Note 9. Equity

Common Units

At June 30, 2017, and December 31, 2016, the Partnership’s equity consisted of 29,944,796 and 29,912,230 common units, respectively, representing approximately a 98.8% limited partnership interest in us.

On May 5, 2015, we entered into an Equity Distribution Agreement to sell, from time to time through or to the Managers (as defined in the agreement), up to $50.0 million in common units representing limited partner interests. In connection with the Preferred Units purchase agreement described below, the Partnership suspended sales of common units pursuant to the Equity Distribution Agreement effective as of the closing date of the issuance of the Preferred Units until the fifth anniversary thereof, unless the Partnership obtains the consent of a majority of the holders of the outstanding Preferred Units.

Our partnership agreement requires us to distribute all of our available cash on a quarterly basis. Our available cash is our cash on hand at the end of a quarter after the payment of our expenses and the establishment of reserves for future capital expenditures and operational needs, including cash from working capital borrowings. There is no assurance as to the future cash distributions since they are dependent upon our projections for future earnings, cash flows, capital requirements, financial conditions and other factors.

As of June 30, 2017, cash distributions to our common units continued to be indefinitely suspended. Our credit agreement stipulates written consent from our lenders is required in order to reinstate common unit distributions and also prohibits us from making common unit cash distributions if any potential default or event of default, as defined in the credit agreement, occurs or would result from the cash distribution. Management and the Board will continue to evaluate, on a quarterly basis, the appropriate level of cash reserves in determining future distributions. The suspension of common unit cash distributions is designed to preserve liquidity and reallocate excess cash flow towards capital expenditure projects and debt reduction to maximize long-term value for our unitholders.

Preferred Units

On August 11, 2016, we completed a private placement of 11,627,906 Preferred Units for an aggregate offering price of $25.0 million. The Preferred Units were issued at a price of $2.15 per Preferred Unit (the “Unit Purchase Price”). Proceeds from this issuance were used to fund the Permian Bolt-On acquisition and for general partnership purposes, including the reduction of borrowings under our revolving credit facility. We received net proceeds of approximately $24.6 million (net of issuance costs of approximately $0.4 million) in connection with the issuance of Preferred Units. We allocated these net proceeds, on a relative fair value basis, to the Preferred Units (approximately $18.6 million) and the beneficial conversion feature (approximately $6.0 million). A beneficial conversion feature is defined as a non-detachable conversion feature that is in the money at the commitment date. Per accounting guidance, we are required to allocate a portion of the proceeds from the Preferred Units to the beneficial conversion feature based on the intrinsic value of the beneficial conversion feature. The intrinsic value is calculated at the commitment date based on the difference between the fair value of the common units at the issuance date (number of common units issuable at conversion multiplied by the per-share value of our common units at the issuance date) and the proceeds attributed to the Preferred Units. We record the accretion attributed to the beneficial conversion feature as a deemed distribution using the effective interest method over the five year period prior to the effective date of the holders conversion right. Accretion of the beneficial conversion feature was approximately $0.2 million and $0.5 million for the three and six months ended June 30, 2017.

The holders of our Preferred Units are entitled to certain rights that are senior to the rights of holders of common units, such as rights to distributions and rights upon liquidation of the Partnership. We pay holders of the Preferred Units a cumulative, quarterly cash distribution on all Preferred Units then outstanding at an annual rate of 8.0%, or in the event that the Partnership’s existing secured indebtedness prevents the payment of a cash distribution to all holders of the Preferred Units, in kind (additional Preferred Units), at an annual rate of 10.0%. Such distributions will be paid for each such quarter within 45 days after such quarter end. As of June 30, 2017, all Preferred Unit distributions have been paid in cash. No payment or distribution on common units for any quarter is permitted prior to the payment in full of the Preferred Units distribution (including any outstanding arrearages). At June 30, 2017, the Partnership had accrued approximately $0.5 million for the second quarter 2017 dividends that are to be paid in August 2017.

The following table summarizes cash distributions paid on our Preferred Units during the six months ended June 30, 2017:

Date Paid

Period Covered

Distribution per

Unit

Total Distributions

(in thousands)

February 14, 2017

October 1, 2016 - December 31, 2016

0.043

500

May 15, 2017

January 1, 2017 - March 31, 2017

0.043

500

Prior to the five year anniversary of the closing date, each holder of the Preferred Units has the right, subject to certain conditions, to convert all or a portion of their Preferred Units into common units representing limited partner interests in the Partnership on a one-for-one basis, subject to adjustment for splits, subdivisions, combinations and reclassifications of the common units. Upon conversion of Preferred Units, the Partnership will pay any distributions (to the extent accrued and unpaid as of the then most recent Preferred Units distribution date) on the converted units in cash.

Under the registration rights agreements entered into in connection with the Preferred Units issuance, we were required to use reasonable best efforts to file, within 90 days of the closing date, a registration statement registering resales of common units issued or to be issued upon conversion of the Preferred Units and have the registration statement declared effective within 180 days after the closing date. On June 14, 2017, the previously filed shelf registration statement on Form S-3 was declared effective by the SEC.

Allocation of Net Income (Loss)

Net income (loss), net of distributions on the Preferred Units and amortization of the Preferred Unit’s beneficial conversion feature (see Preferred Units section), is allocated between our general partner and the limited partner unitholders in proportion to their pro rata ownership (exclusive of the Preferred Units limited partnership interest) during the period. The allocation of net income (loss) is presented in our unaudited condensed consolidated statements of operations. In the event of net income, diluted net income per partner unit reflects the potential dilution of non-vested restricted stock awards and the conversion of Preferred Units.