision for income taxes	1,313			1,506			945			918			680
Net income (loss)	61,719			64,023			10,509			6,053			(23,333		)
Weighted average common units outstanding:
Basic	54,107			47,651			41,371			31,390			21,360
Diluted	54,109			47,667			41,382			31,403			21,360
Weighted average subordinated units outstanding(5):
Basic										3,747			5,731
Diluted										3,747			5,731
Income (loss) per common unit:
Basic	$	0.89		$	1.18		$	0.14		$	0.09		$	(0.90	)
Diluted	$	0.89		$	1.18		$	0.14		$	0.09		$	(0.90	)
Income (loss) per subordinated unit(5):
Basic										$	0.09		$	(0.90	)
Diluted										$	0.09		$	(0.90	)
Other Financial Data:
EBITDA, as further adjusted(3)	$	280,248		$	238,833		$	180,729		$	139,804		$	105,163
Distributable cash flow(3)	$	177,628		$	152,976		$	117,966		$	90,284		$	66,831
Capital expenditures:
Growth(6)	$	258,636		$	126,635		$	119,460		$	21,389		$	12,215
Maintenance(7)	45,316			41,401			38,368			28,861			15,898
Cash flows provided by (used in):
Operating activities	$	185,764		$	158,286		$	125,217		$	80,090		$	43,682
Investing activities	(772,407		)	(117,132		)	(228,940		)	(106,463		)	(29,042		)
Financing activities	586,756			(41,114		)	103,860			26,328			(14,793		)
Cash distributions declared and paid per limited partner unit in respective periods	$	2.1650		$	2.0800		$	2.0000		$	1.9200		$	1.8550

	December 31,
	2014(1)		2013(2)		2012(2)		2011(2)		2010(2)
Balance Sheet Data
Cash and cash equivalents	$	295	$	182	$	142	$	5	$	50
Working capital(8)	60,256		46,802		1,661		21,121		14,751
Total assets	2,009,444		1,368,063		1,163,536		991,005		813,345
Long-term debt	1,300,295		757,955		680,500		545,500		449,000
Partners’ capital	683,341		591,755		439,000		423,766		350,737

(1) During 2014, we completed the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition, which on a combined basis included a fleet of 499 compressor units, comprising approximately 554,000 horsepower. The results of operations attributable to the assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition have been included in our consolidated financial statements since the date of acquisition. Please see Note 2 to the Financial Statements for further discussion on these acquisitions.

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(2) In March 2013, March 2012, June 2011 and August 2010 we acquired from Exterran Holdings contract operations customer service agreements and a fleet of compressor units used to provide compression services under those agreements. An acquisition of a business from an entity under common control is generally accounted for in accordance with accounting principles generally accepted in the U.S. (“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 of these acquisitions 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, revenue and direct operating expenses associated with the acquisitions beginning on the date of each such acquisition.

(3) Gross margin, EBITDA, as further adjusted, and distributable cash flow are non-GAAP financial measures. They are defined, reconciled to net income (loss) and discussed further in “Non-GAAP Financial Measures” below.

(4) During 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 30,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $10.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. In connection with our fleet review during 2014, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for certain of the remaining units. This resulted in an additional impairment of $2.3 million to reduce the book value of each unit to its estimated fair value. During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.4 million on these assets.

During 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 25,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $5.4 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During 2012, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 260 idle compressor units, representing approximately 71,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $22.2 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. In connection with our 2012 fleet review, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for most of the remaining units and increased the weighted average disposal period for the units from the assumptions used in prior periods. This resulted in an additional impairment of $7.4 million to reduce the book value of each unit to its estimated fair value.

During 2011 and 2010, we reviewed our idle compression fleet for units that were not of the type, configuration, make or model that are cost effective to maintain and operate. Our estimate of the impaired long-lived asset’s fair value was based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. The net book value of these assets exceeded the fair value by $1.1 million and $0.4 million, respectively, during the years ended December 31, 2011 and 2010, and was recorded as a long-lived asset impairment. Additionally, during December 2010, we completed an evaluation of our longer-term strategies and determined to retire and sell approximately 370 idle compressor units, representing approximately 117,000 horsepower, previously used to provide services in our business. As a result of this decision to sell these compressor units, we performed an impairment review and based on that review, recorded a $24.6 million asset impairment to reduce the book value of each unit to its estimated fair value.

(5) All of our subordinated units were owned by a wholly-owned subsidiary of Exterran Holdings. As of both June 30, 2011 and 2010, we met the requirements under our partnership agreement for early conversion of 1,581,250 of these subordinated units into common units. Accordingly, in each of August 2011 and 2010, 1,581,250 subordinated units owned by Exterran Holdings converted into common units. As of September 30, 2011, we met the requirements under our partnership agreement for the end of the subordination period and, therefore, our remaining 3,162,500 subordinated units converted into common units in November 2011.

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(6) Growth capital expenditures are made to expand or to replace partially or fully depreciated assets or to expand the operating capacity or revenue of existing or new assets, whether through construction, acquisition or modification. Substantially all of our growth capital expenditures are related to the acquisition cost of new compressor units that we add to our fleet. In addition to the cost of new compressor units, growth capital expenditures can also include the upgrading of major components on an existing compressor unit where the current configuration of the compressor unit is no longer in demand and the compressor unit is not likely to return to an operating status without the capital expenditures. These latter expenditures substantially modify the operating parameters of the compressor unit such that it can be used in applications that it previously was not suited for.

(7) Maintenance capital expenditures are made to maintain the existing operating capacity of our assets and related cash flows further extending the useful lives of the assets. Maintenance capital expenditures are related to the major overhauls of significant components of a compressor unit, such as the engine, compressor and cooler, that return the components to a like new condition, but do not modify the applications that the compressor unit was designed for.

(8) Working capital is defined as current assets minus current liabilities.

Non-GAAP Financial Measures

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management to evaluate the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. We believe gross margin is important because it focuses on the current operating performance of our operations and excludes the impact of the prior historical costs of the assets acquired or constructed that are utilized in those operations, the indirect costs associated with our SG&A activities, the impact of our financing methods and income taxes. Depreciation and amortization expense may not accurately reflect the costs required to maintain and replenish the operational usage of our assets and therefore may not portray the costs from current operating activity. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

Gross margin has certain material limitations associated with its use as compared to net income (loss). These limitations are primarily due to the exclusion of interest expense, depreciation and amortization expense, SG&A expense and impairments. Each of these excluded expenses is material to our consolidated statements of operations. Because we intend to finance a portion of our operations through borrowings, interest expense is a necessary element of our costs and our ability to generate revenue. Additionally, because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue, and SG&A expenses are necessary to support our operations and required partnership activities. To compensate for these limitations, management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding of our performance.

The following table reconciles our net income (loss) to gross margin (in thousands):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Net income (loss)	$	61,719		$	64,023		$	10,509		$	6,053		$	(23,333	)
Depreciation and amortization	128,196			103,711			88,298			67,930			52,518
Long-lived asset impairment	12,810			5,350			29,560			1,060			24,976
Restructuring charges	702			—			—			—			—
Selling, general and administrative — affiliates	80,521			61,971			49,889			39,380			34,830
Interest expense	57,811			37,068			25,167			30,400			24,037
Other (income) expense, net	(74		)	(9,481		)	(35		)	(392		)	(314		)
Provision for income taxes	1,313			1,506			945			918			680
Gross margin	$	342,998		$	264,148		$	204,333		$	145,349		$	113,394

We define EBITDA, as further adjusted, as net income (loss) (a) excluding income taxes, interest expense (including debt extinguishment costs and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, restructuring charges, expensed acquisition costs, other items and non-cash SG&A costs (b) plus the amounts reimbursed to us by Exterran Holdings as a result of the caps on cost of sales and SG&A costs provided in the Omnibus Agreement, which amounts are treated as capital contributions from Exterran Holdings for accounting purposes. We believe EBITDA, as further adjusted, is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization expense, impairment charges), tax consequences, caps on operating and SG&A costs, non-cash SG&A costs and reimbursements, impairment charges, restructuring charges and other items. Management uses EBITDA, as

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further adjusted, as a supplemental measure to review current period operating performance, comparability measures and performance measures for period to period comparisons. Our EBITDA, as further adjusted, may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

In the first quarter of 2014, we revised our definition of EBITDA, as further adjusted, to add back expensed acquisition costs. This adjustment was made because management uses the resulting EBITDA, as further adjusted, as a supplemental measure to review current period operating performance. EBITDA, as further adjusted, for the years ended December 31, 2013, 2012, 2011 and 2010 has been restated to exclude this amount for comparison purposes.

EBITDA, as further adjusted, is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from EBITDA, as further adjusted, are significant and necessary components to the operations of our business, and, therefore, EBITDA, as further adjusted, should only be used as a supplemental measure of our operating performance.

The following table reconciles our net income (loss) to EBITDA, as further adjusted (in thousands):

	Years Ended December 31,
	2014		2013		2012		2011		2010
Net income (loss)	$	61,719	$	64,023	$	10,509	$	6,053	$	(23,333	)
Provision for income taxes	1,313		1,506		945		918		680
Depreciation and amortization	128,196		103,711		88,298		67,930		52,518
Long-lived asset impairment	12,810		5,350		29,560		1,060		24,976
Restructuring charges	702		—		—		—		—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	13,850		25,180		24,758		32,397		24,720
Non-cash selling, general and administrative costs — affiliates	1,376		1,174		797		532		1,209
Interest expense	57,811		37,068		25,167		30,400		24,037
Expensed acquisition costs	2,471		821		695		514		356
EBITDA, as further adjusted	$	280,248	$	238,833	$	180,729	$	139,804	$	105,163

We define distributable cash flow as net income (loss) (a) plus depreciation and amortization expense, impairment charges, restructuring charges, expensed acquisition costs, non-cash SG&A costs, interest expense and any amounts reimbursed to us by Exterran Holdings as a result of the caps on cost of sales and SG&A costs provided in the Omnibus Agreement, which amounts are treated as capital contributions from Exterran Holdings for accounting purposes, (b) less cash interest expense (excluding amortization of deferred financing fees, amortization of debt discount and non-cash transactions related to interest rate swaps) and maintenance capital expenditures, and (c) excluding gains or losses on asset sales and other items. Distributable cash flow is a supplemental financial measure that management and, we believe, external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess our operating performance as compared to other publicly traded partnerships without regard to historical cost basis. We also believe distributable cash flow is an important liquidity measure because it allows management and external users of our financial statements the ability to compute the ratio of distributable cash flow to the cash distributions declared to all unitholders, including incentive distribution rights, to determine the rate at which the distributable cash flow covers the distribution. Our distributable cash flow may not be comparable to a similarly titled measure of another company because other entities may not calculate distributable cash flow in the same manner.

Distributable cash flow is not a measure of financial performance under GAAP, and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from distributable cash flow are significant and necessary components to the operations of our business, and, therefore, distributable cash flow should only be used as a supplemental measure of our operating performance.

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The following table reconciles our net income (loss) to distributable cash flow (in thousands, except ratios):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Net income (loss)	$	61,719		$	64,023		$	10,509		$	6,053		$	(23,333	)
Depreciation and amortization	128,196			103,711			88,298			67,930			52,518
Long-lived asset impairment	12,810			5,350			29,560			1,060			24,976
Restructuring charges	702			—			—			—			—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	13,850			25,180			24,758			32,397			24,720
Non-cash selling, general and administrative costs — affiliates	1,376			1,174			797			532			1,209
Interest expense	57,811			37,068			25,167			30,400			24,037
Expensed acquisition costs	2,471			821			695			514			356
Less: Gain on sale of property, plant and equipment	(2,466		)	(10,140		)	(689		)	(919		)	(667		)
Less: Cash interest expense	(53,525		)	(32,810		)	(22,761		)	(18,822		)	(21,087		)
Less: Maintenance capital expenditures	(45,316		)	(41,401		)	(38,368		)	(28,861		)	(15,898		)
Distributable cash flow	$	177,628		$	152,976		$	117,966		$	90,284		$	66,831

Distributions declared to all unitholders for the period, including incentive distributions rights	$	136,829		$	112,705		$	91,617		$	74,214		$	54,913
Distributable cash flow coverage(1)	1.30		x	1.36		x	1.29		x	1.22		x	1.22		x
Distributable cash flow coverage (without the benefit of the cost caps)(2)	1.20		x	1.13		x	1.02		x	0.78		x	0.77		x

(1) Defined as distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights.

(2) Defined as distributable cash flow excluding the benefit of the cost caps divided by distributions declared to all unitholders for the period, including incentive distribution rights. The benefit received by us from the caps on operating and selling, general and administrative costs provided by Exterran Holdings was $13.9 million, $25.2 million, $24.8 million, $32.4 million and $24.7 million during the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.

The following table reconciles our net cash provided by operating activities to distributable cash flow (in thousands):

	Years Ended December 31,
	2014			2013			2012			2011			2010
Net cash provided by operating activities	$	185,764		$	158,286		$	125,217		$	80,090		$	43,682
(Provision for) benefit from doubtful accounts	(1,060		)	25			(494		)	(83		)	(1,292		)
Restructuring charges	702			—			—			—			—
Cap on operating and selling, general and administrative costs provided by Exterran Holdings	13,850			25,180			24,758			32,397			24,720
Expensed acquisition costs	2,471			821			695			514			356
Payments for settlement of interest rate swaps that include financing elements	(3,793		)	(2,207		)	—			—			—
Maintenance capital expenditures	(45,316		)	(41,401		)	(38,368		)	(28,861		)	(15,898		)
Changes in assets and liabilities	25,010			12,272			6,158			6,227			15,263
Distributable cash flow	$	177,628		$	152,976		$	117,966		$	90,284		$	66,831

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements, the notes thereto, and the other financial information appearing elsewhere in this report. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See Part I (“Disclosure Regarding Forward-Looking Statements”) and Part I, Item 1A (“Risk Factors”) in this report.

Overview

We are a Delaware limited partnership formed in June 2006 to provide natural gas contract operations services to customers throughout the U.S. Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

Our customers typically contract for our contract operations services on a site-by-site basis for a specific monthly service rate that is reduced if we fail to operate in accordance with the contract terms. Following the initial minimum term for our contract compression services, which is typically between six and twelve months, contract compression services generally continue until terminated by either party with 30 days’ advance notice. Our customers generally are required to pay our monthly service fee even during periods of limited or disrupted natural gas flows, which enhances the stability and predictability of our cash flows. See “General Terms of Our Contract Operations Customer Service Agreements,” in Part I, Item 1 (“Business”) of this report, for a more detailed description.

Generally, our overall business activity and revenue increase as the demand for natural gas increases. Demand for our compression services is linked more directly to natural gas consumption and production than to exploration activities, which helps limit our direct exposure to commodity price risk. Because we typically do not take title to the natural gas we compress, and the natural gas we use as fuel for our compressors is supplied by our customers, our direct exposure to commodity price risk is further reduced.

Industry Conditions and Trends

Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves in the U.S. Spending by oil and natural gas exploration and production companies is dependent upon these companies’ forecasts regarding the expected future supply, demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find, develop and produce reserves. Although we believe our business is typically less impacted by commodity prices than certain other oil and natural gas service providers, changes in oil and natural gas exploration and production spending normally result in changes in demand for our services.

Natural gas consumption in the U.S. for the twelve months ended November 30, 2014 increased by approximately 5% compared to the twelve months ended November 30, 2013. The U.S. Energy Information Administration (“EIA”) forecasts that total U.S. natural gas consumption will increase by 1.4% in 2015 compared to 2014 and increase by an average of 0.7% per year thereafter until 2040.

Natural gas marketed production in the U.S. for the twelve months ended November 30, 2014 increased by approximately 5% compared to the twelve months ended November 30, 2013. The EIA forecasts that total U.S. natural gas marketed production will increase by 4% in 2015 compared to 2014, and U.S. natural gas production will increase by an average of 1.5% per year thereafter until 2040.

Oil and natural gas prices have declined significantly in the last several months, and, as a result, research analysts are forecasting declines in U.S. and worldwide capital spending for drilling activity in 2015, and U.S. producers have begun to announce reduced capital budgets for this year.

Our Performance Trends and Outlook

Our results of operations depend upon the level of activity in the U.S. energy market. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices or significant instability in energy markets.

Our revenue, earnings and financial position are affected by, among other things, market conditions that impact demand and pricing for natural gas compression, our customers’ decisions between using our services or our competitors’ services, our customers’ decisions regarding whether to own and operate the equipment themselves, and the timing and consummation of acquisitions of additional contract operations customer service agreements and equipment from Exterran Holdings or others. As a result of expected declines in customer spending in 2015, we anticipate investing less capital in new fleet units in 2015 than we did in 2014.

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During 2014, we continued to see steady activity in certain shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the overall amount of compression horsepower in the industry; however, these increases continued to be partially offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. During the year ended December 31, 2014, excluding operating horsepower added through acquisitions, our operating horsepower increased at a higher rate in the shale plays and areas focused on the production of oil and natural gas liquids than the declines we experienced in the more mature and predominately dry gas plays in the U.S. Historically, oil and natural gas prices in the U.S. have been volatile. Global oil prices have fallen significantly recently. West Texas Intermediate crude oil spot prices as of December 31, 2014 were approximately 41% and 46% lower than prices at September 30, 2014 and December 31, 2013, respectively, which is expected to lead to reduced drilling of oil wells in 2015. Because we provide a significant amount of contract operations services related to the production of associated gas from oil wells and a significant amount of contract operations services related to the use of gas lift to enhance production of oil from oil wells, our operations and our levels of operating horsepower are also impacted by crude oil drilling and production activity. In addition, the Henry Hub spot price for natural gas was approximately $3.10 per MMBtu at December 31, 2014, which was approximately 24% and 27% lower than prices at September 30, 2014 and December 31, 2013, respectively, and the U.S. natural gas liquid composite price was approximately $7.84 per MMBtu for the month of November 2014, which was approximately 20% and 27% lower than prices for the months of September 2014 and December 2013, respectively, which is expected to lead to reduced drilling of gas wells in 2015. During periods of lower oil or natural gas prices, oil and natural gas production growth could moderate or decline in the U.S. A 1% decrease in average operating horsepower of our contract operations fleet during the year ended December 31, 2014 would have resulted in a decrease of approximately $5.8 million and $3.4 million in our revenue and gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense), respectively. Gross margin is a non-GAAP financial measure. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure, calculated and presented in accordance with GAAP, please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

Exterran Holdings intends for us to be the primary long-term growth vehicle for its U.S. contract operations business and may, but is not obligated to, offer us the opportunity to purchase additional portions of its U.S. contract operations business over time. Likewise, we are not required to purchase any additional portions of such business. The consummation of any future purchase of additional portions of Exterran Holdings’ U.S. contract operations business and the timing of any such purchase will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of such purchase, which will require the approval of the conflicts committee of our board of directors. The timing of such transactions would also depend on, among other things, market and economic conditions and our access to additional debt and equity capital. Future acquisitions of assets from Exterran Holdings may increase or decrease our operating performance, financial position and liquidity. Unless otherwise indicated, this discussion of performance trends and outlook excludes any future potential transfers of additional contract operations customer service agreements and equipment from Exterran Holdings to us.

Certain Key Challenges and Uncertainties

Market conditions in the oil and natural gas industry and competition in the natural gas compression industry represent key challenges and uncertainties. In addition to these, we believe the following represent some of the key challenges and uncertainties we will face in the near future:

Termination of Cost Caps from Exterran Holdings. Under the Omnibus Agreement, our obligation to reimburse Exterran Holdings for any cost of sales that it incurred in the operation of our business and any cash SG&A expense allocated to us was capped (after taking into account any such costs we incurred and paid directly) through December 31, 2014. Cost of sales was capped at $21.75 per operating horsepower per quarter through December 31, 2013 and $22.50 per operating horsepower per quarter from January 1, 2014 through December 31, 2014. SG&A costs were capped at $9.0 million per quarter from June 10, 2011 through March 7, 2012, $10.5 million per quarter from March 8, 2012 through March 31, 2013, $12.5 million per quarter from April 1, 2013 through December 31, 2013, $15.0 million per quarter from January 1, 2014 through April 9, 2014 and $17.7 million per quarter from April 10, 2014 through December 31, 2014. Our cost of sales exceeded the cap provided in the Omnibus Agreement by $2.5 million, $12.4 million and $16.6 million during the years ended December 31, 2014, 2013, and 2012, respectively. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $11.4 million, $12.8 million and $8.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. Accordingly, our EBITDA, as further adjusted, and our distributable cash flow (please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report for a discussion of EBITDA, as further adjusted, and distributable cash flow) would have been approximately $13.9 million, $25.2 million and $24.8 million lower during the years ended December 31, 2014, 2013 and 2012, respectively, without the benefit of the cost caps. As a result, without the benefit of the cost caps, our distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) would have been 1.20x, 1.13x and 1.02x during the years ended December 31, 2014, 2013 and 2012, respectively, rather than the actual distributable cash flow coverage (which includes the benefit of cost caps) of 1.30x, 1.36x and 1.29x during the years ended December 31, 2014, 2013, and 2012, respectively. These cost caps were in effect through December 31, 2014; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement terminated. Their termination could reduce the amount of cash flow available to unitholders in the future and, accordingly, could impair our ability to maintain or increase our distributions.

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U.S. Market and Oil and Natural Gas Pricing. During 2014, we continued to see steady activity in certain shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the overall amount of compression horsepower in the industry; however, these increases continued to be partially offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. During the year ended December 31, 2014, excluding operating horsepower added through acquisitions, our operating horsepower increased at a higher rate in the shale plays and areas focused on the production of oil and natural gas liquids than the declines we experienced in the more mature and predominately dry gas plays in the U.S. Historically, oil and natural gas prices in the U.S. have been volatile. Global oil prices have fallen significantly recently. West Texas Intermediate crude oil spot prices as of December 31, 2014 were approximately 41% and 46% lower than prices at September 30, 2014 and December 31, 2013, respectively, which is expected to lead to reduced drilling of oil wells in 2015. Because we provide a significant amount of contract operations services related to the production of associated gas from oil wells and a significant amount of contract operations services related to the use of gas lift to enhance production of oil from oil wells, our operations and our levels of operating horsepower are also impacted by crude oil drilling and production activity. In addition, the Henry Hub spot price for natural gas was approximately $3.10 per MMBtu at December 31, 2014, which was approximately 24% and 27% lower than prices at September 30, 2014 and December 31, 2013, respectively, and the U.S. natural gas liquid composite price was approximately $7.84 per MMBtu for the month of November 2014, which was approximately 20% and 27% lower than prices for the months of September 2014 and December 2013, respectively, which is expected to lead to reduced drilling of gas wells in 2015. During periods of lower oil or natural gas prices, oil and natural gas production growth could moderate or decline in the U.S, and as a result the demand or pricing for our contract operations services could be adversely affected. The recent investment of capital in new equipment by our competitors and other third parties could also create uncertainty in our business outlook. Many of our contracts with customers have short initial terms and are typically cancelable on short notice after the initial term, and we cannot be certain that these contracts will be extended or renewed after the end of the initial contractual term. Any such nonrenewals, or renewals at reduced rates, could adversely impact our results of operations and our distributable cash flow.

Additional Purchases of Exterran Holdings’ Contract Operations Business By Us. We plan to grow over time through accretive acquisitions of assets from Exterran Holdings, third-party compression providers and natural gas transporters or producers. The consummation of any future purchase of additional portions of Exterran Holdings’ business and the timing of any such purchase will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of any such purchase, which will require the approval of the conflicts committee of our board of directors. The timing of such transactions would also depend on, among other things, market and economic conditions and our access to additional debt and equity capital. Future acquisitions of assets from Exterran Holdings or third parties may increase or decrease our operating performance, financial position and liquidity.

Labor. We have no employees. Exterran Holdings provides all operational staff, corporate staff and support services necessary to run our business, and therefore we depend on Exterran Holdings’ ability to hire, train and retain qualified personnel. Although Exterran Holdings has been able to satisfy personnel needs in these positions thus far, retaining employees in our industry is a challenge. Our ability to grow and to continue to make quarterly distributions will depend in part on Exterran Holdings’ success in hiring, training and retaining these employees.

Operating Highlights

The following table summarizes total available horsepower, total operating horsepower, average operating horsepower and horsepower utilization percentages (in thousands, except percentages):

	Years Ended December 31,
	2014		2013		2012
Total Available Horsepower (at period end)(1)	3,139		2,417		2,084
Total Operating Horsepower (at period end)(1)	3,040		2,264		1,991
Average Operating Horsepower	2,710		2,155		1,883
Horsepower Utilization:
Spot (at period end)	97	%	94	%	96	%
Average	95	%	94	%	93	%

(1) Includes compressor units comprising approximately 79,000, 109,000 and 163,000 horsepower leased from Exterran Holdings as of December 31, 2014, 2013 and 2012, respectively. Excludes compressor units comprising approximately 100, 8,000 and 9,000 horsepower leased to Exterran Holdings as of December 31, 2014, 2013 and 2012, respectively (see Note 3 to the Financial Statements).

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Summary of Results

Net income. We generated net income of $61.7 million, $64.0 million and $10.5 million during the years ended December 31, 2014, 2013 and 2012, respectively. The decrease in net income during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to increases in interest expense and long-lived asset impairment in the current year period and the termination of two natural gas processing plant contracts during the second quarter of 2013 resulting in the recognition of $9.8 million of gross margin and $6.8 million of gain on sale of property, plant and equipment. These activities were offset by the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, which resulted in higher current year gross margin and depreciation and amortization expense and contributed to the increase in SG&A expense. The increase in net income during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to an increase in gross margin, a decrease in long-lived asset impairment and a $9.5 million increase in gain on sale of property, plant and equipment, partially offset by an increase in interest expense. The increase in net income during the year ended December 31, 2013 compared to the year ended December 31, 2012 was impacted by the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, which resulted in higher 2013 gross margin, depreciation and amortization expense and SG&A expense.

EBITDA, as further adjusted. Our EBITDA, as further adjusted, was $280.2 million, $238.8 million and $180.7 million during the years ended December 31, 2014, 2013 and 2012, respectively. The increase in EBITDA, as further adjusted, during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to the impact of the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, including improved gross margin. These activities were partially offset by $9.8 million of gross margin and $6.8 million of gain on sale of property, plant and equipment recognized on two natural gas processing plant contracts that terminated during the second quarter of 2013, a decrease of $9.8 million in the benefit received by us from the cap on operating costs provided by Exterran Holdings and the impact of the increase in the SG&A costs cap from an average of $12.0 million per quarter during the year ended December 31, 2013 to an average of $17.0 million per quarter during the year ended December 31, 2014. The increase in EBITDA, as further adjusted, during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to the impact of the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, including improved gross margin, and a $9.5 million increase in gain on sale of property, plant and equipment. These activities were partially offset by the impact of the increase in the SG&A costs cap from an average of $10.2 million per quarter during the year ended December 31, 2012 to an average of $12.0 million per quarter during the year ended December 31, 2013 and a decrease of $4.2 million in the benefit received by us from the cap on operating costs provided by Exterran Holdings. For a reconciliation of EBITDA, as further adjusted, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

Distributable cash flow. Our distributable cash flow was $177.6 million, $153.0 million and $118.0 million during the years ended December 31, 2014, 2013 and 2012, respectively, and distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) was 1.30x, 1.36x and 1.29x during the years ended December 31, 2014, 2013 and 2012, respectively. The increases in distributable cash flow during the year ended December 31, 2014 compared to the year ended December 31, 2013 and the year ended December 31, 2013 compared to the year ended December 31, 2012 were primarily due to increases in the gross margin discussed above, partially offset by the impact of increases in the SG&A costs cap discussed above, decreases in benefits received from the cap on operating costs provided by Exterran Holdings discussed above, increases in cash interest expense and increases in maintenance capital expenditures. Distributable cash flow and distributable cash flow coverage during the year ended December 31, 2013 benefited from $9.8 million of gross margin recognized on two natural gas processing plant contracts that terminated during the second quarter of 2013. Additionally, distributable cash flow coverage was impacted by an increase in distributions declared to all unitholders, including incentive distribution rights, from $91.6 million during the year ended December 31, 2012 to $136.8 million during the year ended December 31, 2014. The increase in cash distributions declared was due to the issuance of additional common units and general partner units and an increase of distributions declared per unit, including the increase in the distributions on incentive distribution rights, during the years ended December 31, 2014 and 2013. For a reconciliation of distributable cash flow to net income (loss) and net cash provided by operating activities, its most directly comparable financial measures calculated and presented in accordance with GAAP, please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

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Financial Results of Operations

The Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

The following table summarizes our revenue, gross margin, gross margin percentage, expenses and net income (dollars in thousands):

	Years Ended December 31,
	2014			2013
Revenue	$	581,036		$	466,193
Gross margin(1)	342,998			264,148
Gross margin percentage(2)	59		%	57		%
Expenses:
Depreciation and amortization	$	128,196		$	103,711
Long-lived asset impairment	12,810			5,350
Restructuring charges	702			—
Selling, general and administrative — affiliates	80,521			61,971
Interest expense	57,811			37,068
Other (income) expense, net	(74		)	(9,481		)
Provision for income taxes	1,313			1,506
Net income	$	61,719		$	64,023

(1) Defined as revenue less cost of sales, excluding depreciation and amortization expense. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report.

(2) Defined as gross margin divided by revenue.

Revenue. The increase in revenue and average operating horsepower was primarily due to the inclusion of the results from the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition as well as from organic growth in operating horsepower. Average operating horsepower increased by 26% from approximately 2,155,000 during the year ended December 31, 2013 to approximately 2,710,000 during the year ended December 31, 2014. The increase in revenue during the year ended December 31, 2014 compared to the year ended December 31, 2013 was also attributable to higher rates in the current year. These increases in revenue were partially offset by an $11.2 million decrease in revenue due to the termination of two natural gas processing plant contracts during the second quarter of 2013.

Gross Margin. The increases in gross margin and gross margin percentage during the year ended December 31, 2014 compared to the year ended December 31, 2013 were primarily due to the increases in revenue discussed above, partially offset by a $9.8 million decrease in gross margin due to the termination of two natural gas processing plant contracts during the second quarter of 2013.

Depreciation and Amortization. The increase in depreciation and amortization expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to additional depreciation expense on compression equipment additions, including the assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, and additional amortization expense attributable to intangible assets acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition.

Long-Lived Asset Impairment. During the year ended December 31, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 30,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $10.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

In connection with our fleet review during 2014, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for certain of the remaining units. This resulted in an additional impairment of $2.3 million to reduce the book value of each unit to its estimated fair value.

During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.4 million on these assets.

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During the year ended December 31, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 25,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $5.4 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

Restructuring Charges. In January 2014, Exterran Holdings announced a plan to centralize its make-ready operations to improve the cost and efficiency of its shops and further enhance the competitiveness of our and Exterran Holdings’ combined U.S. compressor fleet. As part of this plan, Exterran Holdings examined both recent and anticipated changes in the U.S. market, including the throughput demand of its shops and the addition of new equipment to our and Exterran Holdings’ combined U.S. compressor fleet. To better align its costs and capabilities with the current market, Exterran Holdings determined to close several of its make-ready shops. The centralization of its make-ready operations was completed in the second quarter of 2014. During the year ended December 31, 2014, we incurred $0.7 million of restructuring charges comprised of an allocation of expenses, including termination benefits associated with the centralization of Exterran Holdings’ make-ready operations, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement based on revenue and horsepower. See Note 12 to the Financial Statements for further discussion of these charges.

SG&A — affiliates. SG&A expenses are primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to increased costs associated with the impact of the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition. SG&A expenses represented 14% and 13% of revenue during the years ended December 31, 2014 and 2013, respectively.

Interest Expense. The increase in interest expense during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to a higher average balance of long-term debt and an increase in the weighted average effective interest rate on our debt caused by the issuance of the 2014 Notes in April 2014 and the issuance of the 2013 Notes in March 2013.

Other (Income) Expense, Net. Other (income) expense, net, during the year ended December 31, 2014 included $2.5 million of transaction costs associated with the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition and $2.5 million of gain on sale of property, plant and equipment. Other (income) expense, net, during the year ended December 31, 2013 included $10.1 million of gain on sale of property, plant and equipment, of which $6.8 million resulted from the exercise of purchase options by our customer on two natural gas processing plant contracts, and $0.8 million of transaction costs associated with the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition.

Provision for Income Taxes. The decrease in our provision for income taxes during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to a state tax benefit recognized in the current period for amendments to previously filed tax returns, partially offset by increased revenue subject to state-level taxation.

The Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

The following table summarizes our revenue, gross margin, gross margin percentage, expenses and net income (dollars in thousands):

	Years Ended December 31,
	2013			2012
Revenue	$	466,193		$	387,493
Gross margin(1)	264,148			204,333
Gross margin percentage(2)	57		%	53		%
Expenses:
Depreciation and amortization	$	103,711		$	88,298
Long-lived asset impairment	5,350			29,560
Selling, general and administrative — affiliates	61,971			49,889
Interest expense	37,068			25,167
Other (income) expense, net	(9,481		)	(35		)
Provision for income taxes	1,506			945
Net income	$	64,023		$	10,509

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(2) Defined as gross margin divided by revenue.

Revenue. The increase in revenue and average operating horsepower was primarily due to the inclusion of the results from the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, as well as from organic growth in operating horsepower. Average operating horsepower was approximately 2,155,000 and 1,883,000 during the years ended December 31, 2013 and 2012, respectively. The increase in revenue during the year ended December 31, 2013 compared to the year ended December 31, 2012 was also attributable to an increase in rates and a $6.5 million increase in revenue with no incremental cost due to the termination of contracts resulting from the exercise of purchase options by our customer on two natural gas processing plants, partially offset by a $4.5 million decrease in revenue due to the termination of the contracts associated with those plants during the second quarter of 2013.

Gross Margin. The increases in gross margin and gross margin percentage during the year ended December 31, 2013 compared to the year ended December 31, 2012 were primarily due to the increases in revenue discussed above, improved management of field operating expenses from the implementation of profitability improvement initiatives by Exterran Holdings and a $3.2 million decrease in intercompany lease expense on equipment leased from Exterran Holdings.

Depreciation and Amortization. The increase in depreciation and amortization expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to additional depreciation on compression equipment additions, including the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, partially offset by the impact of impairments recorded in 2012, which decreased depreciation and amortization expense during the year ended December 31, 2013.

Long-Lived Asset Impairment. During the year ended December 31, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 25,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $5.4 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During the year ended December 31, 2012, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 260 idle compressor units, representing approximately 71,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $22.2 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. The average age of the idle units we impaired during the second quarter of 2012 was 27 years.

In connection with our 2012 fleet review, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. Based upon that review, we reduced the expected proceeds from disposition for most of the remaining units and increased the weighted average disposal period for the units from the assumptions used in prior periods. This resulted in an additional impairment of $7.4 million to reduce the book value of each unit to its estimated fair value.

SG&A — affiliates. SG&A expenses are primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to increased costs associated with the impact of the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition. SG&A expenses represented 13% of revenue for each of the years ended December 31, 2013 and 2012.

Interest Expense. The increase in interest expense during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to an increase in the weighted average effective interest rate on our debt and a higher average balance of long-term debt. The increase in the weighted average effective rate on our debt was primarily due to the issuance of the 2013 Notes in March 2013 and a charge of $0.7 million related to the write-off of unamortized deferred financing costs in conjunction with the March 2013 amendment to our Credit Agreement.

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Other (Income) Expense, Net. Other (income) expense, net, included $10.1 million of gain on sale of property, plant and equipment, of which $6.8 million resulted from the exercise of purchase options by our customer on two natural gas processing plants during the year ended December 31, 2013. Other (income) expense, net, included $0.7 million of gain on sale of property, plant and equipment during the year ended December 31, 2012. Additionally, other (income) expense, net, during the years ended December 31, 2013 and 2012 included $0.8 million of transaction costs associated with April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition and $0.7 million of transaction costs associated with the March 2012 Contract Operations Acquisition, respectively.

Provision for Income Taxes. The increase in our provision for income taxes during the year ended December 31, 2013 compared to the year ended December 31, 2012 was primarily due to increased revenue subject to state-level taxation.

Liquidity and Capital Resources

The following tables summarize our sources and uses of cash during the years ended December 31, 2014 and 2013, and our cash and working capital as of the end of the periods presented (in thousands):

	Years Ended December 31,
	2014			2013
Net cash provided by (used in):
Operating activities	$	185,764		$	158,286
Investing activities	(772,407		)	(117,132		)
Financing activities	586,756			(41,114		)
Net change in cash and cash equivalents	$	113		$	40

	December 31,
	2014		2013
Cash and cash equivalents	$	295	$	182
Working capital	60,256		46,802

Operating Activities. The increase in net cash provided by operating activities was primarily due to the increase in business levels resulting from the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition and the March 2013 Contract Operations Acquisition, which contributed to the increase in gross margin and SG&A expense during the year ended December 31, 2014 compared to the year ended December 31, 2013. This activity was partially offset by a $9.8 million decrease in gross margin due to the termination of two natural gas processing plant contracts during the second quarter of 2013 and higher interest payments during the year ended December 31, 2014 compared to the year ended December 31, 2013.

Investing Activities. The increase in net cash used in investing activities during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily attributable to $483.0 million paid for the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition during the year ended December 31, 2014, a $135.9 million increase in capital expenditures and a $55.1 million decrease in proceeds from sale of property, plant and equipment. These activities were partially offset by a decrease of $18.8 million in amounts due from affiliates during the year ended December 31, 2014 compared to the year ended December 31, 2013. Capital expenditures during the year ended December 31, 2014 were $304.0 million, consisting of $258.7 million for fleet growth capital and $45.3 million for compressor maintenance activities.

Financing Activities. The increase in net cash provided by financing activities during the year ended December 31, 2014 compared to the year ended December 31, 2013 was primarily due to an increase of $464.3 million in net borrowings of long-term debt, $169.5 million of net proceeds received from a public offering of common units in April 2014 and a $21.6 million decrease in amounts due to affiliates, net, during the year ended December 31, 2013. These activities were partially offset by a $23.1 million increase in distributions to unitholders during the year ended December 31, 2014 compared to the year ended December 31, 2013.

Working Capital. The increase in working capital at December 31, 2014 compared to December 31, 2013 was primarily due to an increase of $26.8 million in accounts receivable and a decrease of $2.3 million in accrued liabilities, partially offset by a decrease of $8.2 million in amounts due from affiliates and an increase of $5.9 million in accrued interest. The increase in accounts receivable was primarily driven by billings on contracts acquired in the August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition. The increase in accrued interest was primarily due to the issuance of the 2014 Notes in April 2014.

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Capital Requirements. The natural gas compression business is capital intensive, requiring significant investment to maintain and upgrade existing operations. Our capital spending is dependent on the demand for our services and the availability of the type of compression equipment required for us to render those services to our customers. Our capital requirements have consisted primarily of, and we anticipate will continue to consist of, the following:

· growth capital expenditures, which are made to expand or to replace partially or fully depreciated assets or to expand the operating capacity or revenue generating capabilities of existing or new assets, whether through construction, acquisition or modification; and

· maintenance capital expenditures, which are made to maintain the existing operating capacity of our assets and related cash flows further extending the useful lives of the assets.

Substantially all of our growth capital expenditures are related to the acquisition cost of new compressor units that we add to our fleet. In addition to the cost of new compressor units, growth capital expenditures can also include the upgrading of major components on an existing compressor unit where the current configuration of the compressor unit is no longer in demand and the compressor is not likely to return to an operating status without the capital expenditures. These latter expenditures substantially modify the operating parameters of the compressor unit such that it can be used in applications for which it previously was not suited. Maintenance capital expenditures are related to major overhauls of significant components of a compressor unit, such as the engine, compressor and cooler, that return the components to a like new condition, but do not modify the applications for which the compressor unit was designed.

Growth capital expenditures were $258.7 million, $126.6 million and $119.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. This increase in growth capital expenditures over the last three years has been driven primarily by increased demand for natural gas compression in certain shale plays and areas focused on the production of oil and natural gas liquids. This activity has increased the utilization of our compressor units that are more suitable to these plays. As a result, we have increased our capital expenditures in 2014 and 2013 to acquire new compressor units that are able to meet this demand. Based on current market conditions, we anticipate investing less capital in new fleet units in 2015 than we did in 2014.

Maintenance capital expenditures were $45.3 million, $41.4 million and $38.4 million in the years ended December 31, 2014, 2013 and 2012, respectively. The increase in maintenance capital expenditures is primarily related to the growth of our compressor unit fleet which has grown from 1.7 million of operating horsepower at the beginning of 2012 to 3.0 million of operating horsepower at the end of 2014. We intend to continue to grow our business both organically and through acquisitions. We completed an acquisition from Exterran Holdings in each year since our initial public offering in 2006 through 2013. Additionally, we completed the August 2014 MidCon Acquisition and April 2014 MidCon Acquisition during the year ended December 31, 2014. If we are successful in growing our business in the future, we would expect our maintenance capital expenditures to continue to increase.

Without giving effect to any equipment we may acquire pursuant to any future acquisitions, we currently plan to make approximately $200 million to $225 million in capital expenditures during 2015, including (1) approximately $145 million to $165 million on growth capital expenditures and (2) approximately $55 million to $60 million on equipment maintenance capital expenditures. Exterran Holdings manages its and our respective U.S. fleets as one pool of compression equipment from which we can each readily fulfill our respective customers’ service needs. When we or Exterran Holdings are advised of a contract operations services opportunity, Exterran Holdings reviews both our and its fleet for an available and appropriate compressor unit. The majority of the idle compression equipment required for servicing these contract operations services has been and is currently held by Exterran Holdings. The owner of the equipment being transferred is required to pay the costs associated with making the idle equipment suitable for the proposed customer and then has generally leased the equipment to the recipient of the equipment or exchanged the equipment for other equipment of the recipient. Because Exterran Holdings has owned the majority of such equipment, Exterran Holdings has generally had to bear a larger portion of the maintenance capital expenditures associated with making transferred equipment ready for service. For equipment that is then leased, the maintenance capital cost is a component of the lease rate that is paid under the lease. As we acquire more compression equipment, we expect that more of our equipment will be available to satisfy our or Exterran Holdings’ customer requirements. As a result, we expect that our maintenance capital expenditures will continue to increase and that our lease expense will decrease.

In addition, our capital requirements include funding distributions to our unitholders. We anticipate such distributions will be funded through cash provided by operating activities and borrowings under our senior secured credit facility and that we will be able to generate cash or borrow adequate amounts of cash under our senior secured credit facility to meet our needs over the next twelve months. Given our objective of long-term growth through acquisitions, growth capital expenditure projects and other internal growth projects, we anticipate that over time we will continue to invest capital to grow and acquire assets. We expect to actively consider a variety of assets for potential acquisitions and growth projects. We expect to fund these future capital expenditures with borrowings under our senior secured credit facility and the issuance of additional debt and equity securities, as appropriate, given market conditions. The timing of future capital expenditures will be based on the economic environment, including the availability of debt and equity capital.

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Termination of Cost Caps. Under the Omnibus Agreement, our obligation to reimburse Exterran Holdings for any cost of sales that it incurred in the operation of our business and any cash SG&A expense allocated to us was capped (after taking into account any such costs we incurred and paid directly) through December 31, 2014. We have been in the past dependent on our cost caps to generate sufficient cash from operating surplus to enable us to make cash distributions approximating our current distribution rate. The benefit received by us from the caps on operating and SG&A costs provided by Exterran Holdings was $13.9 million, $25.2 million and $24.8 million during the years ended December 31, 2014, 2013 and 2012, respectively. These cost caps were in effect through December 31, 2014; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement terminated. Their termination could reduce the amount of cash flow available to unitholders and, accordingly, could impair our ability to maintain or increase our distributions.

Our Ability to Grow Depends on Our Ability to Access External Growth Capital. We expect that we will rely primarily upon external financing sources, including our senior secured credit facility and the issuance of debt and equity securities, rather than cash reserves established by our general partner, to fund our acquisitions and growth capital expenditures. Our ability to access the capital markets may be restricted at a time when we would like, or need, to do so, which could have an impact on our ability to grow.

We expect that we will distribute all of our available cash to our unitholders. Available cash is reduced by cash reserves established by our general partner to provide for the proper conduct of our business, including future capital expenditures. To the extent we are unable to finance growth externally and we are unwilling to establish cash reserves to fund future acquisitions, our cash distribution policy will significantly impair our ability to grow. Because we distribute all of our available cash, we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or growth capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may impact the available cash that we have to distribute for each unit. There are no limitations in our partnership agreement or in the terms of our senior secured credit facility on our ability to issue additional units, including units ranking senior to our common units.

Long-Term Debt. In November 2010, we amended and restated our Credit Agreement to provide for a five-year $550.0 million senior secured credit facility, consisting of a $400.0 million revolving credit facility and a $150.0 million term loan facility. The revolving borrowing capacity under this facility increased to $550.0 million in March 2011 and to $750.0 million in March 2012. We amended our Credit Agreement in March 2013 to reduce the borrowing capacity under our revolving credit facility to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As of December 31, 2014, we had undrawn and available capacity of $190.0 million under our revolving credit facility.

The revolving credit and term loan facilities bear interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin for the revolving and term loans varies (i) in the case of LIBOR loans, from 2.0% to 3.0% and (ii) in the case of base rate loans, from 1.0% to 2.0%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% and one-month LIBOR plus 1.0%. At December 31, 2014, all amounts outstanding under these facilities were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance under these facilities at December 31, 2014 and 2013, excluding the effect of interest rate swaps, was 2.7% and 2.2%, respectively. During the years ended December 31, 2014 and 2013, the average daily debt balance under these facilities was $438.5 million and $450.2 million, respectively.

Borrowings under the Credit Agreement are secured by substantially all of the U.S. personal property assets of us and our Significant Domestic Subsidiaries (as defined in the Credit Agreement), including all of the membership interests of our Domestic Subsidiaries (as defined in the Credit Agreement). As of December 31, 2014, subject to certain conditions, at our request, and with the approval of the lenders, the aggregate commitments under the Credit Agreement could be increased by up to an additional $300 million. In February 2015, we executed an amendment to our Credit Agreement, which among other things, increases the borrowing capacity under the revolving credit facility by $250.0 million to $900.0 million.

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closes) and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, our Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. As of December 31, 2014, we maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio, a 4.3 to 1.0 Total Debt to EBITDA ratio and a 2.0 to 1.0 Senior Secured Debt to EBITDA ratio. A material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under the Credit Agreement, could lead to a default under that agreement. A default under one of our debt agreements would trigger cross-default provisions under our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of December 31, 2014, we were in compliance with all financial covenants under the Credit Agreement.

In March 2013, we issued $350.0 million aggregate principal amount of the 2013 Notes. We used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under our revolving credit facility. The 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. In January 2014, holders of the 2013 Notes exchanged their 2013 Notes for registered notes with the same terms.

Prior to April 1, 2017, we may redeem all or a part of the 2013 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2013 Notes prior to April 1, 2016 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the 2013 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2013 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2017, we may redeem all or a part of the 2013 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2017, 101.500% for the twelve-month period beginning on April 1, 2018 and 100.000% for the twelve-month period beginning on April 1, 2019 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2013 Notes.

Prior to April 1, 2018, we may redeem all or a part of the 2014 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may redeem up to 35% of the aggregate principal amount of the 2014 Notes prior to April 1, 2017 with the net proceeds of one or more equity offerings at a redemption price of 106.000% of the principal amount of the 2014 Notes, plus any accrued and unpaid interest to the date of redemption, if at least 65% of the aggregate principal amount of the 2014 Notes issued under the indenture remains outstanding after such redemption and the redemption occurs within 180 days of the date of the closing of such equity offering. On or after April 1, 2018, we may redeem all or a part of the 2014 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.000% for the twelve-month period beginning on April 1, 2018, 101.500% for the twelve-month period beginning on April 1, 2019 and 100.000% for the twelve-month period beginning on April 1, 2020 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date of the 2014 Notes.

The 2013 Notes and the 2014 Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the 2013 Notes and the 2014 Notes) and certain of our future subsidiaries. The 2013 Notes and the 2014 Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 2013 Notes and the 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. All of our subsidiaries are 100% owned, directly or indirectly, by us and guarantees by our subsidiaries are full and unconditional (subject to customary release provisions as discussed in Note 6 to the Financial Statements) and constitute joint and several obligations. We have no assets or operations independent of our subsidiaries, and there are no significant restrictions upon our subsidiaries’ ability to distribute funds to us.

We have entered into interest rate swap agreements to offset changes in expected cash flows due to fluctuations in the interest rates associated with our variable rate debt. At December 31, 2014, we were a party to interest rate swaps with a notional value of $400.0 million, pursuant to which we make fixed payments and receive floating payments. Our interest rate swaps expire over varying

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dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of December 31, 2014, the weighted average effective fixed interest rate on our interest rate swaps was 1.6%. See Part II, Item 7A (“Quantitative and Qualitative Disclosures About Market Risk”) of this report for further discussion of our interest rate swap agreements.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Sales of Partnership Units. In April 2014, we sold, pursuant to a public underwritten offering, 6,210,000 common units, including 810,000 common units pursuant to an over-allotment option. We received net proceeds of $169.5 million, after deducting underwriting discounts, commissions and offering expenses, which we used to fund a portion of the April 2014 MidCon Acquisition. In connection with this sale and as permitted under our partnership agreement, we issued and sold approximately 126,000 general partner units to our general partner so it could maintain its approximate 2.0% general partner interest in us. We received net proceeds of $3.6 million from the general partner contribution which we used to repay borrowings outstanding under our revolving credit facility.

Distributions to Unitholders. Our partnership agreement requires us to distribute all of our “available cash” quarterly. Under our partnership agreement, available cash is defined generally to mean, for each fiscal quarter, (i) our cash on hand at the end of the quarter in excess of the amount of reserves our general partner determines is necessary or appropriate to provide for the conduct of our business, to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our unitholders for any one or more of the upcoming four quarters, plus, (ii) if our general partner so determines, all or a portion of our cash on hand on the date of determination of available cash for the quarter.

On January 29, 2015, our board of directors approved a cash distribution of $0.5575 per limited partner unit, or approximately $35.3 million, including distributions to our general partner on its incentive distribution rights. The distribution covers the period from October 1, 2014 through December 31, 2014. The record date for this distribution was February 9, 2015 and payment was made on February 13, 2015.

Pursuant to the Omnibus Agreement, our obligation to reimburse Exterran Holdings for cost of sales and SG&A expenses was capped through December 31, 2014 (see Note 3 to the Financial Statements). Our cost of sales exceeded the cap provided in the Omnibus Agreement by $2.5 million, $12.4 million and $16.6 million during the years ended December 31, 2014, 2013, and 2012, respectively. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $11.4 million, $12.8 million and $8.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. Accordingly, our EBITDA, as further adjusted, and our distributable cash flow (please see Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measures”) of this report for a discussion of EBITDA, as further adjusted, and distributable cash flow) would have been approximately $13.9 million, $25.2 million and $24.8 million lower during the years ended December 31, 2014, 2013 and 2012, respectively, without the benefit of the cost caps. As a result, without the benefit of the cost caps, our distributable cash flow coverage (distributable cash flow for the period divided by distributions declared to all unitholders for the period, including incentive distribution rights) would have been 1.20x, 1.13x and 1.02x during the years ended December 31, 2014, 2013 and 2012, respectively, rather than the actual distributable cash flow coverage (which includes the benefit of cost caps) of 1.30x, 1.36x and 1.29x during the years ended December 31, 2014, 2013, and 2012, respectively. The cost caps provided in the Omnibus Agreement were in effect through December 31, 2014; however, effective January 1, 2015, these provisions of the Omnibus Agreement terminated.

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compressors do not qualify as Heavy Equipment, then we would likely be required to pay these ad valorem taxes under the old methodology going forward, which would increase our quarterly cost of sales expense up to approximately the amount of our then most recent quarterly benefit recorded, and as a result impact our future results of operations and cash flows, including our cash available for distribution and accordingly, could impair our ability to maintain or increase our distributions. If we had not received the $10.2 million of benefit from the new methodology during the year ended December 31, 2014, our distributable cash flow coverage without the benefit of cost caps would have been 1.12x.

Contractual Obligations. The following table summarizes our cash contractual obligations as of December 31, 2014 (in thousands):

	Payments Due by Period
	Total		2015		2016-2017		2018-2019		Thereafter
Long-term debt(1)
Revolving credit facility due May 2018	$	460,000	$	—	$	—	$	460,000	$	—
Term loan facility due May 2018	150,000		—		—		150,000		—
6% senior notes due April 2021(2)	350,000		—		—		—		350,000
6% senior notes due October 2022(3)	350,000		—		—		—		350,000
Total long-term debt	1,310,000		—		—		610,000		700,000
Estimated interest payments(4)	371,855		65,103		130,207		92,545		84,000
Total contractual obligations	$	1,681,855	$	65,103	$	130,207	$	702,545	$	784,000

(1) Amounts represent the expected cash payments for principal on our debt and do not include any deferred issuance costs or fair market valuations of our debt. For more information on our long-term debt, see Note 6 to the Financial Statements.

(2) Amounts represent the full face value of the 2013 Notes and are not reduced by the unamortized discount of $4.5 million as of December 31, 2014.

(3) Amounts represent the full face value of the 2014 Notes and are not reduced by the unamortized discount of $5.2 million as of December 31, 2014.

(4) Interest amounts calculated using interest rates in effect as of December 31, 2014, including the effect of our interest rate swaps.

At December 31, 2014, $1.7 million of unrecognized tax benefits have been recorded as liabilities in accordance with the accounting standard for income taxes related to uncertain tax positions, and we are uncertain as to if or when such amounts may be settled. We have not recorded any liability for penalties and interest related to these unrecognized tax benefits.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Effects of Inflation

Our revenue and results of operations have not been materially impacted by inflation in the past three fiscal years.

Critical Accounting Estimates

This discussion and analysis of our financial condition and results of operations is based upon our Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and accounting policies, including those related to bad debt, fixed assets, intangible assets, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe are reasonable under the circumstances. The results of this process form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences can be material to our financial condition, results of operations and liquidity. We describe our significant accounting policies more fully in Note 1 to the Financial Statements.

Allowances and Reserves

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The determination of the collectibility of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’ payment history and current creditworthiness to determine that collectibility is reasonably assured, as well as consideration of the overall business climate in which our customers operate.

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Inherently, these uncertainties require us to make judgments and estimates regarding our customers’ ability to pay amounts due to us in order to determine the appropriate amount of valuation allowances required for doubtful accounts. We review the adequacy of our allowance for doubtful accounts quarterly. We determine the allowance needed based on historical write-off experience and by evaluating significant balances aged greater than 90 days individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2014 and 2012, we recorded bad debt expense of $1.1 million and $0.5 million, respectively. During the year ended December 31, 2013, we recorded a bad debt benefit of approximately $25,000.

Depreciation

Property, plant and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis using estimated useful lives and salvage values. The assumptions and judgments we use in determining the estimated useful lives and salvage values of our property, plant and equipment reflect both historical experience and expectations regarding future use of our assets. The use of different estimates, assumptions and judgments in the establishment of property, plant and equipment accounting policies, especially those involving their useful lives, would likely result in significantly different net book values of our assets and results of operations.

Business Combinations and Goodwill

Goodwill and intangible assets acquired in connection with business combinations represent the excess of consideration over the fair value of tangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed.

The carrying value of goodwill is reviewed annually or earlier if indicators of potential impairment exist. A qualitative assessment is performed to determine whether it is more likely than not that the fair value of the reporting unit is impaired. If it is more likely than not, we perform a goodwill impairment test. We determine the fair value of our reporting unit using both the expected present value of future cash flows and a market approach. Each approach is weighted 50% in determining our calculated fair value. The present value of future cash flows is estimated using our most recent forecast and the weighted average cost of capital. The market approach uses a market multiple on the reporting unit’s earnings before interest expense, income tax provision, depreciation and amortization expense. Significant estimates for the reporting unit included in our impairment analysis are our cash flow forecasts, our estimate of the market’s weighted average cost of capital and market multiples. Changes in forecasts, cost of capital and market multiples could affect the estimated fair value of our reporting unit and result in a goodwill impairment charge in a future period.

Long-Lived Assets

We review long-lived assets, including property, plant and equipment and identifiable intangibles that are being amortized, for impairment whenever events or changes in circumstances, including the removal of compressor units from our active fleet, indicate that the carrying amount of an asset may not be recoverable. The determination that the carrying amount of an asset may not be recoverable requires us to make judgments regarding long-term forecasts of future revenue and costs related to the assets subject to review. These forecasts are uncertain as they require significant assumptions about future market conditions. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and specific times, it is not possible to reasonably quantify the impact of changes in these assumptions. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. When necessary, an impairment loss is recognized and represents the excess of the asset’s carrying value as compared to its estimated fair value and is charged to the period in which the impairment occurred.

Income Taxes

As a partnership, all income, gains, losses, expenses, deductions and tax credits we generate generally flow through to our unitholders. However, some states impose an entity-level income tax on partnerships, including us. Our provision for income taxes, deferred tax liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining our provision for income taxes.

Deferred income taxes arise from temporary differences between the financial statements and tax basis of assets and liabilities. Changes in tax laws and rates could affect recorded deferred tax liabilities in the future. Management is not aware of any such changes that would have a material effect on our financial position, results of operations or ability to make cash distributions to our unitholders. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various states.

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The accounting standard for income taxes provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. In addition, guidance is provided on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Contingencies

The impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. We regularly assess and, if required, establish accruals for income tax and non-income based tax contingencies pursuant to the applicable accounting standards that could result from assessments of additional tax by taxing jurisdictions where we operate. Tax contingencies are subject to a significant amount of judgment and are reviewed and adjusted on a quarterly basis in light of changing facts and circumstances considering the outcome expected by management. As of December 31, 2014 and 2013, we had recorded approximately $1.8 million and $5.3 million (including penalties and interest), respectively, of accruals for tax contingencies. Of these amounts, $1.7 million and $0.6 million, respectively, are accrued for income taxes and $0.1 million and $4.7 million, respectively, are accrued for non-income based taxes. If our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and would be recorded in the period in which the difference becomes known.

Self-Insurance

Exterran Holdings insures our property and operations and allocates certain insurance costs to us. Exterran Holdings is self-insured up to certain levels for general liability, vehicle liability, group medical and workers’ compensation claims. We regularly review estimates of reported and unreported claims and provide for losses based on claims filed and an estimate for significant claims incurred but not reported. Although we believe the insurance costs allocated to us are adequate, it is reasonably possible our estimates of these liabilities will change over the near term as circumstances develop. Exterran Holdings currently has minimal insurance on our offshore assets.

Recent Accounting Pronouncements

See Note 14 to the Financial Statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily associated with changes in interest rates under our financing arrangements. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

As of December 31, 2014, after taking into consideration interest rate swaps, we had $210.0 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1% increase in the effective interest rate on our outstanding debt subject to floating interest rates at December 31, 2014 would result in an annual increase in our interest expense of approximately $2.1 million.

For further information regarding our use of interest rate swap agreements to manage our exposure to interest rate fluctuations on a portion of our debt obligations, see Note 9 to the Financial Statements.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary information specified by this Item are presented in Part IV, Item 15 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on the evaluation, as of December 31, 2014, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

As required by Exchange Act Rules 13a-15(c) and 15d-15(c), our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the results of management’s evaluation described above, management concluded that our internal control over financial reporting was effective as of December 31, 2014.

The effectiveness of internal control over financial reporting as of December 31, 2014 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report found within this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Exterran Partners, L.P.

Houston, Texas

We have audited the internal control over financial reporting of Exterran Partners, L.P. and subsidiaries (the “Partnership”) as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that 1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; 2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Partnership and our report dated February 26, 2015 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas

February 26, 2015

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Item 9B. Other Information

Fifth Amendment to Third Amended and Restated Omnibus Agreement

On February 23, 2015, we entered into a Fifth Amendment to Third Amended and Restated Omnibus Agreement (the “Omnibus Amendment”) with Exterran Holdings, Exterran Energy Solutions, L.P., Exterran GP LLC (“GP LLC”), Exterran General Partner, L.P. (“GP”) and EXLP Operating LLC. The Omnibus Agreement governs several relationships between us and Exterran Holdings, including:

· Certain agreements not to compete between us and our affiliates, on the one hand, and Exterran Holdings and its affiliates, on the other hand;

· Exterran Holdings’ obligation to provide all operational staff, corporate staff and support services reasonably necessary to run our business and our obligation to reimburse Exterran Holdings for the provision of such services;

· The terms under which we, Exterran Holdings and our respective affiliates may transfer, exchange or lease compression equipment;

· The terms under which we may purchase newly-fabricated compression equipment from Exterran Holdings;

· Exterran Holdings’ grant to us of a license to use certain intellectual property, including our logo; and

· Exterran Holdings’ obligation to indemnify us for certain liabilities, and our obligation to indemnify Exterran Holdings for certain liabilities.

The Omnibus Agreement, as amended, is hereby incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

The Omnibus Amendment amends the Omnibus Agreement to, among other things, extend the terms of certain non-competition and equipment transfer provisions such that they will now terminate on December 31, 2015.

Each of the parties to the Omnibus Agreement, other than Exterran Holdings, is a direct or indirect subsidiary of Exterran Holdings. As a result, certain individuals, including officers of Exterran Holdings and officers and directors of GP LLC, serve as officers and/or directors of more than one of such entities. Also, Exterran Holdings holds an approximate 35% limited partner interest in us through its subsidiaries and an approximate 2% general partner interest and incentive distribution rights in us through its indirect ownership of GP, our general partner.

The Omnibus Amendment is filed as Exhibit 10.12 to this report and incorporated herein by reference.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Board of Directors

Because our general partner is a limited partnership, its general partner, Exterran GP LLC, conducts our business and operations. Exterran GP LLC’s board of directors and officers, which we refer to as our board of directors and our officers, make decisions on our behalf. Our general partner is not elected by our unitholders and is not subject to re-election on a regular basis in the future. Unitholders are not entitled to elect the directors of Exterran GP LLC or directly or indirectly participate in our management or operation. As a result, we do not hold annual unitholder meetings. Our general partner owes a fiduciary duty to our unitholders. Our general partner is liable, as our sole general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made expressly non-recourse to it. Our general partner therefore may cause us to incur indebtedness or other obligations that are non-recourse to it.

NASDAQ does not require a listed limited partnership like us to have a majority of independent directors on our board of directors or to establish a compensation committee or a nominating committee. We have seven directors, three of whom — James G. Crump, G. Stephen Finley and Edmund P. Segner, III — have been determined by the board to be “independent directors” within the meaning of applicable NASDAQ rules and Rule 10A-3 of the Exchange Act. In determining the independence of each director, we have adopted standards that incorporate the NASDAQ and Exchange Act standards.

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Our board of directors has standing audit, compensation and conflicts committees. Each committee’s written charter is available on our website at www.exterran.com and without charge to any unitholder upon written request to Investor Relations, 16666 Northchase Drive, Houston, Texas 77060.

Our board of directors met eight times during 2014. During 2014, each director attended at least 75% of the aggregate number of meetings of the board of directors and any committee of the board of directors on which such director served.

Our directors hold office until the earlier of their death, resignation, removal or disqualification or until their successors have been elected and qualified. Officers serve at the discretion of the board of directors. There are no family relationships among any of our directors or executive officers, and there are no arrangements or understandings between any of the directors or executive officers and any other persons pursuant to which a director or officer was selected as such.

Audit Committee. The audit committee, which met four times during 2014, consists of Messrs. Crump (chair), Finley and Segner. The board of directors has determined that each of Messrs. Crump, Finley and Segner is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of SEC Regulation S-K, and that each is “independent” within the meaning of the applicable NASDAQ and Exchange Act rules regulating audit committee independence. The audit committee assists our board of directors in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and corporate policies and controls. The audit committee has the sole authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related fees and terms and pre-approve any non-audit services to be performed by our independent registered public accounting firm. The audit committee is also responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm has unrestricted access to the audit committee.

Compensation Committee. The compensation committee, which met seven times during 2014 and took action by unanimous written consent on one occasion, consists of Messrs. Crump, Finley (chair) and Segner. The compensation committee discharges the board of directors’ responsibilities relating to compensation of our executives and independent directors, reviews and approves the manner in which Exterran Holdings allocates to us its compensation expense applicable to our executives and oversees the development and implementation of our compensation programs. The compensation committee also, in accordance with the SEC’s rules and regulations, produces the compensation discussion and analysis included in Item 11 (“Executive Compensation”) of this report.

Conflicts Committee. The conflicts committee, which met three times during 2014 and took action by unanimous written consent on one occasion, consists of Messrs. Crump (chair), Finley and Segner. The purpose of the conflicts committee is to carry out the duties of the committee as set forth in our Partnership Agreement and the Omnibus Agreement, and any other duties delegated by our board of directors that may involve a conflict of interest. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners and not a breach by our general partner of any duties it may owe us or our unitholders.

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, directors, officers and beneficial owners of 10 percent or more of our common units (“Reporting Persons”) are required to report to the SEC on a timely basis the initiation of their status as a Reporting Person and any changes with respect to their beneficial ownership of our common units. Based solely on a review of Forms 3, 4 and 5 (and any amendments thereto) furnished to us and the representations made to us, we have concluded that no Reporting Persons were delinquent with respect to their reporting obligations, as set forth in Section 16(a) of the Exchange Act, during 2014.

Code of Ethics

Exterran GP LLC has adopted a Code of Business Conduct and Ethics that applies to it and its subsidiaries and affiliates, including us, and to all of its and their respective employees, directors and officers, including its principal executive officer, principal financial officer and principal accounting officer. A copy of this code is available on our website at www.exterran.com or without charge upon written request to Investor Relations, 16666 Northchase Drive, Houston, Texas 77060.

Directors and Executive Officers

All of our executive officers allocate their time between managing our business and affairs and Exterran Holdings’ business and affairs. Exterran Holdings causes the executive officers to devote as much time to the management of our business and affairs as is necessary. A significant number of other employees of Exterran Holdings and its affiliates operate our business and provide us with general and administrative services.

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Our current directors and executive officers are:

Name	Age	Title
D. Bradley Childers	50	President, Chief Executive Officer and Chairman of the Board
David S. Miller	51	Senior Vice President, Chief Financial Officer and Director
Jon C. Biro	48	Senior Vice President and Director
Robert E. Rice	49	Senior Vice President
Daniel K. Schlanger	41	Senior Vice President and Director
Donald C. Wayne	48	Senior Vice President and General Counsel
Kenneth R. Bickett	53	Vice President and Controller
James G. Crump	74	Director
G. Stephen Finley	64	Director
Edmund P. Segner, III	61	Director

D. Bradley Childers. Mr. Childers was elected President, Chief Executive Officer and Chairman of the Board of Exterran GP LLC in December 2011, having served as interim Chief Executive Officer and interim Chairman of the Board since November 2011. Prior to that, Mr. Childers served as Senior Vice President of Exterran GP LLC since June 2006 and as a director of Exterran GP LLC since May 2008. He also served as Senior Vice President of Exterran Holdings since August 2007 and as President, North America of Exterran Energy Solutions, L.P. from March 2008 to November 2011. Prior to the merger of Hanover Compressor Company and Universal Compression Holdings, Inc. in August 2007, Mr. Childers joined Universal in 2002 and served in a number of management positions, including as Senior Vice President of Universal and President of the International Division of Universal Compression, Inc., Universal’s wholly-owned subsidiary. Prior to joining Universal, he held various positions with Occidental Petroleum Corporation (an international oil and gas exploration and production company) and its subsidiaries from 1994 to 2002, including as Vice President, Business Development at Occidental Oil and Gas Corporation. Mr. Childers is a member of the board of directors of Yellowstone Academy (a non-profit organization). Mr. Childers also serves as an officer of certain other Exterran Holdings majority-owned subsidiaries. Mr. Childers holds a B.A. from Claremont McKenna College and a J.D. from the University of Southern California.

Mr. Childers’ day to day leadership as our Chief Executive Officer and his role in forming the Partnership provide him with an intimate knowledge of our Partnership, including its strategies, operations and markets. His previous experience as President, North America of Exterran Energy Solutions, L.P. has provided him with intimate knowledge of our contract compression operations, as well as a unique understanding of market factors and operational challenges and opportunities. Mr. Childers’ business judgment, management experience and leadership skills are highly valuable in assessing our business strategies and accompanying risks. We believe this knowledge and experience make Mr. Childers well qualified to serve as a director of Exterran GP LLC.

David S. Miller. Mr. Miller was elected Senior Vice President and Chief Financial Officer of Exterran GP LLC in April 2012 and as a director of Exterran GP LLC in March 2009. He served as Vice President and Chief Financial Officer, Eastern Hemisphere of Exterran Energy Solutions, L.P. from August 2010 to April 2012, and previously served as Vice President and Chief Financial Officer of Exterran GP LLC from March 2009 to August 2010. Prior to that, Mr. Miller served as Chief Operating Officer of JMI Realty (a private real estate investment and development company) from October 2005 to January 2009. From April 2002 to September 2005, Mr. Miller was a partner with SP Securities LLC (a private investment banking firm). Prior to joining SP Securities LLC, Mr. Miller served in positions of increasing responsibility with the Energy Investment Banking department of Merrill Lynch & Co, Inc. (a financial management and advisory firm) from May 1993 to March 2002. Mr. Miller holds a B.S. in finance from Southern Methodist University and an MBA from Northwestern University J.L. Kellogg Graduate School of Management.

Through his role as our Senior Vice President and Chief Financial Officer, Mr. Miller brings extensive knowledge of our Partnership, including its capital structure and financing requirements. Mr. Miller also brings valuable financial expertise, including extensive experience with capital markets transactions, knowledge of the energy industry and familiarity with the natural gas compression industry from his prior role as an investment banker. We believe this knowledge and experience make Mr. Miller well qualified to serve as a director of Exterran GP LLC.

Jon C. Biro. Mr. Biro was elected Senior Vice President and Director of Exterran GP LLC in October 2014. He also serves as Senior Vice President and Chief Financial Officer of Exterran Holdings, Inc., a position he assumed in September 2014. Prior to joining Exterran, Mr. Biro served as Executive Vice President and Chief Financial Officer of Consolidated Graphics, Inc. (a commercial printer) from January 2008 until it was acquired by R.R. Donnelly and Sons Company in January 2014. Mr. Biro joined ICO, Inc. (an oilfield services provider and manufacturer of specialty resins) in 1994, and he served in various positions, including as Chief Financial Officer and Treasurer from April 2002 to January 2008. Prior to joining ICO, Inc., he was a Senior Audit Accountant for PricewaterhouseCoopers LLP from 1991 to 1994. He served on the board of directors and audit committee of Crown Crafts, Inc. (a producer and distributor of infant, toddler and juvenile consumer products) from August 2010 to August 2013. Mr. Biro also serves as an officer of certain other Exterran Holdings majority-owned subsidiaries. He is a Certified Public Accountant and received a B.A. from the University of Texas and an M.S. of Accountancy from the University of Houston.

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Through his role as Exterran Holdings, Inc.’s Chief Financial Officer, Mr. Biro brings significant knowledge of our Partnership, including its capital structure and financing requirements. Mr. Biro also brings valuable financial expertise, having served in key management and financial roles in a variety of industries and as a board member of a publicly-traded company. We believe this knowledge and experience make Mr. Biro well qualified to serve as a director of Exterran GP LLC.

Robert E. Rice. Mr. Rice was elected Senior Vice President of Exterran GP LLC in December 2011, and at that time he was also appointed Senior Vice President of Exterran Holdings, Inc. and President, North America of Exterran Energy Solutions, L.P. Previously, Mr. Rice was Regional Vice President for the U.S. Gulf Coast Region of Exterran Energy Solutions, L.P. Prior to the merger of Hanover and Universal, Mr. Rice held the following positions at Hanover: Vice President, Gulf Coast Business Unit, from September 2003 to August 2007; Vice President, Health, Safety & Environmental, from October 2002 to September 2003; and Director, Corporate Development, January 2002 to October 2002. During his career, Mr. Rice has been based in Argentina and Australia and has developed detailed experience in analyzing, structuring and growing businesses in domestic and international energy markets. Mr. Rice also serves as an officer of certain other Exterran Holdings majority-owned subsidiaries. Mr. Rice also served as a Flight Test Engineer with the United States Air Force. Mr. Rice holds a B.S. in electrical engineering from Louisiana Tech University.

Daniel K. Schlanger. Mr. Schlanger has served as Senior Vice President of Exterran GP LLC since June 2006, and has served as a director of Exterran GP LLC since October 2006. From June 2006 to March 2009, he also served as Chief Financial Officer of Exterran GP LLC. He was appointed Senior Vice President, Sales and Marketing, of Exterran Holdings and Exterran Energy Solutions, L.P. in February 2015, having served both companies as Senior Vice President, Operation Services since February 2009. Prior to the merger of Hanover and Universal, Mr. Schlanger served as Vice President — Corporate Development of Universal. From August 1996 through May 2006, Mr. Schlanger was employed as an investment banker with Merrill Lynch & Co., where he focused on the energy sector. Mr. Schlanger also serves as an officer of certain other Exterran Holdings majority-owned subsidiaries. Mr. Schlanger holds a B.S. in economics from the University of Pennsylvania.

From his position as Senior Vice President, Sales & Marketing, and previously with responsibility for Operations Services of Exterran Holdings, Mr. Schlanger has unique insight into our operational challenges and opportunities. Also, through his prior role as our Chief Financial Officer and his role in forming the Partnership, Mr. Schlanger brings extensive knowledge of our Partnership, including its capital structure and financing requirements. Mr. Schlanger also brings financial expertise, including experience with capital markets transactions, knowledge of the energy industry and familiarity with master limited partnerships from his prior role as an investment banker. We believe this knowledge and experience make Mr. Schlanger well qualified to serve as a director of Exterran GP LLC.

Donald C. Wayne. Mr. Wayne was elected Senior Vice President and General Counsel of Exterran GP LLC in May 2008, having served as Vice President, General Counsel and Secretary since August 2006. He also serves as Senior Vice President, General Counsel and Secretary of Exterran Holdings. Prior to the merger of Hanover and Universal, Mr. Wayne served as Vice President, General Counsel and Secretary of Universal, a position he assumed upon joining Universal in August 2006. Prior to joining Universal, he served as Vice President, General Counsel and Corporate Secretary of U.S. Concrete, Inc. (a producer of ready-mixed concrete and concrete-related products) from 1999 to August 2006. Prior to joining U.S. Concrete in 1999, Mr. Wayne served as an attorney with the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Wayne also serves as an officer and director of certain other Exterran Holdings majority-owned subsidiaries. Mr. Wayne holds a B.A. from Tufts University and a J.D. and an MBA from Washington University (St. Louis).

Kenneth R. Bickett. Mr. Bickett is Vice President and Controller of Exterran GP LLC, positions he assumed in December 2011. Mr. Bickett held the titles of Vice President, Finance and Accounting of Exterran GP LLC from April 2009 to December 2011, having served as Vice President and Controller of Exterran GP LLC from June 2006 to April 2009. He also serves as Vice President and Controller of Exterran Holdings. Prior to the merger of Hanover and Universal, Mr. Bickett served as Vice President, Accounting and Corporate Controller of Universal, a position he held since joining Universal in July 2005. Prior to joining Universal, he served as Vice President and Assistant Controller for Reliant Energy, Inc. (an electricity and energy services provider). Prior to joining Reliant Energy in 2002, Mr. Bickett was employed by Azurix Corp. (a water and wastewater utility and services company) since 1998, where he most recently served as Vice President and Controller. Mr. Bickett also serves as an officer and director of certain other Exterran Holdings majority-owned subsidiaries. Mr. Bickett is a Certified Public Accountant and holds a B.S. in accounting from the University of Kentucky.

James G. Crump. Mr. Crump was appointed as a director of Exterran GP LLC in October 2006. Mr. Crump began his career at Price Waterhouse in 1962 and became a partner in 1974. From 1977 until the merger of Price Waterhouse and Coopers Lybrand in 1998, Mr. Crump held numerous management and leadership roles. From 1998 until his retirement in 2001, Mr. Crump served as Global Energy and Mining Cluster Leader, as a member of the U.S. Management Committee and the Global Management Committee and as

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Houston Office Managing Partner. Mr. Crump served as chairman of the audit committee and a member of the conflicts committee of the board of directors of Copano Energy, L.L.C. (a natural gas gathering and processing company) from November 2004 until Copano was acquired by Kinder Morgan Energy Partners in May 2013. He is a director of the Lamar University Foundation and the Culinary Endowment and Scholarship, Inc. (both non-profit organizations). Mr. Crump holds a B.B.A. in accounting from Lamar University.

With a nearly 40-year career focused on providing independent public accounting services to the energy industry, Mr. Crump contributes a broad-based understanding of the oil and gas industry and of complex accounting and financial matters. We believe this knowledge and experience make Mr. Crump well qualified to serve as a director of Exterran GP LLC.

G. Stephen Finley. Mr. Finley was elected as a director of Exterran GP LLC in November 2006. Mr. Finley served in various positions of increasing responsibility at Baker Hughes Incorporated (a provider of drilling, formation evaluation, completion and production products and services to the worldwide oil and gas industry) from 1982 until his retirement in 2006, including as Senior Vice President — Finance and Administration and Chief Financial Officer from April 1999 through April 2006. Mr. Finley currently serves as chairman of the audit committee and as a member of the compensation committee and the nominating and corporate governance committee of the board of directors of Newpark Resources, Inc. (a provider of integrated site, environmental and drilling fluid services to the oil and gas exploration and production industry). Mr. Finley’s prior board service includes the following: From April 2012 to December 2014, Microseismic, Inc. (a private oilfield services company providing real-time monitoring and mapping of hydraulic fracture operations in unconventional oil and gas plays); from December 2006 to November 2011, Total Safety U.S., Inc. (a privately held company and global provider of integrated safety strategies and solutions for hazardous environments); and from June 2006 to June 2008, Ocean Rig ASA (a Norway-based drilling contractor). Mr. Finley holds a B.S. from Indiana State University.

Mr. Finley contributes extensive financial acumen and an understanding of the oil and gas services industry, including oilfield services companies, through his 24 years of service with Baker Hughes, including seven years as Chief Financial Officer, and also serves on the audit and compensation committees of the board of directors of another energy services company. We believe this knowledge and experience make Mr. Finley well qualified to serve as a director of Exterran GP LLC.

Edmund P. Segner, III. Mr. Segner was elected as a director of Exterran GP LLC in May 2009. Mr. Segner is a Professor in the Practice of Engineering Management in the Department of Civil and Environmental Engineering at Rice University (Houston). In November 2008, Mr. Segner retired from EOG Resources, Inc. (EOG) (a publicly traded independent oil and gas exploration and production company). Among the positions he held at EOG was President and Chief of Staff and Director from 1999 to 2007. From March 2003 through June 2007, he also served as EOG’s principal financial officer. Mr. Segner currently serves as chairman of the reserves and environment, health and safety committee and is a member of the audit and compensation committees of Bill Barrett Corporation (a company engaged in exploration and development of natural gas and oil reserves in the Rocky Mountain region of the U.S.). Mr. Segner also serves as lead director, audit committee chair and member of the nominating and governance committee of Laredo Petroleum, Inc. (a company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian and Mid-Continent regions of the U.S.). He also serves as a director and a member of the conflicts committee of Midcoast Holdings, LLC (a natural gas and natural gas liquids midstream company with operations primarily in Texas and Oklahoma). He served as chairman of the audit committee and as a member of the finance committee of the board of Seahawk Drilling, Inc. (an owner and operator of offshore oil and gas platforms and a provider of shallow water contract drilling services to the oil and natural gas exploration industry) from August 2009 to October 2011. Mr. Segner is a member of the Society of Petroleum Engineers and currently serves on the board of trustees of the Nature Conservancy of Texas and the Texas Council for Economic Education (both non-profit organizations). Mr. Segner is a Certified Public Accountant and holds a B.S. in civil engineering from Rice University and an M.A. in economics from the University of Houston.

Mr. Segner brings technical experience and financial acumen to the board of directors. Having served in a senior management position for an oil and gas company, Mr. Segner also possesses a thorough understanding of the energy industry and operational challenges unique to this industry. In addition, as a former president of a public company and as a director of other public companies, Mr. Segner has valuable experience with other functions pertinent to our board, including compensation, financing matters and the evaluation of acquisition opportunities. We believe this knowledge and experience make Mr. Segner well qualified to serve as a director of Exterran GP LLC.

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Item 11. Executive Compensation

Compensation Discussion and Analysis

Overview

As is commonly the case for many publicly traded limited partnerships, we have no employees. Under the terms of our partnership agreement, we are ultimately managed by Exterran GP LLC, the general partner of Exterran General Partner, L.P., our general partner (which we may refer to as our general partner or Exterran GP LLC). We refer to Exterran GP LLC’s management and executive officers as “our management” and “our executive officers” and Exterran GP LLC’s board of directors and compensation committee as “our board of directors” and “our compensation committee.”

The following discussion addresses the 2014 compensation for our named executive officers (collectively, the “Named Executive Officers”), who are:

· D. Bradley Childers, President and Chief Executive Officer of Exterran GP LLC and Exterran Holdings;

· David S. Miller, Senior Vice President and Chief Financial Officer of Exterran GP LLC;

· Robert E. Rice, Senior Vice President of Exterran GP LLC and Exterran Holdings and President, North America of Exterran Energy Solutions, L.P.;

· Daniel K. Schlanger, Senior Vice President of Exterran GP LLC and Senior Vice President, Sales and Marketing of Exterran Holdings; and

· Donald C. Wayne, Senior Vice President and General Counsel of Exterran GP LLC and Exterran Holdings.

Compensation Expense Allocations

Under the Omnibus Agreement, most costs associated with Exterran Holdings’ provision of services to us, including compensation of our Named Executive Officers, are allocated to us on a monthly basis in the manner that our general partner deems reasonable. During 2014, those allocations were generally made using a two-step process:

· First, Exterran Holdings allocated an appropriate portion of its total SG&A expenses among its business segments, including to the U.S. portion of its North America contract operations segment, based on revenue.

· Second, Exterran Holdings allocated to us a prorated portion of the SG&A expenses initially allocated to the U.S. portion of Exterran Holdings’ North America contract operations segment based upon the ratio of our total compression equipment horsepower to the sum of Exterran Holdings’ total U.S. compression equipment horsepower and our total compression equipment horsepower.

Under the Omnibus Agreement, the amount for which we were obligated to reimburse Exterran Holdings for SG&A expenses allocated to us, including compensation costs, could not exceed $15.0 million per quarter from January 1, 2014 through April 9, 2014 and $17.7 million per quarter from April 10, 2014 through December 31, 2014, after taking into account any such costs we incur and pay directly (the “SG&A Cap”), for 2014. The reimbursement of compensation costs allocated by Exterran Holdings to us for the compensation of our Named Executive Officers (which excludes the non-cash costs related to our phantom unit awards) was subject to the SG&A Cap during 2014; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement, including the SG&A cap, terminated. See Part III, Item 13 (“Certain Relationships and Related Transactions, and Director Independence”) of this report for additional discussion of relationships and transactions we have with Exterran Holdings and the terms of the Omnibus Agreement.

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During the year ended December 31, 2014, Exterran Holdings allocated to us the following percentages of Exterran Holdings compensation expenses incurred to provide the Named Executive Officers’ total compensation, including base salary, annual performance-based incentive compensation, Exterran Holdings stock and option awards, our phantom unit awards and other benefits:

Executive Officer		Percent of Named Executive Officer’s 2014 Total Compensation Allocated to the Partnership (%)
D. Bradley Childers		18
David S. Miller		18
Robert E. Rice		30
Daniel K. Schlanger		—
Donald C. Wayne		18

Our Compensation Committee’s Structure and Responsibilities

As described above, because most of our Named Executive Officers are also officers of Exterran Holdings and generally spend a majority of their time working on matters for Exterran Holdings rather than us, their compensation structure is established by the compensation committee of the board of directors of Exterran Holdings (the “Exterran Holdings Compensation Committee”). Our compensation committee’s primary responsibilities are to:

· Discharge the board of directors’ responsibilities relating to our executives’ compensation;

· Review and approve the manner in which Exterran Holdings allocates to us the compensation expense applicable to our Named Executive Officers;

· Oversee the Exterran Partners, L.P. Long-Term Incentive Plan (the “Partnership Plan”) and make awards thereunder;

· Review and approve compensation programs for our independent directors; and

· Produce an annual report relating to this compensation discussion and analysis for inclusion in our Annual Report on Form 10-K in accordance with the rules and regulations of the SEC.

Our compensation committee is comprised entirely of independent directors within the meaning of applicable NASDAQ rules. The current members of our compensation committee are Messrs. Finley (chair), Crump and Segner.

Compensation Philosophy and Objectives

The primary objectives of Exterran Holdings’ executive compensation program are to:

· Pay competitively - The Exterran Holdings Compensation Committee believes that, to attract, retain and motivate an effective management team with the level of expertise and experience needed to achieve consistent growth, profitability and return for Exterran Holdings stockholders, total compensation should be competitive with that of similarly-sized companies to Exterran Holdings across a variety of industries and within the oilfield services sector, as further described below in “How the Exterran Holdings Compensation Committee Determines Executive Compensation.”

· Pay for performance - Exterran Holdings’ and our emphasis on performance-based, variable compensation is an important component of our overall compensation philosophy. Cash bonuses and equity-based incentive awards based on Exterran Holdings’ annual performance combined with Exterran Holdings’ and our time-based equity awards that vest over several years balance short-term and long-term business objectives. Approximately 84% of our Chief Executive Officer’s 2014 targeted total direct compensation (base salary plus targeted annual and long-term incentive award levels) and approximately 70% of our other Named Executive Officers’ 2014 targeted total direct compensation was variable, with realized value dependent upon future performance.

· Align management’s interests with equityholders’ interests - Exterran Holdings’ and our emphasis on equity-based compensation and ownership encourages executives to act strategically to drive sustainable long-term performance and enhance long-term equityholder value.

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How the Exterran Holdings Compensation Committee Determines Executive Compensation

The Exterran Holdings Compensation Committee is responsible for establishing and overseeing compensation programs that are consistent with Exterran Holdings’ compensation philosophy. In carrying out this role, the Exterran Holdings Compensation Committee considers the following:

· Current and past total compensation, including a review of base salary, short-term incentive pay and the value of long-term incentive awards received;

· Data and analysis provided by the Exterran Holdings Compensation Committee’s independent compensation consultant, as further detailed below;

· The Chief Executive Officer’s recommendations (other than with respect to his own compensation);

· Exterran Holdings’ company and operating unit performance (where applicable), as well as each executive’s impact on performance;

· Each executive’s relative scope of responsibility and potential;

· Individual performance and demonstrated leadership;

· Internal pay equity considerations; and

· Any other factors that the Exterran Holdings Compensation Committee deems relevant.

No specific formula is used to determine the weight of any factor; rather, compensation is established based on the Exterran Holdings Compensation Committee’s assessment of all relevant information.

Compensation Consultant Analysis. For 2014, the Exterran Holdings Compensation Committee engaged Pearl Meyer & Partners, LLC (“PM&P”), an independent third-party compensation consultant, to:

· provide a competitive review of executive compensation, including base salary, annual incentives, long-term incentives and total direct compensation, compared with independent and objective market data; and

· provide information on how trends, new rules, regulations and laws impact executive and director compensation practice and administration.

For 2014, PM&P provided an analysis of data derived from (i) proxy statements filed by the members of Exterran Holdings’ peer group, as further described below, and (ii) surveys of the compensation practices of companies in the oilfield services industry, the broader energy industry and across a variety of industries, in each case with annual revenues ranging from approximately $1.0 billion to $3.0 billion(1). In performing its analysis, PM&P generally placed more weight on the proxy compensation data than on the information derived from the compensation surveys.

In consultation with PM&P, the Exterran Holdings Compensation Committee selected Exterran Holdings’ 2014 peer group as follows:

Basic Energy Services, Inc.	Flowserve Corporation	Patterson-UTI Energy, Inc.

Cameron International Corporation	Gardner Denver, Inc.	Regency Energy Partners, L.P.

Chicago Bridge & Iron Company N.V.	Key Energy Services, Inc.	RPC, Inc.

DCP Midstream Partners LP	McDermott International, Inc.	Superior Energy Services, Inc.

Dresser-Rand Group Inc.	Oceaneering International, Inc.	Willbros Group, Inc.

	Oil States International, Inc.

(1) No information was provided as to any individual company’s responses to the survey questions, and no individual component company that contributed to these surveys was evaluated by or considered by the Exterran Holdings’ Compensation Committee for purposes of determining executive compensation.

Because many of Exterran Holdings’ direct competitors are not publicly traded or are not of a comparable size, Exterran Holdings’ peer group includes a diversity of oilfield services and related companies with a range of revenues and with both domestic and international operations. The Exterran Holdings Compensation Committee believes this peer group includes companies with which Exterran Holdings competes for technical and managerial talent and provides an appropriate reference point for assessing the competitiveness of Exterran Holdings’ compensation program. The Exterran Holdings Compensation Committee annually reviews the composition of the peer group, based on input from its compensation consultant, and modifies it as circumstances, including industry

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consolidation and other competitive forces, warrant. In consultation with PM&P, the Exterran Holdings Compensation Committee determined not to make any changes to the peer group for 2014 compared to the peer group for 2013.

For 2014, the Exterran Holdings Compensation Committee used PM&P’s analysis to help structure a competitive executive compensation program, position executive compensation within a target range (by referencing the market at the 50th percentile), and make individual compensation decisions based on comparable positions at those companies with which Exterran Holdings competes for talent, with the following results:

Cash Compensation		2014 Compensation Positioning for Cash Compensation and Total Direct Compensation averaged between the 25th and 50th percentile for all Named Executive Officers, including the Chief Executive Officer.
calculated for each Named Executive Officer as the sum of his base salary for 2014 and his 2014 target short-term incentive compensation.


Total Direct Compensation
calculated for each Named Executive Officer as the sum of his Cash Compensation for 2014 and the grant date fair value of all equity-based awards granted to him during 2014.

While the Exterran Holdings Compensation Committee took into consideration the analysis provided, PM&P did not make any specific recommendation as to the Named Executive Officers’ compensation levels or performance targets for 2014.

Following review and consultation with PM&P, the Exterran Holdings’ Compensation Committee has determined that PM&P is independent and that no conflict of interest, either currently or during 2014, results from this engagement. The Exterran Holdings’ Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.

Chief Executive Officer Recommendations. The most significant aspects of management’s, including the Chief Executive Officer’s, role in the compensation-setting process are:

· recommending compensation programs, compensation policies, compensation levels and incentive opportunities that are consistent with Exterran Holdings’ and our business strategies;

· compiling, preparing and distributing materials for the Exterran Holdings Compensation Committee’s review and consideration;

· recommending corporate performance goals on which performance-based compensation will be based; and

· assisting in the evaluation of employee performance.

The Chief Executive Officer annually reviews the performance of each of the other executive officers and recommends salary adjustments, annual cash incentives and long-term incentive awards, which the Exterran Holdings Compensation Committee considers along with the other factors discussed above.

Elements of Compensation

Exterran Holdings’ executive compensation program is designed (i) to align our executive officers’ pay with individual, company and partnership performance in order to achieve growth, profitability and equityholder return, and (ii) to attract and retain talented executives who are critical to the short- and long-term success of us and Exterran Holdings. The key elements of our Named Executive Officers’ compensation and the primary objectives of each are:

· Base salary attracts and retains talented executives, recognizes individual roles and responsibilities, and provides stable income;

· Annual performance-based incentive compensation promotes short-term performance objectives and rewards executives for their contributions toward achieving those objectives;

· Long-term incentive compensation aligns executives’ interests with equityholders’ interests, emphasizes long-term financial and operational performance, and helps retain key executives;

· Retirement savings, health and welfare benefits provide retirement income and protection against the financial hardship that can result from illness, disability or death; and

· Severance benefit and change of control arrangements aid in attracting and retaining executive talent, particularly during any potential transition period due to a change of control.

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Each of these elements of compensation is further described below.

Base Salary

The Exterran Holdings Compensation Committee has determined that, to attract external executive talent and support the development and retention of current executives, base pay should be competitive, as described above. In February 2014, the Exterran Holdings Compensation Committee reviewed the base salaries of our Named Executive Officers based upon the considerations discussed above under “How the Exterran Holdings Compensation Committee Determines Executive Compensation” and determined to make the adjustments shown below, effective as of March 2014. Our Named Executive Officers’ 2014 base salaries (both before and after the March 2014 adjustments) were:

			2014 Base Salary ($)
Executive Officer		Title	Pre-adjustment	Post-adjustment
D. Bradley Childers	(1)	President and Chief Executive Officer	650,000	800,000
David S. Miller		Senior Vice President and Chief Financial Officer	288,400	330,000
Robert E. Rice		Senior Vice President	340,000	400,000
Daniel K. Schlanger		Senior Vice President	365,000	420,000
Donald C. Wayne		Senior Vice President and General Counsel	350,000	375,000

(1) In February 2014, the Exterran Holdings Compensation Committee determined to increase Mr. Childers’ base salary by approximately 23%, in recognition of his substantial contributions to continued Exterran Holdings performance improvements in 2013 and to align his base salary more closely with comparable positions at those companies with which Exterran Holdings competes for talent.

Based on current 2015 market conditions, including an uncertain economic environment within our industry, Exterran Holdings currently does not anticipate making any increases to our executive officers’ (including our Named Executive Officers’) base salaries during 2015.

Annual Performance-Based Incentive Compensation

During the first quarter of each year, the Exterran Holdings Compensation Committee adopts a program to provide the short-term cash incentive element of Exterran Holdings’ and our Named Executive Officers’ compensation for that year. In February 2014, the Exterran Holdings Compensation Committee adopted the short-term incentive program for 2014 (the “2014 Incentive Program”). Each Named Executive Officer’s cash incentive target was a specified percentage of his base salary in 2014 (after taking into account the base salary adjustments discussed above under “Base Salary”) and, based on current 2015 market conditions, Exterran Holdings anticipates that our Named Executive Officers’ cash incentive targets will not be increased in 2015. In determining the cash incentive opportunity for each Named Executive Officer, the Exterran Holdings Compensation Committee considered the factors discussed above under “How Our Compensation Committee Determines Executive Compensation.” Under the 2014 Incentive Program, each Named Executive Officer’s cash incentive target was:

Executive Officer	Title	2014 Cash Incentive Target (% of base salary)	2014 Cash Incentive Target ($)
D. Bradley Childers	President and Chief Executive Officer	110	880,000
David S. Miller	Senior Vice President and Chief Financial Officer	70	231,000
Robert E. Rice	Senior Vice President	70	280,000
Daniel K. Schlanger	Senior Vice President	70	294,000
Donald C. Wayne	Senior Vice President and General Counsel	65	243,750

Each Named Executive Officer’s potential cash payout under the 2014 Incentive Program ranged from 0% to 200% of his incentive target; however, the Exterran Holdings Compensation Committee had discretion to increase each Named Executive Officer’s actual cash payout above 200% of his incentive target for extraordinary company and individual performance during 2014.

Under the 2014 Incentive Program, the Exterran Holdings Compensation Committee could determine actual payouts to the Named Executive Officers by considering (i) for all Named Executive Officers, Exterran Holdings’ performance, including an assessment of EBITDA, as adjusted, achieved by Exterran Holdings for 2014, (ii) for Messrs. Rice, Schlanger and Wayne, the results achieved by the North America operating unit, the Operations Services operating unit and Corporate Services, respectively, (iii) each officer’s individual contribution toward Exterran Holdings company and/or Exterran Holdings operating unit performance, including his

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demonstrated leadership and implementation of Exterran Holdings’ business strategy, (iv) Mr. Childers’ recommendations (other than with respect to himself), and (v) any other factors or criteria that the Exterran Holdings Compensation Committee chose to consider, in its discretion. No specific weight was given to any of these factors.

To assess Exterran Holdings’ 2014 performance, the Exterran Holdings Compensation Committee considered where Exterran Holdings’ EBITDA, as adjusted, for purposes of the 2014 Incentive Program, achieved for 2014 fell within the following target range:

	Below Threshold		Threshold			Target			Maximum			2014 Actual
Exterran Holdings’, EBITDA, as adjusted (in millions)(1)	$	<548	$	548		$	685		$	822		$	671
Exterran Holdings performance percentage	0		50		%	100		%	150		%	95		%

(1) Exterran Holdings’ EBITDA, as adjusted, is calculated as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, restructuring charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs and other charges. EBITDA, as adjusted for purposes of the 2014 Incentive Program, makes further adjustments, in the Exterran Holdings Compensation Committee’s discretion, relating to certain items that are generally unusual or non-recurring in nature. EBITDA, as adjusted for purposes of the 2014 Incentive Program, also reflects the Exterran Holdings Compensation Committee’s revised target range, and Exterran Holdings’ results, relating to our acquisitions of assets from MidCon Compression, L.L.C in April and August 2014.

To assess 2014 operating unit performance, the Exterran Holdings Compensation Committee considered the performance indicators shown below. For each of the Latin America, North America and Eastern Hemisphere operating units, the specified financial performance indicators were collectively weighted at 60% to 70%, and the specified customer service, people and safety performance indicators were collectively weighted at 30% to 40%. For each of the Operations Services and the Corporate Services operating units, the specified financial performance indicators were collectively weighted at 80%, and the specified people and safety performance indicators were collectively weighted at 20%. Based on this assessment, achievement percentages for Exterran Holdings’ operating units were determined to range from 103% to 118%.

Performance Indicator	Exterran Holdings Operating Unit
(1)	Latin America	North America	Eastern Hemisphere	Operations Services	Corporate Services
Financial	Operating cash flow Contract operations and fabrication bookings	Operating cash flow Fabrication bookings Field optimization savings Net change in horsepower utilization	Operating cash flow Fabrication bookings Net change in horsepower utilization	EBITDA Fabrication bookings gross margin Working capital	Blended financial performance of Latin America, North America, Eastern Hemisphere and Operations Services operating units

Customer Service	Service availability percentage	Service availability percentage	Service reliability percentage	Not applicable	Not applicable

People	Supervisor effectiveness	Supervisor effectiveness	Supervisor effectiveness	Supervisor effectiveness	Supervisor effectiveness

Safety	Preventable vehicle incident rate Total recordable incident rate	Preventable vehicle incident rate Total recordable incident rate	Total recordable incident rate	Total recordable incident rate	Total recordable incident rate

(1) Exterran Holdings has not disclosed its target levels with respect to the achievement of these operating unit performance indicators because they are derived from internal analyses reflecting its business strategy and will not otherwise be publicly

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disclosed. Exterran Holdings believes their disclosure would provide its competitors, customers and other third parties with significant insights regarding its confidential business strategies that could cause it substantial competitive harm.

Finally, the Exterran Holdings Compensation Committee considered each Named Executive Officer’s individual contribution toward Exterran Holdings’ company and/or operating unit performance including, as individually applicable, implementation of operational improvements, contribution toward Exterran Holdings’ performance goals and initiatives and demonstrated leadership ability. During its assessment of 2014 performance, the Exterran Holdings Compensation Committee also considered Exterran Holdings’ extraordinary performance during 2014, including, among other significant accomplishments:

· organic growth of 261,000 operating compression horsepower in North America;

· the completion and successful integration of two major asset acquisitions that increased operating compression horsepower by an additional 554,000 horsepower in North America;

· execution of several major long-term contracts for the provision of contract operations services in Latin America;

· initiation of Exterran Holdings’ dividend program and payment of four quarterly dividends of $0.15 per share during the year;

· the successful launch of the Exterran Holdings’ C-Series line of configurable compressor packages;

· the implementation of significant organizational design changes to simplify the Exterran Holdings operating structure;

· the achievement of the lowest injury rates and best overall safety record in Exterran Holdings’ history; and

· the announcement of a plan in late 2014 to separate Exterran Holdings’ international contract operations, international aftermarket services and global fabrication businesses into a standalone, publicly traded company to be spun-off to the Exterran Holdings stockholders.

Following its assessment of Exterran Holdings’ performance, operating unit performance, individual performance and the additional factors discussed above, the Exterran Holdings Compensation Committee approved the following cash payments under the 2014 Incentive Program. These amounts are expected to be paid in March 2015.

Executive Officer	Title	2014 Incentive Program Payout ($)
D. Bradley Childers	President and Chief Executive Officer	2,000,000
David S. Miller	Senior Vice President and Chief Financial Officer	700,000
Robert E. Rice	Senior Vice President	825,000
Daniel K. Schlanger	Senior Vice President	600,000
Donald C. Wayne	Senior Vice President and General Counsel	500,000

Long-Term Incentive Compensation

The Exterran Holdings Compensation Committee believes that awarding a meaningful portion of our Named Executive Officers’ total compensation in the form of long-term incentive compensation aligns our executives’ interests with our equityholders’ interests, emphasizes long-term financial and operational performance and helps to retain key executives. Specifically, grants of:

· Exterran Holdings Stock Options incentivize Exterran Holdings’ key employees to work toward Exterran Holdings’ long-term performance objectives and the goal to achieve future stockholder appreciation, because options have value only when the value of Exterran Holdings common stock increases;

· Exterran Holdings Restricted Stock and Restricted Stock Units incentivize Exterran Holdings’ key employees to work toward long-term performance goals by aligning their interests with those of Exterran Holdings’ stockholders;

· Exterran Holdings Performance Awards encourage long-range planning through performance factors designed to focus key employees on year-over-year performance improvements and reward sustained stockholder value creation; and

· Partnership Phantom Units with distribution equivalent rights (“DERs”) emphasize our growth objectives. DERs are the right to receive cash distributions on the units.

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Grants of stock options, restricted stock, restricted stock units and performance awards during calendar year 2014 were made under the Exterran Holdings, Inc. 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”), which was approved by the Exterran Holdings stockholders in April 2013. The 2013 Stock Incentive Plan is administered by the Exterran Holdings Compensation Committee. Awards of Partnership phantom units are made from the Partnership Plan, which is administered by our compensation committee.

Equity-based long-term incentive awards (“LTI Awards”) are granted and valued based on the market closing price of Exterran Holdings common stock or our common units on the date of approval by the applicable compensation committee. LTI Awards to officers and employees generally vest one-third per year over a three-year period, subject to continued service through the vesting date. In addition, LTI Awards may be subject to accelerated vesting as described below under “Information Regarding Executive Compensation —Potential Payments upon Termination or Change of Control.”

Exterran Holdings’ performance awards are payable based on achievement of certain specified performance indicators. Payout amounts under the performance awards are determined following the conclusion of the performance period, which is generally one year, and may be settled in shares of Exterran Holdings common stock or in cash, as determined by the Exterran Holdings Compensation Committee.

Our compensation committee’s general practice is to grant equity-based awards to our directors and officers once a year in the first quarter, around the time the Exterran Holdings Compensation Committee grants equity-based awards to Exterran Holdings’ officers. The schedule for making LTI Awards is typically established several months in advance and is not set based on knowledge of material nonpublic information or in response to our unit price. This practice results in awards being granted on a regular, predictable annual cycle. Equity-based awards are occasionally granted at other times during the year, such as upon the hiring of a new employee or following the promotion of an employee. In some instances, our board of directors may be aware, at the time grants are made, of matters or potential developments that are not ripe for public disclosure at that time but that may result in public announcement of material information at a later date.

2014 LTI Awards. In determining the 2014 LTI Awards for each Named Executive Officer, the Exterran Holdings Compensation Committee considered the factors discussed above under “How the Exterran Holdings Compensation Committee Determines Executive Compensation,” and also reviewed share utilization with respect to the 2013 Stock Incentive Plan, potential overhang and burn rate under various award scenarios. As shown in the Grants of Plan-Based Awards Table for 2014 below, the 2014 LTI Awards for Messrs. Childers, Rice and Schlanger included a mix of stock options, restricted stock, performance units and Partnership phantom units (awarded by our compensation committee), and for Messrs. Miller and Wayne, all such award types excluding stock options.

2014 Performance Units. The performance units awarded to the Named Executive Officers in 2014 (the “2014 Performance Units”) were payable based on Exterran Holdings’ EBITDA, as adjusted, achieved during the performance period from January 1, 2014 through December 31, 2014. The potential number of 2014 Performance Units that could be earned ranged from 0% to 150% of the target grant value. The 2014 Performance Unit target range for EBITDA, as adjusted, and the results achieved by Exterran Holdings for 2014 as approved by the Exterran Holdings Compensation Committee, were as follows:

	Below Threshold		Threshold			Target			Maximum			Company Performance/ Payout Percentage Achieved
Exterran Holdings’ EBITDA, as adjusted (in millions)(1)	$	<548	$	548		$	685		$	822		$	671
Payout as a percentage of target value	0		50		%	100		%	150		%	95		%

(1) Exterran Holdings’ EBITDA, as adjusted, is calculated as net income (loss) excluding income (loss) from discontinued operations (net of tax), cumulative effect of accounting changes (net of tax), income taxes, interest expense (including debt extinguishment costs and gain or loss on termination of interest rate swaps), depreciation and amortization expense, impairment charges, restructuring charges, non-cash gains or losses from foreign currency exchange rate changes recorded on intercompany obligations, expensed acquisition costs and other charges. EBITDA, as adjusted for purposes of the 2014 Performance Units, makes further adjustments, in the Exterran Holdings Compensation Committee’s discretion, relating to certain items that are generally unusual or non-recurring in nature. EBITDA, as adjusted for purposes of the 2014 Performance Units, also reflects the Exterran Holdings Compensation Committee’s revised target range, and Exterran Holdings’ results, relating to our acquisitions of assets from MidCon Compression, L.L.C in April and August 2014.

The earned 2014 Performance Units vest one-third per year over a three-year period, subject to continued service through each vesting date, and are payable in cash based on the market closing price of Exterran Holdings common stock on the vesting date. The 2014 Performance Units are subject to accelerated vesting as described under “Severance Benefit Agreements and Change of Control Arrangements” below. See the Grants of Plan-Based Awards Table for 2014 below for more information about the 2014 Performance

Units awarded to the Named Executive Officers.

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Retirement Savings, Health and Welfare Benefits

Our Named Executive Officers participate in Exterran Holdings’ company-sponsored benefit programs on generally the same basis as Exterran Holdings’ other salaried employees. These benefits are designed to provide retirement income and protection against the financial hardship that can result from illness, disability or death.

Retirement Savings Plan. The Exterran Holdings 401(k) Plan allows certain employees who are U.S. citizens, including our Named Executive Officers, to defer a portion of their eligible salary, up to the Internal Revenue Code (the “Code”) maximum deferral amount, on a pre-tax basis. Participants make contributions to an account maintained by an independent trustee and direct how those contributions are invested. Exterran Holdings matches 100% of a participant’s contribution to a maximum of 1% of his or her annual eligible compensation, plus 50% of the participant’s contribution from 2% to a maximum of 6% of his or her annual eligible compensation, for a total company match of up to 3.5% of annual eligible compensation. Participants vest in Exterran Holdings’ matching contributions after two years of employment.

Deferred Compensation Plan. The Exterran Holdings Deferred Compensation Plan (the “Deferred Compensation Plan”) allows certain key employees who are U.S. citizens, including our Named Executive Officers, to defer receipt of their compensation, including up to 100% of their salaries and bonuses, and be credited with Exterran Holdings contributions designed to serve as a make-up for the portion of the employer-matching contribution that cannot be made under the Exterran Holdings 401(k) Plan due to Code limits. Participants generally must make elections relating to compensation deferrals and plan distributions in the year preceding that in which the compensation is earned. Contributions to the Deferred Compensation Plan are self-directed investments in the various funds available under the plan. There are thus no interest calculations or earnings measures other than the performance of the investment funds selected by the participant. Participants direct how their contributions are invested and may change these elections at any time, provided that such changes in elections comply with Section 409A of the Code.

Health and Welfare Benefit Plans. Exterran Holdings maintains a standard complement of health and welfare benefit plans for its employees, including our Named Executive Officers, which provide medical, dental and vision benefits, flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance and life insurance coverage. These benefits are provided to our Named Executive Officers on the same terms and conditions as they are provided to Exterran Holdings’ other employees.

Perquisites. As in prior years, Exterran Holdings provided limited perquisites during 2014. Our Named Executive Officers were entitled to a taxable benefit of tax preparation and planning services. Exterran Holdings’ policy prohibits tax gross-ups on perquisites, other than gross-ups provided pursuant to an expatriate tax equalization plan, policy or arrangement.

Severance Benefit Agreements and Change of Control Arrangements

Exterran Holdings has entered into severance benefit agreements and change of control agreements with each of our Named Executive Officers. The Exterran Holdings Compensation Committee believes these types of agreements are a customary part of executive compensation and, therefore, necessary to attract and retain executive talent. The change of control agreements are structured as “double trigger” agreements. In other words, the change of control alone does not trigger benefits; rather, benefits are paid only if the executive incurs a qualifying termination of employment within 18 months following a change of control. See “Information Regarding Executive Compensation — Potential Payments upon Termination or Change of Control,” below, for a description of the terms of the change of control agreements and the severance benefit agreements, as well as estimates of the potential payouts under those agreements.

The Exterran Holdings Amended and Restated 2007 Stock Incentive Plan (the “2007 Stock Incentive Plan”), the 2013 Stock Incentive Plan and the Partnership Plan each permit the accelerated vesting of outstanding equity awards upon a change of control. The outstanding award agreements for awards granted to employees under the 2007 Stock Incentive Plan provide that only the portion of the award scheduled to vest within the 12 months following a change of control will vest upon the change of control, with the remainder of the award continuing to vest as per the original vesting schedule, unless a change of control is followed by a qualifying termination of employment (in which case the award will vest in full upon such termination). The outstanding award agreements for awards granted to employees under the Partnership Plan prior to March 2014 provide for full accelerated vesting of the award upon a change of control. In March 2014, we and Exterran Holdings determined to eliminate any single-trigger accelerated vesting with respect to future equity awards in order to incentivize employees to remain in employment with Exterran Holdings following a change of control. The award agreements for all awards granted to employees under the 2013 Stock Incentive Plan and the Partnership Plan during or after March 2014 do not provide for accelerated vesting upon a change of control unless the grantee incurs a qualifying termination of employment within eighteen months following the change of control (in which case the award will vest in full upon

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such termination). See “Information Regarding Executive Compensation — Potential Payments upon Termination or Change of Control,” below, for more information about equity vesting under various circumstances.

The Exterran Holdings 401(k) Plan provides for accelerated vesting of any unvested Exterran Holdings matching contributions following a change of control.

Other Policies and Considerations

Unit Ownership Requirements. We do not have any policy or guidelines that require specified ownership of our common units by our directors or executive officers or any unit retention guidelines applicable to equity-based awards granted to directors or executive officers. As of February 19, 2015, our independent directors collectively held 47,985 common units, and our Named Executive Officers collectively held 59,646 common units and 78,045 phantom units with DERs.

Prohibition on Hedging. Exterran Holdings’ policy prohibits all employees and directors from entering into any transaction designed to hedge or offset any decrease in the market value of its or our equity securities, including purchasing financial instruments (such as variable forward contracts, equity swaps, collars or exchange funds), or otherwise trading in market options (such as puts or calls), warrants, or other derivative instruments of our equity securities.

Compensation Deduction Limitations

As we are a partnership and not a corporation taxable as such for U.S. federal income tax purposes, we are not subject to the executive compensation tax deductible limitations of Section 162(m) of the Code. However, as Exterran Holdings has an ownership interest in our equity securities, our compensation committee is mindful of the impact that Section 162(m) may have on compensatory deductions passed through to Exterran Holdings.

Compensation Committee Report

The compensation committee of the Exterran GP LLC board of directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

Submitted by the compensation committee:

G. Stephen Finley, Chair

James G. Crump

Edmund P. Segner, III

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INFORMATION REGARDING EXECUTIVE COMPENSATION

Summary Compensation Table for 2014

The following table shows the compensation paid during the years shown to our Named Executive Officers. The numbers presented are the full amounts received by each Named Executive Officer and have not been adjusted to reflect the amount allocated to us.

Name and Title	Year	Salary ($)	Stock Awards ($)(1)		Option Awards ($)(2)	Non-Equity Incentive Plan Compensation ($)(3)	All Other Compensation ($)(4)	Total ($)
D. Bradley Childers, President and Chief Executive Officer	2014	765,385	2,359,485		907,457	2,000,000	243,543	6,275,870
	2013	615,385	2,274,164		797,082	880,000	41,200	4,607,831
	2012	500,000	354,994		—	805,000	38,620	1,698,614

David S. Miller, Senior Vice President and Chief Financial Officer	2014	320,401	795,482	(5)	—	700,000	62,158	1,877,041
	2013	286,462	423,698		—	230,000	17,199	957,359
	2012	277,845	427,604		—	270,000	250,792	1,226,241

Robert E. Rice, Senior Vice President	2014	386,155	464,765		178,748	825,000	57,962	1,912,630
Robert E. Rice, Senior Vice President	2013	334,231	431,293		151,167	340,000	18,808	1,275,499

Daniel K. Schlanger, Senior Vice President	2014	407,308	511,980		279,995	600,000	64,447	1,863,730
	2013	362,692	567,353		279,852	450,000	27,234	1,687,131
	2012	348,078	593,611		280,227	455,000	28,862	1,705,778

Donald C. Wayne, Senior Vice President and General Counsel	2014	369,231	544,498		—	500,000	56,390	1,470,119
	2013	347,231	729,602	(6)	—	315,000	22,837	1,414,670
	2012	330,961	546,001		—	360,000	38,585	1,275,547

(1) The amounts in this column for 2014 represent the grant date fair value of (a) restricted shares of Exterran Holdings common stock, (b) 2014 Performance Units, as finally determined by the Exterran Holdings Compensation Committee following the conclusion of the applicable performance period, and (c) our Partnership phantom units. The grant date fair value of these awards was calculated in accordance with the Financial Accounting Standards Board Accounting Standards Codification 718, “Stock Compensation” (“ASC 718”). For a discussion of valuation assumptions, see Note 8 to the Financial Statements and Note 18 to the consolidated financial statements in Exterran Holdings’ Annual Report on Form 10-K for the year ended December 31, 2014.

(2) The amounts in this column for 2014 represent the grant date fair value of options to purchase Exterran Holdings common stock, calculated in accordance with ASC 718. For a discussion of valuation assumptions, see Note 18 to the consolidated financial statements in Exterran Holdings’ Annual Report on Form 10-K for the year ended December 31, 2014.

(3) The amounts in this column for 2014 represent cash payments under the 2014 Incentive Program, which covered the compensation measurement and performance year ended December 31, 2014, and are expected to be paid during the first quarter of 2015.

(4) The amounts in this column for 2014 include the following:

Name	401(k) Plan Company Contribution ($)(a)	Deferred Compensation Plan Company Contribution ($)(b)	Tax Preparation and Planning Services ($)	DERs / Dividends ($)(c)	Total ($)
D. Bradley Childers	9,100	8,395	6,000	220,048	243,543
David S. Miller	9,100	2,556	—	50,502	62,158
Robert E. Rice	9,100	3,386	1,680	43,796	57,962
Daniel K. Schlanger	9,100	4,931	5,000	45,416	64,447
Donald C. Wayne	9,100	3,190	3,500	40,600	56,390

(a) The amounts shown represent Exterran Holdings’ matching contributions for 2014.

(b) Our Named Executive Officers could contribute up to 100% of their base pay and bonus to the Exterran Holdings Deferred Compensation Plan, which Exterran Holdings matched for 2014 up to a maximum of 3.5% of the executive’s annual eligible compensation, less Exterran Holdings’ matching contributions to the executive’s 401(k) account.

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(c) Represents cash payments pursuant to (i) dividends on unvested restricted shares of Exterran Holdings common stock awarded under the 2007 and 2013 Stock Incentive Plans, (ii) dividend equivalents accrued in 2014 which are expected to be paid during the first quarter of 2015 on unvested 2014 Performance Units awarded under the 2013 Stock Incentive Plan as finally determined by the Exterran Holdings Compensation Committee following conclusion of the 2014 performance period, and (iii) DERs on unvested Partnership phantom units awarded under the Partnership Plan.

(5) Includes a one-time grant of Exterran Holdings restricted stock, valued at $250,000, in recognition of Mr. Miller’s additional efforts in 2014 during the time Exterran Holdings was engaged in a search process for a new chief financial officer.

(6) Includes a one-time grant of Exterran Holdings restricted stock, valued at $200,000, in recognition of Mr. Wayne’s efforts in the 2012 sales of Exterran Holdings’ previously-nationalized Venezuelan assets.

Grants of Plan-Based Awards for 2014

The following table shows the short- and long-term incentive plan awards granted to the Named Executive Officers in 2014. The numbers presented are the full amounts received by each Named Executive Officer and have not been adjusted to reflect the amount allocated to us.

	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)				Estimated Possible Payouts Under Equity Incentive Plan Awards(2)			All Other Stock Awards: Number of Shares of Stock or		All Other Option Awards: Number of Securities Underlying		Exercise or Base Price of Option	Grant Date Fair Value of Stock and Option
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)	Units (#)		Options (#)		Awards ($/SH)	Awards ($)(3)
D. Bradley Childers		—	880,000	1,760,000
	3/04/2014				—	16,027	24,041						659,992
	3/04/2014							22,037	(4)				907,484
	3/04/2014									62,713	(5)	41.18	907,457
	3/04/2014							27,049	(6)				824,995

David S. Miller		—	231,000	462,000
	3/04/2014				—	2,671	4,007						109,992
	3/04/2014							7,346	(4)				302,508
	9/22/2014							5,663	(4)				249,965
	3/04/2014							4,508	(6)				137,494

		—	280,000	560,000
Robert E. Rice	3/04/2014				—	3,157	4,736						130,005
	3/04/2014							4,341	(4)				178,762
	3/04/2014									12,353	(5)	41.18	178,748
	3/04/2014							5,328	(6)				162,504

Daniel K. Schlanger		—	294,000	588,000
	3/04/2014				—	3,885	5,828						159,984
	3/04/2014							6,799	(4)				279,983
	3/04/2014									19,350	(5)	41.18	279,995
	3/04/2014							2,623	(6)				80,002

Donald C. Wayne		—	243,750	487,500
	3/04/2014				—	2,671	4,007						109,992
	3/04/2014							9,349	(4)				384,992
	3/04/2014							1,803	(6)				54,992

(1) The amounts in these columns show the range of potential payouts under the 2014 Incentive Program. The actual payouts under the plan were determined in February 2015 and are expected to be paid in March 2015, as shown in the Summary Compensation Table for 2014, above.

(2) The amounts in these columns show the range of potential payouts of 2014 Performance Units awarded as part of the 2014 LTI Award. “Target” is the number of 2014 Performance Units awarded and subject to adjustment based on performance results. “Threshold” is the lowest possible payout (0% of the grant), and “Maximum” is the highest possible payout (150% of the grant). See “Long-Term Incentive Compensation—2014 Performance Units” for a description of the 2014 Performance Units.

(3) The grant date fair value of 2014 Performance Units, Exterran Holdings restricted stock, Exterran Holdings stock option awards and Partnership phantom units is calculated in accordance with ASC 718. 2014 Performance Units are shown at target value.

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(4) Shares of Exterran Holdings restricted stock awarded under the 2013 Stock Incentive Plan that vest one-third per year over a three-year period, subject to continued service through each vesting date.

(5) Exterran Holdings stock options awarded under the 2013 Stock Incentive Plan that vest one-third per year over a three-year period, subject to continued service through each vesting date.

(6) Phantom units awarded under the Partnership Plan that vest one-third per year over a three-year period, subject to continued service through each vesting date.

Outstanding Equity Awards at Fiscal Year-End for 2014

The following table shows our Named Executive Officers’ equity awards and equity-based awards outstanding at December 31, 2014. The numbers presented are the full amounts received by each Named Executive Officer and have not been adjusted to reflect the amount allocated to us.

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Yet Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested ($)
	30,720	—		67.30	03/04/2015
	17,000	—		38.15	03/09/2015
	20,000	—		43.39	03/03/2016
	52,184	—		16.14	03/04/2016
	29,696	—		22.75	02/28/2017
	10,871	—		75.27	06/12/2017
	31,150	—		22.82	03/04/2018
	220,588	—		10.21	12/12/2018
	28,600	57,200	(1)	25.04	03/04/2020	43,269	(2)	1,409,704	(3)	8,240	(4)	268,459	(3)
	—	62,713	(5)	41.18	03/04/2021	47,391	(6)	1,024,593	(7)	20,012	(8)	651,991	(3)
D. Bradley Childers										15,226	(9)	496,063	(3)

	11,568	—		22.57	08/12/2017	23,740	(2)	773,449	(3)	2,033	(4)	66,235	(3)
	13,243	—		22.82	03/04/2018	9,243	(6)	199,834	(7)	2,760	(8)	89,921	(3)
David S. Miller										2,538	(9)	82,688	(3)

	2,395	—		67.30	03/04/2015
	4,021	—		22.82	03/04/2018
	10,879	10,170	(10)	14.36	03/04/2019
	5,424	10,848	(1)	25.04	03/04/2020	12,429	(2)	404,937	(3)	3,389	(4)	110,414	(3)
	—	12,353	(5)	41.18	03/04/2021	9,889	(6)	213,800	(7)	3,795	(8)	123,641	(3)
Robert E. Rice										2,999	(9)	97,707	(3)

	21,690	—		67.30	03/04/2015
	17,114	—		22.75	02/28/2017
	7,247	—		75.27	06/12/2017
	31,150	—		22.82	03/04/2018
	29,045	16,275	(10)	14.36	03/04/2019	20,752	(2)	676,100	(3)	5,422	(4)	176,649	(3)
	10,042	20,082	(1)	25.04	03/04/2020	5,992	(6)	129,547	(7)	5,520	(8)	179,842	(3)
Daniel K. Schlanger	—	19,350	(5)	41.18	03/04/2021					3,691	(9)	120,253	(3)

		—		67.30	03/04/2015	32,116	(2)	1,046,339	(3)	3,389	(4)	110,414	(3)
	18,070	—		75.27	06/12/2017	3,908	(6)	84,491	(7)	3,450	(8)	112,401	(3)
Donald C. Wayne	4,831									2,538	(9)	82,688	(3)

(1) Exterran Holdings stock options awarded under the 2007 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2014, subject to continued service through each vesting date, with a term of seven years following the grant date.

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(2) Exterran Holdings shares of restricted stock awarded under the 2007 or 2013 Stock Incentive Plans that vest at the rate of one-third per year beginning on the initial vesting date shown below, subject to continued service through each vesting date.

Name	Unvested Shares	Initial Vesting Date
	21,232	03/04/2014
D. Bradley Childers	22,037	03/04/2015

	4,874	03/04/2013
	5,857	03/04/2014
	7,346	03/04/2015
David S. Miller	5,663	09/22/2015

	4,062	03/04/2013
	4,026	03/04/2014
Robert E. Rice	4,341	03/04/2015

	6,499	03/04/2013
	7,454	03/04/2014
Daniel K. Schlanger	6,799	03/04/2015

	8,124	03/04/2013
	14,643	03/04/2014
Donald C. Wayne	9,349	03/04/2015

(3) Based on the market closing price of Exterran Holdings common stock on December 31, 2014 ($32.58).

(4) Exterran Holdings performance units awarded under the 2007 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2013, subject to continued service through each vesting date. Amounts shown are the actual number of units awarded, as finally determined by the Exterran Holdings Compensation Committee following the conclusion of the applicable performance period.

(5) Exterran Holdings stock options awarded under the 2013 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2015, subject to continued service through each vesting date, with a term of seven years following the grant date.

(6) Phantom units awarded under the Partnership Plan that vest at the rate of one-third per year beginning on the initial vesting date shown below, subject to continued service through each vesting date.

Name	Unvested Shares	Initial Vesting Date
	20,342	03/04/2014
D. Bradley Childers	27,049	03/04/2015

	422	03/04/2013
	1,507	04/02/2013
	2,806	03/04/2014
David S. Miller	4,508	03/04/2015

	703	03/04/2013
	3,858	03/04/2014
Robert E. Rice	5,328	03/04/2015

	1,125	03/04/2013
	2,244	03/04/2014
Daniel K. Schlanger	2,623	03/04/2015

	703	03/04/2013
	1,402	03/04/2014
Donald C. Wayne	1,803	03/04/2015

(7) Based on the market closing price of our common units on December 31, 2014 ($21.62).

(8) Exterran Holdings performance units awarded under the 2007 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2014, subject to continued service through each vesting date. Amounts shown are the actual number of units awarded, as finally determined by the Exterran Holdings Compensation Committee following the conclusion of the applicable performance period.

(9) Exterran Holdings performance units awarded under the 2013 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2015, subject to continued service through each vesting date. Amounts shown are the actual number of units awarded, as finally determined by the Exterran Holdings Compensation Committee following the conclusion of the applicable performance period.

(10) Exterran Holdings stock options awarded under the 2007 Stock Incentive Plan that vest at the rate of one-third per year beginning on March 4, 2013, subject to continued service through each vesting date, with a term of seven years following the grant date.

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Option Exercises and Stock Vested for 2014

The following table shows the value realized by the Named Executive Officers upon stock option exercises and stock award vesting during 2014. The value realized upon vesting represents the total value to each Named Executive Officer and does not represent the amount allocated to us.

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares and Units Acquired on Vesting (#)(1)	Value Realized on Vesting ($)(2)
D. Bradley Childers	20,000	213,863	75,996	2,674,274
David S. Miller	25,935	472,924	16,159	627,871
Robert E. Rice	10,174	252,523	15,459	608,492
Daniel K. Schlanger	25,893	568,081	25,112	1,002,927
Donald C. Wayne	39,149	863,916	27,694	1,120,435

(1) Includes Exterran Holdings restricted stock and our phantom units that vested during 2014.

(2) The value realized for vested awards was determined by multiplying the fair market value of Exterran Holdings restricted stock (market closing price of Exterran Holdings common stock on the vesting date) or our phantom units (market closing price of our common units on the vesting date) by the number of shares or units that vested. Shares and units vested on various dates throughout the year; therefore, the value listed represents the aggregate value of all shares and units that vested for each Named Executive Officer in 2014.

Nonqualified Deferred Compensation for 2014

The following table shows the Named Executive Officers’ compensation under Exterran Holdings’ nonqualified deferred compensation plan for 2014. The numbers presented are the full amounts received by each Named Executive Officer and have not been adjusted to reflect the amount allocated to us.

Name	Executive Contributions in Last Fiscal Year ($)	Company Contributions in Last Fiscal Year ($)(1)	Aggregate Earnings (Losses) in Last Fiscal Year ($)	Aggregate Withdrawals/ Distributions ($)	Aggregate Balance at Last Fiscal Year End ($)
D. Bradley Childers	—	8,395	10,672	—	240,772
David S. Miller	—	2,556	72	—	4,562
Robert E. Rice	—	3,386	164	—	9,816
Daniel K. Schlanger	—	4,931	5,185	—	90,713
Donald C. Wayne	—	3,190	3,480	—	59,630

(1) The amounts in this column represent Exterran Holdings’ contributions to each Named Executive Officer’s Deferred Compensation Plan account earned in 2014 but paid in the first quarter of 2015. These amounts are included in “All Other Compensation” in the Summary Compensation Table for 2014, above, but are not included in “Aggregate Balance at Last Fiscal Year End.”

Potential Payments upon Termination or Change of Control

Severance Benefit Agreements. Exterran Holdings has entered into severance benefit agreements with each of our Named Executive Officers. Each such agreement provides that if the executive’s employment is terminated by Exterran Holdings without cause or by him with good reason at any time through the term of the agreement (one year, to be automatically renewed for successive one-year periods until 365 days’ prior notice is given by either party), he will receive a lump sum payment in cash on the 35th day after the termination date equal to the sum of:

· his annual base salary then in effect;

· his target annual incentive bonus opportunity for the termination year; and

· a pro-rated portion of his target annual incentive bonus opportunity for the termination year based on the length of time during which he was employed during such year.

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In addition, the executive will be entitled to:

· the accelerated vesting as of the termination date of his outstanding unvested Exterran Holdings equity, equity-based or cash awards and our phantom units (subject to the consent of our compensation committee) that were scheduled to vest within 12 months following the termination date; and

· continued coverage under Exterran Holdings’ medical benefit plans for him and his eligible dependents for up to one year following the termination date.

Each executive’s entitlement to the payments and benefits under his severance benefit agreement is subject to his execution of a waiver and release for the benefit of Exterran Holdings.

Change of Control Agreements. Exterran Holdings has entered into change of control agreements with our Named Executive Officers. Each such agreement provides that if the executive’s employment is terminated by Exterran Holdings other than for cause, death or disability, or by the executive for good reason (in each case, a “Qualifying Termination”), within 18 months following a change of control (as defined in the change of control agreements), he will receive a cash payment within 60 days after the termination date equal to:

· his earned but unpaid base salary through the termination date, plus the target annual incentive bonus that would be payable to him for that year prorated to the termination date, plus any earned but unpaid annual bonus for the prior year, plus any portion of his earned but unused vacation pay for that year;

· two times (three times in the case of Mr. Childers) his current annual base salary plus two times (three times in the case of Mr. Childers) his target annual incentive bonus opportunity for that year; and

· two times the total of the Exterran Holdings contributions that would have been credited to him under the Exterran Holdings 401(k) Plan and any other deferred compensation plan had he made the required amount of elective deferrals or contributions during the 12 months immediately preceding the termination month.

In addition, the executive will be entitled to:

· any amount previously deferred, or earned but not paid, by him under the incentive and nonqualified deferred compensation plans or programs as of the termination date;

· continued coverage under Exterran Holdings’ medical benefit plans for him and his eligible dependents for up to two years following the termination date;

· the accelerated vesting of all his unvested stock options, restricted stock, restricted stock units or other stock-based awards, and all common units, unit appreciation rights, unit awards or other unit-based awards and all cash-based incentive awards; and

· for each of Messrs. Schlanger and Wayne (whose change of control agreements predate Exterran Holdings’ 2009 policy to no longer include tax gross-ups in such agreements, as described below), an additional gross-up payment if a payment or distribution we make to him or for his benefit is subject to a federal excise tax.

In exchange for any payment under his change of control agreement, each executive would agree not to, for two years following his termination, (1) disclose Exterran Holdings’ confidential information, (2) employ or seek to employ any of Exterran Holdings’ key employees or encourage any key employee to terminate employment with Exterran Holdings or (3) engage in a competitive business.

In early 2009, the Exterran Holdings Compensation Committee established a policy prohibiting tax gross-ups on income attributable to future change of control agreements and other executive benefit agreements, and no such agreement entered into since has included this provision. Currently, Messrs. Schlanger and Wayne are our only Named Executive Officers with a change of control agreement that provides for a tax gross-up, because such change of control agreements predate this policy change and have not been materially amended since the policy was adopted.

Vesting of Equity-Based Incentives upon a Change of Control. The outstanding Exterran Holdings award agreements for all stock options, restricted stock, restricted stock units, and performance units granted to employees prior to March 2014 provide that, in the case of a change of control that is not followed by a Qualifying Termination, only the portion of the award scheduled to vest within the next 12 months will vest upon the change of control, with the remainder of the award vesting as per the original vesting schedule.

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The awards granted under the Partnership Plan prior to March 2014 provide that, upon a change of control (as defined in the Partnership Plan), all phantom units (including the related DERs) and unit options automatically vest and become payable or exercisable (as applicable). Vesting is automatic, regardless of whether employment is terminated.

As discussed above, in March 2014, we and Exterran Holdings determined to eliminate any single-trigger change of control accelerated vesting with respect to future equity awards in order to incentivize employees to remain in employment with Exterran Holdings following a change of control. The award agreements for all awards granted during or after March 2014 provide that no portion of the award shall be subject to accelerated vesting upon a change of control. Instead, awards will be subject to accelerated vesting only if a Qualifying Termination occurs within eighteen months following a change of control.

Potential Payments. The following tables show the potential payments to the Named Executive Officers upon a theoretical termination of employment or change of control occurring on December 31, 2014. The amounts shown assume an Exterran Holdings common stock value of $32.58 per share and a Partnership common unit value of $21.62 per unit (the December 31, 2014 market closing prices, respectively). The actual amount paid out to an executive upon an actual termination or change of control can only be determined at the time of such event.

Name	Termination Due to Death or Disability ($)(1)	Termination Without Cause or Resignation with Good Reason ($)(2)		Change of Control Without a Qualifying Termination ($)	Change of Control with a Qualifying Termination ($)
D. Bradley Childers
Cash Severance	—	2,560,000	(3)	—	5,920,000	(4)
Stock Options (5)	431,288	215,644		215,644	431,288
Restricted Stock (6)	1,409,704	585,202		345,869	1,409,704
Phantom Units (7)	1,024,593	414,845		439,794	1,024,593
Performance Awards (8)	1,425,649	768,966		594,455	1,425,649
Other Benefits (9)	—	14,956		—	157,575
Total Pre-Tax Benefit	4,291,234	4,559,613		1,595,762	10,368,809

Name	Termination Due to Death or Disability ($)(1)	Termination Without Cause or Resignation with Good Reason ($)(2)		Change of Control Without a Qualifying Termination ($)	Change of Control with a Qualifying Termination ($)
David S. Miller
Cash Severance	—	792,000	(3)	—	1,353,000	(4)
Stock Options (5)	—	—		—	—
Restricted Stock (6)	773,449	395,521		254,222	773,449
Phantom Units (7)	199,834	104,533		102,371	199,834
Performance Awards (8)	240,367	140,281		156,156	240,367
Other Benefits (9)	—	11,094		—	75,667
Total Pre-Tax Benefit	1,213,650	1,443,429		512,749	2,642,317

Name	Termination Due to Death or Disability ($)(1)	Termination Without Cause or Resignation with Good Reason ($)(2)		Change of Control Without a Qualifying Termination ($)	Change of Control with a Qualifying Termination ($)
Robert E. Rice
Cash Severance	—	960,000	(3)	—	1,640,000	(4)
Stock Options (5)	267,091	226,194		226,194	267,091
Restricted Stock (6)	404,937	245,067		197,924	404,937
Phantom Units (7)	213,800	95,301		98,609	213,800
Performance Awards (8)	333,562	206,597		172,218	333,562
Other Benefits (9)	—	6,558		—	76,881
Total Pre-Tax Benefit	1,219,390	1,739,717		694,945	2,936,271

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Name	Termination Due to Death or Disability ($)(1)	Termination Without Cause or Resignation with Good Reason ($)(2)		Change of Control Without a Qualifying Termination ($)	Change of Control with a Qualifying Termination ($)
Daniel K. Schlanger
Cash Severance	—	1,008,000	(3)	—	1,722,000	(4)
Stock Options (5)	447,949	372,240		372,240	447,949
Restricted Stock (6)	676,100	407,022		333,163	676,100
Phantom Units (7)	129,547	67,498		72,838	129,547
Performance Awards (8)	478,958	308,890		266,570	478,958
Other Benefits (9)	—	11,094		—	121,235
Tax Gross-ups	—	—		—	—
Total Pre-Tax Benefit	1,732,554	2,174,744		1,044,811	3,575,789

Name	Termination Due to Death or Disability ($)(1)	Termination Without Cause or Resignation with Good Reason ($)(2)		Change of Control Without a Qualifying Termination ($)	Change of Control with a Qualifying Termination ($)
Donald C. Wayne
Cash Severance	—	862,500	(3)	—	1,481,250	(4)
Stock Options (5)	—	—		—	—
Restricted Stock (6)	1,046,339	604,783		503,231	1,046,339
Phantom Units (7)	84,491	43,348		45,510	84,491
Performance Awards (8)	307,025	195,700		166,614	307,025
Other Benefits (9)	—	14,956		—	115,427
Tax Gross-ups	—	—		—	—
Total Pre-Tax Benefit	1,437,855	1,721,287		715,355	3,034,532

(1) “Disability” is defined in our form of award agreement for phantom units and in the 2007 Stock Incentive Plan and the 2013 Stock Incentive Plan for all other equity awards.

(2) “Cause” and “Good Reason” are defined in the severance benefit agreements.

(3) If the executive had been terminated without Cause or resigned with Good Reason on December 31, 2014, under his severance benefit agreement his cash severance would consist of (i) the sum of his base salary and his target annual incentive bonus (calculated as a percentage of his annual base salary for 2014), plus (ii) his target annual incentive bonus (calculated as a percentage of his annual base salary for 2014).

(4) If the executive had been subject to a Change of Control followed by a Qualifying Termination on December 31, 2014, under his change of control agreement his cash severance would consist of (i) two times (three times for Mr. Childers) the sum of his base salary and his target annual incentive bonus (calculated as a percentage of his annual base salary for 2014), plus (ii) his target annual incentive bonus (calculated as a percentage of his annual base salary for 2014).

(5) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested, in-the-money options to purchase Exterran Holdings common stock, based on the December 31, 2014 market closing price of Exterran Holdings common stock.

(6) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested Exterran Holdings restricted stock, based on the December 31, 2014 market closing price of Exterran Holdings common stock.

(7) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested phantom units, based on the December 31, 2014 market closing price of our common units.

(8) The amounts in this row represent the value of the accelerated vesting of the executive’s unvested Exterran Holdings performance awards, based on the December 31, 2014 market closing price of Exterran Holdings common stock.

(9) The amounts in this row represent each Named Executive Officer’s right to the payment, as applicable, of (i) medical benefit premiums for a one-year period in the event of a termination without Cause or voluntary resignation for Good Reason, or (ii) medical benefit premiums and Exterran Holdings’ contributions under the Exterran Holdings 401(k) Plan and the Exterran Holdings deferred compensation plan for a two-year period in the event of a change of control followed by a Qualifying Termination. For each of Messrs. Schlanger and Wayne, this amount includes a gross-up with respect to the Exterran Holdings

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401(k) Plan and the Exterran Holdings Deferred Compensation Plan contributions to account for any federal or state taxes due on such amounts, as provided under his change of control agreement, which predates implementation of our 2009 policy prohibiting tax gross-ups on income attributable to future change of control agreements and other executive benefit agreements. See the discussion under “Change of Control Agreements,” above, for more information on this policy.

Director Compensation

Retainers and Fees. Only the independent members of our board of directors receive compensation for their service as directors. Messrs. Biro, Childers, Austin (who retired in April 2014), Miller and Schlanger, who also are or were our executive officers, served on the board of directors during 2014 but received no compensation for such service. As reflected in the table below, during 2014, each non-employee director received an annual cash retainer, as well as a payment for each meeting attended. The chairs of the audit committee, compensation committee and conflicts committee each received an additional retainer for their services. All retainers are paid in arrears in equal quarterly installments.

	Annual Amount (except with respect to meeting	Applicability
Description of Remuneration	fees) ($)	Mr. Crump	Mr. Finley	Mr. Segner
Base Retainer	45,000	√	√	√
Other Retainers:
Audit Committee Chairman	10,000	√
Conflicts Committee Chairman	5,000	√
Compensation Committee Chairman	5,000		√
Attendance Fee (per in-person meeting attended and per telephonic meeting attended)	1,500	√	√	√

In addition, each director is reimbursed for his reasonable out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director will be fully indemnified by us for actions associated with serving as a director to the fullest extent permitted under Delaware law.

Equity-Based Compensation. Non-employee directors are provided as part of their annual compensation equity-based awards which are granted under the Partnership Plan. In previous years, our compensation committee’s general practice was to grant equity-based awards to our directors once a year in the fourth quarter, around the anniversary of our initial public offering. Our compensation committee determined, however, to make grants to directors in the first quarter of each year, consistent with the timing of our grants to the Named Executive Officers, beginning in 2014. Accordingly, on March 4, 2014, the Compensation Committee approved an annual grant of 2,733 shares of fully-vested common units to each non-employee director valued at approximately $83,333 (based on the market closing price of our common units on March 4, 2014). The total value of the 2014 equity award was based on an annual grant value of $75,000 plus a prorated amount of $8,333 due to the change in the timing of the grant.

Total Compensation. The following table shows the total compensation paid to each non-employee director during 2014.

Name	Fees Earned in Cash ($)	Unit Awards ($)	All Other Compensation ($)(1)	Total ($)
James G. Crump	99,000	83,357	6,276	188,633
G. Stephen Finley n	89,000	83,357	6,276	178,633
Edmund P. Segner, III	84,000	83,357	6,276	173,633

(1) Represents cash amounts paid pursuant to DERs on unvested phantom units.

Risk Assessment Related to Exterran Holdings’ Compensation Structure

As disclosed above under “Overview,” as is commonly the case for many publicly traded limited partnerships, we have no employees. Under the terms of our partnership agreement, we are ultimately managed by Exterran GP LLC, the general partner of Exterran General Partner, L.P., our general partner. In addition, as disclosed above under “Our Compensation Committee’s Structure and Responsibilities,” the compensation structure for our executive officers is generally established by the Exterran Holdings Compensation Committee, which performed a risk assessment and believes that its compensation programs do not create risks that are reasonably likely to have a material adverse effect on Exterran Holdings. For example, the Exterran Holdings Compensation Committee and management set performance goals in light of past performance, future expectations and market conditions, which they believe do not encourage the taking of unreasonable risks. The Exterran Holdings Compensation Committee believes its practice of considering non-financial and other qualitative factors in determining compensation awards discourages excessive risk-taking and

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encourages good judgment. In addition, Exterran Holdings believes employee compensation is allocated between cash and equity-based awards, between fixed and variable awards, and between short-term and long-term focused compensation in a manner that encourages decision-making that balances short-term goals with long-term goals and thereby reduces the likelihood of excessive risk taking. Finally, the Exterran Holdings Compensation Committee has established multiple performance indicators in its short-term incentive program that balance various Exterran Holdings objectives, short-term incentive awards with maximum payout levels and long-term incentive awards with three-year vesting periods, which Exterran Holdings believes further balances short- and long-term objectives and encourages employee behavior designed to achieve sustained profitability and growth.

Our compensation committee conducted a similar assessment, with input from our executive management, and determined, based on the same considerations discussed above in relation to Exterran Holdings’ risk assessment, that Exterran Holdings’ and our compensation policies do not create risks that are reasonably likely to have a material adverse effect on us.

Compensation Committee Interlocks and Insider Participation

Messrs. Finley, Crump and Segner served on our compensation committee during 2014. There are no matters relating to interlocks or insider participation that we are required to report.

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of December 31, 2014 with respect to the compensation plans under which our common units are authorized for issuance, aggregated as follows:

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#)		(b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($)	(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (#)
Equity compensation plans approved by security holders	—		—	—
Equity compensation plans not approved by security holders(1)	—	(2)	—	748,904
Total	—		—	748,904

(1) For more information about our Long-Term Incentive Plan, which did not require approval by our unitholders, please read Note 8 to the Financial Statements.

(2) Does not include 91,763 phantom units outstanding as of December 31, 2014. Upon vesting, phantom units are payable in common units or cash, at the discretion of our compensation committee.

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Security Ownership of Certain Beneficial Owners

The following table sets forth information as of February 18, 2015, with respect to persons known to us to be the beneficial owners of more than five percent of our outstanding common units. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act.

Name and Address of Beneficial Owner	Common Units Beneficially Owned	Percent of Common Units Beneficially Owned(1)
Kayne Anderson Capital Advisors, L.P. and Richard A. Kayne(2) 1800 Avenue of the Stars, Second Floor Los Angeles, CA 90067	3,362,968	6	%
OppenheimerFunds, Inc.(3) Two World Financial Center 225 Liberty Street New York, NY 10281	6,669,615	12	%
Exterran Holdings, Inc. 16666 Northchase Drive Houston, TX 77060	19,618,918	35	%

(1) As a percentage of the total limited partner interest. When taking into consideration the 2% general partner interest, the percentages reflected in this column are 6%, 12% and 37% (including the general partner interest), respectively.

(2) Based solely on a review of the Schedule 13G/A jointly filed by Kayne Anderson Capital Advisors, L.P. and Richard A. Kayne on January 14, 2015.

(3) Based solely on a review of the Schedule 13G/A jointly filed by OppenheimerFunds, Inc. and Oppenheimer SteelPath MLP Income Fund on February 4, 2015.

Security Ownership of Management

The following table sets forth information as of February 18, 2015, with respect to our common units beneficially owned by Exterran GP LLC’s directors, Named Executive Officers and all of our current directors and executive officers as a group. Each beneficial owner has sole voting and investment power with respect to all the units attributed to him.

Name of Beneficial Owner	Units Owned Directly	Phantom Units(1)	Total Ownership	Percent of Class
Named Executive Officers
D. Bradley Childers	18,524	19,188	37,712	*
David S. Miller	11,821	4,835	16,656	*
Jon C. Biro	—	—	—	*
Robert E. Rice	5,965	4,408	10,373	*
Daniel K. Schlanger	16,718	3,122	19,840	*
Donald C. Wayne	5,655	2,005	7,660	*
Directors
James G. Crump	16,927	—	16,927	*
G. Stephen Finley	19,534	—	19,534	*
Edmund P. Segner, III	11,524	—	11,524	*
All current directors and executive officers as a group (10 persons)	107,631	34,387	142,018	*

* Less than 1%

(1) Only includes phantom units that vest within 60 days of February 18, 2015.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

Distributions and Payments to Our General Partner and its Affiliates

As of December 31, 2014, Exterran and its subsidiaries owned 19,618,918 common units, which constitutes 35% of the limited partner interest in us, and 1,129,221 general partner units, which constitute the entire 2% general partner interest in us. Exterran Holdings is, therefore, a “related person” relative to us under SEC regulations, and we believe that Exterran Holdings has and will continue to have a direct and indirect material interest in its various transactions with us.

The following summarizes the distributions and payments made or to be made by us to our general partner and its affiliates in connection with the ongoing operation of Exterran Partners, L.P.

Distributions of available cash to our general partner and its affiliates		We generally make cash distributions of 98% to our unitholders on a pro rata basis, including our general partner and its affiliates, as the holders of 19,618,918 common units, and 2% to our general partner. In addition, if distributions exceed the minimum quarterly distribution and other higher target distribution levels, then our general partner is entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target distribution level.

		During the year ended December 31, 2014, our general partner and its affiliates received aggregate distributions of $13.0 million on their general partner units, including distributions on our general partner’s incentive distribution rights, and $42.5 million on their limited partner units. On February 13, 2015, our general partner and its affiliates received a quarterly distribution with respect to the period from October 1, 2014 to December 31, 2014, of $4.2 million on their general partner units, including distributions on our general partner’s incentive distribution rights, and $10.9 million on their common units.

Payments to our general partner and its affiliates		We reimburse Exterran Holdings and its affiliates for the payment of all direct and indirect expenses incurred on our behalf. Through December 31, 2014, our obligation to reimburse Exterran Holdings and its affiliates was subject to certain caps; however, effective January 1, 2015, the cost caps provisions of the Omnibus Agreement terminated. For further information regarding the reimbursement of these expenses, please read “— Omnibus Agreement” below.

Pursuant to the terms of our Omnibus Agreement (as described below), we reimburse Exterran Holdings for (1) allocated expenses of operational personnel who perform services for our benefit, (2) direct costs incurred in operating and maintaining our business and (3) allocated SG&A expenses. Our general partner does not receive any compensation for managing our business. Our general partner and its affiliates are reimbursed for all expenses incurred on our behalf, including the compensation of Exterran Holdings’ employees who perform services on our behalf. These expenses include all expenses necessary or appropriate to provide for the conduct of our business and that are allocable to us. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. Effective January 1, 2015, there is no cap on the amount that may be paid or reimbursed to our general partner or its affiliates for compensation or expenses incurred on our behalf.

Omnibus Agreement with Exterran Holdings

We are party to an Omnibus Agreement with Exterran Holdings, our general partner, and others, which is described below. The Omnibus Agreement (other than the indemnification obligations described below under “— Indemnification for Environmental and Related Liabilities”) will terminate upon a change of control of our general partner or the removal or withdrawal of our general partner, and certain provisions will terminate upon a change of control of Exterran Holdings.

Non-competition

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Exterran Holdings also has agreed that new customers for contract compression services are for our account unless the new customer is unwilling to contract with us under our form of compression services agreement. In that case, Exterran Holdings may provide compression services to the new customer. If we or Exterran Holdings enter into a compression services contract with a new customer, either we or Exterran Holdings, as applicable, will receive the protection of the applicable non-competition arrangements described above in the same manner as if such new customer had been a compression services customer of either us or Exterran Holdings on the date of the Omnibus Agreement.

The non-competition arrangements described above do not apply to:

· our provision of contract compression services to a particular Exterran Holdings customer or customers, with the approval of Exterran Holdings;

· Exterran Holdings’ provision of contract compression services to a particular customer or customers of ours, with the approval of the conflicts committee of our board of directors;

· Exterran Holdings’ ownership of us;

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Unless the Omnibus Agreement is terminated earlier due to a change of control of Exterran GP LLC, our general partner or us, the non-competition provisions of the Omnibus Agreement will terminate on December 31, 2015 or on the date on which a change of control of Exterran Holdings occurs, whichever event occurs first. If a change of control of Exterran Holdings occurs, and neither the Omnibus Agreement nor the non-competition arrangements have already terminated, Exterran Holdings will agree for the remaining term of the non-competition arrangements not to provide contract operations services to our customers at any site where we are providing contract operations services at the time of the change of control.

Indemnification for Environmental and Other Liabilities

Under the Omnibus Agreement, Exterran Holdings has agreed to indemnify us, for a three-year period following each applicable asset acquisition from Exterran Holdings, against certain potential environmental claims, losses and expenses associated with the ownership and operation of the acquired assets that occur before the acquisition date. Exterran Holdings’ maximum liability for environmental indemnification obligations under the Omnibus Agreement cannot exceed $5 million, and Exterran Holdings will not have any obligation under the environmental or any other indemnification until our aggregate losses exceed $250,000. Exterran Holdings will have no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after such acquisition date. We have agreed to indemnify Exterran Holdings against environmental liabilities occurring on or after the applicable acquisition date related to our assets to the extent Exterran Holdings is not required to indemnify us.

Additionally, Exterran Holdings will indemnify us for losses attributable to title defects, retained assets and income taxes attributable to pre-closing operations. We will indemnify Exterran Holdings for all losses attributable to the post-closing operations of the assets contributed to us, to the extent not subject to Exterran Holdings’ indemnification obligations. For the year ended December 31, 2014, there were no requests for indemnification by either party.

Purchase of New Compression Equipment from Exterran Holdings

Transfer, Exchange or Lease of Compression Equipment with Exterran Holdings

If Exterran Holdings determines in good faith that we or Exterran Holdings’ contract operations services business need to transfer, exchange or lease compression equipment between Exterran Holdings and us, the Omnibus Agreement permits such equipment to be transferred, exchanged or leased if it will not cause us to breach any existing contracts, suffer a loss of revenue under an existing compression services contract or incur any unreimbursed costs. In consideration for such transfer, exchange or lease of compression equipment, the transferee will either (1) transfer to the transferor compression equipment equal in value to the appraised value of the compression equipment transferred to it, (2) agree to lease such compression equipment from the transferor or (3) pay the transferor an amount in cash equal to the appraised value of the compression equipment transferred to it. These provisions will terminate on December 31, 2015 unless terminated earlier as discussed above.

During the year ended December 31, 2014, we transferred ownership of 443 compressor units, totaling approximately 224,600 horsepower with a net book value of approximately $93.2 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 463 compressor units, totaling approximately 165,800 horsepower with a net book value of approximately $81.2 million, to us. During the year ended December 31, 2014, we recorded capital distributions of approximately $12.0 million related to the differences in net book value on the exchanged compression equipment. No customer contracts were included in the transfers. Under the terms of the Omnibus Agreement, such transfers must be of equal appraised value, as defined in the Omnibus Agreement, with any difference being settled in cash.

At December 31, 2014, we had equipment on lease to Exterran Holdings with an aggregate cost and accumulated depreciation of $0.2 million and $0.1 million, respectively. During the year ended December 31, 2014, we had revenue of $0.3 million from Exterran Holdings related to the lease of our compression equipment and cost of sales of $4.9 million with Exterran Holdings related to the lease of Exterran Holdings’ compression equipment.

Reimbursement of Operating and SG&A Expense

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health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes, facilities management, investor relations, enterprise resource planning system, training, executive, sales, business development and engineering.

Exterran Holdings charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Exterran Holdings’ other operations are allocated among Exterran Holdings’ other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, revenue and horsepower. In addition, following the closing of the Spinoff transition, Exterran Holdings may decide to change its method of allocating costs to us. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable. Included in our SG&A expense during the year ended December 31, 2014 was $72.0 million of indirect costs incurred by Exterran Holdings.

Under the Omnibus Agreement, our obligation to reimburse Exterran Holdings for any cost of sales that it incurred in the operation of our business and any cash SG&A expense allocated to us was capped (after taking into account any such costs we incurred and paid directly) through December 31, 2014. Cost of sales was capped at $22.50 per operating horsepower per quarter from January 1, 2014 through December 31, 2014. SG&A costs were capped at $15.0 million per quarter from January 1, 2014 through April 9, 2014 and $17.7 million per quarter from April 10, 2014 through December 31, 2014. The cost caps provided in the Omnibus Agreement were in effect through December 31, 2014; however, effective January 1, 2015, these provisions of the Omnibus Agreement terminated.

During the year ended December 31, 2014, our cost of sales exceeded the cap by $2.5 million, and our SG&A expenses exceeded the cap by $11.4 million. The excess amount over the cap is being accounted for as a capital contribution.

Indemnification of Directors and Officers

Under our partnership agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:

· our general partner;

· any departing general partner;

· any person who is or was an affiliate of a general partner or any departing general partner;

· any person who is or was a director, officer, member, partner, fiduciary or trustee of any entity set forth in the preceding three bullet points;

· any person who is or was serving as director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner or any departing general partner; and

· any person designated by our general partner.

Any indemnification under these provisions will only be made out of our assets. Unless it otherwise agrees, our general partner will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under our partnership agreement.

Review, Approval or Ratification of Transactions with Related Persons

Our Code of Business Conduct requires all employees, officers and directors of our general partner, its subsidiaries and affiliates, including Exterran Partners and Exterran Holdings (collectively, the “Exterran Group”), to avoid situations involving a “conflict of interest.” A conflict of interest occurs when an individual’s private interest interferes or appears to interfere with the interests of the Exterran Group. A conflict of interest can arise when a person takes actions or has interests that make it difficult to perform his or her work objectively and effectively. Any current or potential conflict of interest must be disclosed to our chief compliance officer. Employment with or service to Exterran Holdings as an employee, officer or director, and any compensation or benefits received from such employment or service, or any individual’s ownership interest in Exterran Holdings do not constitute conflicts of interest under our Code of Business Conduct.

Our Code of Business Conduct provides that directors and executive officers (and, to the extent not executive officers, our principal financial officer, principal accounting officer and controller) must obtain authorization from the audit committee for any conflict of interest. When deciding whether to authorize such a transaction, the audit committee may consider, among other things, the nature of the transaction and the relationship, the dollar amount involved and the availability of reasonable alternatives.

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Our board of directors has established a conflicts committee to carry out certain duties set forth in our partnership agreement and the Omnibus Agreement, and to carry out any other duties delegated by the board of directors that involve or relate to conflicts of interests between us and Exterran Holdings, including its operating subsidiaries. The related party transactions in which we engaged in 2014 were typically of a recurring, ordinary course nature with Exterran Holdings. The conflicts committee reviews on a quarterly basis these recurring, ordinary course transactions with Exterran Holdings.

The conflicts committee is charged with acting on an informed basis, in good faith and with an honest belief that any action it takes is in our best interests. In taking any such action, including the resolution of any conflict of interest, the conflicts committee is authorized to consider any factors it determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances.

Director Independence

Please see Part III, Item 10 (“Directors, Executive Officers and Corporate Governance — Board of Directors”) of this report for a discussion of director independence matters.

Item 14. Principal Accountant Fees and Services

During the years ended December 31, 2014 and 2013, fees for professional services rendered by our independent registered public accounting firm, Deloitte & Touche LLP, were billed to Exterran Holdings and then charged to us. The services rendered during the years ended December 31, 2014 and 2013 were for the audit of our annual financial statements and work related to registration statements and cost approximately $0.7 million and $0.5 million, respectively. All of the fees during each of the years ended December 31, 2014 and 2013 were “Audit Fees,” and none of those fees constituted “Audit-Related Fees,” “Tax Fees” or “All Other Fees,” as such terms are defined by the SEC.

In considering the nature of the services provided by Deloitte & Touche LLP, our audit committee determined that such services are compatible with the provision of independent audit services. The audit committee discussed these services with the independent auditor and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

All services performed by the independent registered public accounting firm during 2014 and 2013 were approved in advance by our audit committee. Any requests for audit, audit-related, tax and other services to be performed by Deloitte & Touche LLP must be submitted to our audit committee for pre-approval. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant pre-approval between meetings, as necessary, has been delegated to the audit committee chair, or, in the absence or unavailability of the chair, one of the other members. Any such pre-approval must be reviewed at the next regularly scheduled audit committee meeting.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as a part of this report.

1. Financial Statements. The following financial statements are filed as a part of this report.

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statements of Comprehensive Income	F-4
Consolidated Statements of Partners’ Capital	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

2. Financial Statement Schedule

Schedule II — Valuation and Qualifying Accounts	S-1

All other schedules have been omitted because they are not required under the relevant instructions.

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3. Exhibits

Exhibit No.		Description
2.1		Contribution, Conveyance and Assumption Agreement, dated March 7, 2013, by and among Exterran Holdings, Inc., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 8, 2013
2.2		Closing Agreement and First Amendment to Purchase and Sale Agreement, dated April 10, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 15, 2014
2.3		Second Amendment to Purchase and Sale Agreement, dated April 22, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014
2.4		Purchase and Sale Agreement, dated July 11, 2014, between EXLP Operating LLC and MidCon Compression, L.L.C., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 14, 2014
3.1		Certificate of Limited Partnership of Universal Compression Partners, L.P., incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.2		Certificate of Amendment to Certificate of Limited Partnership of Universal Compression Partners, L.P. (now Exterran Partners, L.P.), dated as of August 20, 2007, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 24, 2007
3.3		First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P., as amended, incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on form 10-Q for the quarter ended March 31, 2008
3.4		Certificate of Limited Partnership of UCO General Partner, LP, incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.5		Amended and Restated Limited Partnership Agreement of UCO General Partner, LP, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.6		Certificate of Formation of UCO GP, LLC, incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1 filed June 27, 2006
3.7		Amended and Restated Limited Liability Company Agreement of UCO GP, LLC, incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
4.1		Indenture, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.2		Registration Rights Agreement, dated as of March 27, 2013, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
4.3		Indenture, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 11, 2014
4.4		Registration Rights Agreement, dated as of April 7, 2014, by and among Exterran Partners, L.P., EXLP Finance Corp., the Guarantors named therein and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 7, 2014
10.1		Third Amended and Restated Omnibus Agreement, dated June 10, 2011, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.2		First Amendment to Third Amended and Restated Omnibus Agreement, dated March 8, 2012, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)

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Exhibit No.		Description
10.3		Second Amendment to Third Amended and Restated Omnibus Agreement, dated March 31, 2013, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.4		Amended and Restated Senior Secured Credit Agreement, dated as of November 3, 2010, by and among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, Barclays Bank plc and The Royal Bank of Scotland plc, as Co-Documentation Agents, and the lenders signatory thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 9, 2010
10.5		Amended and Restated Guaranty Agreement, dated as of November 3, 2010, made by Exterran Partners, L.P. and EXLP Leasing LLC in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 9, 2010
10.6		Amended and Restated Collateral Agreement, dated as of November 3, 2010, made by EXLP Operating LLC, Exterran Partners, L.P. and EXLP Leasing LLC in favor of Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 9, 2010
10.7		First Amendment to Amended and Restated Senior Secured Credit Agreement, dated March 7, 2012, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on March 13, 2012
10.8		Third Amendment to Amended and Restated Senior Secured Credit Agreement, dated March 27, 2013, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2013
10.9		Fourth Amendment to Amended and Restated Senior Secured Credit Agreement, dated February 4, 2015, among EXLP Operating LLC, as Borrower, Exterran Partners, L.P., as Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders signatory thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 5, 2015
10.10		Third Amendment to Third Amended and Restated Omnibus Agreement, dated April 10, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014
10.11		Fourth Amendment to Third Amended and Restated Omnibus Agreement, dated August 15, 2014, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text) and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment)
10.12*		Fifth Amendment to Third Amended and Restated Omnibus Agreement, dated February 23, 2015, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC
10.13†		Universal Compression Partners, L.P. Long-Term Incentive Plan, incorporated by reference to Exhibit 10.2 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 filed October 4, 2006
10.14†		First Amendment to Exterran Partners, L.P. Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 29, 2008
10.15†		Second Amendment to Exterran Partners, L.P. Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 30, 2008
10.16†		Third Amendment to Exterran Partners, L.P. Long-Term Incentive Plan, incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008
10.17†		Form of Exterran Partners, L.P. Award Notice for Phantom Units with DERs, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.18†		Form of Exterran Partners, L.P. Award Notice for Phantom Units with DERs for Directors, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009
10.19†		Form of Exterran Partners, L.P. Award Notice and Agreement for Phantom Units with DERs, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014

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Exhibit No.	Description
10.20†		Form of Exterran Partners, L.P. Award Notice and Agreement for Unit Award for Non-Employee Directors, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 10, 2014
10.21†		Form of Exterran Partners, L.P. First Amendment to Award Notice and Agreement for Phantom Units with DERs, incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014
21.1*		List of Subsidiaries of Exterran Partners, L.P.
23.1*		Consent of Deloitte & Touche LLP
31.1*		Certification of the Principal Executive Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2*		Certification of the Principal Financial Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
32.1**		Certification of the Chief Executive Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of the Chief Financial Officer of Exterran GP LLC (as general partner of the general partner of Exterran Partners, L.P.) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*		Pro forma financial information
101.1*		Interactive data files pursuant to Rule 405 of Regulation S-T

† Management contract or compensatory plan or arrangement.

* Filed herewith.

** Furnished, not filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EXTERRAN PARTNERS, L.P.

	By:	EXTERRAN GENERAL PARTNER, L.P.
		its General Partner

	By:	EXTERRAN GP LLC
		its General Partner

	By:	/s/ D. BRADLEY CHILDERS
		D. Bradley Childers
		Chief Executive Officer
		(Principal Executive Officer)

Date: February 26, 2015

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POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Bradley Childers, David S. Miller and Donald C. Wayne, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 2015.

Name		Title

/s/ D. BRADLEY CHILDERS		President, Chief Executive Officer and Chairman of the Board, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P. (Principal Executive Officer)
D. Bradley Childers


/s/ DAVID S. MILLER		Senior Vice President, Chief Financial Officer and Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P. (Principal Financial Officer)
David S. Miller


/s/ KENNETH R. BICKETT		Vice President and Controller, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P. (Principal Accounting Officer)
Kenneth R. Bickett


/s/ JON C. BIRO		Senior Vice President and Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P.
Jon C. Biro

/s/ DANIEL K. SCHLANGER		Senior Vice President and Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P.
Daniel K. Schlanger

/s/ JAMES G. CRUMP		Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P.
James G. Crump

/s/ G. STEPHEN FINLEY		Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P.
G. Stephen Finley

/s/ EDMUND P. SEGNER III		Director, Exterran GP LLC, as General Partner of Exterran General Partner, L.P., as General Partner of Exterran Partners, L.P.
Edmund P. Segner, III

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Exterran Partners, L.P.

Houston, Texas

We have audited the accompanying consolidated balance sheets of Exterran Partners, L.P. and subsidiaries (the “Partnership”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule for each of the three years in the period ended December 31, 2014 listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Partnership’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2015 expressed an unqualified opinion on the Partnership’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
February 26, 2015

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EXTERRAN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit amounts)

	December 31,
	2014			2013
ASSETS

Current assets:
Cash and cash equivalents	$	295		$	182
Accounts receivable, trade, net of allowance of $1,253 and $363, respectively	79,452			52,641
Due from affiliates, net	2,322			10,548
Total current assets	82,069			63,371
Property, plant and equipment	2,399,934			1,794,545
Accumulated depreciation	(721,788		)	(647,527		)
Property, plant and equipment, net	1,678,146			1,147,018
Goodwill	127,757			124,019
Intangible and other assets, net	121,472			33,655
Total assets	$	2,009,444		$	1,368,063

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities:
Accrued liabilities	$	4,979		$	7,255
Accrued interest	11,876			5,940
Current portion of interest rate swaps	4,958			3,374
Total current liabilities	21,813			16,569
Long-term debt	1,300,295			757,955
Deferred income taxes	1,527			1,132
Other long-term liabilities	2,468			652
Total liabilities	1,326,103			776,308
Commitments and contingencies (Note 15)
Partners’ capital:
Common units, 55,724,022 and 49,465,528 units issued, respectively	668,714			578,493
General partner units, 2% interest with 1,129,221 and 1,003,227 equivalent units issued and outstanding, respectively	19,542			16,780
Accumulated other comprehensive loss	(3,438		)	(2,353		)
Treasury units, 61,665 and 50,917 common units, respectively	(1,477		)	(1,165		)
Total partners’ capital	683,341			591,755
Total liabilities and partners’ capital	$	2,009,444		$	1,368,063

The accompanying notes are an integral part of these consolidated financial statements.

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EXTERRAN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

	Years Ended December 31,
	2014			2013			2012
Revenues:
Revenue — third parties	$	580,739		$	465,744		$	386,731
Revenue — affiliates	297			449			762
Total revenue	581,036			466,193			387,493

Costs and expenses:
Cost of sales (excluding depreciation and amortization expense) — affiliates	238,038			202,045			183,160
Depreciation and amortization	128,196			103,711			88,298
Long-lived asset impairment	12,810			5,350			29,560
Restructuring charges	702			—			—
Selling, general and administrative — affiliates	80,521			61,971			49,889
Interest expense	57,811			37,068			25,167
Other (income) expense, net	(74		)	(9,481		)	(35		)
Total costs and expenses	518,004			400,664			376,039
Income before income taxes	63,032			65,529			11,454
Provision for income taxes	1,313			1,506			945
Net income	$	61,719		$	64,023		$	10,509

General partner interest in net income	$	13,240		$	7,969		$	4,623
Common units interest in net income	$	48,479		$	56,054		$	5,886

Weighted average common units outstanding used in income per common unit:
Basic	54,107			47,651			41,371
Diluted	54,109			47,667			41,382

Income per common unit:
Basic	$	0.89		$	1.18		$	0.14
Diluted	$	0.89		$	1.18		$	0.14

Distributions declared and paid per limited partner unit in respective periods	$	2.1650		$	2.0800		$	2.0000

The accompanying notes are an integral part of these consolidated financial statements.

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EXTERRAN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2014			2013		2012
Net income	$	61,719		$	64,023	$	10,509
Other comprehensive income (loss):
Interest rate swap gain (loss), net of reclassifications to earnings	(4,752		)	5,004		(1,679		)
Amortization of terminated interest rate swaps	3,667			2,737		898
Total other comprehensive income (loss)	(1,085		)	7,741		(781		)
Comprehensive income	$	60,634		$	71,764	$	9,728

The accompanying notes are an integral part of these consolidated financial statements.

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EXTERRAN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands, except for unit amounts)

														Accumulated
	Partners’ Capital													Other
	Common Units				General Partner Units				Treasury Units					Comprehensive
	$			Units	$			Units	$			Units		Loss			Total
Beginning balance, January 1, 2012	$	420,960		37,308,402	$	12,877		757,722	$	(758	)	(33,811	)	$	(9,313	)	$	423,766
Issuance of common units for vesting of phantom units				40,329													—
Treasury units purchased									(225		)	(9,819	)				(225		)
Net proceeds from issuance of common units	114,530			4,965,000													114,530
Proceeds from sale of general partner units to Exterran Holdings					2,426			100,861									2,426
Acquisition of a portion of Exterran Holdings’ U.S. contract operations business	(28,221		)														(28,221		)
Contribution of capital, net	15,053				39												15,092
Excess of purchase price of equipment over Exterran Holdings’ cost of equipment	(10,330		)		(682		)										(11,012		)
Cash distributions	(82,073		)		(5,793		)										(87,866		)
Unit-based compensation expense	782																782
Interest rate swap loss, net of reclassification to earnings														(1,679		)	(1,679		)
Amortization of terminated interest rate swaps														898			898
Net income	5,886				4,623												10,509
Balance, December 31, 2012	$	436,587		42,313,731	$	13,490		858,583	$	(983	)	(43,630	)	$	(10,094	)	$	439,000
Issuance of common units for vesting of phantom units				28,270													—
Treasury units purchased									(182		)	(7,287	)				(182		)
Acquisition of a portion of Exterran Holdings’ U.S. contract operations business	158,417			7,123,527	3,233			144,644									161,650
Transaction costs for registration of units	(68		)														(68		)
Contribution of capital, net	36,625				827												37,452
Excess of purchase price of equipment over Exterran Holdings’ cost of equipment	(11,161		)		(658		)										(11,819		)
Cash distributions	(99,115		)		(8,081		)										(107,196		)
Unit-based compensation expense	1,154																1,154
Interest rate swap gain, net of reclassification to earnings														5,004			5,004
Amortization of terminated interest rate swaps														2,737			2,737
Net income	56,054				7,969												64,023
Balance, December 31, 2013	$	578,493		49,465,528	$	16,780		1,003,227	$	(1,165	)	(50,917	)	$	(2,353	)	$	591,755
Issuance of common units for vesting of phantom units				48,494													—
Treasury units purchased									(312		)	(10,748	)				(312		)
Net proceeds from issuance of common units	169,471			6,210,000													169,471
Proceeds from sale of general partner units to Exterran Holdings					3,573			125,994									3,573
Contribution of capital, net	7,960				73												8,033
Excess of purchase price of equipment over Exterran Holdings’ cost of equipment	(19,725		)		(1,110		)										(20,835		)
Cash distributions	(117,331		)		(13,014		)										(130,345		)
Unit-based compensation expense	1,367																1,367
Interest rate swap loss, net of reclassification to earnings														(4,752		)	(4,752		)
Amortization of terminated interest rate swaps														3,667			3,667
Net income	48,479				13,240												61,719
Balance, December 31, 2014	$	668,714		55,724,022	$	19,542		1,129,221	$	(1,477	)	(61,665	)	$	(3,438	)	$	683,341

The accompanying notes are an integral part of these consolidated financial statements.

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EXTERRAN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31,
	2014			2013			2012
Cash flows from operating activities:
Net income	$	61,719		$	64,023		$	10,509
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	128,196			103,711			88,298
Long-lived asset impairment	12,810			5,350			29,560
Amortization of deferred financing costs	2,973			2,975			1,508
Amortization of debt discount	1,042			419			—
Amortization of terminated interest rate swaps	3,667			2,737			898
Interest rate swaps	397			334			—
Unit-based compensation expense	1,376			1,174			797
Provision for (benefit from) doubtful accounts	1,060			(25		)	494
Gain on sale of property, plant and equipment	(2,466		)	(10,140		)	(689		)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, trade	(27,871		)	(14,532		)	(5,303		)
Other assets and liabilities	2,861			2,260			(855		)
Net cash provided by operating activities	185,764			158,286			125,217

Cash flows from investing activities:
Capital expenditures	(303,952		)	(168,036		)	(157,828		)
Payments for business acquisitions	(483,012		)	—			—
Payment to Exterran Holdings for a portion of the contract operations acquisitions	—			—			(77,415		)
Proceeds from sale of property, plant and equipment	6,331			61,452			2,465
(Increase) decrease in amounts due from affiliates, net	8,226			(10,548		)	3,838
Net cash used in investing activities	(772,407		)	(117,132		)	(228,940		)

Cash flows from financing activities:
Proceeds from borrowings of long-term debt	927,798			1,005,536			714,000
Repayments of long-term debt	(386,500		)	(928,500		)	(684,350		)
Distributions to unitholders	(130,345		)	(107,196		)	(87,866		)
Net proceeds from issuance of common units	169,471			—			114,530
Net proceeds from sale of general partner units	3,573			—			2,426
Payments for debt issuance costs	(6,986		)	(12,147		)	(1,011		)
Payments for settlement of interest rate swaps that include financing elements	(3,793		)	(2,207		)	—
Purchases of treasury units	(312		)	(182		)	(225		)
Capital contribution from limited partners and general partner	13,850			25,180			24,758
Increase (decrease) in amounts due to affiliates, net	—			(21,598		)	21,598
Net cash provided by (used in) financing activities	586,756			(41,114		)	103,860

Net increase in cash and cash equivalents	113			40			137
Cash and cash equivalents at beginning of period	182			142			5
Cash and cash equivalents at end of period	$	295		$	182		$	142

Supplemental disclosure of cash flow information:
Cash paid for interest	$	47,446		$	28,359		$	22,566
Cash paid for taxes, net	$	779		$	604		$	785

Supplemental disclosure of non-cash transactions:
Non-cash capital contribution from limited and general partner	$	6,153		$	21,684		$	14,549
Contract operations equipment acquired/exchanged, net	$	(11,970	)	$	146,758		$	47,908
Intangible assets allocated in contract operations acquisitions	$	—		$	3,131		$	5,005
Debt assumed in contract operations acquisitions	$	—		$	—		$	105,350
Non-cash capital distribution due to the contract operations acquisitions	$	—		$	12,350		$	28,221
Common units issued in contract operations acquisitions	$	—		$	170,537		$	—
General partner units issued in contract operations acquisitions	$	—		$	3,463		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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EXTERRAN PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies

Organization

Exterran Partners, L.P., together with its subsidiaries (“we”, “our”, “us” or the “Partnership”), is a publicly held Delaware limited partnership formed in June 2006 to provide natural gas contract operations services to customers throughout the United States of America (“U.S.”). As of December 31, 2014, public unitholders held a 63% ownership interest in us and Exterran Holdings, Inc. (individually, and together with its wholly-owned subsidiaries, “Exterran Holdings”) owned our remaining equity interests, including the general partner interests and all of the incentive distribution rights.

Exterran General Partner, L.P. is our general partner and an indirect wholly-owned subsidiary of Exterran Holdings. As Exterran General Partner, L.P. is a limited partnership, its general partner, Exterran GP LLC, conducts our business and operations, and the board of directors and officers of Exterran GP LLC, which we refer to herein as our board of directors and our officers, make decisions on our behalf.

Nature of Operations

Natural gas compression is a mechanical process whereby the pressure of a volume of natural gas is increased to a desired higher pressure for transportation from one point to another, and is essential to the production and transportation of natural gas. Compression is typically required several times during the natural gas production and transportation cycle, including: (i) at the wellhead; (ii) throughout gathering and distribution systems; (iii) into and out of processing and storage facilities; and (iv) along intrastate and interstate pipelines.

Principles of Consolidation

The accompanying consolidated financial statements include us and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. Management believes that the estimates and assumptions used are reasonable.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

Contract operations revenue is recognized when earned, which generally occurs monthly when service is provided under our customer contracts.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents and trade accounts receivable. We believe that the credit risk in cash investments that we have with financial institutions is minimal. Trade accounts receivable are due from companies of varying size engaged principally in oil and natural gas activities. We review the financial condition of customers prior to extending credit and generally do not obtain collateral for trade receivables. Payment terms are on a short-term basis and in accordance with industry practice. We consider this credit risk to be limited due to these companies’ financial resources, the nature of services we provide and the terms of our contract operations customer service agreements.

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During the year ended December 31, 2014, Access Midstream Partners LP (“Access”) accounted for approximately 12% of our consolidated revenue. Access merged with Williams Partners, L.P. (“Williams”) in February 2015 and, when combined, Access and Williams would have accounted for approximately 15% of our consolidated revenue during the year ended December 31, 2014. No other customer accounted for more than 10% of our consolidated revenue in 2014. No single customer accounted for more than 10% of our consolidated revenue during the years ended December 31, 2013 and 2012. As of December 31, 2014, trade receivables outstanding from Access were approximately 19%, or 23% when combined with Williams, of our total trade accounts receivable balance.

We maintain allowances for doubtful accounts for estimated losses resulting from our customers’ inability to make required payments. The determination of the collectibility of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customers’ payment history and current creditworthiness to determine that collectibility is reasonably assured, as well as consideration of the overall business climate in which our customers operate. Inherently, these uncertainties require us to make judgments and estimates regarding our customers’ ability to pay amounts due to us in order to determine the appropriate amount of valuation allowances required for doubtful accounts. We review the adequacy of our allowance for doubtful accounts quarterly. We determine the allowance needed based on historical write-off experience and by evaluating significant balances aged greater than 90 days individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. During the years ended December 31, 2014 and 2012, we recorded bad debt expense of $1.1 million and $0.5 million, respectively. During the year ended December 31, 2013, we recorded a bad debt benefit of approximately $25,000.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. For compression equipment, depreciation begins with the first compression service. The estimated useful lives for compression equipment are 15 to 30 years. Maintenance and repairs are expensed as incurred. Major improvements that extend the useful life of compressor units are capitalized and depreciated over the estimated useful life of up to seven years. Depreciation expense during the years ended December 31, 2014, 2013 and 2012 was $119.0 million, $100.7 million and $85.5 million, respectively. When property, plant and equipment is sold, retired or otherwise disposed of, the gain or loss is recorded in other (income) expense, net.

Long-Lived Assets

Due To/From Affiliates, Net

We have receivables and payables with Exterran Holdings. A valid right of offset exists related to the receivables and payables with our affiliates and as a result, we present such amounts on a net basis in our consolidated balance sheets.

The transactions reflected in due to/from affiliates, net, primarily consist of centralized cash management activities between us and Exterran Holdings. Because these balances are treated as short-term borrowings between us and Exterran Holdings, serve as a financing and cash management tool to meet our short-term operating needs, are large, turn over quickly and are payable on demand, we present borrowings and repayments with our affiliates on a net basis within the consolidated statements of cash flows. Net receivables from our affiliates are considered advances and changes are presented as investing activities in the consolidated statements of cash flows. Net payables due to our affiliates are considered borrowings and changes are presented as financing activities in the consolidated statements of cash flows.

Income Taxes

As a partnership, all income, gains, losses, expenses, deductions and tax credits generated by us generally flow through to our unitholders. However, some states impose an entity-level income tax on partnerships, including us. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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We record uncertain tax positions in accordance with the accounting standard on income taxes under a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Segment Reporting

Accounting Standards Codification Topic 280, “Segment Reporting,” establishes standards for entities to report information about the operating segments and geographic areas in which they operate. We only operate in one segment and all of our operations are located in the U.S.

Comprehensive Income (Loss)

Components of comprehensive income (loss) are net income (loss) and all changes in equity during a period except those resulting from transactions with our limited partners or general partner. Our accumulated other comprehensive income (loss) consists only of derivative financial instruments. Changes in accumulated other comprehensive income (loss) represent changes in the fair value of derivative financial instruments that are designated as cash flow hedges and to the extent the hedge is effective and amortization of terminated interest rate swaps. See Note 9 for additional disclosures related to comprehensive income (loss).

Financial Instruments

Our financial instruments consist of cash, trade receivables, interest rate swaps and debt. At December 31, 2014 and 2013, the estimated fair values of these financial instruments approximated their carrying amounts as reflected in our consolidated balance sheets. The fair value of our fixed rate debt was estimated based on quoted market yields in inactive markets, which are Level 2 inputs. The fair value of our floating rate debt was estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note 10 for additional information regarding the fair value hierarchy.

The following table summarizes the carrying amount and fair value of our debt as of December 31, 2014 and 2013 (in thousands):

	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Fixed rate debt	$	690,295	$	611,000	$	344,955	$	346,000
Floating rate debt	610,000		611,000		413,000		413,000
Total debt	$	1,300,295	$	1,222,000	$	757,955	$	759,000

GAAP requires that all derivative instruments (including certain derivative instruments embedded in other contracts) be recognized in the balance sheet at fair value and that changes in such fair values be recognized in earnings (loss) unless specific hedging criteria are met. Changes in the values of derivatives that meet these hedging criteria will ultimately offset related earnings effects of the hedged item pending recognition in earnings.

Hedging and Use of Derivative Instruments

We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes. We record interest rate swaps on the balance sheet as either derivative assets or derivative liabilities measured at their fair value. The fair value of our derivatives is estimated using a combination of the market and income approach based on forward LIBOR curves. Changes in the fair value of the swaps designated as cash flow hedges are deferred in accumulated other comprehensive income (loss) to the extent the contracts are effective as hedges until settlement of the underlying hedged transaction. To qualify for hedge accounting treatment, we must formally document, designate and assess the effectiveness of the transactions. If the necessary correlation ceases to exist or if the anticipated transaction becomes improbable, we would discontinue hedge accounting and apply mark-to-market accounting. Amounts paid or received from interest rate swap agreements are charged or credited to interest expense and matched with the cash flows and interest expense of the debt being hedged, resulting in an adjustment to the effective interest rate.

Earnings (Loss) Per Common Unit

Earnings (loss) per common unit is computed using the two-class method. Under the two-class method, basic earnings (loss) per common unit is determined by dividing net income (loss) allocated to the common units after deducting the amounts allocated to our general partner (including distributions to our general partner on its incentive distribution rights) and participating securities, by the weighted average number of outstanding common units (also referred to as limited partner units) during the period. Participating securities include unvested phantom units with nonforfeitable tandem distribution equivalent rights to receive cash distributions in the quarter in which distributions are paid on common units. During periods of net loss, no effect is given to participating securities because they do not have a contractual obligation to participate in our losses.

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When computing earnings per common unit in periods when distributions are greater than earnings (loss), the amount of the actual incentive distribution rights, if any, is deducted from net income (loss) and allocated to our general partner for the corresponding period. The remaining amount of net income (loss), after deducting distributions to participating securities, is allocated between the general partner and common units based on how our partnership agreement allocates net losses.

When computing earnings (loss) per common unit in periods when earnings (loss) are greater than distributions, earnings are allocated to the general partner, participating securities and common units based on how our partnership agreement would allocate earnings if the full amount of earnings for the period had been distributed. This allocation of net income (loss) does not impact our total net income (loss), consolidated results of operations or total cash distributions (including actual incentive distribution rights); however, it may result in our general partner being allocated additional incentive distributions for purposes of our earnings (loss) per unit calculation, which could reduce net income per common unit. However, as required by our partnership agreement, we determine cash distributions based on available cash and determine the actual incentive distributions allocable to our general partner based on actual distributions.

The following table reconciles net income used in the calculation of basic and diluted earnings per common unit (in thousands):

	Years Ended December 31,
	2014			2013			2012
Net income	$	61,719		$	64,023		$	10,509
Less: General partner incentive distribution rights	(12,258		)	(6,831		)	(4,503		)
Less: General partner 2% ownership interest	(982		)	(1,138		)	(120		)
Common units interest in net income	48,479			56,054			5,886
Less: Net income attributable to participating securities	(198		)	—			—
Net income used in basic and diluted earnings per common unit	$	48,281		$	56,054		$	5,886

There were no adjustments to net income attributable to common unitholders for the diluted earnings per common unit calculation for the years ended December 30, 2014, 2013 and 2012.

The following table shows the potential common units that were included in computing diluted earnings per common unit (in thousands):

	Years Ended December 31,
	2014		2013	2012
Weighted average common units outstanding including participating securities	54,187		47,651	41,371
Less: Weighted average participating securities outstanding	(80	)	—	—
Weighted average common units outstanding — used in basic earnings per common unit	54,107		47,651	41,371
Net dilutive potential common units issuable:
Phantom units	2		16	11
Weighted average common units and dilutive potential common units — used in diluted earnings per common unit	54,109		47,667	41,382

2. Business Acquisitions

August 2014 MidCon Acquisition

On August 8, 2014, we completed an acquisition of natural gas compression assets, including a fleet of 162 compressor units, comprising approximately 110,000 horsepower from MidCon Compression, L.L.C. (“MidCon”) for $130.1 million (the “August 2014 MidCon Acquisition”). The purchase price was funded with borrowings under our revolving credit facility. The majority of the horsepower we acquired is utilized under a five-year contract operations services agreement with BHP Billiton Petroleum (“BHP Billiton”) to provide compression services. In connection with the acquisition, the contract operations services agreement with BHP Billiton was assigned to us effective as of the closing. During the year ended December 31, 2014, we incurred transaction costs of approximately $1.0 million related to the August 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our consolidated statements of operations.

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We accounted for the August 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill. The following table summarizes the purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Fair Value
Property, plant and equipment	$	78,356
Goodwill	3,738
Intangible assets	48,373
Current liabilities	(372		)
Purchase price	$	130,095

Property, Plant and Equipment, Goodwill and Intangible Assets Acquired

Property, plant and equipment is comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 24 years.

Goodwill of $3.7 million resulting from the acquisition is attributable to the expansion of our services in the region. The goodwill recorded is considered to have an indefinite life and will be reviewed annually for impairment or more frequently if indicators of impairment exist.

The amount of finite life intangible assets, and their associated average useful lives, was determined based on the period which the assets are expected to contribute directly or indirectly to our future cash flows, consisting of the following:

	Amount (In thousands)		Average Useful Life
Customer related	$	21,590	25 years
Contract based	26,783		5 years
Total acquired identifiable intangible assets	$	48,373

The results of operations attributable to the assets acquired in the August 2014 MidCon Acquisition have been included in our consolidated financial statements since the date of acquisition. Revenue attributable to the assets acquired in the August 2014 MidCon Acquisition was $9.2 million from the date of acquisition through December 31, 2014. We are unable to provide earnings attributable to the assets acquired in the August 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

April 2014 MidCon Acquisition

On April 10, 2014, we completed an acquisition of natural gas compression assets, including a fleet of 337 compressor units, comprising approximately 444,000 horsepower from MidCon for $352.9 million (the “April 2014 MidCon Acquisition”). The purchase price was funded with the net proceeds from the sale, pursuant to a public underwritten offering, of 6.2 million common units and a portion of the net proceeds from the issuance of $350.0 million aggregate principal amount of 6% senior notes due October 2022 (the “2014 Notes”). The compressor units were previously used by MidCon to provide compression services to a subsidiary of Access. Effective as of the closing of the acquisition, we and Access entered into a seven-year contract operations services agreement under which we provide compression services to Williams (formerly Access). During the year ended December 31, 2014, we incurred transaction costs of approximately $1.5 million related to the April 2014 MidCon Acquisition, which is reflected in other (income) expense, net, in our consolidated statements of operations.

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We accounted for the April 2014 MidCon Acquisition using the acquisition method, which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair value on the acquisition date. The following table summarizes the purchase price allocation based on estimated fair values of the acquired assets and liabilities as of the acquisition date (in thousands):

	Fair Value
Property, plant and equipment	$	311,270
Intangible assets	42,474
Current liabilities	(827		)
Purchase price	$	352,917

Property, Plant and Equipment and Intangible Assets Acquired

Property, plant and equipment is comprised of compression equipment that will be depreciated on a straight-line basis over an estimated average remaining useful life of 25 years.

	Amount (In thousands)		Average Useful Life
Customer related	$	4,701	25 years
Contract based	37,773		7 years
Total acquired identifiable intangible assets	$	42,474

The results of operations attributable to the assets acquired in the April 2014 MidCon Acquisition have been included in our consolidated financial statements since the date of acquisition. Revenue attributable to the assets acquired in the April 2014 MidCon Acquisition was $64.5 million from the date of acquisition through December 31, 2014. We are unable to provide earnings attributable to the assets acquired in the April 2014 MidCon Acquisition since the date of acquisition as we do not prepare full stand-alone earnings reports for those assets.

March 2013 Contract Operations Acquisition

In March 2013, we acquired from Exterran Holdings contract operations customer service agreements with 50 customers and a fleet of 363 compressor units used to provide compression services under those agreements, comprising approximately 256,000 horsepower, or 8% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the “March 2013 Contract Operations Acquisition”). The acquired assets also included 204 compressor units, comprising approximately 99,000 horsepower, previously leased from Exterran Holdings to us and contracts relating to approximately 6,000 horsepower of compressor units we already owned and previously leased to Exterran Holdings. At the acquisition date, the acquired fleet assets had a net book value of $158.5 million, net of accumulated depreciation of $94.9 million. Total consideration for the transaction was approximately $174.0 million, excluding transaction costs. In connection with this acquisition, we issued approximately 7.1 million common units to Exterran Holdings and approximately 145,000 general partner units to our general partner.

In connection with this acquisition, we were allocated $3.1 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 income expected to be realized from these intangible assets.

March 2012 Contract Operations Acquisition

In March 2012, we acquired from Exterran Holdings contract operations customer service agreements with 39 customers and a fleet of 406 compressor units used to provide compression services under those agreements, comprising approximately 188,000 horsepower, or 5% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the “March 2012 Contract Operations Acquisition”). The acquired assets also included 139 compressor units, comprising approximately 75,000 horsepower, previously leased from Exterran Holdings to us, and a natural gas processing plant with a capacity of 10 million cubic feet per day that we used to provide processing services. At the acquisition date, the acquired fleet assets had a net book value of $149.5 million, net of accumulated depreciation of $67.0 million. Total consideration for the transaction was approximately $182.8 million, excluding transaction costs. In connection with this acquisition, we assumed $105.4 million of Exterran Holdings’ long-term debt and paid $77.4 million in cash to Exterran Holdings.

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In connection with this acquisition, we were allocated $5.0 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 income expected to be realized from these intangible assets.

Because Exterran Holdings and we are considered entities under common control, GAAP requires that we record the assets acquired and liabilities assumed from Exterran Holdings in connection with the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition using Exterran Holdings’ historical cost basis in the assets and liabilities. The difference between the historical cost basis of the assets acquired and liabilities assumed and the purchase price is treated as either a capital contribution or distribution. As a result, we recorded capital distributions of $12.4 million and $28.2 million for the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, respectively, during the years ended December 31, 2013 and 2012, respectively.

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 March 2013 Contract Operations Acquisition and the March 2012 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, revenue 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

The unaudited pro forma financial information for the years ended December 31, 2014, 2013 and 2012 has been included to give effect to the additional assets acquired in the August 2014 MidCon Acquisition, the April 2014 MidCon Acquisition, the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition. The August 2014 MidCon Acquisition and the April 2014 MidCon Acquisition are presented in the unaudited pro forma financial information as though these transactions occurred as of January 1, 2013. The March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition are presented in the pro forma financial information as though these transactions occurred as of January 1, 2012. The unaudited pro forma financial information reflects the following transactions:

As related to the August 2014 MidCon Acquisition:

· our acquisition in August 2014 of natural gas compression assets and identifiable intangible assets from MidCon; and

· our borrowings under our revolving credit facility to pay $130.1 million to MidCon for the August 2014 MidCon Acquisition.

As related to the April 2014 MidCon Acquisition:

· our acquisition in April 2014 of natural gas compression assets and identifiable intangible assets from MidCon;

· our issuance of 6.2 million common units to the public and approximately 126,000 general partner units to our general partner;

· our issuance of $350.0 million aggregate principal amount of the 2014 Notes; and

· our use of proceeds from the issuance of common units, general partner units and the 2014 Notes to pay $352.9 million to MidCon for the April 2014 MidCon Acquisition and to pay down $157.5 million on our revolving credit facility.

As related to the March 2013 Contract Operations Acquisition:

· our acquisition in March 2013 of certain contract operations customer service agreements, compression equipment and identifiable intangible assets from Exterran Holdings; and

· our issuance of approximately 7.1 million common units to Exterran Holdings and approximately 145,000 general partner units to our general partner.

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As related to the March 2012 Contract Operations Acquisition:

· our acquisition in March 2012 of certain contract operations customer service agreements, compression equipment, a natural gas processing plant and identifiable intangible assets from Exterran Holdings;

· our assumption of $105.4 million of Exterran Holdings’ long-term debt; and

· our payment of $77.4 million in cash to Exterran Holdings.

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

The following table shows unaudited pro forma financial information for the years ended December 31, 2014, 2013 and 2012 (in thousands, except per unit amounts):

	Years Ended December 31,
	2014		2013		2012
Revenue	$	618,843	$	589,286	$	442,774
Net income	$	64,290	$	79,693	$	25,792
Basic earnings per common unit	$	0.91	$	1.27	$	0.42
Diluted earnings per common unit	$	0.91	$	1.27	$	0.42

Pro forma net income (loss) per common unit is determined by dividing the pro forma net income (loss) that would have been allocated to our common unitholders by the weighted average number of common units outstanding after the completion of the transactions included in the pro forma financial information. 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 (loss) proportionately being allocated to our general partner than to our common unitholders. The pro forma net income per limited partner unit calculations include pro forma incentive distributions to our general partner and a reduction of net income allocable to our limited partners of $0.9 million and $0.7 million for the years ended December 31, 2013 and 2012, respectively, which reflects the amount of additional incentive distributions that would have occurred during the period. There was no additional pro forma reduction of net income allocable to our limited partners, including the amount of additional incentive distributions to our general partner that would have occurred, for the year ended December 31, 2014.

3. Related Party Transactions

We are a party to an omnibus agreement with Exterran Holdings, our general partner and others (as amended and/or restated, the “Omnibus Agreement”), which includes, among other things:

· certain agreements not to compete between Exterran Holdings and its affiliates, on the one hand, and us and our affiliates, on the other hand;

· the terms under which we, Exterran Holdings, and our respective affiliates may transfer, exchange or lease compression equipment among one another;

· the terms under which we may purchase newly-fabricated contract operations equipment from Exterran Holdings;

· Exterran Holdings’ grant to us of a license to use certain intellectual property, including our logo; and

· Exterran Holdings’ and our obligations to indemnify each other for certain liabilities.

The Omnibus Agreement will terminate upon a change of control of Exterran GP LLC, our general partner or us, and certain provisions of the Omnibus Agreement will terminate upon a change of control of Exterran Holdings. Provisions in the Omnibus Agreement that provided caps on our obligation to reimburse Exterran Holdings for operating and selling, general and administrative (“SG&A”) expenses were in effect through December 31, 2014; however, effective January 1, 2015, these provisions of the Omnibus Agreement terminated.

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Non-competition

Exterran Holdings also has agreed that new customers for contract compression services are for our account unless the new customer is unwilling to contract with us or unwilling to do so under our form of compression services agreement. In that case, Exterran Holdings may provide compression services to the new customer. In the event that either we or Exterran Holdings enter into a contract to provide compression services to a new customer, either we or Exterran Holdings, as applicable, will receive the protection of the applicable non-competition arrangements described above in the same manner as if such new customer had been a compression services customer of either us or Exterran Holdings on the date of the Omnibus Agreement.

Indemnification for Environmental and Other Liabilities

Additionally, Exterran Holdings will indemnify us for losses attributable to title defects, retained assets and income taxes attributable to pre-closing operations. We will indemnify Exterran Holdings for all losses attributable to the post-closing operations of the assets contributed to us, to the extent not subject to Exterran Holdings’ indemnification obligations. For the years ended December 31, 2014 and 2013, there were no requests for indemnification by either party.

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Purchase of New Compression Equipment from Exterran Holdings

Pursuant to the Omnibus Agreement, we may purchase newly-fabricated compression equipment from Exterran Holdings or its affiliates at Exterran Holdings’ cost to fabricate such equipment plus a fixed margin, which may be modified with the approval of Exterran Holdings and the conflicts committee of our board of directors. During the years ended December 31, 2014, 2013 and 2012, we purchased $233.0 million, $118.4 million and $109.9 million, respectively, of newly-fabricated compression equipment from Exterran Holdings. Transactions between us and Exterran Holdings and its affiliates are transactions between entities under common control. Under GAAP, transfers of assets and liabilities between entities under common control are to be initially recorded on the books of the receiving entity at the carrying value of the transferor. Any difference between consideration given and the carrying value of the assets or liabilities is treated as a capital distribution or contribution. As a result, the newly-fabricated compression equipment purchased during the years ended December 31, 2014, 2013 and 2012 was recorded in our consolidated balance sheets as property, plant and equipment of $212.2 million, $106.6 million and $98.9 million, respectively, which represents the carrying value of the Exterran Holdings’ affiliates that sold it to us, and as a distribution of equity of $20.8 million, $11.8 million and $11.0 million, respectively, which represents the fixed margin we paid above the carrying value in accordance with the Omnibus Agreement. During the years ended December 31, 2014, 2013 and 2012, Exterran Holdings contributed to us $6.2 million, $21.7 million and $14.5 million, respectively, primarily related to the completion of overhauls on compression equipment that was exchanged with us or contributed to us and where overhauls were in progress on the date of exchange or contribution.

Transfer, Exchange or Lease of Compression Equipment with Exterran Holdings

During the year ended December 31, 2014, pursuant to the terms of the Omnibus Agreement, we transferred ownership of 443 compressor units, totaling approximately 224,600 horsepower with a net book value of approximately $93.2 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 463 compressor units, totaling approximately 165,800 horsepower with a net book value of approximately $81.2 million, to us. During the year ended December 31, 2013, pursuant to the terms of the Omnibus Agreement, we transferred ownership of 316 compressor units, totaling approximately 134,600 horsepower with a net book value of approximately $59.9 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 335 compressor units, totaling approximately 101,500 horsepower with a net book value of approximately $48.1 million, to us. During the year ended December 31, 2012, pursuant to the terms of the Omnibus Agreement, we transferred ownership of 538 compressor units, totaling approximately 229,800 horsepower with a net book value of approximately $96.2 million, to Exterran Holdings. In exchange, Exterran Holdings transferred ownership of 488 compressor units, totaling approximately 148,800 horsepower with a net book value of approximately $72.0 million, to us. During the years ended December 31, 2014, 2013 and 2012, we recorded capital distributions of approximately $12.0 million, $11.8 million and $24.2 million, respectively, related to the differences in net book value on the exchanged compression equipment. No customer contracts were included in the transfers. Under the terms of the Omnibus Agreement, such transfers must be of equal appraised value, as defined in the Omnibus Agreement, with any difference being settled in cash.

At December 31, 2014, we had equipment on lease to Exterran Holdings with an aggregate cost and accumulated depreciation of $0.2 million and $0.1 million, respectively. During the years ended December 31, 2014, 2013 and 2012, we had revenue of $0.3 million, $0.4 million and $0.8 million, respectively, from Exterran Holdings related to the lease of our compression equipment. During the years ended December 31, 2014, 2013 and 2012, we had cost of sales of $4.9 million, $5.8 million and $9.0 million, respectively, with Exterran Holdings related to the lease of Exterran Holdings’ compression equipment.

During the year ended December 31, 2013, we sold used compression equipment with a net book value of $5.0 million to Exterran Holdings for $7.3 million. Under GAAP, assets sales between entities under common control are to be initially recorded on the books of the receiving entity at the carrying value of the transferor. Any difference between consideration received and the carrying value of the assets sold is treated as a capital distribution or contribution. During the year ended December 31, 2013, we recorded a capital contribution of $2.3 million related to the difference between the sales price and the carrying value of the used compression equipment sold. During the years ended December 31, 2014 and 2012, we did not sell any used compression equipment to Exterran Holdings.

Reimbursement of Operating and SG&A Expense

Exterran Holdings provides all operational staff, corporate staff and support services reasonably necessary to run our business. These services may include, without limitation, operations, marketing, maintenance and repair, periodic overhauls of compression equipment, inventory management, legal, accounting, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes, facilities management, investor relations, enterprise resource planning system, training, executive, sales, business development and engineering.

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Exterran Holdings charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Exterran Holdings’ other operations are allocated among Exterran Holdings’ other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, revenue and horsepower. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable. Included in our SG&A expense during the years ended December 31, 2014, 2013 and 2012 were $72.0 million, $55.0 million and $43.2 million, respectively, of indirect costs incurred by Exterran Holdings.

Under the Omnibus Agreement, our obligation to reimburse Exterran Holdings for any cost of sales that it incurred in the operation of our business and any cash SG&A expense allocated to us was capped (after taking into account any such costs we incurred and paid directly) through December 31, 2014. Cost of sales was capped at $21.75 per operating horsepower per quarter through December 31, 2013 and $22.50 per operating horsepower per quarter from January 1, 2014 through December 31, 2014. SG&A costs were capped at $9.0 million per quarter from June 10, 2011 through March 7, 2012, $10.5 million per quarter from March 8, 2012 through March 31, 2013, $12.5 million per quarter from April 1, 2013 through December 31, 2013, $15.0 million per quarter from January 1, 2014 through April 9, 2014 and $17.7 million per quarter from April 10, 2014 through December 31, 2014. The cost caps provided in the Omnibus Agreement were in effect through December 31, 2014; however, effective January 1, 2015, these provisions of the Omnibus Agreement terminated.

Our cost of sales exceeded the cap provided in the Omnibus Agreement by $2.5 million, $12.4 million and $16.6 million during the years ended December 31, 2014, 2013 and 2012, respectively. Our SG&A expenses exceeded the cap provided in the Omnibus Agreement by $11.4 million, $12.8 million and $8.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. The excess amounts over the caps are included in the consolidated statements of operations as cost of sales or SG&A expense. The cash received for the amounts over the caps has been accounted for as a capital contribution in our consolidated balance sheets and statements of cash flows.

4. Goodwill

We review the carrying value of our goodwill in the fourth quarter of every year, or whenever events indicate impairment may have occurred, to determine if the estimated recoverable value of our reporting unit exceeds its net carrying value (including the applicable goodwill).

A qualitative assessment is performed to determine whether it is more likely than not that the fair value of the reporting unit is impaired. If it is more likely than not, we perform a goodwill impairment test. We determine the fair value of our reporting unit using both the expected present value of future cash flows and a market approach. Each approach is weighted 50% in determining our calculated fair value. The present value of future cash flows is estimated using our most recent forecast and the weighted average cost of capital. The market approach uses a market multiple on the reporting unit’s earnings before interest expense, provision for income taxes and depreciation and amortization expense. Significant estimates for our reporting unit included in our impairment analysis are our cash flow forecasts, our estimate of the market’s weighted average cost of capital and market multiples. Changes in forecasts, cost of capital and market multiples could affect the estimated fair value of our reporting unit and result in a goodwill impairment charge in a future period.

Management must apply judgment in determining the estimated fair value of our reporting unit for purposes of performing a goodwill impairment test. Management uses all available information to make this fair value determination, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the assets.

For the years ended December 31, 2014, 2013 and 2012, we determined that there was no impairment of goodwill.

For the years ended December 31, 2013 and 2012, there were no additions or acquisitions that resulted in the recognition of goodwill. The following table presents the change in the net carrying amount of goodwill for the year ended December 31, 2014 (in thousands):

	December 31, 2014
Goodwill as of January 1, 2014(1)	$	124,019
Goodwill acquired during year	3,738
Goodwill as of December 31, 2014(1)	$	127,757

(1) We do not have any accumulated impairment losses.

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5. Intangible and Other Assets

Intangible and other assets consisted of the following (in thousands):

	December 31, 2014					December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Deferred financing costs	$	26,970	$	(8,982	)	$	19,984	$	(6,009	)
Customer related (12-25 year life)	54,505		(12,121		)	28,214		(8,872		)
Contract based (5-9 year life)	65,766		(7,178		)	1,210		(1,194		)
Interest rate swaps	712		—			322		—
Long-term tax receivable	1,800		—			—		—
Intangible and other assets	$	149,753	$	(28,281	)	$	49,730	$	(16,075	)

Amortization of deferred financing costs totaled $3.0 million, $3.0 million and $1.5 million in 2014, 2013 and 2012, respectively, and is recorded to interest expense in our consolidated statements of operations. Amortization of intangible assets totaled $9.2 million, $3.0 million and $2.8 million during the years ended December 31, 2014, 2013 and 2012, respectively.

Estimated future intangible amortization expense is as follows (in thousands):

2015	$	14,448
2016	14,203
2017	13,980
2018	13,782
2019	11,352
Thereafter	33,207
Total	$	100,972

6. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	December 31,
	2014		2013
Revolving credit facility due May 2018	$	460,000	$	263,000
Term loan facility due May 2018	150,000		150,000
6% senior notes due April 2021 (presented net of the unamortized discount of $4.5 million and $5.0 million, respectively)	345,528		344,955
6% senior notes due October 2022 (presented net of the unamortized discount of $5.2 million as of December 31, 2014)	344,767		—
Long-term debt	$	1,300,295	$	757,955

Revolving Credit Facility and Term Loan

In November 2010, we entered into an amendment and restatement of our senior secured credit agreement (the “Credit Agreement”) to provide for a five-year $550.0 million senior secured credit facility, consisting of a $400.0 million revolving credit facility and a $150.0 million term loan facility. The revolving borrowing capacity under this facility was increased to $550.0 million in March 2011 and to $750.0 million in March 2012. In March 2013, we amended our Credit Agreement to reduce the borrowing capacity under our revolving credit facility to $650.0 million and extend the maturity date of the term loan and revolving credit facilities to May 2018. As a result of the March 2013 amendment, we expensed $0.7 million of unamortized deferred financing costs, which is reflected in interest expense in our consolidated statements of operations. During the years ended December 31, 2013 and 2012, we incurred transaction costs of approximately $4.3 million and $0.5 million, respectively, related to the amendments to our Credit Agreement. These costs were included in intangible and other assets, net, and are being amortized over the terms of the facilities. As of December 31, 2014, we had undrawn and available capacity of $190.0 million under our revolving credit facility.

The revolving credit and term loan facilities bear interest at a base rate or LIBOR, at our option, plus an applicable margin. Depending on our leverage ratio, the applicable margin for the revolving and term loans varies (i) in the case of LIBOR loans, from 2.0% to 3.0% and (ii) in the case of base rate loans, from 1.0% to 2.0%. The base rate is the highest of the prime rate announced by Wells Fargo Bank, National Association, the Federal Funds Effective Rate plus 0.5% and one-month LIBOR plus 1.0%. At December 31, 2014, all amounts outstanding under these facilities were LIBOR loans and the applicable margin was 2.5%. The weighted average annual interest rate on the outstanding balance of these facilities at December 31, 2014 and 2013, excluding the effect of interest rate swaps, was 2.7% and 2.2%, respectively.

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The Credit Agreement contains various covenants with which we must comply, including, but not limited to, restrictions on the use of proceeds from borrowings and limitations on our ability to incur additional indebtedness, engage in transactions with affiliates, merge or consolidate, sell assets, make certain investments and acquisitions, make loans, grant liens, repurchase equity and pay dividends and distributions. The Credit Agreement also contains various covenants requiring mandatory prepayments from the net cash proceeds of certain asset transfers. We must maintain various consolidated financial ratios, including a ratio of EBITDA (as defined in the Credit Agreement) to Total Interest Expense (as defined in the Credit Agreement) of not less than 2.75 to 1.0, a ratio of Total Debt (as defined in the Credit Agreement) to EBITDA of not greater than 5.25 to 1.0 (subject to a temporary increase to 5.5 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the acquisition closes) and a ratio of Senior Secured Debt (as defined in the Credit Agreement) to EBITDA of not greater than 4.0 to 1.0. Because the August 2014 MidCon Acquisition closed during the third quarter of 2014, our Total Debt to EBITDA ratio threshold was temporarily increased to 5.5 to 1.0 during the quarter ended September 30, 2014 and will continue at that level through March 31, 2015, reverting to 5.25 to 1.0 for the quarter ending June 30, 2015 and subsequent quarters. A material adverse effect on our assets, liabilities, financial condition, business or operations that, taken as a whole, impacts our ability to perform our obligations under the Credit Agreement, could lead to a default under that agreement. A default under one of our debt agreements would trigger cross-default provisions under our other debt agreements, which would accelerate our obligation to repay our indebtedness under those agreements. As of December 31, 2014, we were in compliance with all financial covenants under the Credit Agreement.

6% Senior Notes Due April 2021

In March 2013, we issued $350.0 million aggregate principal amount of 6% senior notes due April 2021 (the “2013 Notes”). We used the net proceeds of $336.9 million, after original issuance discount and issuance costs, to repay borrowings outstanding under our revolving credit facility. We incurred $7.8 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the 2013 Notes. The 2013 Notes were issued at an original issuance discount of $5.5 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. During the years ended December 31, 2014 and 2013, we recognized $0.5 million and $0.4 million, respectively, of interest expense related to the amortization of the debt discount. In January 2014, holders of the 2013 Notes exchanged their 2013 Notes for registered notes with the same terms.

6% Senior Notes Due October 2022

In April 2014, we issued $350.0 million aggregate principal amount of the 2014 Notes. We received net proceeds of $337.4 million, after original issuance discount and issuance costs, from this offering, which we used to fund a portion of the April 2014 MidCon Acquisition and repay borrowings under our revolving credit facility. We incurred $7.0 million in transaction costs related to this issuance. These costs were included in intangible and other assets, net, and are being amortized to interest expense over the term of the 2014 Notes. The 2014 Notes were issued at an original issuance discount of $5.7 million, which is being amortized using the effective interest method at an interest rate of 6.25% over their term. During the year ended December 31, 2014, we recognized $0.5 million of interest expense related to the amortization of the debt discount. In February 2015, holders of the 2014 Notes exchanged their 2014 Notes for registered notes with the same terms.

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The 2013 Notes and the 2014 Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the 2013 Notes and the 2014 Notes) and certain of our future subsidiaries. The 2013 Notes and the 2014 Notes and the guarantees, respectively, are our and the guarantors’ general unsecured senior obligations, rank equally in right of payment with all of our and the guarantors’ other senior obligations, and are effectively subordinated to all of our and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such indebtedness. In addition, the 2013 Notes and the 2014 Notes and guarantees are effectively subordinated to all existing and future indebtedness and other liabilities of any future non-guarantor subsidiaries. All of our subsidiaries are 100% owned, directly or indirectly, by us and guarantees by our subsidiaries are full and unconditional (subject to customary release provisions) and constitute joint and several obligations. We have no assets or operations independent of our subsidiaries, and there are no significant restrictions upon our subsidiaries’ ability to distribute funds to us. EXLP Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the 2013 Notes and the 2014 Notes. Because we have no independent operations, the guarantees are full and unconditional (subject to customary release provisions) and constitute joint and several obligations of our subsidiaries other than EXLP Finance Corp., and as a result we have not included consolidated financial information of our subsidiaries.

The 2013 Notes and the 2014 Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than EXLP Finance Corp., which is a co-issuer of the 2013 Notes and the 2014 Notes) and certain of our future subsidiaries. These guarantees are full and unconditional subject to customary release provisions including:

(1) in connection with any sale or other disposition of all or substantially all of a subsidiary guarantor’s assets (including by way of merger or consolidation) to a third party or unrestricted subsidiary, if the transaction does not violate the asset sale provisions of the indentures;

(2) in connection with any sale or other disposition of the equity interests of a subsidiary guarantor to a third party or unrestricted subsidiary, if the transaction does not violate the asset sale provisions of the indentures and the subsidiary guarantor is no longer a restricted subsidiary of the Partnership;

(3) if the Partnership designates any subsidiary guarantor as an unrestricted subsidiary in accordance with the terms of the indentures;

(4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the indentures;

(5) upon the liquidation or dissolution of a subsidiary guarantor, provided no default has occurred that is continuing;

(6) at such time as a subsidiary guarantor no longer guarantees any other indebtedness of the issuers or any guarantor; or

(7) upon a subsidiary guarantor consolidating with, merging into or transferring all of its assets to the Partnership or another guarantor, and as a result of, or in connection with, such transaction a guarantor subsidiary dissolving or otherwise ceasing to exist.

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Long-Term Debt Maturity Schedule

Contractual maturities of long-term debt (excluding interest to be accrued thereon) at December 31, 2014 are as follows (in thousands):

	December 31, 2014
2015	$	—
2016	—
2017	—
2018	610,000
2019	—
Thereafter	700,000		(1)
Total debt	$	1,310,000	(1)

(1) This amount represents the full face value of our 2013 Notes and 2014 Notes and has not been reduced by the aggregated unamortized discount of $9.7 million as of December 31, 2014.

7. Partners’ Equity, Allocations and Cash Distributions

Units Outstanding

In April 2014, we sold, pursuant to a public underwritten offering, 6,210,000 common units, including 810,000 common units pursuant to an over-allotment option. We received net proceeds of $169.5 million, after deducting underwriting discounts, commissions and offering expenses, which we used to fund a portion of the April 2014 MidCon Acquisition. In connection with this sale and as permitted under our partnership agreement, we issued and sold approximately 126,000 general partner units to our general partner so it could maintain its approximate 2.0% general partner interest in us. We received net proceeds of $3.6 million from the general partner contribution which we used to repay borrowings outstanding under our revolving credit facility.

In March 2013, we completed the March 2013 Contract Operations Acquisition from Exterran Holdings. In connection with this acquisition, we issued approximately 7.1 million common units to Exterran Holdings and approximately 145,000 general partner units to our general partner.

In March 2012, we sold, pursuant to a public underwritten offering, 4,965,000 common units, including 465,000 common units pursuant to an over-allotment option. The net proceeds from this offering of $114.5 million were used to repay borrowings outstanding under our revolving credit facility. In connection with this sale and as permitted under our partnership agreement, we issued and sold, in exchange for $2.4 million, approximately 101,000 general partner units to our general partner so it could maintain its approximate 2.0% general partner interest in us.

Partners’ capital at December 31, 2014 consisted of 55,662,357 common units outstanding representing a 98% ownership interest in us and 1,129,221 general partner units representing a 2% general partner interest in us.

As of December 31, 2014, Exterran Holdings owned 19,618,918 common units and 1,129,221 general partner units, collectively representing a 37% interest in us.

Common Units

The common units have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $0.35 per quarter, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters.

The common units have limited voting rights as set forth in our partnership agreement.

General Partner Units

The general partner units have the same rights to receive distributions of available cash from operating surplus as the common units for each quarter. The general partner units also have the right to receive incentive distributions of cash in excess of the minimum quarterly distributions.

The general partner units have the management rights set forth in our partnership agreement.

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Cash Distributions

We make distributions of available cash (as defined in our partnership agreement) from operating surplus in the following manner:

· second, 98% to common unitholders, pro rata, and 2% to our general partner, until each unit has received a distribution of $0.4025;

· third, 85% to all common unitholders, pro rata, and 15% to our general partner, until each unit has received a distribution of $0.4375;

· fourth, 75% to all common unitholders, pro rata, and 25% to our general partner, until each unit has received a total of $0.5250; and

· thereafter, 50% to all common unitholders, pro rata, and 50% to our general partner.

The following table summarizes our distributions per unit for 2012, 2013 and 2014:

Period Covering	Payment Date	Distribution per Limited Partner Unit		Total Distribution (1)
1/1/2012 — 3/31/2012	May 15, 2012	$	0.4975	$	22.5 million
4/1/2012 — 6/30/2012	August 14, 2012	0.5025		22.8 million
7/1/2012 — 9/30/2012	November 14, 2012	0.5075		23.0 million
10/1/2012 — 12/31/2012	February 14, 2013	0.5125		23.3 million
1/1/2013 — 3/31/2013	May 15, 2013	0.5175		27.6 million
4/1/2013 — 6/30/2013	August 14, 2013	0.5225		27.9 million
7/1/2013 — 9/30/2013	November 14, 2013	0.5275		28.3 million
10/1/2013 — 12/31/2013	February 14, 2014	0.5325		28.8 million
1/1/2014 — 3/31/2014	May 15, 2014	0.5375		33.1 million
4/1/2014 — 6/30/2014	August 14, 2014	0.5425		33.6 million
7/1/2014 — 9/30/2014	November 14, 2014	0.5525		34.8 million
10/1/2014 — 12/31/2014	February 13, 2015	0.5575		35.3 million

(1) Includes distributions to our general partner on its incentive distribution rights.

8. Unit-Based Compensation

Long-Term Incentive Plan

Our board of directors adopted the Exterran Partners, L.P. Long-Term Incentive Plan (the “Plan”) in October 2006 for employees, directors and consultants of us, Exterran Holdings and our respective affiliates. A maximum of 1,035,378 common units, common unit options, restricted units and phantom units are available under the Plan. The Plan is administered by our board of directors or a committee thereof (the “Plan Administrator”).

Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of a phantom unit or, at the discretion of the Plan Administrator, cash equal to the fair market value of a common unit. Phantom units granted under the Plan may include nonforfeitable tandem distribution equivalent rights to receive cash distributions on unvested phantom units in the quarter in which distributions are paid on common units.

During the years ended December 31, 2014, 2013 and 2012, we recognized $1.4 million, $1.2 million and $0.8 million of unit-based compensation expense, respectively, which excludes unit-based compensation expense that was charged back to Exterran Holdings of $1.2 million, $0.8 million and $0.8 million, respectively.

We have granted phantom units to officers and directors of Exterran GP LLC and to employees of Exterran Holdings and its subsidiaries. Because we grant phantom units to non-employees, we are required to remeasure the fair value of these phantom units each period and record a cumulative adjustment of the expense previously recognized. During the years ended December 31, 2014 and 2012, we recorded a reduction to SG&A expense of $0.2 million and $0.1 million, respectively, related to the fair value remeasurement of phantom units. We recorded $0.3 million in SG&A expense related to fair value remeasurement of the phantom units during the year ended December 31, 2013.

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Phantom Units

During the year ended December 31, 2014, we granted 54,896 phantom units to officers and directors of Exterran GP LLC and certain employees of Exterran Holdings and its subsidiaries, which generally vest one-third per year on each of the first three anniversaries of the grant date.

The following table presents phantom unit activity during the year ended December 31, 2014:

	Phantom Units		Weighted Average Grant-Date Fair Value per Unit
Phantom units outstanding, January 1, 2014	85,361		$	23.72
Granted	54,896		30.50
Vested	(48,494	)	24.47
Phantom units outstanding, December 31, 2014	91,763		27.38

As of December 31, 2014, we expect $1.2 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 1.8 years.

9. Accounting for Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

Interest Rate Risk

At December 31, 2014, we were a party to interest rate swaps with a total notional value of $400.0 million, pursuant to which we make fixed payments and receive floating payments. We entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. Our interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2019. As of December 31, 2014, the weighted average effective fixed interest rate on our interest rate swaps was 1.6%. We have designated these interest rate swaps as cash flow hedging instruments so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. As the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. There was no ineffectiveness related to interest rate swaps during the years ended December 31, 2014, 2013 and 2012. We estimate that $4.8 million of deferred losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at December 31, 2014, will be reclassified into earnings as interest expense at then-current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our consolidated statements of cash flows.

In May 2013, we amended our interest rate swap agreements with a notional value of $250.0 million to adjust the fixed interest rates and extend the maturity dates to May 2018 consistent with the maturity date of our Credit Agreement. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, we designated the new hedge relationships under the amended terms and de-designated the original hedge relationships as of the termination date. The original hedge relationships qualified for hedge accounting and were included at their fair value in our balance sheet as a liability and accumulated other comprehensive income (loss). The fair value of the interest rate swap agreements immediately prior to the execution of the amendments was a liability of $8.8 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the swaps.

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The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

	December 31, 2014
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	712
Interest rate hedges	Current portion of interest rate swaps	(4,958		)
Interest rate hedges	Other long-term liabilities	(150		)
Total derivatives		$	(4,396	)

	December 31, 2013
	Balance Sheet Location	Fair Value Asset (Liability)
Derivatives designated as hedging instruments:
Interest rate hedges	Intangible and other assets, net	$	322
Interest rate hedges	Current portion of interest rate swaps	(3,374		)
Total derivatives		$	(3,052	)

	Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives			Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate hedges
Year Ended December 31, 2014	$	(5,879	)	Interest expense	$	(4,794	)
Year Ended December 31, 2013	$	3,057		Interest expense	$	(4,684	)
Year Ended December 31, 2012	$	(5,542	)	Interest expense	$	(4,761	)

The counterparties to our derivative agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. We have no specific collateral posted for our derivative instruments. The counterparties to our interest rate swaps are also lenders under our senior secured credit facility and, in that capacity, share proportionally in the collateral pledged under the related facility.

10. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories:

· Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

· Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers.

· Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information.

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The following table presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):

	December 31, 2014							December 31, 2013
	(Level 1)		(Level 2)			(Level 3)		(Level 1)		(Level 2)			(Level 3)
Interest rate swaps asset	$	—	$	712		$	—	$	—	$	322		$	—
Interest rate swaps liability	—		(5,108		)	—		—		(3,374		)	—

On a quarterly basis, our interest rate swaps are recorded at fair value utilizing a combination of the market approach and income approach to estimate fair value based on forward LIBOR curves.

The following table presents our assets and liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2014 and 2013, with pricing levels as of the date of valuation (in thousands):

	Year Ended December 31, 2014						Year Ended December 31, 2013
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
Impaired long-lived assets	$	—	$	—	$	982	$	—	$	—	$	1,459

Our estimate of the impaired long-lived assets’ fair value was primarily based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use. We discounted the expected proceeds, net of selling and other carrying costs, using a weighted average disposal period of four years and a weighted average discount rate of 9%.

11. Long-Lived Asset Impairment

During the year ended December 31, 2014, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 110 idle compressor units, representing approximately 30,000 horsepower, previously used to provide services. As a result, we performed an impairment review and recorded a $10.1 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on either the expected net sale proceeds compared to other fleet units we recently sold and/or a review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

During the year ended December 31, 2014, we evaluated other long-lived assets for impairment and recorded long-lived asset impairments of $0.4 million on these assets.

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12. Restructuring Charges

In January 2014, Exterran Holdings announced a plan to centralize its make-ready operations to improve the cost and efficiency of its shops and further enhance the competitiveness of our and Exterran Holdings’ combined U.S. compressor fleet. As part of this plan, Exterran Holdings examined both recent and anticipated changes in the U.S. market, including the throughput demand of its shops and the addition of new equipment to our and Exterran Holdings’ combined U.S. compressor fleet. To better align its costs and capabilities with the current market, Exterran Holdings has determined to close several of its make-ready shops. The centralization of its make-ready operations was completed in the second quarter of 2014.

During 2014, we incurred $0.7 million of restructuring charges comprised of an allocation of expenses, including termination benefits associated with the centralization of Exterran Holdings’ make-ready operations, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement based on revenue and horsepower. These charges are reflected as restructuring charges in our consolidated statements of operations.

13. Income Taxes

As a partnership, we are generally not subject to income taxes at the entity level because our income is included in the tax returns of our partners. However, certain states impose an entity-level income tax on partnerships.

The provision for state income taxes consisted of the following (in thousands):

	Years Ended December 31,
	2014			2013		2012
Current tax provision:
State	$	(89	)	$	1,150	$	60
Total current	(89		)	1,150		60
Deferred tax provision:
State	1,402			356		885
Total deferred	1,402			356		885
Provision for income taxes	$	1,313		$	1,506	$	945

Deferred income tax balances are the direct effect of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The tax effects of temporary differences that give rise to deferred tax liabilities are as follows (in thousands):

	Years Ended December 31,
	2014		2013
Deferred tax liabilities:
Property, plant and equipment	$	1,527	$	1,132
Total deferred tax liabilities	1,527		1,132
Net deferred tax liabilities	$	1,527	$	1,132

On September 13, 2013, the U.S. Treasury Department and the Internal Revenue Service issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the “tangible property regulations”). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and although they could have been adopted in earlier years, we did not do so. The tangible property regulations require us to make tax accounting method changes or file election statements with our U.S. federal tax return for our tax year beginning on January 1, 2014; however, these new requirements do not have a material impact on our consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is shown below (in thousands):

	Years Ended December 31,
	2014		2013		2012
Beginning balance	$	643	$	543	$	—
Additions based on tax positions related to current year	490		100		96
Additions based on tax positions related to prior years	517		—		447
Ending balance	$	1,650	$	643	$	543

We had $1.7 million, $0.6 million and $0.5 million of unrecognized tax benefits at December 31, 2014, 2013 and 2012, respectively, which if recognized, would affect the effective tax rate. We have not recorded any interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions. To the extent interest and penalties are assessed with respect to uncertain tax positions, such amounts will be reflected in provision for income taxes.

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We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and in numerous state jurisdictions. State income tax returns are generally subject to examination for a period of three to five years after filing the returns. However, the state impact of any U.S. federal audit adjustments and amendments remain subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2014, we did not have any federal or state audits underway that would have a material impact on our financial position or results of operations.

The following table reconciles net income, as reported, to our U.S. federal partnership taxable income (in thousands):

	Years Ended December 31,
	2014			2013			2012
Net income, as reported	$	61,719		$	64,023		$	10,509
Book/tax depreciation and amortization adjustment	18,644			15,979			44,329
Book/tax adjustment for unit-based compensation expense	941			1,073			797
Book/tax adjustment for interest rate swap terminations	2,025			(4,983		)	898
Other temporary differences	(9,435		)	(4,147		)	(4,104		)
Other permanent differences	1,413			5			9
U.S. federal partnership taxable income	$	75,307		$	71,950		$	52,438

The following allocations and adjustments (which are not reflected in the reconciliation because they do not affect our total taxable income) may affect the amount of taxable income or loss allocated to a unitholder:

· Internal Revenue Code (“IRC”) Section 704(c) Allocations: We make special allocations under IRC Section 704(c) to eliminate the disparity between a unitholder’s U.S. GAAP capital account (credited with the fair market value of contributed property or the investment) and tax capital account (credited with the investor’s tax basis). The effect of such allocations will be to either increase or decrease a unitholder’s share of depreciation, amortization and/or gain or loss on the sale of assets.

· IRC Section 743(b) Basis Adjustments: Because we have made the election provided by IRC Section 754, we adjust each unitholder’s basis in our assets (inside basis) pursuant to IRC Section 743(b) to reflect their purchase price (outside basis). The Section 743(b) adjustment belongs to a particular unitholder and not to other unitholders. Basis adjustments such as this give rise to income and deductions by reference to the portion of each transferee unitholder’s purchase price attributable to each of our assets. The effect of such adjustments will be to either increase or decrease a unitholder’s share of depreciation, amortization and/or gain or loss on sale of assets.

· Gross Income and Loss Allocations: To maintain the uniformity of the economic and tax characteristics of our units, we will sometimes make a special allocation of income or loss to a unitholder. Any such allocations of income or loss will decrease or increase, respectively, our distributive taxable income.

As of December 31, 2014 and 2013, we had recorded approximately $4.1 million and $6.5 million, respectively, of accruals for taxes, including accruals for ad valorem taxes, sales tax and use tax, included in the accrued liabilities line item on our consolidated balance sheets. The net tax basis in our assets and liabilities is less than the reported amounts on the financial statements by approximately $381.6 million as of December 31, 2014.

14. Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update to the authoritative guidance related to revenue recognition. The update outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update also requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The update will be effective for reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the potential impact of the update on our financial statements.

In April 2014, the FASB issued an update to the authoritative guidance related to reporting requirements for discontinued operations. The update requires a disposal of a component or a group of components of an entity to meet a higher threshold in order to be reported as a discontinued operation in an entity’s financial statements. Discontinued operations reporting will be limited to disposal transactions that represent a strategic shift that has or will have a major effect on an entity’s operations and financial results when the component meets the criteria to be classified as held-for-sale or is disposed. The amended guidance also expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation. The amendments in the update are effective prospectively for reporting periods beginning on or after December 15, 2014. We elected early application as permitted by the guidance. The adoption of this update did not have a material impact on our consolidated financial statements.

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15. Commitments and Contingencies

During 2013 and 2014, we were party to three Heavy Equipment Statutes cases tried and completed in Texas state district courts. In each case the court held that the revised Heavy Equipment Statutes apply to natural gas compressors. However, in each case the court further held that the revised Heavy Equipment Statutes are unconstitutional as applied to natural gas compressors, which is favorable to the county appraisal districts. We continue to believe that the revised statutes are constitutional as applied to natural gas compressors and have appealed the courts’ decisions in our cases. All three of these cases have been appealed. For two of these appeals, oral arguments were made before the Eighth Court of Appeals in El Paso, Texas on October 9, 2014. No decision has been issued. The third appeal was argued before the Fourteenth Court of Appeals in Houston, Texas on February 12, 2015. No decision has been issued. In a fourth state district court case, both parties’ respective motions for summary judgment are pending and we have yet to receive the court’s decision. In a fifth state district court case, the court denied both parties’ respective motions for summary judgment concerning the 2012 tax year, consolidated the 2012 tax year case with a 2013 tax year case, and set a trial date for the consolidated case of August 10-11, 2015.

In the ordinary course of business, we are also involved in various other pending or threatened legal actions. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from any of these other actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders. However, because of the inherent uncertainty of litigation and arbitration proceedings, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our consolidated financial position, results of operations or cash flows, including our ability to make cash distributions to our unitholders.

We are subject to a number of state and local taxes that are not income-based. As many of these taxes are subject to audit by the taxing authorities, it is possible that an audit could result in additional taxes due. We accrue for such additional taxes when we determine that it is probable that we have incurred a liability and we can reasonably estimate the amount of the liability. As of December 31, 2014 and 2013, we had accrued $0.1 million and $4.7 million, respectively, for the outcomes of non-income based tax audits. We do not expect that the ultimate resolutions of these audits will result in a material variance from the amounts accrued. We do not accrue for unasserted claims for tax audits unless we believe the assertion of a claim is probable, it is probable that it will be determined that the claim is owed and we can reasonably estimate the claim or range of the claim. We do not have any unasserted claims from non-income based tax audits that we have determined are probable of assertion. We also believe the likelihood is remote that the impact of potential unasserted claims from non-income based tax audits could be material to our consolidated financial position, but it is possible that the resolution of future audits could be material to our results of operations or cash flows for the period in which the resolution occurs.

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16. Selected Quarterly Financial Data (Unaudited)

In management’s opinion, the summarized quarterly financial data below (in thousands, except per unit amounts) contains all appropriate adjustments, all of which are normally recurring adjustments, considered necessary to present fairly our financial position and results of operations for the respective periods.

	March 31, 2014		June 30, 2014(1)		September 30 2014(2)		December 31, 2014
Revenue	$	121,046	$	145,694	$	153,163	$	161,133
Gross profit(5)	38,131		54,119		56,711		62,257
Net income	6,939		17,752		18,103		18,925
Income per common unit — basic	0.09		0.26		0.26		0.27
Income per common unit — diluted	0.09		0.26		0.26		0.27

	March 31, 2013(3)		June 30, 2013(4)		September 30 2013		December 31, 2013
Revenue	$	106,062	$	125,453	$	115,808	$	118,870
Gross profit(5)	35,422		47,458		37,157		38,015
Net income	14,733		27,896		10,035		11,359
Income per common unit — basic	0.31		0.52		0.16		0.19
Income per common unit — diluted	0.31		0.52		0.16		0.19

(1) During the second quarter of 2014, we completed the April 2014 MidCon Acquisition (see Note 2).

(2) During the third quarter of 2014, we completed the August 2014 MidCon Acquisition (see Note 2).

(3) During the first quarter of 2013, we completed the March 2013 Contract Operations Acquisition from Exterran Holdings (see Note 2).

(4) During the second quarter of 2013, we recognized $6.5 million of revenue with no incremental cost and $6.8 million of gain on sale of property, plant and equipment due to the termination of contracts resulting from the exercise of purchase options by our customer on two natural gas processing plants.

(5) Gross profit is defined as revenue less cost of sales, direct depreciation and amortization expense and long-lived asset impairment charges.

17. Subsequent Event

On February 4, 2015, we executed an amendment to our Credit Agreement, which among other things, increases the borrowing capacity under the revolving credit facility by $250.0 million to $900.0 million. The Credit Agreement, which matures in May 2018, also includes a $150.0 million term loan facility.

On February 23, 2015, we entered into a Fifth Amendment to Third Amended and Restated Omnibus Agreement (the “Omnibus Amendment”) with Exterran Holdings, Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P. and EXLP Operating LLC. The Omnibus Amendment amends the Omnibus Agreement to, among other things, extend the terms of certain non-competition and equipment transfer provisions such that they will now terminate on December 31, 2015.

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EXTERRAN PARTNERS, L.P.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Description	Balance at Beginning of Period		Charged to Costs and Expenses			Deductions(1)			Balance at End of Period
Allowance for doubtful accounts deducted from accounts receivable in the balance sheet:
December 31, 2014	$	363	$	1,055		$	(165	)	$	1,253
December 31, 2013	1,135		(25		)	(747		)	363
December 31, 2012	985		494			(344		)	1,135

(1) Uncollectible accounts written off.

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