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Description of Business and Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2014
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization

Organization

Access Midstream Partners, L.P. (the “Partnership”), a Delaware limited partnership formed in January 2010, is principally focused on natural gas gathering, the first segment of midstream energy infrastructure that connects natural gas produced at the wellhead to third-party takeaway pipelines. The Partnership is one of the industry’s largest gathering and processing master limited partnership as measured by throughput volume. The Partnership’s assets are located in Arkansas, Kansas, Louisiana, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming. The Partnership provides gathering, treating and compression services to Chesapeake Energy Corporation (“Chesapeake”), Total Gas and Power North America, Inc. and Total E&P USA, Inc., a wholly owned subsidiary of Total, S.A. (“Total”), Statoil ASA (“Statoil”), Anadarko Petroleum Corporation (“Anadarko”), Mitsui & Co., Ltd. (“Mitsui”) and other producers under long-term, fixed-fee contracts.

For purposes of these financial statements, the “GIP II Entities” refers to certain entities affiliated with Global Infrastructure Investors II, LLC, collectively.  “Williams” refers to The Williams Companies, Inc. (NYSE: WMB).

Acquisition

Williams Acquisition

At June 30, 2014, the GIP II Entities held 2,068,692 notional general partner units representing a 1.0 percent general partner interest in the Partnership, 50.0 percent of the Partnership’s incentive distribution rights, 48,742,361 common units and 6,340,022 Class B units.  At June 30, 2014, The GIP II Entities’ ownership represented an aggregate 26.6 percent limited partner interest in the Partnership. At June 30, 2014, Williams held 2,068,692 notional general partner units representing a 1.0 percent general partner interest in the Partnership, 50.0 percent of the Partnership’s incentive distribution rights, 40,137,695 common units and 6,340,022 Class B units.  At June 30, 2014, Williams ownership represented an aggregate 22.5 percent limited partner interest in the Partnership. The public held 101,171,762 common units, representing a 48.9 percent limited partner interest in the Partnership.

On July 1, 2014, Williams acquired all of the interests in the Partnership and Access Midstream Ventures, L.L.C., the sole member of Access Midstream Partners GP, L.L.C. (the “General Partner”), that were owned by the GIP II Entities (the “Williams Acquisition”).  As a result of the Williams Acquisition, Williams owns 100.0 percent of the General Partner.  The GIP II Entities no longer have any ownership interest in the Partnership or the General Partner.  At September 30, 2014, Williams held 4,155,023 notional general partner units representing a 2.0 percent general partner interest in the Partnership, 100 percent of the Partnership’s incentive distribution rights, 88,880,056 common units and 12,800,906 Class B units.  At September 30, 2014, Williams’ ownership represented an aggregate 48.9 percent limited partner interest in the Partnership. The public held 101,915,143 common units, representing a 49.1 percent limited partner interest in the Partnership.

 

As a result of the Williams Acquisition, both components of the Management Incentive Compensation Plan and all of the equity awards previously outstanding under the Long-Term Incentive Plan vested on July 1, 2014.  In addition, on July 16, 2014, the Partnership issued cash and equity retention awards to certain key employees that have various vesting periods between one and four years.  Total compensation expense as a result of these transaction related costs for the three month period ended September 30, 2014 was approximately $96.0 million.

 

Proposed Merger with Williams Partners L.P.

On October 26, 2014, the Partnership announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with the General Partner, Williams Partners L.P., a Delaware limited partnership (“Williams Partners”), Williams Partners GP LLC (“WPZ General Partner” and, together with Williams Partners, the “WPZ Parties”), and VHMS LLC (“Merger Sub” and, together with the Partnership and the General Partner, the “ACMP Parties”). Pursuant to the Merger Agreement, (1) Merger Sub, a direct wholly owned subsidiary of the Partnership, will be merged with and into Williams Partners, with Williams Partners being the surviving limited partnership (the “Merger”), and (2) WPZ General Partner will be merged with and into the General Partner, with the General Partner being the surviving limited liability company (the “GP Merger”).

Under the terms of the Merger Agreement, (i) each outstanding common unit representing limited partner interests in Williams Partners (“WPZ Common Units”) that is held by a unitholder other than Williams, Williams Gas Pipeline Company, LLC (“Williams Gas Pipeline”) and their respective subsidiaries (collectively, other than the Partnership and its subsidiaries and Williams Partners and its subsidiaries, the “Williams Parties”) will be converted into the right to receive 0.86672 newly issued common units of the Partnership (“ACMP Common Units” and such exchange ratio, the “Public Exchange Ratio”) and (ii) each outstanding WPZ Common Unit held by the Williams Parties will be converted into the right to receive 0.80036 ACMP Common Units (the “Williams Parties Exchange Ratio” and, together with the Public Exchange Ratio, the “Exchange Ratio”), in each case in consideration for each WPZ Common Unit that such holder owns at the effective time of the Merger. All of the general partner interests in WPZ (the “WPZ General Partner Interest”) outstanding immediately prior to the effective time of the Merger will be converted into the right to receive the Partnership’s general partner interests (the “ACMP General Partner Interest”) such that, immediately following consummation of the GP Merger, the General Partner’s ACMP General Partner Interest will represent, in the aggregate, 2% of the outstanding interests in the Partnership. Prior to the closing of the Merger, each Class D limited partner unit of WPZ (the “WPZ Class D Units” and together with the WPZ Common Units, the “WPZ Units”), all of which are held by Williams or its affiliates, will be converted into WPZ Common Units on a one-for-one basis pursuant to the terms of the Williams Partners partnership agreement.

As promptly as practicable following the satisfaction of specified conditions to closing set forth in the Merger Agreement, the General Partner intends to cause the Partnership to effect a subdivision of each ACMP Common Unit into 1.06152 ACMP Common Units and of each Class B unit of ACMP (the “ACMP Class B Units”) into 1.06152 ACMP Class B Units (the “ACMP Pre-Merger Unit Split”). The record date and payment date for the ACMP Pre-Merger Unit Split will each be the business day immediately prior to the closing date of the Merger, and holders of WPZ Units will not be entitled to participate in the ACMP Pre-Merger Unit Split with respect to their WPZ Units.

The conflicts committee (the “WPZ Conflicts Committee”) of the board of directors of WPZ General Partner (the “WPZ Partners Board”) has unanimously in good faith approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and resolved to approve and recommend the approval of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, to the Williams Partners Board. Based upon such approval, the Williams Partners Board has unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, including the Merger, and directed that the Merger Agreement be submitted to a vote of holders of WPZ Units. The conflicts committee (the “ACMP Conflicts Committee”) of the board of directors of the General Partner (the “ACMP Board”) has unanimously in good faith approved the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, and resolved to recommend the approval of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, to the ACMP Board. Based upon such approval, the ACMP Board (on behalf of the Partnership and Merger Sub) has approved and adopted the Merger Agreement and the transactions contemplated thereby, including the Merger.

Completion of the Merger is conditioned upon, among other things: (1) the approval and adoption of the Merger Agreement and the Merger by holders of at least a majority of the outstanding WPZ Units; (2) all material required governmental consents and approvals in connection with the Merger having been made or obtained; (3) the absence of legal injunctions or impediments prohibiting the Merger transactions; (4) the effectiveness of a registration statement on Form S-4 with respect to the issuance of ACMP Common Units in the Merger; (5) the conversion of all WPZ Class D Units into WPZ Common Units; (6) approval of the listing on the New York Stock Exchange, subject to official notice of issuance, of the ACMP Common Units to be issued in the Merger; (7) the occurrence of the ACMP Pre-Merger Unit Split; and (8) the adoption and effectiveness of Amendment No. 3 to the First Amended and Restated Agreement of Limited Partnership of the Partnership.

Pursuant to the terms of a Support Agreement, dated as of October 24, 2014, among the Partnership, Williams Partners and Williams Gas Pipeline (the “Support Agreement”), Williams Gas Pipeline, which as of October 24, 2014, beneficially owned 279,472,244 WPZ Common Units and 26,475,507 WPZ Class D Units representing approximately 65.63% of the outstanding WPZ Units, has agreed to deliver a written consent adopting and approving in all respects the Merger Agreement and the transactions contemplated thereby, including the Merger (the “WGP Written Consent”). The delivery of the WGP Written Consent (or, if applicable, vote) by Williams Gas Pipeline with respect to the WPZ Units it owns will be sufficient to adopt the Merger Agreement and thereby approve the Merger.

MidCon Acquisition

On March 31, 2014, the Partnership acquired certain midstream compression assets from MidCon Compression, L.L.C. (“MidCon”), a wholly owned subsidiary of Chesapeake, for approximately $160 million. The acquisition added natural gas compression assets, historically leased from MidCon, in the rapidly growing Utica Shale and Marcellus Shale regions. The acquired assets include more than 100 compression units with a combined capacity of approximately 200,000 horsepower.

Equity Issuances

On August 2, 2013, the Partnership entered into an Equity Distribution Agreement (“ATM”) under which it may offer and sell common units, in amounts, at prices and on terms to be determined by market conditions and other factors, having an aggregate market value of up to $300.0 million. The Partnership is under no obligation to issue equity under the ATM. For the three-month period ended September 30, 2014, the Partnership did not issue any common units under the ATM. For the nine-month period ended September 30, 2014, the Partnership sold an aggregate of 909,219 common units under the ATM for net proceeds of approximately $52.2 million, net of approximately $0.5 million in commissions, plus an approximate $1.0 million capital contribution from the Partnership’s general partner to maintain its two percent general partner interest.  The Partnership used the proceeds for general partnership purposes.  

On April 2, 2013, the Partnership completed an equity offering of 10.35 million common units, including 1.35 million common units issued pursuant to the underwriters’ exercise of their option to purchase additional common units, at a price of $39.86 per common unit. The Partnership received offering proceeds (net of underwriting discounts and commissions) of $399.8 million from the equity offering, including proceeds from the underwriters’ exercise of their option to purchase additional common units, plus an approximate $8.4 million capital contribution from the General Partner to maintain its two percent general partner interest. The proceeds were used for general partnership purposes, including repayment of amounts outstanding under the Partnership’s revolving credit facility.

Basis of Presentation

Basis of Presentation

The accompanying financial statements and related notes present the unaudited condensed consolidated balance sheets of the Partnership as of September 30, 2014 and December 31, 2013. They also include the unaudited condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2014 and 2013, the unaudited condensed consolidated statements of cash flows for the Partnership for the nine-month periods ended September 30, 2014 and 2013, and the unaudited changes in partners’ capital of the Partnership for the nine-month period ended September 30, 2014.

The accompanying condensed consolidated financial statements were prepared using accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods. Certain footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been appropriately condensed or omitted in this quarterly report on Form 10-Q (this “Form 10-Q”). Management believes the disclosures made are adequate to make the information presented not misleading. This Form 10-Q should be read together with the Partnership’s annual report on Form 10-K for the year ended December 31, 2013, as amended.

The results of operations for the nine-month period ended September 30, 2014, are not indicative of results that may be expected for the full fiscal year.

Income Taxes

Income Taxes

As a master limited partnership, the Partnership is a pass-through entity and is not subject to federal income taxes and most state income taxes with the exception of Texas Franchise Tax. For federal and state income tax purposes, all income, expenses, gains, losses and tax credits generated flow through to the owners, and accordingly, do not result in a provision for income taxes.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs that do not add capacity or extend the useful life of an asset are expensed as incurred. The carrying value of the assets is based on estimates, assumptions and judgments relative to useful lives and salvage values. As assets are disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in operating expenses in the statements of operations.

 

Depreciation is calculated using the straight-line method, based on the assets’ estimated useful lives. These estimates are based on various factors including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets.  Amortization of assets recorded under capital leases is included in depreciation expense.

 

In July 2014, the Partnership reassessed the estimated useful lives of its gathering systems.  Following this assessment, the Partnership increased the useful lives of its gathering systems from 20 years to 30 years.  Given the limited history of the assets at the Partnership’s inception, a 20 year useful life was deemed appropriate at the time based on the Partnership’s maintenance and pipeline integrity program in addition to the expectation that commercial quantities of oil and natural gas would continue to be produced in each operating area for that time period.  As the Partnership’s experience in operating the assets and confidence in the operating basins and its maintenance and pipeline integrity program grew, it was determined that a 30 year useful life is a more appropriate measure of the investment recovery period.

 

In accordance with FASB ASC 250, the Partnership determined that the change in depreciation method is a change in accounting estimate, and accordingly, the change will be applied on a prospective basis.  The effect of this change in estimate resulted in a decrease in depreciation expense for the three and nine month periods ended September 30, 2014, by approximately $29.7 million, or by approximately $0.16 per unit. The effect of this change in estimate also resulted in an increase in income from unconsolidated affiliates for the three and nine month periods ended September 30, 2014, by approximately $4.6 million, or by approximately $0.02 per unit, for a total increase in net income for the three and nine month periods ended September 30, 2014, by approximately $34.3 million, or by approximately $0.18 per unit.  

Recently Issued Accounting Standards

The Financial Accounting Standards Board (“FASB”) recently issued the following standard which the Partnership reviewed to determine the potential impact on its financial statements upon adoption.

On May 28, 2014, FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers.  The standard will eliminate the transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition.  The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  In doing so, companies will need to use more judgment and make more estimates than under today’s guidance.  This guidance will be effective for the Partnership beginning January 1, 2017. The Partnership is currently evaluating the impact of this new standard on its condensed consolidated financial statements.