smlp-ex991_1683.htm

December 31, 2017 and 2016 Financial Statements and Report of Independent Registered Public Accounting Firm

We have audited the accompanying balance sheets of Ohio Gathering Company, L.L.C as of December 31, 2017 and 2016, and the related statements of operations, of changes in members’ equity, and of cash flows for the years then ended including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

	December 31,
	2017		2016
Assets
Current assets:
Cash	$	12,266	$	19,486
Trade receivables		13,648		15,934
Affiliate receivables		19,391		10,491
Inventories		3,748		3,050
Other current assets		444		1,803
Total current assets		49,497		50,764
Property and equipment, net		1,305,310		1,320,218
Deferred contract costs, net		4,165		4,599
Other noncurrent assets		55		55
Total assets	$	1,359,027	$	1,375,636
Liabilities and Members’ Equity
Current liabilities:
Accounts payable	$	4,850	$	6,105
Affiliate payables		1,559		1,692
Accrued liabilities		4,870		13,383
Deferred revenue		56		1,170
Total current liabilities		11,335		22,350
Asset retirement obligations		3,159		1,830
Other long-term liabilities		344		432
Total liabilities		14,838		24,612
Commitments and contingencies (see Note 7)
Members’ equity		1,344,189		1,351,024
Total liabilities and members’ equity	$	1,359,027	$	1,375,636

	Year ended December 31,
	2017		2016
Revenue:
Gathering fees	$	102,878	$	117,150
Compression fees		36,355		29,828
Other revenue		1,272		2,207
Total revenue		140,505		149,185

Operating expenses:
Facility expenses		37,072		37,154
Selling, general and administrative expenses		3,676		4,418
Depreciation and accretion		68,294		56,613
Total operating expenses		109,042		98,185
Income before provision for income tax		31,463		51,000
Provision for deferred income tax expense	6		11
Net income	$	31,457	$	50,989

	MarkWest Utica EMG, L.L.C.			Summit Midstream Partners, LP			Total
Balance at December 31, 2015	$	781,245		$	548,467		$	1,329,712
Contributions from members		47,162			31,443			78,605
Distributions to members		(64,971	)		(43,311	)		(108,282	)
Net income		30,593			20,396			50,989
Balance at December 31, 2016		794,029			556,995			1,351,024
Contributions from members		37,355			24,903			62,258
Distributions to members		(60,330	)		(40,220	)		(100,550	)
Net income		18,874			12,583			31,457
Balance at December 31, 2017	$	789,928		$	554,261		$	1,344,189

	Year ended December 31,
	2017			2016
Cash flows from operating activities:
Net income	$	31,457		$	50,989
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and accretion		68,294			56,613
Amortization of deferred contract costs		435			435
Deferred revenue		(1,181	)		(2,205	)
Construction in progress and inventories write-off		3,423			1,229
Provision for deferred income tax expense		6			11

Changes in operating assets and liabilities:
Trade receivables		210			(1,898	)
Affiliate receivables		(1,609	)		(10,361	)
Inventories		(697	)		(397	)
Other current assets		1,357			(365	)
Accounts payable and accrued liabilities		323			523
Affiliate payables		103			(4,149	)
All other, net	-				375
Net cash provided by operating activities		102,121			90,800

Cash flows from investing activities:
Capital expenditures		(83,845	)		(62,821	)
Proceeds from sale of property and equipment		12,796			8,952
Net cash used in investing activities		(71,049	)		(53,869	)

Cash flows from financing activities:
Contributions from members		62,258			78,605
Distributions to members		(100,550	)		(108,282	)
Net cash used in financing activities		(38,292	)		(29,677	)

Net (decrease) increase in cash		(7,220	)		7,254
Cash at beginning of year		19,486			12,232
Cash at end of year	$	12,266		$	19,486

Supplemental schedule of non-cash investing activities:
Decrease in accrued property and equipment	$	(10,117	)	$	(9,684	)
Decrease in affiliate payables for purchases of property and equipment		(236	)		(872	)
(Increase) decrease in affiliate receivables for sales of property and equipment		(7,291	)		78

Effective May 31, 2012, MarkWest Utica EMG, L.L.C. (“MarkWest Utica”) entered into the Limited Liability Company Agreement (the “Original LLC Agreement”) with Blackhawk Midstream LLC (“Blackhawk”), in order to form Ohio Gathering Company, L.L.C. (the “Company” or “Ohio Gathering”). The Company provides natural gas gathering and compression services in the Utica Shale region of Ohio. Under the terms of the Original LLC Agreement, MarkWest Utica and Blackhawk each made initial nominal contributions to the Company in exchange for a 99% and 1% ownership interest, respectively. All operational and administrative services are provided through contractual arrangements with affiliates of MarkWest Utica Operating Company, L.L.C.

(“MarkWest Utica Operating”). See Note 3 for more information regarding affiliate transactions.

After the initial contributions, MarkWest Utica was obligated to contribute all of the capital required by the Company for the development, construction and operation of certain natural gas gathering and compression assets pursued by the Company. MarkWest Utica’s and Blackhawk’s membership interests were adjusted to equal their respective share of the capital contributed. Therefore, as of December 31, 2013, MarkWest Utica owned more than a 99% interest and Blackhawk owned less than a 1% interest. Blackhawk also had an option to acquire a 40% equity interest in Ohio Gathering (the “Ohio Gathering Option”). See Note 2, Deferred Contract Costs, for further discussion.

In January 2014, Blackhawk sold its interest and the Ohio Gathering Option to Summit Midstream Partners, LLC (“Summit”). Effective June 1, 2014 (“Summit Investment Date”), Summit exercised the Ohio Gathering Option and increased its equity ownership (“Summit Equity Ownership”) from less than 1% to approximately 40% through a net cash investment of

In August 2014, MarkWest Utica and Summit entered into the Third Amended and Restated Limited Liability Company Agreement of Ohio Gathering Company, L.L.C. (“the Third Amended LLC Agreement”) which replaced the Second Amended and Restated Limited Liability Company Agreement of Ohio Gathering Company, L.L.C. In accordance with the Third Amended LLC Agreement, Summit has the right, but not the obligation, to make additional capital contributions subject to certain limitations. If Summit elects to contribute capital in response to a particular capital call then the aggregate amount of capital that MarkWe st Utica is required to contribute pursuant to such capital call will be decreased, dollar for dollar, by the amount of capital Summit elects to contribute. If a member fails to contribute any capital to the Company that is committed to be contributed or fails to timely wire the True-Up Amount (as defined in the Third Amended LLC Agreement) such member will be considered in default but will remain fully obligated to contribute such capital to the Company. The Company will be entitled to pursue all remedies available at law or in equity against the defaulting member. Effective March 3, 2016, Summit contributed substantially all of its limited partner interest in the Company to Summit Midstream Partners, LP (“SMLP”). Summit and SMLP are under common control and this contribution did not change their overall ownership in the Company; therefore, activity is presented combined on the accompanying Statements of Changes in Members’ Equity. Through December 31, 2017, SMLP has elected to contribute 40% of all capital calls and in total MarkWest Utica has contributed $1.3 billion and SMLP has contributed $848 million to the Company.

The business and affairs of the Company are overseen by a board of managers which currently consists of three managers designated by MarkWest Utica and two managers designated by SMLP. The composition of the board of managers could change in accordance with changes in investment balances. The board of managers has delegated to MarkWest Utica Operating the authority to manage the day-to-day operations of the Company, subject to certain approval rights retained by the board. Pursuant to a services agreement between the Company and MarkWest Utica Operating, an affiliate of MarkWest Utica Operating will provide all employees and services necessary for the daily operations and management of the Company’s business. The Company is required to distribute all available cash to the members within 45 days of the end of each calendar month.

The accompanying financial statements of the Company have been prepared in accordance with accounting principles

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates are subject

to uncertainties due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susc eptibility of such matters to change and affect items such as, valuing inventory; evaluating impairments of long-lived assets; establishing estimated useful lives for long-lived assets; estimating revenues, expense accruals and capital expenditures; valuing asset retirement obligations; establishing inputs when determining fair value of options; evaluating forecasts when determining income tax valuation allowances; and determining liabilities, if any, for environmental and legal contingencies. Actual results could differ materially from those estimates.

Cash includes cash on hand and secured deposits. The Company had no cash equivalents at December 31, 2017 and 2016.

Trade receivables primarily consist of customer accounts receivable, which are recorded at the invoiced amount and generally do not bear interest. Past-due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Balances that remain outstanding after reasonable collection efforts have been unsuccessful are written off through a charge to the valuation allowance and a credit to accounts receivable. Management reviews the allowance quarterly. The Company did not record a valuation allowance at December 31, 2017 or 2016.

Inventories consist primarily of materials and supplies to be used in operations and are stated at the lower of cost or net realizable value. Cost for materials and supplies is determined primarily using the weighted-average cost method.

Property and equipment consists primarily of natural gas gathering assets, other pipeline assets, compressors and related facilities that are recorded at cost. Expenditures that extend the useful lives of assets are capitalized. Repairs, maintenance and renewals that do not extend the useful lives of assets are expensed as incurred. Leasehold improvements are amortized over the shorter of the useful life or lease term. Depreciation is provided principally on a straight-line method over a period of 20 to 30 years, with the exception of miscellaneous equipment and vehicles, which are depreciated over a period ranging from 3 to 20 years.

When items of property and equipment are sold or otherwise disposed of, any gains or losses are reported in the statements of operations. Gains on the disposal of property and equipment are recognized when they occur, which is generally at the time of closing. If a loss on disposal is expected, such losses are recognized when the assets are classified as held for sale.

An asset retirement obligation (“ARO”) is a legal obligation associated with the retirement of tangible long-lived assets that generally result from the acquisition, construction, development or normal operation of the asset. AROs are recorded at fair value in the period in which they are incurred, if a reasonable estimate of fair value can be made, and added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability is determined using a credit adjusted risk-free interest rate and increases due to the passage of time based on the time value of money until the obligation is settled. The Company routinely reviews and reassesses its estimates to determine if adjustments to the value of AROs are required. The Company recognizes a liability of a conditional ARO as soon as the fair value of the liability can be reasonably estimated. A conditional ARO is defined as an unconditional legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. AROs have not been recognized for certain assets because the fair value cannot be reasonably estimated since the settlement dates of the obligations are indeterminate. Such obligations will be recognized in the period when sufficient information becomes available to estimate a range of potential settlement dates. In addition to the conditional AROs, the Company may have AROs related to certain gathering and compression assets as a result of environmental and other legal requirements. The Company is not required to perform such work until it permanently ceases operations of the respective assets. As the Company considers the operational life of these assets to be indeterminable, an associated ARO cannot be calculated and is not recorded.

The Company’s policy is to evaluate whether there has been an impairment in the value of long-lived assets when certain events indicate that the remaining balance may not be recoverable. Qualitative and quantitative information is reviewed in order to determine if a triggering event has occurred or if an impairment indicator exists. If we determine that a triggering event has occurred we would complete a full impairment analysis. If we determine that the carrying value is not recoverable, a loss is recorded for the difference between the fair value and the carrying value of the related asset group. Management considers the volume of producer customers’ reserves and future natural gas and natural gas liquids product prices to estimate cash flows. The amount of additional producer customer reserves developed by future drilling activity depends, in part, on expected commodity prices. Projections of producer customers’ reserves, drilling activity and future commodity prices are inherently subjective and contingent upon a number of variable factors, many of which are difficult to forecast. Any significant variance in any of these assumptions or factors could materially affect future cash flows, which could result in the impairment of an asset. The Company did not record any impairments for

For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if impairment is required. Until the assets are disposed of, an estimate of the fair value is re- determined for each reporting period when related events or circumstances change.

Deferred contract costs of $6.6 million represent the asset created by the fair value of the Ohio Gathering Option that was recorded as permanent equity. This cost is amortized over the term of the arrangement into Facility expenses on the accompanying Statements of Operations. As of December 31, 2017 and 2016, the Company had recorded accumulated amortization of $2,426 and

$1,992, respectively. As of December 31, 2017, the amortization of deferred contract costs is $435 for each of the next five years and

The Company generates its revenue by providing natural gas gathering and compression services. The Company receives a fee for the gathering and compression of natural gas. The revenue the Company earns under these arrangements is related to the volume of natural gas that flows through its facilities and is not directly dependent on commodity prices. The Company’s assessment of each of the revenue recognition criteria as they relate to its revenue producing activities are as follows: persuasive evidence of an arrangement exists; delivery; the fee is fixed or determinable and collectability is reasonably assured. It is upon completion of services provided that the Company meets all four criteria and it is at such time that the Company recognizes revenue. Amounts billed in advance of the period in which the revenue recognition criteria are met are recorded as Deferred revenue and $308 and $402, at December 31, 2017 and 2016, respectively, of the Other long-term liabilities in the accompanying Balance Sheets.

The Company routinely makes accruals based on estimates for both revenues and expenses due to the timing of compiling billing information, receiving certain third-party information and reconciling the Company’s records with those of third parties. The delayed information from third parties includes, among other things, actual volumes transported and other operating expenses. The Company makes accruals to reflect estimates for these items based on its internal records and information from third parties. Estimated accruals are adjusted when actual information is received from third parties and the Company’s internal records have been reconciled.

The Company is treated as a partnership for tax purposes under the provisions of the Internal Revenue Code. Accordingly, the accompanying financial statements do not reflect a provision for federal income taxes since the Company’s results of operations and related credits and deductions will be passed through and taken into account by its members in computing their respective tax liabilities. The Company is, however, subject to an income tax at the Cadiz, Ohio jurisdictional level.

The Company accounts for income taxes under the asset and liability method. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of any tax rate change on deferred taxes is recognized as tax expense (benefit) from continuing operations in the period that includes the enactment date of the tax rate change. Realizability of deferred tax assets is assessed and, if not more likely than not, a valuation allowance is recorded to reflect the deferred tax assets at net realizable value as determined by management. All deferred tax balances are classified as long-term in the accompanying Balance Sheets.

Environmental expenditures are capitalized if the costs mitigate or prevent future contamination or if the costs improve environmental safety or efficiency of the existing assets. The Company recognizes remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. The timing of remediation accruals coincides with completion of a feasibility study or the commitment to a formal plan of action. Remediation liabiliti es are accrued based on estimates of known environmental exposure.

Management believes the carrying amounts of financial instruments, including cash, trade receivables, affiliate receivables and payables, other current assets, accounts payable, and accrued liabilities approximate fair value because of the short-term maturity of these instruments.

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

In February 2016, the Federal Accounting Standards Board (“FASB”) issued an accounting standard update requiring lessees to record virtually all leases on their balance sheets. The accounting standard update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this standard on our financial statements and disclosures, and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path to implementation. We completed our system implementation evaluation during 2017, and concluded we will implement a third-party supported lease accounting information system solution to account for our lease population. We have begun a project to implement this system and are currently collecting the necessary information on our lease population, establishing a new lease accounting process and designing new internal controls for the new process. The Company plans to early adopt the standard for the fiscal year ended December 31, 2019.

In May 2014, the FASB issued an accounting standards update for revenue recognition for contracts with customers. The guidance in the accounting standards update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The Company will adopt the standard January 1, 2018, using the modified retrospective method, which will result in a cumulative effect adjustment as of the date of adoption, which is expected to be immaterial. There will be no significant system or process changes as a result of adoption. The major changes as a result of adoption are analyzed below.

Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company’s service arrangements will generally be recognized over time when the performance obligation is satisfied as services are provided in a series. The transaction price is variable based on volumes delivered. Variable consideration will not be estimated at contract inception as the transaction price is specifically allocable to the services provided each period end. The primary change as a result of implementation relates to third party reimbursements. Amounts received from customers for reimbursement of costs such as electricity and storage were recorded net in the statement of operations. Upon adoption, these amounts will be included in the transaction price for services performed and thus will be a gross up on the statement of operations. Had the Company adopted ASC 606 for fiscal year- ended December 31, 2017, the Company believes the impact would have been an increase of between $2.5 million to $2.7 million on Revenue and Facility expenses.

There were various other adoption differences between Accounting Standards Codification Topic 605, Revenue Recognition, and ASC 606 identified as a result of adopting ASC 606; however, these changes did not have a material impact on the Company’ s financial statements. These changes in process or recognition patterns relate specifically to arrangements with tiered pricing features or discounts and aid-in-construction payments.

The Company has no employees. Operating, maintenance and general and administrative services, including capitalizable engineering and construction management services, are provided to the Company under certain agreements with MarkWest Utica Operating or its affiliates. In addition, the Company has an office lease agreement with an affiliate. From time to time, the Company may also sell to or purchase from affiliates, assets and inventory at the lesser of average unit cost or net realizable value. The Company has incurred the following amounts with affiliates related to the various agreements:

	Year ended December 31,
	2017		2016
Facility expenses
Labor and benefits, net	$	11,331	$	11,258
Rent expense		429		427

Selling, general and administrative expenses		2,510		2,506

Inventories
Inventories sold to affiliates	306		265
Inventories purchased from affiliates	126		174
Property and equipment, net
Capitalized engineering and construction management fees		1,535		1,049
Capitalized labor and benefits	774			1,198
Property and equipment sold to affiliates	17,386			7,786
Property and equipment purchased from affiliates	3,880			1,944

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of trade receivables, which are generally unsecured. The Company had certain customers whose trade receivable balances individually represented 10% or more of the Company’s total trade receivables, or whose revenue individually represented 10% or more of the Company’s total revenue, as follows:

	Trade Receivables						Revenue
	As of December 31,						Year ended December 31,
	2017			2016			2017			2016
Customer A		65	%		63	%		63	%		73	%
Customer B		24	%		13	%		26	%		15	%
Customer C	-				13	%	-			-

The Company maintains cash deposits with a major bank, which, from time-to-time, may exceed federally insured limits.

	December 31, 2017		December 31, 2016
Gas gathering and compression equipment	$	1,296,947	$	1,225,856
Pipeline right of way		159,041		150,891
Land		2,754		2,078
Construction in progress		81,579		119,910
Property and equipment		1,540,321		1,498,735
Less: accumulated depreciation		235,011		178,517
Property and equipment, net	$	1,305,310	$	1,320,218

Depreciation expense of $68.2 million and $56.5 million is included in Depreciation and accretion on the Statements of Operations for the years ended December 31, 2017 and 2016, respectively. As part of the Company’s ongoing review of long-lived assets, it was determined that several assets would be abandoned during 2017. Based on this assessment, the Company accelerated depreciation on certain dehydration units and right of way assets. The impact of these changes resulted in increased depreciation expense of

$11.8 million and a reduction of net income of $11.8 million for the year ended December 31, 2017.

The Company’s assets subject to AROs are primarily gas-gathering pipelines and compression equipment. The Company also has land leases that require the Company to return the land to its original condition upon termination of the lease. The Company reviews current laws and regulations governing obligations associated with asset retirements and leases.

The following is a reconciliation of the changes in the ARO liability for the years ended:

At December 31, 2017 and 2016, there were no assets legally restricted for purposes of settling AROs.

The Company is subject to federal, state and local laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for non-compliance.

In 2015, representatives from the United States Environmental Protection Agency (“EPA”) and the United States Department of Justice conducted a raid on a pipeline launcher/receiver site owned by an affiliate of MarkWest Utica, which site was utilized for pipeline maintenance operations. That MarkWest Utica affiliate continues to discuss with the EPA and other jurisdictions alleged omissions associated with permits or related regulatory obligations for its launcher/receiver and compressor station facilities. It is possible that in connection with any potential or asserted enforcement action associated with this matter, that the MarkWest Utica affiliate will incur material assessments, penalties or fines, incur material defense costs and expenses, be required to modify operations or construction activities which could increase operating costs and capital expenditures, or be subject to other obligations or restrictions that could restrict or prohibit their activities, any or all of which could adversely affect their results of operations, financial position or cash flows. Due to the similar nature of operations, the Company is evaluating its potential exposure with respect to the foregoing in connection with these activities. At December 31, 2017 and 2016, accrued liabilities for potential penalties and costs related to certain supplemental environmental projects totaled $744 and $100, respectively. In addition, the Company is obligated to construct a monitoring facility for an estimated cost of $450 in 2018. However, the ultimate amount of any potential assessments,

penalties, fines, restrictions, requirements, modifications, costs or expenses, if any, that may be incurred in connection with any potential enforcement action cannot be reasonably estimated or determined at this time.

The Company is subject to a variety of risks and disputes, and is a party to various legal proceedings in the normal course of its business. The Company maintains insurance policies with coverage and deductibles that it believes are reasonable and prudent. However, the Company cannot assure that the insurance companies will promptly honor their policy obligations, or that the coverage or levels of insurance will be adequate to protect the Company from all material expenses related to future claims for property loss or business interruption to the Company, or for third-party claims of personal injury and property damage, or that the coverage or levels of insurance it currently has will be available in the future at economical prices. While it is not possible to predict the outcome of the legal actions with certainty, management is of the opinion that appropriate provisions and accruals for potential losses associated with all legal actions have been made in the financial statements and that none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, liquidity or results of operations.

The Company has non-cancellable operating lease agreements for the lease of vehicles expiring at various times through fiscal years 2018 and 2019. Annual expense under these operating leases was $523 and $11 for the years ended December 31, 2017 and 2016, respectively. At December 31, 2017, the minimum future payments under these agreements are $358 and $80 for the years ended December 31, 2018 and 2019, respectively.

The Company also has contractual commitments to acquire property and equipment totaling $2.5 million at December 31,

On January 19, 2018, the Company reached an agreement with an insurance carrier related to a claim that occurred in 2012. The parties agreed that the insurance carrier would reimburse the Company $3.5 million, net of legal fees of $1.5 million, related to this claim. The payment of the claim is expected to occur in the first quarter of 2018. The Company has evaluated subsequent events from the balance sheet date through February 22, 2018, the date the financial statements were issued, and has determined that there are no other material subsequent events that required additional disclosure.

	December 31, 2017			December 31, 2016
Beginning asset retirement obligations	$	1,830		$	5,369
Liabilities incurred		1,238			606
Accretion expense		127			64
Adjustments to AROs		(36	)		(4,209	)
Ending asset retirement obligations	$	3,159		$	1,830