10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED March 31, 2018

OR

oTRANSITION 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

Archrock 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.)

9807 Katy Freeway, Suite 100
Houston, Texas	77024
(Address of principal executive offices)	(Zip Code)

(281) 836-8000

(Registrant’s telephone number, including area code)

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o	(Do not check if a smaller reporting company)
		Smaller reporting company o
		Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

At April 30, 2018, the registrant’s common equity consisted of 70,231,036common units, all of which were held indirectly by Archrock, Inc.

TABLE OF CONTENTS

	Page
GLOSSARY	3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	5
Condensed Consolidated Balance Sheets	5
Condensed Consolidated Statements of Operations	6
Condensed Consolidated Statements of Comprehensive Income	7
Condensed Consolidated Statements of Partners’ Capital	8
Condensed Consolidated Statements of Cash Flows	9
Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 2. Unregistered Sales of Equity Securities	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	38
SIGNATURES	40

GLOSSARY

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

2006 LTIP	The Archrock Partners, L.P. Long Term Incentive Plan, adopted in October 2006
2017 Form 10-K	Archrock Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2017
2017 LTIP	The Archrock Partners, L.P. Long Term Incentive Plan, adopted in April 2017
51st District Court	51st Judicial District Court of Irion County, Texas
Amendment No. 1	Amendment No. 1 to Credit Agreement, dated February 23, 2018, which amended that certain Credit Agreement, dated as of March 30, 2017, which governs the Credit Facility
Archrock	Archrock, Inc., individually and together with its wholly-owned subsidiaries
Archrock GP	Archrock GP LLC, the general partner of the Partnership’s General Partner and the conductor of the Partnership’s business and operations
ASU 2016-02	Accounting Standards Update No. 2016-02 Leases (Topic 842)
ASU 2016-13	Accounting Standards Update No. 2016-13 Financial Instruments - Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments
ASU 2016-15	Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
ASU 2017-12	Accounting Standards Update No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
Bcf	Billion cubic feet
Credit Facility	$1.1 billion asset-based revolving credit facility, as amended by Amendment No. 1
EBITDA	Earnings before interest, taxes, depreciation and amortization
EES Leasing	Archrock Services Leasing LLC, formerly known as EES Leasing LLC
EIA	U.S. Energy Information Administration
Exchange Act	Securities Exchange Act of 1934, as amended
EXLP Leasing	Archrock Partners Leasing LLC, formerly known as EXLP Leasing LLC
FASB	Financial Accounting Standards Board
Financial Statements	The Partnership’s Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q
Former Credit Facility	$825.0 million revolving credit facility and $150.0 million term loan, terminated in March 2017
GAAP	Accounting principles generally accepted in the U.S.
General Partner	Archrock General Partner, L.P., the Partnership’s general partner, and an indirect, wholly-owned subsidiary of Archrock
Heavy Equipment Statutes	Texas Tax Code §§ 23.1241, 23.1242
Merger	The transaction completed on April 26, 2018 pursuant to the Merger Agreement in which Archrock acquired all of the Partnership’s outstanding common units not already owned by Archrock
Merger Agreement	Agreement and Plan of Merger, dated as of January 1, 2018, among Archrock, the Partnership, the General Partner and Archrock GP, which was amended by Amendment No. 1 to Agreement and Plan of Merger on January 11, 2018, and which was completed and effective on April 26, 2018
Notes	$350.0 million of 6% senior notes due April 2021 and $350 million of 6% senior notes due October 2022
Omnibus Agreement	The Partnership’s omnibus agreement with Archrock, the General Partner and others, as amended and/or restated
Partnership, we, our, us	Archrock Partners, L.P., together with its subsidiaries
Partnership Agreement	First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), as amended, dated as of April 14, 2008
Plan Administrator	The compensation committee of Archrock Partners, L.P.‘s board of directors who serve as administrator to the long term incentive plans
Revenue Recognition Update	Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) and additional related standards updates

3

SEC	U.S. Securities and Exchange Commission
SG&A	Selling, general and administrative
Tcf	Trillion cubic feet
TCJA	Public Law No. 115-97, a comprehensive tax reform bill signed into law on December 22, 2017
U.S.	United States of America

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit amounts)

(unaudited)

	March 31, 2018			December 31, 2017
ASSETS
Current assets:
Cash	$	1,463		$	8,078
Accounts receivable, trade, net of allowance of $1,153 and $1,296, respectively	69,100			67,714
Current portion of interest rate swaps	1,646			186
Total current assets	72,209			75,978
Property, plant and equipment	2,755,590			2,727,401
Accumulated depreciation	(963,150		)	(953,325		)
Property, plant and equipment, net	1,792,440			1,774,076
Intangible assets, net	56,848			60,747
Other long-term assets	24,650			19,401
Contract costs	20,819			—
Total assets	$	1,966,966		$	1,930,202
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable, trade	$	17,944		$	18,368
Accrued liabilities	9,683			7,597
Deferred revenue	6,761			1,299
Accrued interest	23,110			12,972
Due to affiliates, net	911			4,683
Current portion of interest rate swaps	—			134
Total current liabilities	58,409			45,053
Long-term debt	1,374,552			1,361,053
Other long-term liabilities	9,284			9,356
Total liabilities	1,442,245			1,415,462
Commitments and contingencies (Note 12)
Partners’ capital:
Common units, 70,363,681 and 70,310,590 issued, respectively	506,035			501,023
General partner units, 2% interest with 1,422,458 and 1,421,768 equivalent units issued and outstanding, respectively	11,650			11,582
Accumulated other comprehensive income	9,627			4,476
Treasury units, 132,645 and 113,609 common units, respectively	(2,591		)	(2,341		)
Total partners’ capital	524,721			514,740
Total liabilities and partners’ capital	$	1,966,966		$	1,930,202

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit amounts)

(unaudited)

	Three Months Ended March 31,
	2018			2017
Revenue	$	147,002		$	137,295
Costs and expenses:
Cost of sales (excluding depreciation and amortization) — affiliates	56,302			56,277
Selling, general and administrative — affiliates	19,801			20,311
Depreciation and amortization	34,326			36,885
Long-lived asset impairment	3,066			6,210
Interest expense	21,609			20,223
Debt extinguishment costs	—			291
Merger-related costs	1,376			—
Other (income) loss, net	(287		)	112
Total costs and expenses	136,193			140,309
Income (loss) before income taxes	10,809			(3,014		)
Provision for income taxes	519			1,302
Net income (loss)	$	10,290		$	(4,316	)
General partner interest in net income (loss)	$	204		$	(86	)
Common unitholder interest in net income (loss)	$	10,086		$	(4,230	)
Income (loss) per common unit:
Basic and diluted	$	0.14		$	(0.07	)
Weighted average common units outstanding used in income (loss) per common unit:
Basic and diluted	70,071			65,418
Distributions declared and paid per common unit	$	0.285		$	0.285

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2018		2017
Net income (loss)	$	10,290	$	(4,316	)
Other comprehensive income:
Interest rate swap gain, net of reclassifications to earnings	4,985		1,675
Amortization of terminated interest rate swaps	166		—
Total other comprehensive income	5,151		1,675
Comprehensive income (loss)	$	15,441	$	(2,641	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(In thousands, except for unit amounts)

(unaudited)

	Partners’ Capital								Treasury Units					Accumulated Other Comprehensive Income (loss)
	Common Units				General Partner Units
	$			Units	$			Units	$			Units					Total
Balance, January 1, 2017	$	516,208		65,606,655	$	12,027		1,326,965	$	(1,892	)	(86,795	)	$	(4,170	)	$	522,173
Issuance of common units for vesting of phantom units				78,205													—
Treasury units purchased									(404		)	(22,977	)				(404		)
Issuance of general partner units					20			1,119									20
Distribution of capital, net	(67		)		(65		)										(132		)
Cash distributions	(18,729		)		(378		)										(19,107		)
Unit-based compensation expense	520																520
Comprehensive income (loss)	(4,230		)		(86		)							1,675			(2,641		)
Balance, March 31, 2017	$	493,702		65,684,860	$	11,518		1,328,084	$	(2,296	)	(109,772	)	$	(2,495	)	$	500,429
Balance, January 1, 2018	$	501,023		70,310,590	$	11,582		1,421,768	$	(2,341	)	(113,609	)	$	4,476		$	514,740
Issuance of common units for vesting of phantom units				53,091													—
Treasury units purchased									(250		)	(19,036	)				(250		)
Issuance of general partner units					9			690									9
Contribution of capital	1,825																1,825
Cash distributions	(20,050		)		(405		)										(20,455		)
Unit-based compensation expense	314																314
Impact of Adoption of Accounting Standards Updates (See Note 2 ("Recent Accounting Developments"))	12,837				260									(383		)	12,714
Comprehensive income	10,086				204									5,534			15,824
Balance, March 31, 2018	$	506,035		70,363,681	$	11,650		1,422,458	$	(2,591	)	(132,645	)	$	9,627		$	524,721

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

ARCHROCK PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	10,290		$	(4,316	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	34,326			36,885
Long-lived asset impairment	3,066			6,210
Amortization of deferred financing costs	1,353			1,726
Amortization of debt discount	344			319
Amortization of terminated interest rate swaps	166			—
Debt extinguishment costs	—			291
Interest rate swaps	257			505
Unit-based compensation expense	314			520
Provision for doubtful accounts	118			278
(Gain) loss on sale of property, plant and equipment	(256		)	148
Deferred income tax provision	391			1,302
Amortization of contract costs	2,101			—
Changes in assets and liabilities:
Accounts receivable, trade	(1,639		)	6,413
Contract costs	(6,604		)	—
Other assets and liabilities	13,495			10,434
Net cash provided by operating activities	57,722			60,715
Cash flows from investing activities:
Capital expenditures	(60,555		)	(14,090		)
Proceeds from sale of property, plant and equipment	10,377			4,187
Proceeds from insurance	136			—
Increase in amounts due from affiliates, net	—			(3,793		)
Net cash used in investing activities	(50,042		)	(13,696		)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	73,830			709,000
Repayments of long-term debt	(61,136		)	(705,500		)
Payments for debt issuance costs	(2,316		)	(14,459		)
Payments for settlement of interest rate swaps that include financing elements	(205		)	(581		)
Distributions to unitholders	(20,455		)	(19,107		)
Net proceeds from sale of general partner units	9			20
Purchases of treasury units	(250		)	(404		)
Decrease in amounts due to affiliates, net	(3,772		)	(8,012		)
Net cash used in financing activities	(14,295		)	(39,043		)
Net increase (decrease) in cash	(6,615		)	7,976
Cash at beginning of period	8,078			217
Cash at end of period	$	1,463		$	8,193
Supplemental disclosure of non-cash transactions:
Non-cash capital contribution from limited and general partner	$	1,825		$	1,360
Contract operations equipment acquired/exchanged, net	$	—		$	(1,492	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9

ARCHROCK PARTNERS, L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of the Partnership included herein have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our 2017 Form 10-K, which contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Organization

We are a publicly-held 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 General Partner is an indirect wholly-owned subsidiary of Archrock. Its general partner is Archrock GP, and the board of directors and officers of Archrock GP, which we refer to herein as our board of directors and our officers, make decisions on our behalf.

As of March 31, 2018, public unitholders held an approximate 57% ownership interest in us and Archrock owned our remaining equity interests, including the general partner interests and all of the incentive distribution rights. As a result of the closing of the Merger, we are an indirect wholly-owned subsidiary of Archrock and the incentive distribution rights were canceled.

Merger Transaction

On April 26, 2018, Archrock completed the acquisition of all of our outstanding common units at a fixed exchange ratio of 1.40 shares of Archrock common stock for each of our common units not owned by Archrock. In connection with the closing of the Merger, Archrock issued an aggregate of 57.6 million shares of its common stock to unaffiliated holders of our common units in exchange for all of the 41.2 million common units not owned by Archrock. Additionally, our incentive distribution rights, which were previously owned indirectly by Archrock, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. See Note 13(“Subsequent Events”) for further details of this transaction.

Significant Accounting Policies

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 instruments. Changes in accumulated other comprehensive income (loss) represent changes in the fair value of derivative instruments that are designated as cash flow hedges and amortization of terminated interest rate swaps. See Note 9(“Derivatives”) for additional disclosures related to comprehensive income (loss).

Income (Loss) Per Common Unit

Income (loss) per common unit is computed using the two-class method. Under the two-class method, basic income (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 excluding the weighted average number of outstanding participating securities 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.

10

When computing income (loss) per common unit in periods when distributions are greater than income (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 income per common unit in periods when income is greater than distributions, income is allocated to the General Partner, participating securities and common units based on how our Partnership Agreement would allocate income if the full amount of income for the period had been distributed. This allocation of net income does not impact our total net income, 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 income 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 (loss) used in the calculation of basic and diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018			2017
Net income (loss)	$	10,290		$	(4,316	)
Less: General partner 2% ownership interest	(204		)	86
Common unitholder interest in net income (loss)	10,086			(4,230		)
Less: Net income attributable to participating securities	(28		)	(34		)
Net income (loss) used in basic and diluted income (loss) per common unit	$	10,058		$	(4,264	)

The following table shows the potential common units that were included in computing diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018		2017
Weighted average common units outstanding including participating securities	70,208		65,536
Less: Weighted average participating securities outstanding	(137	)	(118	)
Weighted average common units outstanding — used in basic income (loss) per common unit	70,071		65,418
Net dilutive potential common units issuable:
Phantom units	—		—
Weighted average common units and dilutive potential common units — used in diluted income (loss) per common unit	70,071		65,418

2. Recent Accounting Developments

Accounting Standards Updates Implemented

On January 1, 2018, we adopted ASU 2017-12 using the modified retrospective approach to existing cash flow hedge relationships as of January 1, 2018. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components, aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements and eliminates the requirement to separately measure and report hedge ineffectiveness. As a result of the adoption of ASU 2017-12, we recognized a net gain of $0.4 million as a cumulative-effect adjustment to opening retained earnings, with a corresponding adjustment to other comprehensive income (loss), to reverse the cumulative ineffectiveness previously recognized in interest expense.

On January 1, 2018, we adopted ASU 2016-15 on a retrospective basis. ASU 2016-15 addresses diversity in practice and simplifies several elements of cash flow classification, including how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 did not have an impact on our condensed consolidated statement of cash flow for the three months ended March 31, 2017.

11

Revenue Recognition Update

On January 1, 2018, we adopted the Revenue Recognition Update using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the Revenue Recognition Update as an adjustment to the opening balance of retained earnings. For contracts that were modified before the effective date, we identified performance obligations on the basis of the current version of the contract, which included any contract modifications since inception. The application of the practical expedient for contract modifications did not have a material effect on the adjustment to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Under previous guidance, contract operations revenue was recognized when earned, which generally occurs monthly when the service is provided under our customer contracts. Under the Revenue Recognition Update the timing of revenue recognition is impacted by contractual provisions for service availability guarantees of our compressor assets and re-billable costs associated with moving our compressor assets to a customer site. These changes are further discussed below and did not result in a material difference from previous practice for contract operations.

The Revenue Recognition Update provides guidance on contract costs that should be recognized as assets and amortized over the period that the related goods or services transfer to the customer. Certain costs that were previously expensed as incurred, such as sales commissions and freight charges to transport compressor assets, are deferred and amortized.

The following table summarizes the cumulative impact of the adoption of the Revenue Recognition Update on the opening balance sheet (in thousands):

	December 31, 2017		Adjustments Due to the Revenue Recognition Update		January 1, 2018
Assets
Contract costs	$	—	$	16,316	$	16,316
Liabilities
Accrued liabilities	$	7,597	$	186	$	7,783
Deferred revenue	1,299		3,416		4,715
Partners’ capital
Common units	$	501,023	$	12,462	$	513,485
General partner units	11,582		252		11,834

12

The following tables summarize the impact of the application of the Revenue Recognition Update on our condensed consolidated balance sheet and condensed consolidated statement of operations (in thousands):

	March 31, 2018
Balance Sheet	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Assets
Accounts receivable, trade	$	69,100	$	68,858	$	242
Contract costs	20,819		—		20,819
Liabilities
Accrued liabilities	$	9,683	$	9,483	$	200
Deferred revenue	6,761		1,375		5,386
Other long-term liabilities	9,284		9,272		12
Equity
Common units	$	506,035	$	490,879	$	15,156
General partner units	11,650		11,343		307

	Three Months Ended March 31, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	147,002	$	148,931	$	(1,929	)
Cost of sales (excluding depreciation and amortization) — affiliates	56,302		60,296		(3,994		)
Selling, general and administrative — affiliates	19,801		20,310		(509		)
Provision for income taxes	519		507		12
Net income	10,290		7,728		2,562

Accounting Standards Updates Not Yet Implemented

In June 2016, the FASB issued ASU 2016-13 that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 that establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of ASU 2016-02 on our consolidated financial statements.

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3. Revenue from Contracts with Customers

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we are entitled to receive in exchange for those goods or services. Sales and usage-based taxes that are collected from the customer are excluded from revenue.

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

	Three Months Ended March 31, 2018
0 - 1,000 horsepower per unit	$	54,427
1,001 - 1,500 horsepower per unit	60,694
Over 1,500 horsepower per unit	31,435
Other (1)	446
Total Contract Operations (2)	$	147,002

——————

⁽¹⁾  Primarily relates to fees associated with Archrock-owned non-compressor equipment.

⁽²⁾  Includes $1.1 million for the three months ended March 31, 2018 related to billable maintenance on Archrock-owned units that was recognized at a point in time. All other revenue is recognized over time.

Contract Operations

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 location and each customer's unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

Natural gas compression services are generally satisfied over time, as the customer simultaneously receives and consumes the benefits provided by these services. Our performance obligation is a series in which the unit of service is one month, as the customer receives substantially the same benefit each month from the services regardless of the type of service activity performed, which may vary. If the transaction price is based on a fixed fee, revenue is recognized monthly on a straight-line basis over the period that we are providing services to the customer. Amounts invoiced to customers for costs associated with moving our compressor assets to a customer site are also included in the transaction price and are amortized over the initial contract term.

Variable consideration exists if customers are billed at a lesser standby rate when a unit is not running. We have elected to apply the invoicing practical expedient to recognize revenue for such variable consideration, as the invoice corresponds directly to the value transferred to the customer based on our performance completed to date. The rate for standby service is lower to reflect the decrease in costs and effort required to provide standby service when a unit is not running.

We also perform billable maintenance service on our natural gas compression equipment at the customer’s request on an as-needed basis. The performance obligation is satisfied and revenue is recognized at the agreed-upon transaction price at the point in time when service is complete and the customer has accepted the work performed and can obtain the remaining benefits of the service that the unit will provide.

As of March 31, 2018, we had $168.0 million of remaining performance obligations related to our contract compression service. This amount does not reflect revenue for contracts whose original expected duration is less than 12 months or performance obligations for which we recognize revenue in the amount at which we have the right to invoice for services performed. We have elected the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. This amount will be recognized through 2021 as follows (in thousands):

	2018		2019		2020		2021		Total
Remaining performance obligations	$	106,284	$	46,104	$	12,725	$	2,865	$	167,978

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Contract Balances

Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. We recognize a contract asset when we have the right to consideration in exchange for goods or services transferred to a customer when the right is conditioned on something other than the passage of time. We recognize a contract liability when we have an obligation to transfer goods or services to a customer for which we have already received consideration. Freight billings to transport compressor assets often result in a contract liability.

As of March 31, and January 1, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts were $68.3 million and $66.2 million, respectively. As of March 31, and January 1, 2018, our contract liabilities were $7.3 million and $5.4 million, respectively, which are included in deferred revenue and other long-term liabilities in our condensed consolidated balance sheets. The increase in the contract liability balance was due to deferral of $4.1 million, partially offset by $2.2 million which was recognized as revenue during the period each primarily related to freight billings.

4. Related Party Transactions

On January 1, 2018, we entered into the Merger Agreement pursuant to which we agreed to merge with and into an indirect wholly-owned subsidiary of Archrock. On April 26, 2018, the Merger was completed and we survived as Archrock’s indirect wholly-owned subsidiary. See Note 13(“Subsequent Events”) for further details of the Merger.

Omnibus Agreement

Our Omnibus Agreement with Archrock, our General Partner and others includes, among other things:

• certain agreements not to compete between Archrock and its affiliates, on the one hand, and us and our affiliates, on the other hand;

• Archrock’s obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Archrock for such services;

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

• Archrock’s grant to us of a license to use certain intellectual property, including our logo; and

• Archrock’s and our obligations to indemnify each other for certain liabilities.

Common Control Transactions

Transactions between us and Archrock 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.

Transfer, Exchange or Lease of Compression Equipment with Archrock

If Archrock determines in good faith that we or Archrock’s contract operations services business need to transfer, exchange or lease compression equipment between Archrock 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 (i) transfer to the transferor compression equipment equal in value to the appraised value of the compression equipment transferred to it, (ii) agree to lease such compression equipment from the transferor or (iii) pay the transferor an amount in cash equal to the appraised value of the compression equipment transferred to it.

The TCJA made significant changes to the determination of partnership taxable income that included the cessation of like-kind exchange treatment for exchanges of tangible personal property. In accordance with this change, we no longer perform such exchanges as of January 1, 2018.

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Transfer and Exchange of Overhauls. During the three months ended March 31, 2018 and March 31, 2017, Archrock contributed to us $1.8 million and $1.4 million, respectively, 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.

Other Exchanges. The following table summarizes the exchange activity between Archrock and us prior to the enactment of the TCJA (dollars in thousands):

	Three Months Ended March 31, 2017
	Transferred to Archrock		Transferred from Archrock
Compressor units	79		70
Horsepower	47,700		41,200
Net book value	$	21,559	$	20,063

During the three months ended March 31, 2017, we recorded capital distributions of $1.5 million related to the differences in net book value on the exchanged compression equipment. No customer contracts were included in the exchanges.

Leases. The following table summarizes the aggregate cost and accumulated depreciation of equipment on lease to and from Archrock (in thousands):

	March 31, 2018		December 31, 2017
Equipment on lease to Archrock:
Aggregate cost	$	14,740	$	3,560
Accumulated depreciation	2,366		272
Equipment on lease from Archrock:
Aggregate cost	$	24,273	$	224
Accumulated depreciation	11,824		34

The following table summarizes the revenue from Archrock related to the lease of our compression equipment and the cost of sales related to the lease of Archrock compression equipment (in thousands):

	Three Months Ended March 31,
	2018		2017
Revenue	$	149	$	28
Cost of sales	251		68

Reimbursement of Operating and SG&A Expense

Archrock 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.

Archrock charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Archrock’s other operations are allocated among Archrock’s other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, headcount and horsepower. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable.

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5. Contract Costs

We capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs.Capitalized costs include commissions paid to our sales force to obtain contract operations contracts. As of March 31, and January 1, 2018, we recorded contract costs of $2.5 million and $2.0 million, respectively, associated with sales commissions.

We capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and if we expect to recover those costs. Capitalized costs incurred to fulfill our customer contracts include freight charges to transport compressor assets before transferring services to the customer and mobilization activities associated with our contract operations services. As of March 31, and January 1, 2018, we recorded contract costs of $18.4 million and $14.3 million, respectively, associated with freight and mobilization.

Contract operations costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 36 months based on average contract term, including anticipated renewals. We assess periodically whether the 36-month estimate fairly represents the average contract term and adjust as appropriate. Contract costs associated with commissions are amortized to SG&A. Contract costs associated with freight and mobilization are amortized to cost of sales (excluding depreciation and amortization). During the three months ended March 31, 2018, we amortized $0.2 million and $1.9 million related to commissions and freight and mobilization, respectively. During the three months ended March 31, 2018, there was no impairment loss recorded in relation to the costs capitalized.

6. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	March 31, 2018			December 31, 2017
Credit Facility	$	687,000		$	674,306
6% senior notes due April 2021	350,000			350,000
Less: Debt discount, net of amortization	(2,344		)	(2,523		)
Less: Deferred financing costs, net of amortization	(3,082		)	(3,338		)
	344,574			344,139
6% senior notes due October 2022	350,000			350,000
Less: Debt discount, net of amortization	(3,276		)	(3,441		)
Less: Deferred financing costs, net of amortization	(3,746		)	(3,951		)
	342,978			342,608
Long-term debt	$	1,374,552		$	1,361,053

Credit Facility

The Credit Facility is a five-year, $1.1 billion asset-based revolving credit facility that will mature on March 30, 2022, except that if any portion of our 6% senior notes due April 2021 are outstanding as of December 2, 2020, then maturity will instead be on December 2, 2020. In March 2017, we incurred $14.9 million in transaction costs related to the formation of the Credit Facility. Concurrent with entering into the Credit Facility, we expensed $0.6 million of unamortized deferred financing costs and recorded a debt extinguishment loss of $0.3 million related to the termination of our Former Credit Facility.

As of March 31, 2018, we had no outstanding letters of credit under the Credit Facility and the applicable margin on amounts outstanding was 3.3%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 5.1% and 6.3% at March 31, 2018 and 2017, respectively. We incurred $0.5 million and $0.4 million in commitment fees on the daily unused amount of the Credit Facility and Former Credit Facility during the three months ended March 31, 2018 and 2017, respectively.

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On February 23, 2018, we amended the Credit Facility to, among other things, increase the maximum Total Debt to EBITDA ratio. We must maintain the following consolidated financial ratios, as defined in the Credit Facility agreement:

EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter (1)	5.25 to 1.0

——————

⁽¹⁾  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 quarter in which the acquisition closes.

As of March 31, 2018, we had undrawn capacity of $413.0 million under the Credit Facility. As a result of the financial ratio requirements discussed above, $177.2 million of the $413.0 million of undrawn capacity was available for additional borrowings as of March 31, 2018. As of March 31, 2018, we were in compliance with all covenants under the Credit Facility agreement.

Amendment No. 1 amended certain other terms of the Credit Facility effective upon completion of the Merger on April 26, 2018. See 13(“Subsequent Events”) for further details.

The Notes

The Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than Archrock Partners Finance Corp., which is a co-issuer of the Notes) and certain of our future subsidiaries. The 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 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 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. Archrock Partners Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the 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 Archrock Partners Finance Corp., and as a result we have not included consolidated financial information of our subsidiaries.

7. Partners’ Capital

On April 26, 2018, Archrock completed the acquisition of all of our outstanding common units at a fixed exchange ratio of 1.40 shares of Archrock common stock for each of our common units not owned by Archrock. Additionally, our incentive distribution rights, which were previously owned indirectly by Archrock, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. See Note 13(“Subsequent Events”) for further details of this transaction.

Unit Transactions

During the three months ended March 31, 2018 and March 31, 2017, we issued and sold 690 and 1,119 general partner units, respectively, to our General Partner to maintain its approximate 2% general partner interest in us.

As of March 31, 2018, Archrock owned 29,064,637 common units and 1,422,458 general partner units, collectively representing an approximate 43% interest in us.

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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:

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

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

• third, 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:

Period Covering	Payment Date	Distribution per Common Unit		Total Distribution (in thousands)
1/1/2017 — 3/31/2017	May 15, 2017	$	0.285	$	19,124
4/1/2017 — 6/30/2017	August 14, 2017	0.285		20,459
7/1/2017 — 9/30/2017	November 14, 2017	0.285		20,459
10/01/2017 — 12/31/2017	February 13, 2018	0.285		20,455

On April 30, 2018, our board of directors approved a cash distribution of approximately $15.5 million. The distribution covers the period from January 1, 2018 through March 31, 2018. Any distributions in respect of our common units will be paid to Archrock as the owner of all outstanding common units.

8. Unit-Based Compensation

Long-Term Incentive Plan

In April 2017, we adopted the 2017 LTIP to provide for the benefit of the employees, directors and consultants of us, Archrock and our respective affiliates. Two million common units have been authorized for issuance with respect to awards under the 2017 LTIP. The 2017 LTIP provides for the issuance of unit options, unit appreciation rights, restricted units, phantom units, performance awards, bonus awards, distribution equivalent rights, cash awards and other unit-based awards. The 2017 LTIP will be administered by the Plan Administrator. The 2006 LTIP expired in 2016 and, as such, no further grants have been or can be made under that plan following expiration. Previous grants made under the 2006 LTIP continue to be governed by the 2006 LTIP and the applicable award agreements.

Phantom units are notional units that entitle the grantee to receive common units upon the vesting of such phantom units or, at the discretion of the Plan Administrator, cash equal to the fair market value of the underlying common units. Because we grant phantom units to non-employees, we are required to remeasure the fair value of these phantom units, which is based on the fair value of our common units, each period and record a cumulative adjustment of the expense previously recognized. Phantom units granted under the 2017 LTIP 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. Phantom units granted generally vest one-third per year on dates as specified in the applicable award agreements subject to continued service through the applicable vesting date.

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Phantom Units

The following table presents phantom unit activity during the three months ended March 31, 2018:

	Phantom Units (in thousands)		Weighted Average Grant Date Fair Value per Unit
Phantom units outstanding, January 1, 2018	153		$	12.19
Vested	(53	)	11.24
Phantom units outstanding, March 31, 2018	100		12.69

As of March 31, 2018, we expect $1.1 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 1.7 years.

9. Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative instruments to minimize the risks and 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 instruments for trading or other speculative purposes.

At March 31, 2018, we were a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates:

Expiration Date	Notional Value (in millions)
May 2019	$	100.0
May 2020	100.0
March 2022	300.0
	$	500.0

As of March 31, 2018, the weighted average effective fixed interest rate on our interest rate swaps was 1.8%. 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 other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts in other comprehensive income (loss) are reclassified into earnings and presented in the same income statement line item as the earnings effect of the hedged item. Prior to adoption of ASU 2017-12, we performed quarterly calculations to determine whether the swap agreements continued to be highly effective at achieving offsetting changes in cash flows attributable to the hedged risk. 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 expect the hedging relationship to continue to be highly effective. Upon adoption of ASU 2017-12, we perform subsequent quarterly prospective and retrospective hedge effectiveness assessments qualitatively unless facts and circumstances related to the hedging relationships change such that we can no longer assert qualitatively that the cash flow hedge relationships were and continue to be highly effective. We estimate that $1.5 million of deferred gain attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at March 31, 2018, will be reclassified into earnings as interest income 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 condensed 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 condensed consolidated statements of cash flows.

In August 2017, we amended the terms of certain of our interest rate swap agreements, designated as cash flow hedges against the variability of future interest payments due under the Credit Facility, with a notional value of $300.0 million. The amended terms adjusted the fixed interest rate and extended the maturity dates to March 2022. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, as of the amendment date, we discontinued the original cash flow hedge relationships on a prospective basis and designated the amended interest rate swaps under new cash flow hedge relationships based on the amended terms. The fair value of the interest rate swaps immediately prior to the execution of the amendments was a liability of $0.7 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the interest rate swaps through May 2018.

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The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

		Fair Value Asset (Liability)
	Balance Sheet Location	March 31, 2018		December 31, 2017
Derivatives designated as hedging instruments:
Interest rate swaps	Current portion of interest rate swaps	$	1,646	$	186
Interest rate swaps	Other long-term assets	8,164		4,490
Interest rate swaps	Current portion of interest rate swaps	—		(134		)
Total derivatives		$	9,810	$	4,542

	Gain Recognized in Other Comprehensive Income (Loss) on Derivatives		Location of Loss  Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate swaps
Three months ended March 31, 2018	$	4,696	Interest expense	$	(455	)
Three months ended March 31, 2017	699		Interest expense	(976		)

	Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2018
	Interest Expense
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$	21,609
Interest Contracts:
Amount of loss reclassified from accumulated other comprehensive income into income	$	(54	)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—

The counterparties to our derivative agreements are major 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.

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10. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

On a quarterly basis, our interest rate swaps are valued based on the income approach (discounted cash flow) using market observable inputs, including forward London Interbank Offered Rate curves. These fair value measurements are classified as Level 2.

The following table presents our interest rate swaps asset and liability measured at fair value on a recurring basis with pricing levels as of the date of valuation (in thousands):

	March 31, 2018		December 31, 2017
Interest rate swaps asset	$	9,810	$	4,676
Interest rate swaps liability	—		(134		)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months ended March 31, 2018, we recorded non-recurring fair value measurements related to our idle and previously-culled compressor units. Our estimate of the compressor units’ 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. These fair value measurements are classified as Level 3. The fair value of our impaired compressor units was $0.2 million and $1.8 million at March 31, 2018 and December 31, 2017, respectively. See Note 11(“Long-Lived Asset Impairment”) for further details.

Other Financial Instruments

The carrying amounts of our cash, receivables and payables approximate fair value due to the short-term nature of those instruments.

The carrying amounts of borrowings outstanding under our Credit Facility approximate fair value due to their variable interest rates. The fair value of these outstanding borrowings 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.

The fair value of our fixed rate debt was estimated based on quoted prices in inactive markets and is considered a Level 2 measurement. The following table summarizes the carrying amount and fair value of our fixed rate debt (in thousands):

	March 31, 2018		December 31, 2017
Carrying amount of fixed rate debt (1)	$	687,552	$	686,747
Fair value of fixed rate debt	700,000		702,000

——————

⁽¹⁾  Carrying amounts are shown net of unamortized debt discounts and unamortized deferred financing costs. See Note 6(“Long-Term Debt”) for further details.

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11. Long-Lived Asset Impairment

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.

We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressor units should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, 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 review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value.

The following table presents the results of our impairment review (dollars in thousands):

	Three Months Ended March 31,
	2018		2017
Idle compressor units retired from the active fleet	35		65
Horsepower of idle compressor units retired from the active fleet	13,000		22,000
Impairment recorded on idle compressor units retired from the active fleet	$	3,066	$	6,210

12. Commitments and Contingencies

Insurance Matters

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. Archrock insures our property and operations against many, but not all, of these risks. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.

In addition, Archrock 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. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

Tax Matters

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 March 31, 2018 and December 31, 2017, we accrued $2.4 million and $1.6 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 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 consolidated results of operations or cash flows for the period in which the resolution occurs.

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Litigation and Claims

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. Under the revised Heavy Equipment 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 taxes under this new methodology. We further believe that our natural gas compressors are taxable under the Heavy Equipment Statutes in the counties where we maintain a business location and keep natural gas compressors instead of where the compressors may be located on January 1 of a tax year. As a result of this new methodology, our ad valorem tax expense (which is reflected in our condensed consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $4.3 million during the three months ended March 31, 2018. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $70.5 million as of March 31, 2018, of which $13.1 million has been agreed to by a number of appraisal review boards and county appraisal districts and $57.4 million has been disputed and is currently in litigation. 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, 93 petitions for review in the appropriate district courts with respect to the 2013 tax year, 103 petitions for review in the appropriate district courts with respect to the 2014 tax year, 111 petitions for review in the appropriate district courts with respect to the 2015 tax year, 105 petitions for review in the appropriate district courts with respect to the 2016 tax year and 107 petitions for review in the appropriate district courts with respect to the 2017 tax year.

To date, 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 of the decisions having been rendered by the same presiding judge. All three of those decisions were appealed, and all three of the appeals have been decided by intermediate appellate courts.

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, Archrock Partners Leasing LLC, formerly known as EXLP Leasing, and Archrock’s subsidiary, Archrock Services Leasing LLC, formerly known as EES Leasing, 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. EXLP Leasing and EES Leasing appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas. On September 23, 2015, the Eighth Court of Appeals ruled in EXLP Leasing’s and EES Leasing’s favor by overruling the 143rd District Court’s constitutionality ruling. The Eighth Court of Appeals also ruled, however, that EXLP Leasing’s and EES Leasing’s natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue.

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 appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas, and the Ward County Appraisal District cross-appealed the district court’s rulings that EXLP Leasing’s and EES Leasing’s compressors qualify as Heavy Equipment. On September 23, 2015, the Eighth Court of Appeals ruled in EXLP Leasing’s and EES Leasing’s favor by overruling the 143rd District Court’s constitutionality ruling and affirming its ruling that EXLP Leasing’s and EES Leasing’s compressors qualify as Heavy Equipment. The Eighth Court of Appeals also ruled, however, that EXLP Leasing’s and EES Leasing’s natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue.

The Ward County Appraisal District and Loving County Appraisal District each filed (on January 27, 2016 and February 10, 2016, respectively) a petition asking the Texas Supreme Court to review its respective Eighth Court of Appeals decision. On March 11, 2016, EXLP Leasing and EES Leasing filed responses to the appraisal districts’ petitions and cross-petitions for review in each case asking the Texas Supreme Court to also review the Eighth Court of Appeals’ determination that natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue. The Ward County Appraisal District filed its response to EXLP Leasing’s and EES Leasing’s cross-petition on June 6, 2016, and EXLP Leasing and EES Leasing filed their reply on June 21, 2016. The Loving County Appraisal District filed its response to EXLP Leasing’s and EES Leasing’s cross-petition on May 27, 2016, and EXLP Leasing and EES Leasing filed their reply on June 10, 2016.

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On March 18, 2014, the 10th Judicial District Court of 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 appealed the district court’s constitutionality holding to the Fourteenth Court of Appeals in Houston, Texas. On August 25, 2015, the Fourteenth Court of Appeals issued a ruling stating that EXLP Leasing’s and EES Leasing’s compressors are taxable in the counties where they were located on January 1 of the tax year at issue, and it remanded the case to the district court for further evidence on the issue of whether the Heavy Equipment Statutes are constitutional as applied to EXLP Leasing’s and EES Leasing’s compressors. On November 24, 2015, EXLP Leasing and EES Leasing filed a petition asking the Texas Supreme Court to review this decision. On March 21, 2016, the Galveston Central Appraisal District filed a response to EXLP Leasing’s and EES Leasing’s petition for review, and EXLP Leasing and EES Leasing filed their reply on April 26, 2016.

In EES Leasing v. Irion County Appraisal District, EES Leasing and the appraisal district each filed motions for summary judgment in the 51st District Court concerning the applicability and constitutionality of the Heavy Equipment Statutes. On May 20, 2014, the district court entered an order denying both 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. The presiding judge for the 51st District Court has since consolidated the 2012 tax year case with EES Leasing’s 2013 tax year case, which also included EXLP Leasing as a party. On August 27, 2015, the presiding judge abated the combined case, EES Leasing LLC and EXLP Leasing LLC v. Irion County Appraisal District, until the final resolution of the appellate cases considering the constitutionality of the Heavy Equipment Statutes, or further order of the court.

EXLP Leasing and EES 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.

On June 3, 2015, the Fourth Court of Appeals in San Antonio, Texas issued a decision reversing the 406th District Court’s dismissal of EXLP Leasing’s and EES Leasing’s tax appeals for want of jurisdiction. In EXLP Leasing LLC et. al v. Webb County Appraisal District, 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 place of business and keep natural gas compressors. The Webb County Appraisal District and United ISD contested EXLP Leasing’s and EES Leasing’s position that the Heavy Equipment Statutes contain situs provisions requiring that taxes be paid where the dealer has a business location and keeps its natural gas compressors, 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 district court granted United ISD’s motion to dismiss on April 1, 2014 and declined EXLP Leasing’s and EES Leasing’s motion to reconsider. The Fourth Court of Appeals reversed, holding that, based on the plain meaning of Section 42.08(b)(1), and because the entire amount was in dispute, EXLP Leasing and EES Leasing were not required to prepay disputed taxes to invoke the trial court’s jurisdiction. The Fourth Court of Appeals denied United ISD’s request for a rehearing. On September 29, 2015, United ISD filed a petition for review in the Texas Supreme Court. On December 4, 2015, the Texas Supreme Court denied United ISD’s petition for review.

United ISD has four delinquency lawsuits pending against EXLP Leasing and EES Leasing in the 49th District Court of Webb County, Texas. The cases have been abated pending the resolution of EXLP Leasing’s and EES Leasing’s 2012 tax year case pending in the 406th Judicial District Court of Webb County, Texas.

On September 2, 2016, the Texas Supreme Court requested that consolidated merits briefs be filed in EXLP Leasing’s and EES Leasing’s cases against the Loving County Appraisal District, Ward County Appraisal District, and Galveston Central Appraisal District, as well as two similar cases involving different taxpayers. On September 19, 2016, the Supreme Court entered a consolidated briefing schedule for the five cases. Consolidated briefing was completed on February 7, 2017.

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On March 10, 2017, the Texas Supreme Court granted EXLP Leasing’s and EES Leasing’s petition for review in EXLP Leasing LLC & EES Leasing LLC v. Galveston Central Appraisal District. The case was argued before the Texas Supreme Court on October 10, 2017. On March 2, 2018, the Texas Supreme Court ruled in favor of EXLP Leasing and EES Leasing by reversing the Fourteenth Court of Appeals’ decision. In doing so, the Supreme Court upheld the validity of the Heavy Equipment Rules and held that compressors are taxable in the county of EXLP Leasing’s and EES Leasing’s business location, not where each compressor is located on January 1. On March 8, 2018, the Galveston Central Appraisal District filed a motion for extension of time to file a motion for rehearing. The Court granted the motion and Galveston Central Appraisal District filed the motion for rehearing on April 2, 2018.

We continue to believe that the revised statutes are constitutional as applied to natural gas compressors and that under the revised statutes our natural gas compressors are taxable in the counties where we maintain a business location and keep natural gas compressors. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, most of the remaining 2012-2017 district court cases have been formally or effectively abated pending final judgment from the Texas Supreme Court.

If we are unsuccessful in our litigation, 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. In addition, while we do not expect the ultimate determination of the issue of where the natural gas compressors are taxable under the Heavy Equipment Statutes would have an impact on the amount of taxes due, we could be subject to substantial penalties if we are unsuccessful on this issue. Also, if we are unsuccessful in our litigation, 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. If this litigation is resolved against us in whole or in part, 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 and could be subject to substantial penalties and interest, which would impact our future results of operations, financial position and cash flows, including our cash available for distribution.

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.

13. Subsequent Events

Merger Transaction

On January 1, 2018, we entered into the Merger Agreement pursuant to which we agreed to merge with and into an indirect wholly-owned subsidiary of Archrock. On April 26, 2018, the Merger was completed and we survived as Archrock’s indirect wholly-owned subsidiary. Upon completion of the Merger, each of our 41.2 million common units not owned by Archrock was converted to Archrock shares at a fixed exchange ratio of 1.40 for total implied consideration of approximately $625.3 million and all of our incentive distribution rights, which were owned indirectly by Archrock, were canceled and ceased to exist. As a result of the completion of the Merger, our common units are no longer publicly traded.

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Amendment to the Credit Facility

On February 23, 2018, we amended the Credit Facility to, among other things:

• increase the maximum Total Debt to EBITDA ratio (as defined in the Credit Facility agreement), effective as of the execution of Amendment No. 1 on February 23, 2018; and

• effective upon completion of the Merger on April 26, 2018:

– increase the aggregate revolving commitment to $1.25 billion;

– increase the amount available for incremental increases to the commitments under the Credit Facility to $500.0 million;

– increase the amount available for the issuance of letters of credit to $50.0 million;

– increase the basket sizes under certain covenants including covenants limiting our ability to make investments, incur debt, make restricted payments, incur liens and make asset dispositions;

– name Archrock Services, L.P., one of Archrock’s subsidiaries, as a borrower under the Credit Facility and certain of Archrock’s other subsidiaries as loan guarantors; and

– amend the definition of “Borrowing Base” to include certain assets of Archrock’s subsidiaries.

On April 26, 2018, in connection with the Merger and Amendment No. 1, Archrock terminated its credit facility and we borrowed on the Credit Facility to repay the $63.2 million in borrowings and accrued and unpaid interest and fees outstanding. In addition, the $15.4 million of letters of credit outstanding under its facility as of the Merger were converted to letters of credit under our Credit Facility.

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Item 2. 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 unaudited financial statements and the notes thereto included in the Financial Statements of this Quarterly Report on Form 10-Q and in conjunction with our 2017 Form 10-K.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements.” All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements, including, without limitation, statements regarding the effects of the Merger; the Partnership’s 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; anticipated cost savings; future revenue and other financial or operational measures related to our business; the future value of our equipment; and plans and objectives of our management for our future operations. 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.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this Quarterly Report on Form 10-Q. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our 2017 Form 10-K, and those set forth from time to time in our filings with the SEC, which are available through our website at www.archrock.com and through the SEC’s website at www.sec.gov, as well as the following risks and uncertainties:

• the risk that cost savings, tax benefits and any other synergies from the Merger may not be fully realized or may take longer to realize than expected;

• the impact and outcome of pending and future litigation, including litigation, if any, relating to the Merger;

• 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;

• 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 Archrock to provide personnel and services, including its ability to hire, train and retain key employees and to cost-effectively perform the services 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;

• the loss of our status as a partnership for 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:

– winning profitable new business;

– growing our asset base and enhancing asset utilization;

– integrating acquired businesses;

– generating sufficient cash; and

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– accessing the capital markets at an acceptable cost;

• liability related to the use 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.

All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.

Overview

We are a Delaware limited partnership formed in June 2006 and are the U.S. market leader in the full-service natural gas compression business. Our contract operations services primarily include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment. 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 operate in one segment.

Omnibus Agreement

Our Omnibus Agreement with Archrock, our General Partner and others includes, among other things:

• certain agreements not to compete between Archrock and its affiliates, on the one hand, and us and our affiliates, on the other hand;

• Archrock’s obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Archrock for such services;

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

• Archrock’s grant to us of a license to use certain intellectual property, including our logo; and

• Archrock’s and our obligations to indemnify each other for certain liabilities.

Recent Business Developments

Merger Transaction

On April 26, 2018, Archrock completed the acquisition of all of our outstanding common units at a fixed exchange ratio of 1.40 shares of Archrock common stock for each of our common units not owned by Archrock. In connection with the closing of the Merger, Archrock issued an aggregate of 57.6 million shares of its common stock to unaffiliated holders of our common units in exchange for all of the 41.2 million common units not owned by Archrock. Additionally, our incentive distribution rights, which were previously owned indirectly by Archrock, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. See Note 13(“Subsequent Events”) to our Financial Statements for further details of the Merger.

Amendment to the Partnership Credit Facility

On February 23, 2018, we amended the Credit Facility to, among other things, increase the maximum Total Debt to EBITDA ratio. In addition, on April 26, 2018, concurrent with the Merger and certain terms within Amendment No. 1, we increased the aggregate revolving commitment under the Credit Facility to $1.25 billion. See “Liquidity and Capital Resources - Financial Resources” below and Notes 6(“Long-Term Debt”) and 13(“Subsequent Events”) to the Financial Statements for further discussion of Amendment No. 1.

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Trends and Outlook

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. 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 any acquisition of additional contract operations customer service agreements and equipment from third parties. Although our contract operations 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 January 31, 2018 remained flat at 27,509 Bcf compared to 27,293 Bcf for the twelve months ended January 31, 2017. The EIA forecasts that total U.S. natural gas consumption will increase6% in 2018 compared to 2017. The EIA estimates that the U.S. natural gas consumption level will be approximately 32 Tcf in 2040, or 18% of the projected worldwide total of approximately 177 Tcf.

Natural gas marketed production in the U.S. for the twelve months ended January 31, 2018increased2% to 29,041 Bcf compared to 28,376 Bcf for the twelve months ended January 31, 2017. The EIA forecasts that total U.S. natural gas marketed production will increase10% in 2018 compared to 2017. The EIA estimates that the U.S. natural gas production level will be approximately 38 Tcf in 2040, or 21% of the projected worldwide total of approximately 177 Tcf.

Historically, oil and natural gas prices and the level of drilling and exploration activity in the U.S. have been volatile. The average price for natural gas, based on daily Henry Hub spot prices, in the first quarter of 2018 was 3% and 2% higher than the average price in the full year 2017 and first quarter of 2017, respectively, despite the spot price at March 29, 2018 being 24% and 10% lower than the spot price at December 29, 2017 and March 31, 2017, respectively. The U.S. natural gas liquid composite price was 17% higher in January 2018 than in January 2017, and the average price in the twelve months ended January 31, 2018 was 32% higher than the average price in the twelve months ended January 31, 2017. The West Texas Intermediate crude oil spot price at March 29, 2018 was 7% and 28%higher than at December 29, 2017 and March 31, 2017, respectively, and the average crude oil price in the first quarter of 2018 was 24% and 22% higher than the average price in the full year 2017 and first quarter of 2017, respectively.

Increased stability of oil and natural gas prices in 2017 contributed to increased new orders for our compression services in 2017and thus far in 2018. Additionally, we increased our investment in new fleet units in 2017 and thus far in 2018 to take advantage of improved market conditions during 2017. As a result of these increased orders and investment, our revenue and average operating horsepower increased 7% and 5%, respectively, in the three months ended March 31, 2018 compared to the three months ended March 31, 2017.

According to the Barclays 2018 Global E&P Spending Outlook, North America upstream spending is expected to increase by 21% in 2018. Due to this forecasted increase in customer spending in 2018 and the significant increase in new orders for compression services and investment in new fleet units in 2017 and thus far into 2018, we anticipate an increase in average operating horsepower and revenue during 2018 compared to 2017.

According to Drillinginfo, natural gas production is expected to increase approximately 18% through 2022, with further increases anticipated beyond then. We believe that significantly improved quantities, accessibility and price stability of natural gas in the U.S. will continue to drive higher levels of demand for liquid natural gas export, pipeline exports to Mexico, power generation and use as a petrochemical feedstock, which will in turn lead to a significant increase in demand for compression services.

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Operating Highlights

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

	Three Months Ended March 31,
	2018		2017
Total available horsepower (at period end)(1)(2)	3,338		3,267
Total operating horsepower (at period end)(1)(3)	3,016		2,826
Average operating horsepower	2,993		2,861
Horsepower utilization:
Spot (at period end)	90	%	87	%
Average	90	%	88	%

——————

⁽¹⁾  Includes compressor units comprising approximately 36,000 and 4,000 horsepower leased from Archrock as of March 31, 2018 and 2017, respectively. Excludes compressor units comprising approximately 18,000 horsepower leased to Archrock as of March 31, 2018 (see Note 4(“Related Party Transactions”) to our Financial Statements). No units were on lease to Archrock as of March 31, 2017.

⁽²⁾  Defined as idle and operating horsepower. New compressor units completed by a third party manufacturer that have been delivered to us are included in the fleet.

⁽³⁾  Defined as horsepower that is operating under contract and horsepower that is idle but under contract and generating revenue such as standby revenue.

Financial Results of Operations

Summary of Results

Net income (loss). We generated net income of $10.3 million and a net loss of $4.3 million during the three months ended March 31, 2018 and 2017, respectively. The change in net income (loss) was primarily due to the increase in revenue and decreases in long-lived asset impairment and depreciation and amortization.

Three Months EndedMarch 31, 2018 Compared to Three Months EndedMarch 31, 2017

The following table summarizes our revenue, costs and expenses and net income (loss) (in thousands):

	Three Months Ended March 31,
	2018			2017
Revenue	$	147,002		$	137,295
Costs and expenses:
Cost of sales (excluding depreciation and amortization) - affiliates	56,302			56,277
Selling, general and administrative — affiliates	19,801			20,311
Depreciation and amortization	34,326			36,885
Long-lived asset impairment	3,066			6,210
Interest expense	21,609			20,223
Debt extinguishment costs	—			291
Merger-related costs	1,376			—
Other (income) loss, net	(287		)	112
Provision for income taxes	519			1,302
Net income (loss)	$	10,290		$	(4,316	)

Revenue. The increase in revenue during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to a 5% increase in average operating horsepower and an increase in rates resulting from an increase in customer demand driven by improved market conditions in 2017. The increase in revenue was partially offset by the deferral of rebillable freight revenue as a result of the adoption of the Revenue Recognition Update.

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Cost of sales (excluding depreciation and amortization) - affiliates. Cost of sales remained flat during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 due to the capitalization of freight and mobilization costs incurred to fulfill contracts prior to the transfer of service as a result of the adoption of the Revenue Recognition Update, which offset increases in costs associated with the increase in average operating horsepower, the mobilization of compressor units, freight expense and other operating costs of providing our services.

SG&A — affiliates. SG&A expense is primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Archrock to us pursuant to the terms of the Omnibus Agreement. The decrease in SG&A expense was primarily due to a decrease in costs allocated to us by Archrock.

Depreciation and amortization. The decrease in depreciation and amortization expense during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to a decrease in depreciation expense resulting from certain assets reaching the end of their depreciable lives as well as the impact of asset impairments during 2017, partially offset by an increase in depreciation expense associated with fixed asset additions.

Long-lived asset impairment. During the three months ended March 31, 2018 and 2017, we reviewed the future deployment of our idle compression assets for units that were not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. In addition, we evaluated for impairment idle units that had been culled from our fleet in prior years and were available for sale. See Note 11(“Long-Lived Asset Impairment”) to our Financial Statements for further details.

The following table presents the results of our impairment review (dollars in thousands):

	Three Months Ended March 31,
	2018		2017
Idle compressor units retired from the active fleet	35		65
Horsepower of idle compressor units retired from the active fleet	13,000		22,000
Impairment recorded on idle compressor units retired from the active fleet	$	3,066	$	6,210

Interest expense. The increase in interest expense during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to increases in the weighted average effective interest rate and average outstanding balance of long-term debt, partially offset by a $0.6 million write-off of deferred financing costs associated with the termination of our Former Credit Facility in the three months ended March 31, 2017.

Merger-related costs. We incurred $1.4 million of Merger-related costs consisting of financial advisory, legal and other professional fees during the three months ended March 31, 2018.

Other (income) loss, net. The change in other (income) loss, net, was primarily due to a $0.3 million gain on the sale of property, plant and equipment during the three months ended March 31, 2018 compared to a $0.1 million loss in the three months ended March 31, 2017.

Provision for income taxes. The decrease in provision for income taxes during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to a lower unrecognized tax benefit recorded in 2018 compared to 2017.

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Liquidity and Capital Resources

Overview

Our ability to fund operations, finance capital expenditures and make distributions to our unitholders depends on the levels of our operating cash flows and access to the capital and credit markets. Our primary sources of liquidity are cash flows generated from our operations and our borrowing availability under the Credit Facility. On April 26, 2018, in connection with the closing of the Merger and Amendment No. 1, the aggregate revolving commitment of the Credit Facility was increased from $1.1 billion to $1.25 billion. See “Financial Resources” below and Notes 6(“Long-Term Debt”) and 13(“Subsequent Events”) to the Financial Statements for further details.

Our cash flow is affected by numerous factors including prices and demand for our services, volatility in commodity prices and their effect on oil and natural gas exploration and production spending, conditions in the financial markets and other factors. New orders for compression services were strong in 2017 and we have continued to book new orders at elevated rates into 2018. We believe that our operating cash flows and borrowings under the Credit Facility will be sufficient to meet our liquidity needs through at least March 31,2019.

We intend to 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 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 the Credit Facility on our ability to issue additional units, including units ranking senior to our common units.

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.

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 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.

The majority of our growth capital expenditures are related to the acquisition cost of new compressor units that we add to our fleet. In addition, 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, which return the components to a like-new condition, but do not modify the applications for which the compressor unit was designed.

33

Archrock manages its and our respective fleets as one pool of compression equipment from which we can each readily fulfill our respective customers’ service needs. When we or Archrock are advised of a contract operations services opportunity, Archrock reviews both our and its fleet for an available and appropriate compressor unit. If the owner of the appropriate compressor unit is not the contracting entity, the unit is leased to or exchanged for other equipment of the contracting entity. The owner of the equipment being transferred is required to pay the costs associated with making the idle equipment suitable for the proposed customer. For equipment that is leased, the maintenance capital cost is a component of the lease rate that is paid under the lease. During 2017, we increased our purchases of new compressor units. If we continue to acquire more compression equipment, as is anticipated in 2018, we expect that more of our equipment will be available to satisfy our or Archrock’s 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. 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 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.

Financial Resources

Credit Facility

On February 23, 2018, we amended the Credit Facility to, among other things:

• increase the maximum Total Debt to EBITDA ratio (as defined in the Credit Facility agreement), effective as of the execution of Amendment No. 1 on February 23, 2018; and

• effective upon the closing of the Merger on April 26, 2018:

– increase the aggregate revolving commitment to $1.25 billion;

– increase the amount available for incremental increases to the commitments under the Credit Facility to $500.0 million;

– increase the amount available for the issuance of letters of credit to $50.0 million;

– increase the basket sizes under certain covenants including covenants limiting our ability to make investments, incur debt, make restricted payments, incur liens and make asset dispositions;

– name Archrock Services, L.P., one of Archrock’s subsidiaries, as a borrower under the Credit Facility and certain of Archrock’s other subsidiaries as loan guarantors; and

– amend the definition of “Borrowing Base” to include certain assets of Archrock’s subsidiaries.

The following table presents the weighted average annual interest rate and average daily debt balance of our Credit Facility (dollars in thousands):

	Three Months Ended March 31,
	2018			2017
Weighted average annual interest rate (1) (2)	5.1		%	6.3		%
Average daily debt balance (2)	$	680,465		$	507,629

——————

⁽¹⁾  Excludes the effect of interest rate swaps.

⁽²⁾  The amounts for the three months ended March 31, 2018 pertain to the Credit Facility. The amounts for the three months ended March 31, 2017 pertain to our Former Credit Facility.

The Credit Facility matures on March 30, 2022, except that if any portion of our 6% senior notes due April 2021 are outstanding as of December 2, 2020, then maturity will instead be on December 2, 2020. Portions of the Credit Facility up to $50.0 million are available for the issuance of swing line loans. The Credit Facility borrowing base consists of eligible accounts receivable, inventory and compressor units.

34

We must maintain the following consolidated financial ratios, as defined in the Credit Facility agreement:

EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter (1)	5.25 to 1.0

——————

⁽¹⁾  Subject to a temporary increase to 5.50 to 1.0 for any quarter during which an acquisition meeting certain thresholds is completed and for the following two quarters after the quarter in which the acquisition closes.

As a result of the Total Debt to EBITDA ratio limitation above, $177.2 million of the $413.0 million undrawn capacity under the Credit Facility was available for additional borrowings as of March 31, 2018.

The Credit Facility agreement contains various additional covenants including, but not limited to, mandatory prepayments from the net cash proceeds of certain asset transfers, 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 distributions. In addition, if as of any date we have cash (other than proceeds from a debt or equity issuance received in the 30 days prior to such date reasonably expected to be used to fund an acquisition permitted under the Credit Facility agreement) in excess of $50.0 million, then such excess amount will be used to pay down outstanding borrowings of a corresponding amount under the Credit Facility. As of March 31, 2018, we were in compliance with all covenants under the Credit Facility.

On April 26, 2018, in connection with the Merger and Amendment No. 1, Archrock terminated its credit facility and we borrowed on the Credit Facility to repay the $63.2 million in borrowings and accrued and unpaid interest and fees outstanding. In addition, the $15.4 million of letters of credit outstanding under its facility as of the Merger were converted to letters of credit under our Credit Facility.

Cash Flows

The following table summarizes our sources and uses of cash during the three months ended March 31, 2018 and 2017 (in thousands):

	Three Months Ended March 31,
	2018			2017
Net cash provided by (used in):
Operating activities	$	57,722		$	60,715
Investing activities	(50,042		)	(13,696		)
Financing activities	(14,295		)	(39,043		)
Net change in cash	$	(6,615	)	$	7,976

Operating Activities. The decrease in net cash provided by operating activities during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to an increase in accounts receivable as a result of the timing of payments received from our customers and an increase in cost of sales, including freight and mobilization costs incurred to fulfill contracts prior to the transfer of service. These activities were partially offset by an increase in revenues primarily driven by improved market conditions.

Investing Activities. The increase in net cash used in investing activities during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to a $46.5 million increase in capital expenditures, partially offset by a $6.2 million increase in proceeds from sale of property, plant and equipment.

35

Financing Activities. The decrease in net cash used in financing activities during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was due to a $12.1 million decrease in payments for debt issuance costs and a $9.2 million increase in net borrowings of long-term debt.

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 April 30, 2018, our board of directors approved a cash distribution of approximately $15.5 million. The distribution covers the period from January 1, 2018 through March 31, 2018. Any distributions in respect of our common units will be paid to Archrock as the owner of all outstanding common units. The amount of our cash distributions will be determined by our board of directors on a quarterly basis, taking into account a number of factors. There is no guarantee that we will continue to pay cash distributions to our unitholders at the current level, or at all.

Off-Balance Sheet Arrangements

For information on our obligations with respect to letters of credit see Note 6(“Long-Term Debt”) to our Financial Statements.

Item 3. 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 instruments to minimize the risks and 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 instruments for trading or other speculative purposes.

As of March 31, 2018, after taking into consideration interest rate swaps, we had $187.0 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 March 31, 2018 would result in an annual increase in our interest expense of $1.9 million.

For further information regarding our use of interest rate swaps to manage our exposure to interest rate fluctuations on a portion of our debt obligations, see Note 9(“Derivatives”) to our Financial Statements.

Item 4. Controls and Procedures

This Item 4 includes information concerning the controls and controls evaluation referred to in the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Exchange Act included in this Quarterly Report as Exhibits 31.1 and 31.2.

Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, 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 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 SEC. Based on the evaluation, as of March 31, 2018, 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.

36

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.

37

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

See Note 12(“Commitments and Contingencies”) to our Financial Statements for a discussion of litigation related to the Heavy Equipment Statutes, which is incorporated by reference into this Item 1.

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.

Item 1A. Risk Factors

There have been no material changes or updates to our risk factors that were previously disclosed in our 2017 Form 10-K.

Item 2. Unregistered Sales of Equity Securities

The following table summarizes our repurchases of equity securities during the three months ended March 31, 2018:

Period	Total Number of Shares Repurchased (1)	Average Price Paid Per Unit		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares yet to be Purchased Under the Publicly Announced Plans or Programs
January 1, 2018 - January 31, 2018	—	$	—	N/A	N/A
February 1, 2018 - February 28, 2018	—	—		N/A	N/A
March 1, 2018 - March 31, 2018	19,036	13.10		N/A	N/A
Total	19,036	$	13.10	N/A	N/A

——————

⁽¹⁾  Represents shares withheld to satisfy employees’ tax withholding obligations in connection with vesting of restricted stock awards during the period.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of January 1, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P. and Archrock Partners, L.P., incorporated by reference to Exhibit 2.1 of Archrock Partners’ Current Report on Form 8-K filed on January 2, 2018
2.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of January 11, 2018, by and among Archrock, Inc., Archrock GP LLC, Archrock General Partner, L.P., Archrock Partners, L.P. and Amethyst Merger Sub LLC, incorporated by reference to Exhibit 2.2 of Archrock Partners’ Current Report on Form 8-K filed on January 16, 2018

38

3.1	Certificate of Limited Partnership of UCO Partners, L.P. (now Archrock 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 Archrock 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	Certificate of Amendment of Certificate of Limited Partnership of Exterran Partners, L.P. (now Archrock Partners, L.P.), incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2015
3.4	Composite Certificate of Limited Partnership of Archrock Partners, L.P., incorporated by reference to Exhibit 3.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015
3.5	First Amended and Restated Agreement of Limited Partnership of Exterran Partners, L.P. (now Archrock 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
3.6	Certificate of Limited Partnership of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-1 filed on June 27, 2006
3.7	Amended and Restated Limited Partnership Agreement of UCO General Partner, LP (now Archrock General Partner, L.P.), incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.8	Certificate of Formation of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1 filed June 27, 2006
3.9	Amended and Restated Limited Liability Company Agreement of UCO GP, LLC (now Archrock GP, LLC), incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006
3.10	Amendment No. 2 to the First Amended and Restated Agreement of Limited Partnership of Archrock Partners, L.P., dated December 22, 2017, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 22, 2017
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 11, 2014
10.1	Amendment No.1 to Credit Agreement, dated as of February 23, 2018, by and among Archrock Partners L.P., the other Loan Parties thereto, the Lenders thereto, and JPMorgan Chase Bank, N.A., as the Administrative Agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 28, 2018
10.2†	Form of Letter Agreement, dated as of March 19, 2018, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 21, 2018
31.1 *	Certification of the Principal Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
31.2 *	Certification of the Principal Financial Officer of Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to Rule 13a-14 under the Securities Exchange Act of 1934
32.1 **	Certification of the Chief Executive Officer of Archrock GP LLC (as general partner of the general partner of Archrock 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 Archrock GP LLC (as general partner of the general partner of Archrock Partners, L.P.) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.

39

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.

ARCHROCK PARTNERS, L.P.
By:	ARCHROCK GENERAL PARTNER, L.P.
	its General Partner
By:	ARCHROCK GP LLC
	its General Partner
By:	/s/ RAYMOND K. GUBA
	Raymond K. Guba
	Interim Chief Financial Officer
	(Principal Financial Officer)
By:	/s/ DONNA A. HENDERSON
	Donna A. Henderson
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)
	May 3, 2018

40

EX-31.1

Exhibit 31.1

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, D. Bradley Childers, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Archrock Partners, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018

/s/ D. BRADLEY CHILDERS
Name:	D. Bradley Childers
Title:	Chief Executive Officer, Archrock GP LLC
	(Principal Executive Officer)
	As General Partner of Archrock General Partner, L.P.
	As General Partner of Archrock Partners, L.P.

EX-31.2

Exhibit 31.2

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond K. Guba, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Archrock Partners, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2018

/s/ RAYMOND K. GUBA
Name:	Raymond K. Guba
Title:	Interim Chief Financial Officer, Archrock GP LLC
	(Principal Financial Officer)
	As General Partner of Archrock General Partner, L.P.
	As General Partner of Archrock Partners, L.P.

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Archrock Partners, L.P. (the “Partnership”) for the quarter ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), D. Bradley Childers, as Chief Executive Officer of Archrock GP LLC, the general partner of the Partnership’s general partner, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

/s/ D. BRADLEY CHILDERS
Name:	D. Bradley Childers
Title:	Chief Executive Officer, Archrock GP LLC
	As General Partner of Archrock General Partner, L.P.
	As General Partner of Archrock Partners, L.P.

Date: May 3, 2018

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Archrock Partners, L.P. (the “Partnership”) for the quarter ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Raymond K. Guba, as Interim Chief Financial Officer of Archrock GP LLC, the general partner of the Partnership’s general partner, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

/s/ RAYMOND K. GUBA
Name:	Raymond K. Guba
Title:	Interim Chief Financial Officer, Archrock GP LLC
	As General Partner of Archrock General Partner, L.P.
	As General Partner of Archrock Partners, L.P.

Date: May 3, 2018

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	Apr. 30, 2018
Document and Entity Information
Entity Registrant Name	Archrock Partners, L.P.
Entity Central Index Key	0001367064
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		70,231,036
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash	$ 1,463	$ 8,078
Accounts receivable, trade, net of allowance of $1,153 and $1,296, respectively	69,100	67,714
Current portion of interest rate swaps	1,646	186
Total current assets	72,209	75,978
Property, plant and equipment	2,755,590	2,727,401
Accumulated depreciation	(963,150)	(953,325)
Property, plant and equipment, net	1,792,440	1,774,076
Intangible assets, net	56,848	60,747
Other long-term assets	24,650	19,401
Contract costs	20,819	0
Total assets	1,966,966	1,930,202
Current liabilities:
Accounts payable, trade	17,944	18,368
Accrued liabilities	9,683	7,597
Deferred revenue	6,761	1,299
Accrued interest	23,110	12,972
Due to affiliates, net	911	4,683
Current portion of interest rate swaps	0	134
Total current liabilities	58,409	45,053
Long-term debt	1,374,552	1,361,053
Other long-term liabilities	9,284	9,356
Total liabilities	1,442,245	1,415,462
Commitments and contingencies (Note 12)
Partners’ capital:
Common units, 70,363,681 and 70,310,590 issued, respectively	506,035	501,023
General partner units, 2% interest with 1,422,458 and 1,421,768 equivalent units issued and outstanding, respectively	11,650	11,582
Accumulated other comprehensive income	9,627	4,476
Treasury units, 132,645 and 113,609 common units, respectively	(2,591)	(2,341)
Total partners’ capital	524,721	514,740
Total liabilities and partners’ capital	$ 1,966,966	$ 1,930,202

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Accounts receivable, trade, allowance (in dollars)	$ 1,153	$ 1,296
Common units, units issued (in units)	70,363,681	70,310,590
General partner units, interest (as a percent)	2.00%	2.00%
General partner units, equivalent units issued (in units)	1,422,458	1,421,768
General partner units, equivalent units outstanding (in units)	1,422,458	1,421,768
Treasury units, common units (in units)	132,645	113,609

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Income Statement [Abstract]
Revenue	$ 147,002	$ 137,295
Costs and expenses:
Cost of sales (excluding depreciation and amortization) — affiliates	56,302	56,277
Selling, general and administrative — affiliates	19,801	20,311
Depreciation and amortization	34,326	36,885
Long-lived asset impairment	3,066	6,210
Interest expense	21,609	20,223
Debt extinguishment costs	0	291
Merger-related costs	1,376	0
Other (income) loss, net	(287)	112
Total costs and expenses	136,193	140,309
Income (loss) before income taxes	10,809	(3,014)
Provision for income taxes	519	1,302
Net income (loss)	10,290	(4,316)
General partner interest in net income (loss)	204	(86)
Common unitholder interest in net income (loss)	$ 10,086	$ (4,230)
Income (loss) per common unit:
Basic and diluted (in dollars per unit)	$ 0.14	$ (0.07)
Weighted average common units outstanding used in income (loss) per common unit:
Basic and diluted (in units)	70,071	65,418
Distributions declared and paid per limited partner unit in respective periods (in dollars per unit)	$ 0.285	$ 0.2850

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 10,290	$ (4,316)
Other comprehensive income:
Interest rate swap gain, net of reclassifications to earnings	4,985	1,675
Amortization of terminated interest rate swaps	166	0
Total other comprehensive income	5,151	1,675
Comprehensive income (loss)	$ 15,441	$ (2,641)

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CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL - USD ($) $ in Thousands	Total	Treasury Units	Accumulated Other Comprehensive Income (loss)	Partners' Capital Common Units	Partners' Capital General Partner Units
Beginning balance at Dec. 31, 2016	$ 522,173	$ (1,892)	$ (4,170)	$ 516,208	$ 12,027
Beginning balance (in units) at Dec. 31, 2016		(86,795)		65,606,655	1,326,965
Increase (Decrease) in Partners' Capital
Issuance of common units for vesting of phantom units (in units)				78,205
Treasury units purchased	(404)	$ (404)
Treasury units purchased (in units)		(22,977)
Issuance of general partner units					$ 20
Issuance of general partner units (in units)					1,119
Distribution of capital, net	(132)			$ (67)	$ (65)
Cash distributions	(19,107)			(18,729)	(378)
Unit-based compensation expense	520			520
Comprehensive income	(2,641)		1,675	(4,230)	(86)
Ending balance at Mar. 31, 2017	500,429	$ (2,296)	(2,495)	$ 493,702	$ 11,518
Ending balance (in units) at Mar. 31, 2017		(109,772)		65,684,860	1,328,084
Increase (Decrease) in Partners' Capital
Impact of Adoption of Accounting Standards Updates (See Note 2 (Recent Accounting Developments))	12,714		(383)	$ 12,837	$ 260
Beginning balance at Dec. 31, 2017	514,740	$ (2,341)	4,476	$ 501,023	$ 11,582
Beginning balance (in units) at Dec. 31, 2017		(113,609)		70,310,590	1,421,768
Increase (Decrease) in Partners' Capital
Issuance of common units for vesting of phantom units (in units)				53,091
Treasury units purchased	(250)	$ (250)
Treasury units purchased (in units)		(19,036)
Issuance of general partner units					$ 9
Issuance of general partner units (in units)					690
Distribution of capital, net	1,825			$ 1,825
Cash distributions	(20,455)			(20,050)	(405)
Unit-based compensation expense	314			314
Comprehensive income	15,824		5,534	10,086	204
Ending balance at Mar. 31, 2018	$ 524,721	$ (2,591)	$ 9,627	$ 506,035	$ 11,650
Ending balance (in units) at Mar. 31, 2018		(132,645)		70,363,681	1,422,458

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net income (loss)	$ 10,290	$ (4,316)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization	34,326	36,885
Long-lived asset impairment	3,066	6,210
Amortization of deferred financing costs	1,353	1,726
Amortization of debt discount	344	319
Amortization of terminated interest rate swaps	166	0
Debt extinguishment costs	0	291
Interest rate swaps	257	505
Unit-based compensation expense	314	520
Provision for doubtful accounts	118	278
(Gain) loss on sale of property, plant and equipment	(256)	148
Deferred income tax provision	391	1,302
Amortization of contract costs	2,101	0
Changes in assets and liabilities:
Accounts receivable, trade	(1,639)	6,413
Contract costs	(6,604)	0
Other assets and liabilities	13,495	10,434
Net cash provided by operating activities	57,722	60,715
Cash flows from investing activities:
Capital expenditures	(60,555)	(14,090)
Proceeds from sale of property, plant and equipment	10,377	4,187
Proceeds from insurance	136	0
Increase in amounts due from affiliates, net	0	(3,793)
Net cash used in investing activities	(50,042)	(13,696)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	73,830	709,000
Repayments of long-term debt	(61,136)	(705,500)
Payments for debt issuance costs	(2,316)	(14,459)
Payments for settlement of interest rate swaps that include financing elements	(205)	(581)
Distributions to unitholders	(20,455)	(19,107)
Net proceeds from sale of general partner units	9	20
Purchases of treasury units	(250)	(404)
Decrease in amounts due to affiliates, net	(3,772)	(8,012)
Net cash used in financing activities	(14,295)	(39,043)
Net increase (decrease) in cash and cash equivalents	(6,615)	7,976
Cash and cash equivalents at beginning of period	8,078	217
Cash and cash equivalents at end of period	1,463	8,193
Supplemental disclosure of non-cash transactions:
Non-cash capital contribution from limited and general partner	1,825	1,360
Contract operations equipment acquired/exchanged, net	$ 0	$ (1,492)

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Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of the Partnership included herein have been prepared in accordance with U.S. GAAP for interim financial information and the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP are not required in these interim financial statements and have been condensed or omitted. Management believes that the information furnished includes all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods indicated. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements presented in our 2017 Form 10-K, which contains a more comprehensive summary of our accounting policies. The interim results reported herein are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

Organization

We are a publicly-held 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 General Partner is an indirect wholly-owned subsidiary of Archrock. Its general partner is Archrock GP, and the board of directors and officers of Archrock GP, which we refer to herein as our board of directors and our officers, make decisions on our behalf.

As of March 31, 2018, public unitholders held an approximate 57% ownership interest in us and Archrock owned our remaining equity interests, including the general partner interests and all of the incentive distribution rights. As a result of the closing of the Merger, we are an indirect wholly-owned subsidiary of Archrock and the incentive distribution rights were canceled.

Merger Transaction

On April 26, 2018, Archrock completed the acquisition of all of our outstanding common units at a fixed exchange ratio of 1.40 shares of Archrock common stock for each of our common units not owned by Archrock. In connection with the closing of the Merger, Archrock issued an aggregate of 57.6 million shares of its common stock to unaffiliated holders of our common units in exchange for all of the 41.2 million common units not owned by Archrock. Additionally, our incentive distribution rights, which were previously owned indirectly by Archrock, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. See Note 13(“Subsequent Events”) for further details of this transaction.

Significant Accounting Policies

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 instruments. Changes in accumulated other comprehensive income (loss) represent changes in the fair value of derivative instruments that are designated as cash flow hedges and amortization of terminated interest rate swaps. See Note 9(“Derivatives”) for additional disclosures related to comprehensive income (loss).

Income (Loss) Per Common Unit

Income (loss) per common unit is computed using the two-class method. Under the two-class method, basic income (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 excluding the weighted average number of outstanding participating securities 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.

When computing income (loss) per common unit in periods when distributions are greater than income (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 income per common unit in periods when income is greater than distributions, income is allocated to the General Partner, participating securities and common units based on how our Partnership Agreement would allocate income if the full amount of income for the period had been distributed. This allocation of net income does not impact our total net income, 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 income 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 (loss) used in the calculation of basic and diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018			2017
Net income (loss)	$	10,290		$	(4,316	)
Less: General partner 2% ownership interest	(204		)	86
Common unitholder interest in net income (loss)	10,086			(4,230		)
Less: Net income attributable to participating securities	(28		)	(34		)
Net income (loss) used in basic and diluted income (loss) per common unit	$	10,058		$	(4,264	)

The following table shows the potential common units that were included in computing diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018		2017
Weighted average common units outstanding including participating securities	70,208		65,536
Less: Weighted average participating securities outstanding	(137	)	(118	)
Weighted average common units outstanding — used in basic income (loss) per common unit	70,071		65,418
Net dilutive potential common units issuable:
Phantom units	—		—
Weighted average common units and dilutive potential common units — used in diluted income (loss) per common unit	70,071		65,418

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Recent Accounting Developments

3 Months Ended

Mar. 31, 2018

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Developments

2. Recent Accounting Developments

Accounting Standards Updates Implemented

On January 1, 2018, we adopted ASU 2017-12 using the modified retrospective approach to existing cash flow hedge relationships as of January 1, 2018. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components, aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements and eliminates the requirement to separately measure and report hedge ineffectiveness. As a result of the adoption of ASU 2017-12, we recognized a net gain of $0.4 million as a cumulative-effect adjustment to opening retained earnings, with a corresponding adjustment to other comprehensive income (loss), to reverse the cumulative ineffectiveness previously recognized in interest expense.

On January 1, 2018, we adopted ASU 2016-15 on a retrospective basis. ASU 2016-15 addresses diversity in practice and simplifies several elements of cash flow classification, including how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 did not have an impact on our condensed consolidated statement of cash flow for the three months ended March 31, 2017.

Revenue Recognition Update

On January 1, 2018, we adopted the Revenue Recognition Update using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the Revenue Recognition Update as an adjustment to the opening balance of retained earnings. For contracts that were modified before the effective date, we identified performance obligations on the basis of the current version of the contract, which included any contract modifications since inception. The application of the practical expedient for contract modifications did not have a material effect on the adjustment to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Under previous guidance, contract operations revenue was recognized when earned, which generally occurs monthly when the service is provided under our customer contracts. Under the Revenue Recognition Update the timing of revenue recognition is impacted by contractual provisions for service availability guarantees of our compressor assets and re-billable costs associated with moving our compressor assets to a customer site. These changes are further discussed below and did not result in a material difference from previous practice for contract operations.

The Revenue Recognition Update provides guidance on contract costs that should be recognized as assets and amortized over the period that the related goods or services transfer to the customer. Certain costs that were previously expensed as incurred, such as sales commissions and freight charges to transport compressor assets, are deferred and amortized.

The following table summarizes the cumulative impact of the adoption of the Revenue Recognition Update on the opening balance sheet (in thousands):

	December 31, 2017		Adjustments Due to the Revenue Recognition Update		January 1, 2018
Assets
Contract costs	$	—	$	16,316	$	16,316
Liabilities
Accrued liabilities	$	7,597	$	186	$	7,783
Deferred revenue	1,299		3,416		4,715
Partners’ capital
Common units	$	501,023	$	12,462	$	513,485
General partner units	11,582		252		11,834

The following tables summarize the impact of the application of the Revenue Recognition Update on our condensed consolidated balance sheet and condensed consolidated statement of operations (in thousands):

	March 31, 2018
Balance Sheet	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Assets
Accounts receivable, trade	$	69,100	$	68,858	$	242
Contract costs	20,819		—		20,819
Liabilities
Accrued liabilities	$	9,683	$	9,483	$	200
Deferred revenue	6,761		1,375		5,386
Other long-term liabilities	9,284		9,272		12
Equity
Common units	$	506,035	$	490,879	$	15,156
General partner units	11,650		11,343		307

	Three Months Ended March 31, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	147,002	$	148,931	$	(1,929	)
Cost of sales (excluding depreciation and amortization) — affiliates	56,302		60,296		(3,994		)
Selling, general and administrative — affiliates	19,801		20,310		(509		)
Provision for income taxes	519		507		12
Net income	10,290		7,728		2,562

Accounting Standards Updates Not Yet Implemented

In June 2016, the FASB issued ASU 2016-13 that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 that establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of ASU 2016-02 on our consolidated financial statements.

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Revenue from Contract with Customers

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customers

3. Revenue from Contracts with Customers

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we are entitled to receive in exchange for those goods or services. Sales and usage-based taxes that are collected from the customer are excluded from revenue.

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

	Three Months Ended March 31, 2018
0 - 1,000 horsepower per unit	$	54,427
1,001 - 1,500 horsepower per unit	60,694
Over 1,500 horsepower per unit	31,435
Other (1)	446
Total Contract Operations (2)	$	147,002

——————

⁽¹⁾  Primarily relates to fees associated with Archrock-owned non-compressor equipment.

⁽²⁾  Includes $1.1 million for the three months ended March 31, 2018 related to billable maintenance on Archrock-owned units that was recognized at a point in time. All other revenue is recognized over time.

Contract Operations

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 location and each customer's unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

Natural gas compression services are generally satisfied over time, as the customer simultaneously receives and consumes the benefits provided by these services. Our performance obligation is a series in which the unit of service is one month, as the customer receives substantially the same benefit each month from the services regardless of the type of service activity performed, which may vary. If the transaction price is based on a fixed fee, revenue is recognized monthly on a straight-line basis over the period that we are providing services to the customer. Amounts invoiced to customers for costs associated with moving our compressor assets to a customer site are also included in the transaction price and are amortized over the initial contract term.

Variable consideration exists if customers are billed at a lesser standby rate when a unit is not running. We have elected to apply the invoicing practical expedient to recognize revenue for such variable consideration, as the invoice corresponds directly to the value transferred to the customer based on our performance completed to date. The rate for standby service is lower to reflect the decrease in costs and effort required to provide standby service when a unit is not running.

We also perform billable maintenance service on our natural gas compression equipment at the customer’s request on an as-needed basis. The performance obligation is satisfied and revenue is recognized at the agreed-upon transaction price at the point in time when service is complete and the customer has accepted the work performed and can obtain the remaining benefits of the service that the unit will provide.

As of March 31, 2018, we had $168.0 million of remaining performance obligations related to our contract compression service. This amount does not reflect revenue for contracts whose original expected duration is less than 12 months or performance obligations for which we recognize revenue in the amount at which we have the right to invoice for services performed. We have elected the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. This amount will be recognized through 2021 as follows (in thousands):

	2018		2019		2020		2021		Total
Remaining performance obligations	$	106,284	$	46,104	$	12,725	$	2,865	$	167,978

Contract Balances

Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. We recognize a contract asset when we have the right to consideration in exchange for goods or services transferred to a customer when the right is conditioned on something other than the passage of time. We recognize a contract liability when we have an obligation to transfer goods or services to a customer for which we have already received consideration. Freight billings to transport compressor assets often result in a contract liability.

As of March 31, and January 1, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts were $68.3 million and $66.2 million, respectively. As of March 31, and January 1, 2018, our contract liabilities were $7.3 million and $5.4 million, respectively, which are included in deferred revenue and other long-term liabilities in our condensed consolidated balance sheets. The increase in the contract liability balance was due to deferral of $4.1 million, partially offset by $2.2 million which was recognized as revenue during the period each primarily related to freight billings.

5. Contract Costs

We capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs.Capitalized costs include commissions paid to our sales force to obtain contract operations contracts. As of March 31, and January 1, 2018, we recorded contract costs of $2.5 million and $2.0 million, respectively, associated with sales commissions.

We capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and if we expect to recover those costs. Capitalized costs incurred to fulfill our customer contracts include freight charges to transport compressor assets before transferring services to the customer and mobilization activities associated with our contract operations services. As of March 31, and January 1, 2018, we recorded contract costs of $18.4 million and $14.3 million, respectively, associated with freight and mobilization.

Contract operations costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 36 months based on average contract term, including anticipated renewals. We assess periodically whether the 36-month estimate fairly represents the average contract term and adjust as appropriate. Contract costs associated with commissions are amortized to SG&A. Contract costs associated with freight and mobilization are amortized to cost of sales (excluding depreciation and amortization). During the three months ended March 31, 2018, we amortized $0.2 million and $1.9 million related to commissions and freight and mobilization, respectively. During the three months ended March 31, 2018, there was no impairment loss recorded in relation to the costs capitalized.

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Related Party Transactions

3 Months Ended

Mar. 31, 2018

Related Party Transactions [Abstract]

Related Party Transactions

4. Related Party Transactions

On January 1, 2018, we entered into the Merger Agreement pursuant to which we agreed to merge with and into an indirect wholly-owned subsidiary of Archrock. On April 26, 2018, the Merger was completed and we survived as Archrock’s indirect wholly-owned subsidiary. See Note 13(“Subsequent Events”) for further details of the Merger.

Omnibus Agreement

Our Omnibus Agreement with Archrock, our General Partner and others includes, among other things:

• certain agreements not to compete between Archrock and its affiliates, on the one hand, and us and our affiliates, on the other hand;

• Archrock’s obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Archrock for such services;

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

• Archrock’s grant to us of a license to use certain intellectual property, including our logo; and

• Archrock’s and our obligations to indemnify each other for certain liabilities.

Common Control Transactions

Transactions between us and Archrock 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.

Transfer, Exchange or Lease of Compression Equipment with Archrock

If Archrock determines in good faith that we or Archrock’s contract operations services business need to transfer, exchange or lease compression equipment between Archrock 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 (i) transfer to the transferor compression equipment equal in value to the appraised value of the compression equipment transferred to it, (ii) agree to lease such compression equipment from the transferor or (iii) pay the transferor an amount in cash equal to the appraised value of the compression equipment transferred to it.

The TCJA made significant changes to the determination of partnership taxable income that included the cessation of like-kind exchange treatment for exchanges of tangible personal property. In accordance with this change, we no longer perform such exchanges as of January 1, 2018.

Transfer and Exchange of Overhauls. During the three months ended March 31, 2018 and March 31, 2017, Archrock contributed to us $1.8 million and $1.4 million, respectively, 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.

Other Exchanges. The following table summarizes the exchange activity between Archrock and us prior to the enactment of the TCJA (dollars in thousands):

	Three Months Ended March 31, 2017
	Transferred to Archrock		Transferred from Archrock
Compressor units	79		70
Horsepower	47,700		41,200
Net book value	$	21,559	$	20,063

During the three months ended March 31, 2017, we recorded capital distributions of $1.5 million related to the differences in net book value on the exchanged compression equipment. No customer contracts were included in the exchanges.

Leases. The following table summarizes the aggregate cost and accumulated depreciation of equipment on lease to and from Archrock (in thousands):

	March 31, 2018		December 31, 2017
Equipment on lease to Archrock:
Aggregate cost	$	14,740	$	3,560
Accumulated depreciation	2,366		272
Equipment on lease from Archrock:
Aggregate cost	$	24,273	$	224
Accumulated depreciation	11,824		34

The following table summarizes the revenue from Archrock related to the lease of our compression equipment and the cost of sales related to the lease of Archrock compression equipment (in thousands):

	Three Months Ended March 31,
	2018		2017
Revenue	$	149	$	28
Cost of sales	251		68

Reimbursement of Operating and SG&A Expense

Archrock 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.

Archrock charges us for costs that are directly attributable to us. Costs that are indirectly attributable to us and Archrock’s other operations are allocated among Archrock’s other operations and us. The allocation methodologies vary based on the nature of the charge and have included, among other things, headcount and horsepower. We believe that the allocation methodologies used to allocate indirect costs to us are reasonable.

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Contract Costs

3 Months Ended

Mar. 31, 2018

Other Income and Expenses [Abstract]

Contract Costs

3. Revenue from Contracts with Customers

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we are entitled to receive in exchange for those goods or services. Sales and usage-based taxes that are collected from the customer are excluded from revenue.

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

	Three Months Ended March 31, 2018
0 - 1,000 horsepower per unit	$	54,427
1,001 - 1,500 horsepower per unit	60,694
Over 1,500 horsepower per unit	31,435
Other (1)	446
Total Contract Operations (2)	$	147,002

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⁽¹⁾  Primarily relates to fees associated with Archrock-owned non-compressor equipment.

⁽²⁾  Includes $1.1 million for the three months ended March 31, 2018 related to billable maintenance on Archrock-owned units that was recognized at a point in time. All other revenue is recognized over time.

Contract Operations

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 location and each customer's unique needs, these services include designing, sourcing, owning, installing, operating, servicing, repairing and maintaining equipment to provide natural gas compression services to our customers.

Natural gas compression services are generally satisfied over time, as the customer simultaneously receives and consumes the benefits provided by these services. Our performance obligation is a series in which the unit of service is one month, as the customer receives substantially the same benefit each month from the services regardless of the type of service activity performed, which may vary. If the transaction price is based on a fixed fee, revenue is recognized monthly on a straight-line basis over the period that we are providing services to the customer. Amounts invoiced to customers for costs associated with moving our compressor assets to a customer site are also included in the transaction price and are amortized over the initial contract term.

Variable consideration exists if customers are billed at a lesser standby rate when a unit is not running. We have elected to apply the invoicing practical expedient to recognize revenue for such variable consideration, as the invoice corresponds directly to the value transferred to the customer based on our performance completed to date. The rate for standby service is lower to reflect the decrease in costs and effort required to provide standby service when a unit is not running.

We also perform billable maintenance service on our natural gas compression equipment at the customer’s request on an as-needed basis. The performance obligation is satisfied and revenue is recognized at the agreed-upon transaction price at the point in time when service is complete and the customer has accepted the work performed and can obtain the remaining benefits of the service that the unit will provide.

As of March 31, 2018, we had $168.0 million of remaining performance obligations related to our contract compression service. This amount does not reflect revenue for contracts whose original expected duration is less than 12 months or performance obligations for which we recognize revenue in the amount at which we have the right to invoice for services performed. We have elected the practical expedient to not consider the effects of the time value of money, as the expected time between the transfer of services and payment for such services is less than one year. This amount will be recognized through 2021 as follows (in thousands):

	2018		2019		2020		2021		Total
Remaining performance obligations	$	106,284	$	46,104	$	12,725	$	2,865	$	167,978

Contract Balances

Contract operations services are generally billed monthly at the beginning of the month in which service is being provided. We recognize a contract asset when we have the right to consideration in exchange for goods or services transferred to a customer when the right is conditioned on something other than the passage of time. We recognize a contract liability when we have an obligation to transfer goods or services to a customer for which we have already received consideration. Freight billings to transport compressor assets often result in a contract liability.

As of March 31, and January 1, 2018, our receivables from contracts with customers, net of allowance for doubtful accounts were $68.3 million and $66.2 million, respectively. As of March 31, and January 1, 2018, our contract liabilities were $7.3 million and $5.4 million, respectively, which are included in deferred revenue and other long-term liabilities in our condensed consolidated balance sheets. The increase in the contract liability balance was due to deferral of $4.1 million, partially offset by $2.2 million which was recognized as revenue during the period each primarily related to freight billings.

5. Contract Costs

We capitalize incremental costs to obtain a contract with a customer if we expect to recover those costs.Capitalized costs include commissions paid to our sales force to obtain contract operations contracts. As of March 31, and January 1, 2018, we recorded contract costs of $2.5 million and $2.0 million, respectively, associated with sales commissions.

We capitalize costs incurred to fulfill a contract if those costs relate directly to a contract, enhance resources that we will use in satisfying performance obligations and if we expect to recover those costs. Capitalized costs incurred to fulfill our customer contracts include freight charges to transport compressor assets before transferring services to the customer and mobilization activities associated with our contract operations services. As of March 31, and January 1, 2018, we recorded contract costs of $18.4 million and $14.3 million, respectively, associated with freight and mobilization.

Contract operations costs are amortized based on the transfer of service to which the assets relate, which is estimated to be 36 months based on average contract term, including anticipated renewals. We assess periodically whether the 36-month estimate fairly represents the average contract term and adjust as appropriate. Contract costs associated with commissions are amortized to SG&A. Contract costs associated with freight and mobilization are amortized to cost of sales (excluding depreciation and amortization). During the three months ended March 31, 2018, we amortized $0.2 million and $1.9 million related to commissions and freight and mobilization, respectively. During the three months ended March 31, 2018, there was no impairment loss recorded in relation to the costs capitalized.

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Long-Term Debt

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Long-Term Debt

6. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	March 31, 2018			December 31, 2017
Credit Facility	$	687,000		$	674,306
6% senior notes due April 2021	350,000			350,000
Less: Debt discount, net of amortization	(2,344		)	(2,523		)
Less: Deferred financing costs, net of amortization	(3,082		)	(3,338		)
	344,574			344,139
6% senior notes due October 2022	350,000			350,000
Less: Debt discount, net of amortization	(3,276		)	(3,441		)
Less: Deferred financing costs, net of amortization	(3,746		)	(3,951		)
	342,978			342,608
Long-term debt	$	1,374,552		$	1,361,053

Credit Facility

The Credit Facility is a five-year, $1.1 billion asset-based revolving credit facility that will mature on March 30, 2022, except that if any portion of our 6% senior notes due April 2021 are outstanding as of December 2, 2020, then maturity will instead be on December 2, 2020. In March 2017, we incurred $14.9 million in transaction costs related to the formation of the Credit Facility. Concurrent with entering into the Credit Facility, we expensed $0.6 million of unamortized deferred financing costs and recorded a debt extinguishment loss of $0.3 million related to the termination of our Former Credit Facility.

As of March 31, 2018, we had no outstanding letters of credit under the Credit Facility and the applicable margin on amounts outstanding was 3.3%. The weighted average annual interest rate on the outstanding balance under the Credit Facility, excluding the effect of interest rate swaps, was 5.1% and 6.3% at March 31, 2018 and 2017, respectively. We incurred $0.5 million and $0.4 million in commitment fees on the daily unused amount of the Credit Facility and Former Credit Facility during the three months ended March 31, 2018 and 2017, respectively.

On February 23, 2018, we amended the Credit Facility to, among other things, increase the maximum Total Debt to EBITDA ratio. We must maintain the following consolidated financial ratios, as defined in the Credit Facility agreement:

EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter (1)	5.25 to 1.0

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⁽¹⁾  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 quarter in which the acquisition closes.

As of March 31, 2018, we had undrawn capacity of $413.0 million under the Credit Facility. As a result of the financial ratio requirements discussed above, $177.2 million of the $413.0 million of undrawn capacity was available for additional borrowings as of March 31, 2018. As of March 31, 2018, we were in compliance with all covenants under the Credit Facility agreement.

Amendment No. 1 amended certain other terms of the Credit Facility effective upon completion of the Merger on April 26, 2018. See 13(“Subsequent Events”) for further details.

The Notes

The Notes are guaranteed on a senior unsecured basis by all of our existing subsidiaries (other than Archrock Partners Finance Corp., which is a co-issuer of the Notes) and certain of our future subsidiaries. The 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 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 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. Archrock Partners Finance Corp. has no operations and does not have revenue other than as may be incidental as co-issuer of the 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 Archrock Partners Finance Corp., and as a result we have not included consolidated financial information of our subsidiaries.

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Partners' Capital

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Partners' Capital

7. Partners’ Capital

On April 26, 2018, Archrock completed the acquisition of all of our outstanding common units at a fixed exchange ratio of 1.40 shares of Archrock common stock for each of our common units not owned by Archrock. Additionally, our incentive distribution rights, which were previously owned indirectly by Archrock, were canceled and ceased to exist. As a result of the Merger, our common units are no longer publicly traded. See Note 13(“Subsequent Events”) for further details of this transaction.

Unit Transactions

During the three months ended March 31, 2018 and March 31, 2017, we issued and sold 690 and 1,119 general partner units, respectively, to our General Partner to maintain its approximate 2% general partner interest in us.

As of March 31, 2018, Archrock owned 29,064,637 common units and 1,422,458 general partner units, collectively representing an approximate 43% interest in us.

Cash Distributions

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

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

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

• third, 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:

Period Covering	Payment Date	Distribution per Common Unit		Total Distribution (in thousands)
1/1/2017 — 3/31/2017	May 15, 2017	$	0.285	$	19,124
4/1/2017 — 6/30/2017	August 14, 2017	0.285		20,459
7/1/2017 — 9/30/2017	November 14, 2017	0.285		20,459
10/01/2017 — 12/31/2017	February 13, 2018	0.285		20,455

On April 30, 2018, our board of directors approved a cash distribution of approximately $15.5 million. The distribution covers the period from January 1, 2018 through March 31, 2018. Any distributions in respect of our common units will be paid to Archrock as the owner of all outstanding common units.

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Unit-Based Compensation

3 Months Ended

Mar. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Unit-Based Compensation

8. Unit-Based Compensation

Long-Term Incentive Plan

In April 2017, we adopted the 2017 LTIP to provide for the benefit of the employees, directors and consultants of us, Archrock and our respective affiliates. Two million common units have been authorized for issuance with respect to awards under the 2017 LTIP. The 2017 LTIP provides for the issuance of unit options, unit appreciation rights, restricted units, phantom units, performance awards, bonus awards, distribution equivalent rights, cash awards and other unit-based awards. The 2017 LTIP will be administered by the Plan Administrator. The 2006 LTIP expired in 2016 and, as such, no further grants have been or can be made under that plan following expiration. Previous grants made under the 2006 LTIP continue to be governed by the 2006 LTIP and the applicable award agreements.

Phantom units are notional units that entitle the grantee to receive common units upon the vesting of such phantom units or, at the discretion of the Plan Administrator, cash equal to the fair market value of the underlying common units. Because we grant phantom units to non-employees, we are required to remeasure the fair value of these phantom units, which is based on the fair value of our common units, each period and record a cumulative adjustment of the expense previously recognized. Phantom units granted under the 2017 LTIP 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. Phantom units granted generally vest one-third per year on dates as specified in the applicable award agreements subject to continued service through the applicable vesting date.

Phantom Units

The following table presents phantom unit activity during the three months ended March 31, 2018:

	Phantom Units (in thousands)		Weighted Average Grant Date Fair Value per Unit
Phantom units outstanding, January 1, 2018	153		$	12.19
Vested	(53	)	11.24
Phantom units outstanding, March 31, 2018	100		12.69

As of March 31, 2018, we expect $1.1 million of unrecognized compensation cost related to unvested phantom units to be recognized over the weighted-average period of 1.7 years.

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Derivatives

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

9. Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative instruments to minimize the risks and 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 instruments for trading or other speculative purposes.

At March 31, 2018, we were a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates:

Expiration Date	Notional Value (in millions)
May 2019	$	100.0
May 2020	100.0
March 2022	300.0
	$	500.0

As of March 31, 2018, the weighted average effective fixed interest rate on our interest rate swaps was 1.8%. 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 other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts in other comprehensive income (loss) are reclassified into earnings and presented in the same income statement line item as the earnings effect of the hedged item. Prior to adoption of ASU 2017-12, we performed quarterly calculations to determine whether the swap agreements continued to be highly effective at achieving offsetting changes in cash flows attributable to the hedged risk. 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 expect the hedging relationship to continue to be highly effective. Upon adoption of ASU 2017-12, we perform subsequent quarterly prospective and retrospective hedge effectiveness assessments qualitatively unless facts and circumstances related to the hedging relationships change such that we can no longer assert qualitatively that the cash flow hedge relationships were and continue to be highly effective. We estimate that $1.5 million of deferred gain attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at March 31, 2018, will be reclassified into earnings as interest income 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 condensed 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 condensed consolidated statements of cash flows.

In August 2017, we amended the terms of certain of our interest rate swap agreements, designated as cash flow hedges against the variability of future interest payments due under the Credit Facility, with a notional value of $300.0 million. The amended terms adjusted the fixed interest rate and extended the maturity dates to March 2022. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, as of the amendment date, we discontinued the original cash flow hedge relationships on a prospective basis and designated the amended interest rate swaps under new cash flow hedge relationships based on the amended terms. The fair value of the interest rate swaps immediately prior to the execution of the amendments was a liability of $0.7 million. The associated amount in accumulated other comprehensive income (loss) is being amortized into interest expense over the original terms of the interest rate swaps through May 2018.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

		Fair Value Asset (Liability)
	Balance Sheet Location	March 31, 2018		December 31, 2017
Derivatives designated as hedging instruments:
Interest rate swaps	Current portion of interest rate swaps	$	1,646	$	186
Interest rate swaps	Other long-term assets	8,164		4,490
Interest rate swaps	Current portion of interest rate swaps	—		(134		)
Total derivatives		$	9,810	$	4,542

	Gain Recognized in Other Comprehensive Income (Loss) on Derivatives		Location of Loss  Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate swaps
Three months ended March 31, 2018	$	4,696	Interest expense	$	(455	)
Three months ended March 31, 2017	699		Interest expense	(976		)

	Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2018
	Interest Expense
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$	21,609
Interest Contracts:
Amount of loss reclassified from accumulated other comprehensive income into income	$	(54	)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—

The counterparties to our derivative agreements are major 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.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

10. Fair Value Measurements

The accounting standard for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs of valuation techniques used to measure fair value into the following three 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

On a quarterly basis, our interest rate swaps are valued based on the income approach (discounted cash flow) using market observable inputs, including forward London Interbank Offered Rate curves. These fair value measurements are classified as Level 2.

The following table presents our interest rate swaps asset and liability measured at fair value on a recurring basis with pricing levels as of the date of valuation (in thousands):

	March 31, 2018		December 31, 2017
Interest rate swaps asset	$	9,810	$	4,676
Interest rate swaps liability	—		(134		)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months ended March 31, 2018, we recorded non-recurring fair value measurements related to our idle and previously-culled compressor units. Our estimate of the compressor units’ 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. These fair value measurements are classified as Level 3. The fair value of our impaired compressor units was $0.2 million and $1.8 million at March 31, 2018 and December 31, 2017, respectively. See Note 11(“Long-Lived Asset Impairment”) for further details.

Other Financial Instruments

The carrying amounts of our cash, receivables and payables approximate fair value due to the short-term nature of those instruments.

The carrying amounts of borrowings outstanding under our Credit Facility approximate fair value due to their variable interest rates. The fair value of these outstanding borrowings 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.

The fair value of our fixed rate debt was estimated based on quoted prices in inactive markets and is considered a Level 2 measurement. The following table summarizes the carrying amount and fair value of our fixed rate debt (in thousands):

	March 31, 2018		December 31, 2017
Carrying amount of fixed rate debt (1)	$	687,552	$	686,747
Fair value of fixed rate debt	700,000		702,000

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⁽¹⁾  Carrying amounts are shown net of unamortized debt discounts and unamortized deferred financing costs. See Note 6(“Long-Term Debt”) for further details.

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Long-Lived Asset Impairment

3 Months Ended

Mar. 31, 2018

Asset Impairment Charges [Abstract]

Long-Lived Asset Impairment

11. Long-Lived Asset Impairment

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.

We periodically review the future deployment of our idle compression assets for units that are not of the type, configuration, condition, make or model that are cost efficient to maintain and operate. Based on these reviews, we determine that certain idle compressor units should be retired from the active fleet. The retirement of these units from the active fleet triggers a review of these assets for impairment and as a result of our review, we may record an asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit is estimated based on the expected net sale proceeds compared to other fleet units we recently sold, 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 review of our idle compression assets, we evaluate for impairment idle units that were culled from our fleet in prior years and are available for sale. Based on that review, we may reduce the expected proceeds from disposition and record additional impairment to reduce the book value of each unit to its estimated fair value.

The following table presents the results of our impairment review (dollars in thousands):

	Three Months Ended March 31,
	2018		2017
Idle compressor units retired from the active fleet	35		65
Horsepower of idle compressor units retired from the active fleet	13,000		22,000
Impairment recorded on idle compressor units retired from the active fleet	$	3,066	$	6,210

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

12. Commitments and Contingencies

Insurance Matters

Our business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of natural gas or well fluids and fires or explosions. Archrock insures our property and operations against many, but not all, of these risks. We believe that our insurance coverage is customary for the industry and adequate for our business; however, losses and liabilities not covered by insurance would increase our costs.

In addition, Archrock 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. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

Tax Matters

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 March 31, 2018 and December 31, 2017, we accrued $2.4 million and $1.6 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 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 consolidated results of operations or cash flows for the period in which the resolution occurs.

Litigation and Claims

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. Under the revised Heavy Equipment 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 taxes under this new methodology. We further believe that our natural gas compressors are taxable under the Heavy Equipment Statutes in the counties where we maintain a business location and keep natural gas compressors instead of where the compressors may be located on January 1 of a tax year. As a result of this new methodology, our ad valorem tax expense (which is reflected in our condensed consolidated statements of operations as a component of cost of sales (excluding depreciation and amortization expense)) includes a benefit of $4.3 million during the three months ended March 31, 2018. Since the change in methodology became effective in 2012, we have recorded an aggregate benefit of $70.5 million as of March 31, 2018, of which $13.1 million has been agreed to by a number of appraisal review boards and county appraisal districts and $57.4 million has been disputed and is currently in litigation. 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, 93 petitions for review in the appropriate district courts with respect to the 2013 tax year, 103 petitions for review in the appropriate district courts with respect to the 2014 tax year, 111 petitions for review in the appropriate district courts with respect to the 2015 tax year, 105 petitions for review in the appropriate district courts with respect to the 2016 tax year and 107 petitions for review in the appropriate district courts with respect to the 2017 tax year.

To date, 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 of the decisions having been rendered by the same presiding judge. All three of those decisions were appealed, and all three of the appeals have been decided by intermediate appellate courts.

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, Archrock Partners Leasing LLC, formerly known as EXLP Leasing, and Archrock’s subsidiary, Archrock Services Leasing LLC, formerly known as EES Leasing, 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. EXLP Leasing and EES Leasing appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas. On September 23, 2015, the Eighth Court of Appeals ruled in EXLP Leasing’s and EES Leasing’s favor by overruling the 143rd District Court’s constitutionality ruling. The Eighth Court of Appeals also ruled, however, that EXLP Leasing’s and EES Leasing’s natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue.

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 appealed the district court’s constitutionality holding to the Eighth Court of Appeals in El Paso, Texas, and the Ward County Appraisal District cross-appealed the district court’s rulings that EXLP Leasing’s and EES Leasing’s compressors qualify as Heavy Equipment. On September 23, 2015, the Eighth Court of Appeals ruled in EXLP Leasing’s and EES Leasing’s favor by overruling the 143rd District Court’s constitutionality ruling and affirming its ruling that EXLP Leasing’s and EES Leasing’s compressors qualify as Heavy Equipment. The Eighth Court of Appeals also ruled, however, that EXLP Leasing’s and EES Leasing’s natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue.

The Ward County Appraisal District and Loving County Appraisal District each filed (on January 27, 2016 and February 10, 2016, respectively) a petition asking the Texas Supreme Court to review its respective Eighth Court of Appeals decision. On March 11, 2016, EXLP Leasing and EES Leasing filed responses to the appraisal districts’ petitions and cross-petitions for review in each case asking the Texas Supreme Court to also review the Eighth Court of Appeals’ determination that natural gas compressors are taxable in the counties where they were located on January 1 of the tax year at issue. The Ward County Appraisal District filed its response to EXLP Leasing’s and EES Leasing’s cross-petition on June 6, 2016, and EXLP Leasing and EES Leasing filed their reply on June 21, 2016. The Loving County Appraisal District filed its response to EXLP Leasing’s and EES Leasing’s cross-petition on May 27, 2016, and EXLP Leasing and EES Leasing filed their reply on June 10, 2016.

On March 18, 2014, the 10th Judicial District Court of 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 appealed the district court’s constitutionality holding to the Fourteenth Court of Appeals in Houston, Texas. On August 25, 2015, the Fourteenth Court of Appeals issued a ruling stating that EXLP Leasing’s and EES Leasing’s compressors are taxable in the counties where they were located on January 1 of the tax year at issue, and it remanded the case to the district court for further evidence on the issue of whether the Heavy Equipment Statutes are constitutional as applied to EXLP Leasing’s and EES Leasing’s compressors. On November 24, 2015, EXLP Leasing and EES Leasing filed a petition asking the Texas Supreme Court to review this decision. On March 21, 2016, the Galveston Central Appraisal District filed a response to EXLP Leasing’s and EES Leasing’s petition for review, and EXLP Leasing and EES Leasing filed their reply on April 26, 2016.

In EES Leasing v. Irion County Appraisal District, EES Leasing and the appraisal district each filed motions for summary judgment in the 51st District Court concerning the applicability and constitutionality of the Heavy Equipment Statutes. On May 20, 2014, the district court entered an order denying both 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. The presiding judge for the 51st District Court has since consolidated the 2012 tax year case with EES Leasing’s 2013 tax year case, which also included EXLP Leasing as a party. On August 27, 2015, the presiding judge abated the combined case, EES Leasing LLC and EXLP Leasing LLC v. Irion County Appraisal District, until the final resolution of the appellate cases considering the constitutionality of the Heavy Equipment Statutes, or further order of the court.

EXLP Leasing and EES 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.

On June 3, 2015, the Fourth Court of Appeals in San Antonio, Texas issued a decision reversing the 406th District Court’s dismissal of EXLP Leasing’s and EES Leasing’s tax appeals for want of jurisdiction. In EXLP Leasing LLC et. al v. Webb County Appraisal District, 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 place of business and keep natural gas compressors. The Webb County Appraisal District and United ISD contested EXLP Leasing’s and EES Leasing’s position that the Heavy Equipment Statutes contain situs provisions requiring that taxes be paid where the dealer has a business location and keeps its natural gas compressors, 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 district court granted United ISD’s motion to dismiss on April 1, 2014 and declined EXLP Leasing’s and EES Leasing’s motion to reconsider. The Fourth Court of Appeals reversed, holding that, based on the plain meaning of Section 42.08(b)(1), and because the entire amount was in dispute, EXLP Leasing and EES Leasing were not required to prepay disputed taxes to invoke the trial court’s jurisdiction. The Fourth Court of Appeals denied United ISD’s request for a rehearing. On September 29, 2015, United ISD filed a petition for review in the Texas Supreme Court. On December 4, 2015, the Texas Supreme Court denied United ISD’s petition for review.

United ISD has four delinquency lawsuits pending against EXLP Leasing and EES Leasing in the 49th District Court of Webb County, Texas. The cases have been abated pending the resolution of EXLP Leasing’s and EES Leasing’s 2012 tax year case pending in the 406th Judicial District Court of Webb County, Texas.

On September 2, 2016, the Texas Supreme Court requested that consolidated merits briefs be filed in EXLP Leasing’s and EES Leasing’s cases against the Loving County Appraisal District, Ward County Appraisal District, and Galveston Central Appraisal District, as well as two similar cases involving different taxpayers. On September 19, 2016, the Supreme Court entered a consolidated briefing schedule for the five cases. Consolidated briefing was completed on February 7, 2017.

On March 10, 2017, the Texas Supreme Court granted EXLP Leasing’s and EES Leasing’s petition for review in EXLP Leasing LLC & EES Leasing LLC v. Galveston Central Appraisal District. The case was argued before the Texas Supreme Court on October 10, 2017. On March 2, 2018, the Texas Supreme Court ruled in favor of EXLP Leasing and EES Leasing by reversing the Fourteenth Court of Appeals’ decision. In doing so, the Supreme Court upheld the validity of the Heavy Equipment Rules and held that compressors are taxable in the county of EXLP Leasing’s and EES Leasing’s business location, not where each compressor is located on January 1. On March 8, 2018, the Galveston Central Appraisal District filed a motion for extension of time to file a motion for rehearing. The Court granted the motion and Galveston Central Appraisal District filed the motion for rehearing on April 2, 2018.

We continue to believe that the revised statutes are constitutional as applied to natural gas compressors and that under the revised statutes our natural gas compressors are taxable in the counties where we maintain a business location and keep natural gas compressors. Recognizing the similarity of the issues and that these cases will ultimately be resolved by the Texas appellate courts, most of the remaining 2012-2017 district court cases have been formally or effectively abated pending final judgment from the Texas Supreme Court.

If we are unsuccessful in our litigation, 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. In addition, while we do not expect the ultimate determination of the issue of where the natural gas compressors are taxable under the Heavy Equipment Statutes would have an impact on the amount of taxes due, we could be subject to substantial penalties if we are unsuccessful on this issue. Also, if we are unsuccessful in our litigation, 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. If this litigation is resolved against us in whole or in part, 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 and could be subject to substantial penalties and interest, which would impact our future results of operations, financial position and cash flows, including our cash available for distribution.

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.

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Subsequent Events

3 Months Ended

Mar. 31, 2018

Subsequent Events [Abstract]

Subsequent Events

13. Subsequent Events

Merger Transaction

On January 1, 2018, we entered into the Merger Agreement pursuant to which we agreed to merge with and into an indirect wholly-owned subsidiary of Archrock. On April 26, 2018, the Merger was completed and we survived as Archrock’s indirect wholly-owned subsidiary. Upon completion of the Merger, each of our 41.2 million common units not owned by Archrock was converted to Archrock shares at a fixed exchange ratio of 1.40 for total implied consideration of approximately $625.3 million and all of our incentive distribution rights, which were owned indirectly by Archrock, were canceled and ceased to exist. As a result of the completion of the Merger, our common units are no longer publicly traded.

Amendment to the Credit Facility

On February 23, 2018, we amended the Credit Facility to, among other things:

• increase the maximum Total Debt to EBITDA ratio (as defined in the Credit Facility agreement), effective as of the execution of Amendment No. 1 on February 23, 2018; and

• effective upon completion of the Merger on April 26, 2018:

– increase the aggregate revolving commitment to $1.25 billion;

– increase the amount available for incremental increases to the commitments under the Credit Facility to $500.0 million;

– increase the amount available for the issuance of letters of credit to $50.0 million;

– increase the basket sizes under certain covenants including covenants limiting our ability to make investments, incur debt, make restricted payments, incur liens and make asset dispositions;

– name Archrock Services, L.P., one of Archrock’s subsidiaries, as a borrower under the Credit Facility and certain of Archrock’s other subsidiaries as loan guarantors; and

– amend the definition of “Borrowing Base” to include certain assets of Archrock’s subsidiaries.

On April 26, 2018, in connection with the Merger and Amendment No. 1, Archrock terminated its credit facility and we borrowed on the Credit Facility to repay the $63.2 million in borrowings and accrued and unpaid interest and fees outstanding. In addition, the $15.4 million of letters of credit outstanding under its facility as of the Merger were converted to letters of credit under our Credit Facility.

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Organization and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Comprehensive Income (Loss)

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 instruments. Changes in accumulated other comprehensive income (loss) represent changes in the fair value of derivative instruments that are designated as cash flow hedges and amortization of terminated interest rate swaps. See Note 9(“Derivatives”) for additional disclosures related to comprehensive income (loss).

Income (Loss) Per Common Unit

Income (Loss) Per Common Unit

Income (loss) per common unit is computed using the two-class method. Under the two-class method, basic income (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 excluding the weighted average number of outstanding participating securities 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.

When computing income (loss) per common unit in periods when distributions are greater than income (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 income per common unit in periods when income is greater than distributions, income is allocated to the General Partner, participating securities and common units based on how our Partnership Agreement would allocate income if the full amount of income for the period had been distributed. This allocation of net income does not impact our total net income, 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 income 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.

Accounting Standards Updates

Accounting Standards Updates Implemented

On January 1, 2018, we adopted ASU 2017-12 using the modified retrospective approach to existing cash flow hedge relationships as of January 1, 2018. ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components, aligns the recognition and presentation of the effects of the hedging instrument and hedged item in the financial statements and eliminates the requirement to separately measure and report hedge ineffectiveness. As a result of the adoption of ASU 2017-12, we recognized a net gain of $0.4 million as a cumulative-effect adjustment to opening retained earnings, with a corresponding adjustment to other comprehensive income (loss), to reverse the cumulative ineffectiveness previously recognized in interest expense.

On January 1, 2018, we adopted ASU 2016-15 on a retrospective basis. ASU 2016-15 addresses diversity in practice and simplifies several elements of cash flow classification, including how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 did not have an impact on our condensed consolidated statement of cash flow for the three months ended March 31, 2017.

Revenue Recognition Update

On January 1, 2018, we adopted the Revenue Recognition Update using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We recognized the cumulative effect of initially applying the Revenue Recognition Update as an adjustment to the opening balance of retained earnings. For contracts that were modified before the effective date, we identified performance obligations on the basis of the current version of the contract, which included any contract modifications since inception. The application of the practical expedient for contract modifications did not have a material effect on the adjustment to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Under previous guidance, contract operations revenue was recognized when earned, which generally occurs monthly when the service is provided under our customer contracts. Under the Revenue Recognition Update the timing of revenue recognition is impacted by contractual provisions for service availability guarantees of our compressor assets and re-billable costs associated with moving our compressor assets to a customer site. These changes are further discussed below and did not result in a material difference from previous practice for contract operations.

The Revenue Recognition Update provides guidance on contract costs that should be recognized as assets and amortized over the period that the related goods or services transfer to the customer. Certain costs that were previously expensed as incurred, such as sales commissions and freight charges to transport compressor assets, are deferred and amortized.

The following table summarizes the cumulative impact of the adoption of the Revenue Recognition Update on the opening balance sheet (in thousands):

	December 31, 2017		Adjustments Due to the Revenue Recognition Update		January 1, 2018
Assets
Contract costs	$	—	$	16,316	$	16,316
Liabilities
Accrued liabilities	$	7,597	$	186	$	7,783
Deferred revenue	1,299		3,416		4,715
Partners’ capital
Common units	$	501,023	$	12,462	$	513,485
General partner units	11,582		252		11,834

The following tables summarize the impact of the application of the Revenue Recognition Update on our condensed consolidated balance sheet and condensed consolidated statement of operations (in thousands):

	March 31, 2018
Balance Sheet	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Assets
Accounts receivable, trade	$	69,100	$	68,858	$	242
Contract costs	20,819		—		20,819
Liabilities
Accrued liabilities	$	9,683	$	9,483	$	200
Deferred revenue	6,761		1,375		5,386
Other long-term liabilities	9,284		9,272		12
Equity
Common units	$	506,035	$	490,879	$	15,156
General partner units	11,650		11,343		307

	Three Months Ended March 31, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	147,002	$	148,931	$	(1,929	)
Cost of sales (excluding depreciation and amortization) — affiliates	56,302		60,296		(3,994		)
Selling, general and administrative — affiliates	19,801		20,310		(509		)
Provision for income taxes	519		507		12
Net income	10,290		7,728		2,562

Accounting Standards Updates Not Yet Implemented

In June 2016, the FASB issued ASU 2016-13 that changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. Entities will apply ASU 2016-13 provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 that establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of ASU 2016-02 on our consolidated financial statements.

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Organization and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Schedule of reconciliation of net income used in calculation of basic and diluted earnings per common unit

The following table reconciles net income (loss) used in the calculation of basic and diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018			2017
Net income (loss)	$	10,290		$	(4,316	)
Less: General partner 2% ownership interest	(204		)	86
Common unitholder interest in net income (loss)	10,086			(4,230		)
Less: Net income attributable to participating securities	(28		)	(34		)
Net income (loss) used in basic and diluted income (loss) per common unit	$	10,058		$	(4,264	)

Schedule of potential common units included in computing diluted earnings per common unit

The following table shows the potential common units that were included in computing diluted income (loss) per common unit (in thousands):

	Three Months Ended March 31,
	2018		2017
Weighted average common units outstanding including participating securities	70,208		65,536
Less: Weighted average participating securities outstanding	(137	)	(118	)
Weighted average common units outstanding — used in basic income (loss) per common unit	70,071		65,418
Net dilutive potential common units issuable:
Phantom units	—		—
Weighted average common units and dilutive potential common units — used in diluted income (loss) per common unit	70,071		65,418

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Recent Accounting Developments (Tables)

3 Months Ended

Mar. 31, 2018

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

The following table summarizes the cumulative impact of the adoption of the Revenue Recognition Update on the opening balance sheet (in thousands):

	December 31, 2017		Adjustments Due to the Revenue Recognition Update		January 1, 2018
Assets
Contract costs	$	—	$	16,316	$	16,316
Liabilities
Accrued liabilities	$	7,597	$	186	$	7,783
Deferred revenue	1,299		3,416		4,715
Partners’ capital
Common units	$	501,023	$	12,462	$	513,485
General partner units	11,582		252		11,834

The following tables summarize the impact of the application of the Revenue Recognition Update on our condensed consolidated balance sheet and condensed consolidated statement of operations (in thousands):

	March 31, 2018
Balance Sheet	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Assets
Accounts receivable, trade	$	69,100	$	68,858	$	242
Contract costs	20,819		—		20,819
Liabilities
Accrued liabilities	$	9,683	$	9,483	$	200
Deferred revenue	6,761		1,375		5,386
Other long-term liabilities	9,284		9,272		12
Equity
Common units	$	506,035	$	490,879	$	15,156
General partner units	11,650		11,343		307

	Three Months Ended March 31, 2018
Statement of Operations	As Reported		Balance Excluding the Impact of the Revenue Recognition Update		Effect of Change
Revenue	$	147,002	$	148,931	$	(1,929	)
Cost of sales (excluding depreciation and amortization) — affiliates	56,302		60,296		(3,994		)
Selling, general and administrative — affiliates	19,801		20,310		(509		)
Provision for income taxes	519		507		12
Net income	10,290		7,728		2,562

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Revenue from Contract with Customers (Tables)

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following table presents our revenue from contracts with customers disaggregated by revenue source (in thousands):

	Three Months Ended March 31, 2018
0 - 1,000 horsepower per unit	$	54,427
1,001 - 1,500 horsepower per unit	60,694
Over 1,500 horsepower per unit	31,435
Other (1)	446
Total Contract Operations (2)	$	147,002

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⁽¹⁾  Primarily relates to fees associated with Archrock-owned non-compressor equipment.

⁽²⁾  Includes $1.1 million for the three months ended March 31, 2018 related to billable maintenance on Archrock-owned units that was recognized at a point in time. All other revenue is recognized over time.

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Related Party Transactions (Tables)

3 Months Ended

Mar. 31, 2018

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

The following table summarizes the aggregate cost and accumulated depreciation of equipment on lease to and from Archrock (in thousands):

	March 31, 2018		December 31, 2017
Equipment on lease to Archrock:
Aggregate cost	$	14,740	$	3,560
Accumulated depreciation	2,366		272
Equipment on lease from Archrock:
Aggregate cost	$	24,273	$	224
Accumulated depreciation	11,824		34

The following table summarizes the revenue from Archrock related to the lease of our compression equipment and the cost of sales related to the lease of Archrock compression equipment (in thousands):

	Three Months Ended March 31,
	2018		2017
Revenue	$	149	$	28
Cost of sales	251		68

The following table summarizes the exchange activity between Archrock and us prior to the enactment of the TCJA (dollars in thousands):

	Three Months Ended March 31, 2017
	Transferred to Archrock		Transferred from Archrock
Compressor units	79		70
Horsepower	47,700		41,200
Net book value	$	21,559	$	20,063

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2018

Debt Disclosure [Abstract]

Schedule of long-term debt

Long-term debt consisted of the following (in thousands):

	March 31, 2018			December 31, 2017
Credit Facility	$	687,000		$	674,306
6% senior notes due April 2021	350,000			350,000
Less: Debt discount, net of amortization	(2,344		)	(2,523		)
Less: Deferred financing costs, net of amortization	(3,082		)	(3,338		)
	344,574			344,139
6% senior notes due October 2022	350,000			350,000
Less: Debt discount, net of amortization	(3,276		)	(3,441		)
Less: Deferred financing costs, net of amortization	(3,746		)	(3,951		)
	342,978			342,608
Long-term debt	$	1,374,552		$	1,361,053

We must maintain the following consolidated financial ratios, as defined in the Credit Facility agreement:

EBITDA to Interest Expense	2.5 to 1.0
Senior Secured Debt to EBITDA	3.5 to 1.0
Total Debt to EBITDA
Through fiscal year 2018	5.95 to 1.0
Through fiscal year 2019	5.75 to 1.0
Through second quarter of 2020	5.50 to 1.0
Thereafter (1)	5.25 to 1.0

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⁽¹⁾  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 quarter in which the acquisition closes.

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Partners' Capital (Tables)

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Summary of distributions per unit

The following table summarizes our distributions per unit:

Period Covering	Payment Date	Distribution per Common Unit		Total Distribution (in thousands)
1/1/2017 — 3/31/2017	May 15, 2017	$	0.285	$	19,124
4/1/2017 — 6/30/2017	August 14, 2017	0.285		20,459
7/1/2017 — 9/30/2017	November 14, 2017	0.285		20,459
10/01/2017 — 12/31/2017	February 13, 2018	0.285		20,455

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Unit-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of phantom unit activity

The following table presents phantom unit activity during the three months ended March 31, 2018:

	Phantom Units (in thousands)		Weighted Average Grant Date Fair Value per Unit
Phantom units outstanding, January 1, 2018	153		$	12.19
Vested	(53	)	11.24
Phantom units outstanding, March 31, 2018	100		12.69

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Derivatives (Tables)

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of derivative instruments

At March 31, 2018, we were a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates:

Expiration Date	Notional Value (in millions)
May 2019	$	100.0
May 2020	100.0
March 2022	300.0
	$	500.0

Effect of derivative instruments on consolidated financial position

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

		Fair Value Asset (Liability)
	Balance Sheet Location	March 31, 2018		December 31, 2017
Derivatives designated as hedging instruments:
Interest rate swaps	Current portion of interest rate swaps	$	1,646	$	186
Interest rate swaps	Other long-term assets	8,164		4,490
Interest rate swaps	Current portion of interest rate swaps	—		(134		)
Total derivatives		$	9,810	$	4,542

Effect of derivative instruments on results of operations

	Gain Recognized in Other Comprehensive Income (Loss) on Derivatives		Location of Loss  Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate swaps
Three months ended March 31, 2018	$	4,696	Interest expense	$	(455	)
Three months ended March 31, 2017	699		Interest expense	(976		)

	Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships
	Three Months Ended March 31, 2018
	Interest Expense
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$	21,609
Interest Contracts:
Amount of loss reclassified from accumulated other comprehensive income into income	$	(54	)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$	—

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2018

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities measured at fair value on a recurring basis with pricing levels as of the date of valuation

The following table presents our interest rate swaps asset and liability measured at fair value on a recurring basis with pricing levels as of the date of valuation (in thousands):

	March 31, 2018		December 31, 2017
Interest rate swaps asset	$	9,810	$	4,676
Interest rate swaps liability	—		(134		)

Schedule of carrying value and estimated fair value of debt instruments

The following table summarizes the carrying amount and fair value of our fixed rate debt (in thousands):

	March 31, 2018		December 31, 2017
Carrying amount of fixed rate debt (1)	$	687,552	$	686,747
Fair value of fixed rate debt	700,000		702,000

——————

⁽¹⁾  Carrying amounts are shown net of unamortized debt discounts and unamortized deferred financing costs. See Note 6(“Long-Term Debt”) for further details.

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Long-Lived Asset Impairment (Tables)

3 Months Ended

Mar. 31, 2018

Asset Impairment Charges [Abstract]

Details of Impairment of Long-Lived Assets Held and Used by Asset

The following table presents the results of our impairment review (dollars in thousands):

	Three Months Ended March 31,
	2018		2017
Idle compressor units retired from the active fleet	35		65
Horsepower of idle compressor units retired from the active fleet	13,000		22,000
Impairment recorded on idle compressor units retired from the active fleet	$	3,066	$	6,210

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Organization and Summary of Significant Accounting Policies (Narratives) (Details)		3 Months Ended
	Apr. 26, 2018 shares	Mar. 31, 2018
Business Acquisition
Ownership interest held by public unitholders in the reporting entity (as a percent)		57.00%
Subsequent Event | Common stock
Business Acquisition
Share conversion rate	1.40
Subsequent Event | Common stock | Archrock
Business Acquisition
Business acquisition, shares issued (shares)	57,600,000.0
Business acquisition, shares acquired (shares)	41,200,000.0

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Organization and Summary of Significant Accounting Policies - Income (Loss) Per Common Unit (Details) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Earnings (Loss) Per Common Unit
Net income (loss)	$ 10,290	$ (4,316)
Less: General partner 2% ownership interest	(204)	86
Common unitholder interest in net income (loss)	10,086	(4,230)
Less: Net income attributable to participating securities	(28)	(34)
Net income (loss) used in basic and diluted income (loss) per common unit	$ 10,058	$ (4,264)
General partner units, interest (as a percent)	2.00%		2.00%
Potential common units included in computing the dilutive potential common units used in dilutive earnings per common unit
Weighted average common units outstanding including participating securities (in units)	70,208	65,536
Less: Weighted average participating securities outstanding (in units)	(137)	(118)
Weighted average common units outstanding — used in basic income (loss) per common unit (in units)	70,071	65,418
Net dilutive potential common units issuable:
Phantom units (in units)	0	0
Weighted average common units and dilutive potential common units - used in diluted earnings per common unit (in units)	70,071	65,418

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Recent Accounting Developments (Narratives) (Details) - USD ($) $ in Thousands	Jan. 01, 2018	Dec. 31, 2017
New Accounting Pronouncements or Change in Accounting Principle
Impact of Adoption of Accounting Standards Updates (See Note 2 (Recent Accounting Developments))		$ 12,714
Retained earnings | ASU 2017-12
New Accounting Pronouncements or Change in Accounting Principle
Impact of Adoption of Accounting Standards Updates (See Note 2 (Recent Accounting Developments))	$ 400
Accumulated Other Comprehensive Income (loss) | ASU 2017-12
New Accounting Pronouncements or Change in Accounting Principle
Impact of Adoption of Accounting Standards Updates (See Note 2 (Recent Accounting Developments))	$ (400)

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Recent Accounting Developments - Balance Sheet Impact (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Accounts receivable, trade	$ 69,100		$ 67,714
Contract costs	20,819	$ 16,316	0
Liabilities
Accrued liabilities	9,683	7,783	7,597
Deferred revenue	6,761	4,715	1,299
Other long-term liabilities	9,284		9,356
Partners’ capital
Common units	506,035	513,485	501,023
General partner units	11,650	11,834	11,582
Balance Excluding the Impact of the Revenue Recognition Update
Assets
Accounts receivable, trade	68,858
Contract costs	0		0
Liabilities
Accrued liabilities	9,483		7,597
Deferred revenue	1,375		1,299
Other long-term liabilities	9,272
Partners’ capital
Common units	490,879		501,023
General partner units	11,343		$ 11,582
Adjustments Due to the Revenue Recognition Update | ASU 2014-09
Assets
Accounts receivable, trade	242
Contract costs	20,819	16,316
Liabilities
Accrued liabilities	200	186
Deferred revenue	5,386	3,416
Other long-term liabilities	12
Partners’ capital
Common units	15,156	12,462
General partner units	$ 307	$ 252

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Recent Accounting Developments - Income Statement Impact (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Revenue, Initial Application Period Cumulative Effect Transition
Revenue	$ 147,002	$ 137,295
Cost of sales (excluding depreciation and amortization) — affiliates	56,302	56,277
Selling, general and administrative — affiliates	19,801	20,311
Provision for income taxes	519	1,302
Net income (loss)	10,290	$ (4,316)
Balance Excluding the Impact of the Revenue Recognition Update
Revenue, Initial Application Period Cumulative Effect Transition
Revenue	148,931
Cost of sales (excluding depreciation and amortization) — affiliates	60,296
Selling, general and administrative — affiliates	20,310
Provision for income taxes	507
Net income (loss)	7,728
Adjustments Due to the Revenue Recognition Update | ASU 2014-09
Revenue, Initial Application Period Cumulative Effect Transition
Revenue	(1,929)
Cost of sales (excluding depreciation and amortization) — affiliates	(3,994)
Selling, general and administrative — affiliates	(509)
Provision for income taxes	12
Net income (loss)	$ 2,562

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Revenue from Contract with Customers - Disaggregate Revenue (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Disaggregation of Revenue
Contract revenue	$ 147,002
0 - 1,000 horsepower per unit
Disaggregation of Revenue
Contract revenue	54,427
1,001 - 1,500 horsepower per unit
Disaggregation of Revenue
Contract revenue	60,694
Over 1,500 horsepower per unit
Disaggregation of Revenue
Contract revenue	31,435
Other
Disaggregation of Revenue
Contract revenue	446
Other | Transferred at point in time
Disaggregation of Revenue
Contract revenue	$ 1,100

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Revenue from Contract with Customers - Remaining Performance Obligation (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-04-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligations	$ 106,284
Performance obligations expected to be satisfied, expected timing	9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligations	$ 46,104
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligations	$ 12,725
Performance obligations expected to be satisfied, expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligations	$ 167,978
Performance obligations expected to be satisfied, expected timing	1 year

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Revenue from Contract with Customers - Contract with Client (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Jan. 01, 2018
Revenue from Contract with Customer [Abstract]
Contract assets with customer	$ 68.3	$ 66.2
Contract liability with customer	7.3	$ 5.4
Increase in contract liability from freight billing	4.1
Revenue from contract liability	$ 2.2

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Related Party Transactions (Narratives) (Details) - Archrock $ in Millions	3 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($) contract
Related party transactions
Amount contributed by related party related to completion of overhauls on compression equipment	$ 1.8	$ 1.4
Distributions recorded related to differences in net book value of compressor units exchanged to our assets transferred to related party		$ 1.5
Number of customer contracts included in transfers | contract		0

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Related Party Transactions - Transfers (Details) - Archrock $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) compressor_unit hp
Related party transactions
Number of compressor units transferred to a related party | compressor_unit	79
Horsepower of compressor units transferred to related party | hp	47,700
Net book value of compressor units transferred to related party | $	$ 21,559
Number of compressor units transferred by related party | compressor_unit	70
Horsepower of compressor units transferred by related party | hp	41,200
Net book value of compressor units transferred by related party | $	$ 20,063

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Related Party Transactions - Aggregate Cost and Accumulated Depreciation (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Related party transactions
Accumulated depreciation	$ 963,150	$ 953,325
Archrock | Equipment Leased to Other Party
Related party transactions
Aggregate cost	14,740	3,560
Accumulated depreciation	2,366	272
Archrock | Equipment Leased From Other Party
Related party transactions
Aggregate cost	24,273	224
Accumulated depreciation	$ 11,824	$ 34

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Related Party Transactions - Revenue From Related Party (Details) - Archrock - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Related party transactions
Revenue	$ 149	$ 28
Cost of sales	$ 251	$ 68

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Contract Costs (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Jan. 01, 2018	Dec. 31, 2017
Disaggregation of Revenue
Contract costs	$ 20,819,000		$ 16,316,000	$ 0
Capitalized contract, term	36 months
Amortization of contract costs	$ 2,101,000	$ 0
Impairment loss on customer contracts	0
Sales Commissions
Disaggregation of Revenue
Contract costs	2,500,000		2,000,000
Amortization of contract costs	200,000
Freight and Mobilization
Disaggregation of Revenue
Contract costs	18,400,000		$ 14,300,000
Amortization of contract costs	$ 1,900,000

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Long-Term Debt - Schedule of Long-term Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Long-Term Debt
Long-term debt	$ 1,374,552	$ 1,361,053
6% senior notes due April 2021 | Senior Notes
Long-Term Debt
Long-term debt, gross	350,000	350,000
Less: Debt discount, net of amortization	(2,344)	(2,523)
Less: Deferred financing costs, net of amortization	(3,082)	(3,338)
Long-term debt	$ 344,574	344,139
Interest rate (as a percent)	6.00%
6% senior notes due October 2022 | Senior Notes
Long-Term Debt
Long-term debt, gross	$ 350,000	350,000
Less: Debt discount, net of amortization	(3,276)	(3,441)
Less: Deferred financing costs, net of amortization	(3,746)	(3,951)
Long-term debt	$ 342,978	342,608
Interest rate (as a percent)	6.00%
Revolving Credit Facility | Credit Facility
Long-Term Debt
Long-term debt	$ 687,000	$ 674,306
Interest rate (as a percent)	6.00%

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Long-Term Debt - Revolving Credit Facility (Details) - USD ($)	1 Months Ended	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Long-Term Debt
Debt issuance cost expensed	$ 600,000
Line of credit outstanding		$ 0
Revolving Credit Facility
Long-Term Debt
Weighted average interest rate (percentage)	6.30%	5.10%	6.30%
Commitment fees		$ 500,000	$ 400,000
Revolving Credit Facility | Credit Facility
Long-Term Debt
Line of credit facility, period		5 years
Maximum borrowing capacity		$ 1,100,000,000.0
Interest rate (as a percent)		6.00%
Transaction costs	$ 14,900,000
Line of credit remaining borrowing capacity		$ 413,000,000
Revolving Credit Facility | Credit Facility | Maximum
Long-Term Debt
Line of credit remaining borrowing capacity		$ 177,200,000
Revolving Credit Facility | Term loan facility due May 2018
Long-Term Debt
Loss on extinguishment of debt	$ 300,000
Line of Credit | Base Rate
Long-Term Debt
Spread on variable rate		3.30%

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Long-Term Debt - Debt Ratios (Details)	3 Months Ended	6 Months Ended	12 Months Ended		21 Months Ended
	Mar. 31, 2018	Jun. 30, 2020	Dec. 31, 2019	Dec. 31, 2018	Mar. 30, 2022
Forecasted | Revolving Credit Facility | Conditional Event
Line of Credit Facility
Total debt to EBITDA ratio					5.5
Exterran Partners LP
Line of Credit Facility
EBITDA to total interest expenses ratio	2.5
Senior secured debt to EBITDA ratio	3.5
Exterran Partners LP | Forecasted
Line of Credit Facility
Total debt to EBITDA ratio		5.5	5.75	5.95	5.25

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Long-Term Debt - Senior Notes (Details)	Mar. 31, 2018 USD ($)
Debt Disclosure [Abstract]
Ownership percentage (as a percent)	100.00%
Amount of independent assets or operations	$ 0

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Partners' Capital (Narratives) (Details) $ / shares in Units, $ in Millions					3 Months Ended
	Feb. 13, 2018 $ / shares	Nov. 14, 2017 $ / shares	Aug. 14, 2017 $ / shares	May 15, 2017 $ / shares	Mar. 31, 2018 $ / shares shares	Mar. 31, 2017 $ / shares shares	Apr. 30, 2018 USD ($)	Apr. 26, 2018	Dec. 31, 2017
Partners' Equity, Allocations and Cash Distributions
General partner units, interest (as a percent)					2.00%				2.00%
Distribution per common unit (in dollars per unit)	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.285	$ 0.2850
Archrock
Partners' Equity, Allocations and Cash Distributions
Common units owned (in units) | shares					29,064,637
Archrock | Archrock Partners, L.P
Partners' Equity, Allocations and Cash Distributions
General partner's ownership interest in partnership (as a percent)					43.00%
Partners' Capital General Partner Units
Partners' Equity, Allocations and Cash Distributions
Units issued in connection with acquisition (in units) | shares					690	1,119
General partner units, interest (as a percent)					2.00%
Partners' Capital General Partner Units | First order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					2.00%
Partners' Capital General Partner Units | Second order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					15.00%
Partners' Capital General Partner Units | Third order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					25.00%
Partners' Capital General Partner Units | Thereafter order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					50.00%
Partners' Capital General Partner Units | Archrock
Partners' Equity, Allocations and Cash Distributions
Units issued in connection with acquisition (in units) | shares					1,422,458
Partners' Capital Common Units | First order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					98.00%
Partners' Capital Common Units | Second order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					85.00%
Partners' Capital Common Units | Third order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					75.00%
Partners' Capital Common Units | Thereafter order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Percentage of operating surplus distributed to unitholders					50.00%
Partners' Capital General Partner and Common Units | First order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Distribution per common unit (in dollars per unit)					$ 0.4025
Partners' Capital General Partner and Common Units | Second order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Distribution per common unit (in dollars per unit)					0.4375
Partners' Capital General Partner and Common Units | Third order of cash distribution
Partners' Equity, Allocations and Cash Distributions
Distribution per common unit (in dollars per unit)					$ 0.5250
Subsequent Event
Partners' Equity, Allocations and Cash Distributions
Authorized distributions to limited partnership, amount | $							$ 15.5
Subsequent Event | Common stock
Partners' Equity, Allocations and Cash Distributions
Share conversion rate								1.40

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Partners' Capital Partners' Capital (Details) - USD ($) $ / shares in Units, $ in Thousands					3 Months Ended
	Feb. 13, 2018	Nov. 14, 2017	Aug. 14, 2017	May 15, 2017	Mar. 31, 2018	Mar. 31, 2017
Summary of distributions per unit
Distribution per common unit (in dollars per unit)	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.2850	$ 0.285	$ 0.2850
Total distribution	$ 20,455	$ 20,459	$ 20,459	$ 19,124	$ 20,455	$ 19,107

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Unit-Based Compensation - Long-term Incentive Plan (Details)	Apr. 30, 2017 shares
Long-Term Incentive Plan
Unit-Based Compensation
Maximum number of shares available under the Plan	2,000,000

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Unit-Based Compensation - Phantom Units (Details) - Phantom Units $ / shares in Units, shares in Thousands, $ in Millions	3 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Phantom Units (in thousands)
Beginning balance (in units) | shares	153
Vested (in units) | shares	(53)
Ending balance (in units) | shares	100
Weighted Average Grant Date Fair Value per Unit
Beginning balance (in dollars per unit) | $ / shares	$ 12.19
Vested (in dollars per unit) | $ / shares	11.24
Ending balance (in dollars per unit) | $ / shares	$ 12.69
Unrecognized compensation cost
Expected unrecognized compensation cost related to unvested phantom units (in dollars) | $	$ 1.1
Weighted-average period during which the expected unrecognized compensation cost related to unvested phantom units to be recognized	1 year 8 months 12 days
First anniversary vesting
Unit-Based Compensation
Vesting percentage	33.33%
Second anniversary vesting
Unit-Based Compensation
Vesting percentage	33.33%
Third anniversary vesting
Unit-Based Compensation
Vesting percentage	33.33%

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Derivatives - Interest Rate Risk (Details) - Derivatives designated as hedging instruments - USD ($)	Mar. 31, 2018	Aug. 31, 2017
Interest rate swaps
Accounting for Derivatives
Notional amount of interest rate swaps	$ 500,000,000
May 2019
Accounting for Derivatives
Notional amount of interest rate swaps	100,000,000
May 2020
Accounting for Derivatives
Notional amount of interest rate swaps	100,000,000
March 2022
Accounting for Derivatives
Notional amount of interest rate swaps	$ 300,000,000	$ 300,000,000.0

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Derivatives - Interest Rate Risk (Narratives) (Details) - Derivatives designated as hedging instruments - USD ($)	Mar. 31, 2018	Aug. 31, 2017
Interest rate swaps
Accounting for Derivatives
Weighted average effective fixed interest rate on interest rate swaps (as a percent)	1.80%
Deferred gain to be reclassified during next 12 months	$ 1,500,000
Notional amount of interest rate swaps	500,000,000
March 2022
Accounting for Derivatives
Notional amount of interest rate swaps	$ 300,000,000	$ 300,000,000.0
Derivative liability, fair value		$ 700,000

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Derivatives - Effect on Derivative Instruments on the Balance Sheet (Details) - Derivatives designated as hedging instruments - Interest rate swaps - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accounting for Derivatives
Derivative asset, net	$ 9,810	$ 4,542
Current portion of interest rate swaps
Accounting for Derivatives
Derivative asset	1,646	186
Other long-term assets
Accounting for Derivatives
Derivative asset	8,164	4,490
Current portion of interest rate swaps
Accounting for Derivatives
Derivative liability	$ 0	$ (134)

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Derivatives - Effect on Derivative Instruments on the Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Effect of derivative instruments on results of operations
Gain Recognized in Other Comprehensive Income (Loss) on Derivatives	$ 4,696	$ 699
Interest expense
Effect of derivative instruments on results of operations
Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	$ (455)	$ (976)

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Derivatives - Derivative Gain (Loss) Recognized in Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Effect of derivative instruments on results of operations
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow hedges are recorded	$ 21,609	$ 20,223
Interest rate swaps | Interest expense | Derivatives designated as cash flow hedges
Effect of derivative instruments on results of operations
Amount of loss reclassified from accumulated other comprehensive income into income	(54)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring	$ 0

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Fair Value Measurements (Details) - Recurring basis - Level 2 - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Fair value measurements
Interest rate swaps asset	$ 9,810	$ 4,676
Interest rate swaps liability	$ 0	$ (134)

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Fair Value Measurements (Narratives) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Nonrecurring basis | Level 3
Fair value measurements
Impaired long-lived assets	$ 0.2	$ 1.8
Impaired long-lived assets
Fair value measurements
Weighted average disposal period used in estimation of the fair value of the impaired long-lived assets	4 years

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Fair Value Measurements - Fair Value of Debt (Details) - Fixed Rate Debt - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Carrying Amount
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Debt	$ 687,552	$ 686,747
Estimate of Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Debt	$ 700,000	$ 702,000

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Long-Lived Asset Impairment (Details) hp in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) compressor_unit hp	Mar. 31, 2017 USD ($) compressor_unit hp
Long-lived asset impairment
Impairment recorded on idle compressor units retired from the active fleet	$ 3,066	$ 6,210
Idle compressor units
Long-lived asset impairment
Idle compressor units retired from the active fleet (compressors) | compressor_unit	35	65
Horsepower of idle compressor units retired from the active fleet (horsepower) | hp	13	22
Impairment recorded on idle compressor units retired from the active fleet	$ 3,066	$ 6,210

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Commitments and Contingencies (Details) $ in Millions	3 Months Ended	75 Months Ended
	Mar. 31, 2018 USD ($) claim	Mar. 31, 2018 USD ($) claim	Dec. 31, 2017 USD ($) petition	Dec. 31, 2016 petition	Sep. 19, 2016 claim	Dec. 31, 2015 petition	Dec. 31, 2014 petition	Dec. 31, 2013 petition	Dec. 31, 2012 petition
Loss Contingencies [Line Items]
Accrual for income tax liability | $	$ 2.4	$ 2.4	$ 1.6
Ad valorem tax benefit | $	4.3	70.5
Ad valorem tax benefit agreed to by a number of appraisal review boards and county appraisal districts | $	13.1	13.1
Ad valorem tax benefit in litigation | $	$ 57.4	$ 57.4
Number of petitions | petition			107	105		111	103	93	82
Number of pending claims	5	5
Number of claims settled	3
Number of claims appealed	3	3
Judge
Loss Contingencies [Line Items]
Number of claims settled	2
United ISD
Loss Contingencies [Line Items]
Number of pending claims	4	4			5

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Subsequent Events (Details)		3 Months Ended
	Apr. 26, 2018 USD ($) shares	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)
Subsequent Events
Repayments of long-term debt		$ 61,136,000	$ 705,500,000
Credit Facility | Revolving Credit Facility
Subsequent Events
Maximum borrowing capacity		1,100,000,000.0
Line of credit remaining borrowing capacity		$ 413,000,000
Subsequent Event | Credit Facility | Revolving Credit Facility
Subsequent Events
Maximum borrowing capacity	$ 1,250,000,000.00
Line of credit remaining borrowing capacity	500,000,000
Repayments of long-term debt	63,200,000
Letters of credit outstanding	15,400,000
Subsequent Event | Credit Facility | Letter of credit
Subsequent Events
Maximum borrowing capacity	$ 50,000,000
Subsequent Event | Common stock
Subsequent Events
Share conversion rate	1.40
Value of shares used as consideration	$ 625,300,000
Subsequent Event | Archrock | Common stock
Subsequent Events
Business acquisition, shares acquired (shares) | shares	41,200,000.0