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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

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

For the transition period from _____to_____

Commission file number: 001-37640
nblxupdatedlogoa36.jpg
NOBLE MIDSTREAM PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware
 
47-3011449
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
1001 Noble Energy Way
 
 
Houston, Texas
 
77070
(Address of principal executive offices)
 
(Zip Code)
(281) 872-3100
(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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    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.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
(Do not check if a smaller reporting company)
 
 
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 ý
As of April 27, 2018, the registrant had 23,759,674 common units and 15,902,584 subordinated units outstanding.




Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information  
 
 
Item 1.  Legal Proceedings 
 
 
Item 1A.  Risk Factors 
 
 
Item 6.  Exhibits
 
 

2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Noble Midstream Partners LP
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per unit amounts, unaudited)
 
Three Months Ended March 31,
 
2018

2017
Revenues





Midstream Services — Affiliate
$
64,263


$
50,314

Midstream Services — Third Party
11,360



Crude Oil Sales — Third Party
22,110

 

Total Revenues
97,733


50,314

Costs and Expenses
 
 
 
Cost of Crude Oil Sales
21,439

 

Direct Operating
17,148


11,401

Depreciation and Amortization
11,329


2,449

General and Administrative
10,442


2,742

Total Operating Expenses
60,358


16,592

Operating Income
37,375


33,722

Other (Income) Expense
 
 
 
Interest Expense, Net of Amount Capitalized
1,033


267

Investment Income
(2,868
)
 
(1,065
)
Total Other Income
(1,835
)

(798
)
Income Before Income Taxes
39,210


34,520

Income Tax Provision
74



Net Income
39,136


34,520

Less: Net (Loss) Income Attributable to Noncontrolling Interests
(225
)
 
10,178

Net Income Attributable to Noble Midstream Partners LP
39,361

 
24,342

Less: Net Income Attributable to Incentive Distribution Rights
819

 

Net Income Attributable to Limited Partners
$
38,542

 
$
24,342

 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit  Basic and Diluted
 
 
 
Common Units
$
0.97

 
$
0.77

Subordinated Units
$
0.97

 
$
0.77

 
 
 
 
Weighted Average Limited Partner Units Outstanding  Basic
 
 
 
Common Units
23,683

 
15,903

Subordinated Units
15,903

 
15,903

 
 
 
 
Weighted Average Limited Partner Units Outstanding Diluted
 
 
 
Common Units
23,698

 
15,909

Subordinated Units
15,903

 
15,903


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

3

Table of Contents

Noble Midstream Partners LP
Consolidated Balance Sheets
(in thousands, unaudited)
 
March 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
24,924

 
$
18,026

Restricted Cash

 
37,505

Accounts Receivable — Affiliate
27,584

 
27,539

Accounts Receivable — Third Party
15,778

 
2,641

Other Current Assets
4,076

 
389

Total Current Assets
72,362

 
86,100

Property, Plant and Equipment
 
 
 
Total Property, Plant and Equipment, Gross
1,161,012

 
706,039

Less: Accumulated Depreciation and Amortization
(50,142
)
 
(44,271
)
Total Property, Plant and Equipment, Net
1,110,870

 
661,768

Intangible Assets, Net
334,435

 

Goodwill
111,145

 

Investments
79,648

 
80,461

Deferred Charges
3,218

 
1,429

Total Assets
$
1,711,678

 
$
829,758

LIABILITIES
 
 
 
Current Liabilities
 
 
 
Accounts Payable — Affiliate
$
3,968

 
$
1,616

Accounts Payable — Trade
211,399

 
109,893

Other Current Liabilities
3,110

 
2,876

Total Current Liabilities
218,477

 
114,385

Long-Term Liabilities
 
 
 
Long-Term Debt
435,000

 
85,000

  Asset Retirement Obligations
11,791

 
10,416

Other Long-Term Liabilities
3,758

 
3,727

Total Liabilities
669,026

 
213,528

EQUITY
 
 
 
Partners’ Equity
 
 
 
Limited Partner
 
 
 
Common Units (23,758 and 23,712 units outstanding, respectively)
655,602


642,616

Subordinated Units (15,903 units outstanding)
(159,203
)
 
(168,136
)
General Partner
819

 
520

Total Partners’ Equity
497,218

 
475,000

Noncontrolling Interests
545,434

 
141,230

Total Equity
1,042,652

 
616,230

Total Liabilities and Equity
$
1,711,678

 
$
829,758


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

4

Table of Contents

Noble Midstream Partners LP
Consolidated Statements of Cash Flows
(in thousands, unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net Income
$
39,136

 
$
34,520

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
 
 
 
Depreciation and Amortization
11,329

 
2,449

Dividends from Equity Method Investee, Net of Income
393

 

Unit-Based Compensation
321

 
127

Other Adjustments for Noncash Items Included in Income
167

 
95

Changes in Operating Assets and Liabilities, Net of Assets Acquired and Liabilities Assumed
 
 
 
Increase in Accounts Receivable
(2,520
)
 
(3,322
)
Decrease in Accounts Payable
(836
)
 
(2,518
)
Other Operating Assets and Liabilities, Net
(2,387
)
 
874

Net Cash Provided by Operating Activities
45,603

 
32,225

Cash Flows From Investing Activities
 
 
 
Additions to Property, Plant and Equipment
(161,509
)
 
(32,298
)
Black Diamond Acquisition, Net of Cash Acquired
(650,131
)
 

Additions to Investments

 
(414
)
Distributions from Cost Method Investee
419

 
123

Net Cash Used in Investing Activities
(811,221
)
 
(32,589
)
Cash Flows From Financing Activities
 
 
 
Distributions to Noncontrolling Interests
(3,007
)
 
(11,267
)
Contributions from Noncontrolling Interests
409,865

 
7,087

Borrowings Under Revolving Credit Facility
405,000

 

Repayment of Revolving Credit Facility
(55,000
)
 

Distributions to Unitholders
(19,860
)
 
(13,782
)
Revolving Credit Facility Amendment Fees and Other
(1,987
)
 
(236
)
Net Cash Provided by (Used in) Financing Activities
735,011

 
(18,198
)
Decrease in Cash, Cash Equivalents, and Restricted Cash
(30,607
)
 
(18,562
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
55,531

 
57,421

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
24,924

 
$
38,859

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

5

Table of Contents

Noble Midstream Partners LP
Consolidated Statement of Changes in Equity
(in thousands, unaudited)
 
Partnership
 
 
 
Common Units
Subordinated Units
General Partner
Noncontrolling Interests
Total
December 31, 2017
$
642,616

$
(168,136
)
$
520

$
141,230

$
616,230

Net Income
23,058

15,484

819

(225
)
39,136

Contributions from Noncontrolling Interests



409,865

409,865

Distributions to Noncontrolling Interests



(3,007
)
(3,007
)
Distributions to Unitholders
(11,575
)
(7,765
)
(520
)

(19,860
)
Black Diamond Equity Ownership Promote Vesting (1)
1,215

1,214

 
(2,429
)

Unit-Based Compensation
321




321

Other
(33
)



(33
)
March 31, 2018
$
655,602

$
(159,203
)
$
819

$
545,434

$
1,042,652


(1) 
See Note 2. Basis of Presentation.
The accompanying notes are an integral part of these financial statements.

6

Table of Contents
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)



Note 1. Organization and Nature of Operations
Organization Noble Midstream Partners LP (the Partnership, we, us or our) is a growth-oriented Delaware master limited partnership formed in December 2014 by our sponsor, Noble Energy, Inc. (Noble or Parent), to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Our current focus areas are the Denver-Julesburg Basin (DJ Basin) in Colorado and the Southern Delaware Basin position of the Permian Basin (Delaware Basin) in Texas.
Partnership Assets Our assets consist of ownership interests in certain development companies (DevCos) which serve specific areas and integrated development plan (IDP) areas and consist of the following:
DevCo
Areas Served
NBLX Dedicated Service
Current Status of Asset
NBLX Ownership
Noncontrolling Interest(1)
Colorado River DevCo LP

Wells Ranch IDP (DJ Basin)


East Pony IDP (DJ Basin)

All Noble DJ Basin Acreage
Crude Oil Gathering
Natural Gas Gathering
Water Services

Crude Oil Gathering

Crude Oil Treating

Operational


Operational

Operational
100%
N/A
San Juan River DevCo LP
East Pony IDP (DJ Basin)
Water Services
Operational
25%
75%
Green River DevCo LP
Mustang IDP (DJ Basin)
Crude Oil Gathering
Natural Gas Gathering
Water Services
Planning
Planning
Partially Operational
25%
75%
Laramie River DevCo LP (2)
Greeley Crescent IDP (DJ Basin)
Crude Oil Gathering
Water Services
Operational
100%
N/A
Blanco River DevCo LP
Delaware Basin
Crude Oil Gathering
Natural Gas Gathering
Produced Water Services
Operational
40%
60%
Gunnison River DevCo LP
Bronco IDP (DJ Basin)
Crude Oil Gathering
Water Services
Future Development
5%
95%
Trinity River DevCo LLC (3)
Delaware Basin
Crude Oil Transmission
Natural Gas Compression
Operational
100%
N/A
(1) 
The noncontrolling interest represents Noble’s retained ownership interest in each DevCo.
(2) 
Our interest in Black Diamond Gathering LLC (Black Diamond) is owned through Laramie River DevCo LP. See Note 2. Basis of Presentation and Note 3. Acquisition.
(3) 
Our interest in the Advantage Joint Venture (defined below) is owned through Trinity River DevCo LLC.
Additionally, we own a 3.33% ownership interest (the White Cliffs Interest) in White Cliffs Pipeline L.L.C. as well as a 50% interest in Advantage Pipeline, L.L.C. (the Advantage Joint Venture).
Nature of Operations Through our ownership interests in the DevCos, we operate and own interests in the following assets, some of which are currently under construction:
crude oil and natural gas gathering systems;
crude oil treating facilities;
produced water collection, gathering, and cleaning systems; and
fresh water storage and delivery systems.
We generate revenues primarily by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. Additionally, we purchase and sell crude oil to customers at various delivery points on our gathering systems.

7

Table of Contents
Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Note 2. Basis of Presentation
Basis of Presentation and Consolidation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying consolidated financial statements at March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and partners’ equity for such periods. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. We have no items of other comprehensive income; therefore, our net income is identical to our comprehensive income.
Variable Interest Entities   Our consolidated financial statements include our accounts and the accounts of the DevCos, each of which we control as general partner. All intercompany balances and transactions have been eliminated upon consolidation. We have determined that the partners with equity at risk in each of the DevCos lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact their economic performance; therefore, each DevCo is considered a variable interest entity, or VIE. Through our 100% ownership interest in Noble Midstream Services, LLC, a Delaware limited liability company which owns controlling interests in each of the DevCos, we have the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate each of the DevCos in our financial statements. A substantial portion of the financial statement activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. Although our investment in the Advantage Joint Venture is owned through Trinity River DevCo LLC, all financial statement activity associated with our investment is captured within the Investments and Other reportable segment. See Note 9. Segment Information.
On January 31, 2018, Black Diamond, an entity formed by Black Diamond Gathering Holdings LLC (the Noble Member), a wholly-owned subsidiary of Noble Midstream Partners LP, and Greenfield Midstream, LLC (the Greenfield Member), completed the acquisition of all of the issued and outstanding limited liability company interests in Saddle Butte Rockies Midstream, LLC and certain affiliates (collectively, Saddle Butte) from Saddle Butte Pipeline II, LLC (Seller). The acquisition of Saddle Butte will be referred to as the Black Diamond Acquisition. See Note 3. Acquisition. Our consolidated financial statements include the accounts of Black Diamond, which we control. We have determined that the partners with equity at risk in Black Diamond lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact their economic performance. Therefore, Black Diamond is considered a VIE. Through our majority representation on the Black Diamond company board of directors as well as our responsibility as operator of the acquired system, we have the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate Black Diamond in our financial statements.
Accounting for Investments We use the equity method of accounting for our investment in the Advantage Joint Venture, as we do not control, but do exert significant influence over its operations. We use the cost method of accounting for our White Cliffs Interest as we have virtually no influence over its operations and financial policies.
Noncontrolling Interests We present our consolidated financial statements with a noncontrolling interest section representing Noble’s retained ownership of our DevCos as well as Greenfield Member’s ownership of Black Diamond.
Black Diamond Equity Ownership Promote Vesting In accordance with the limited liability company agreement of Black Diamond, Noble Member received an equity ownership promote. The capital accounts for Noble Member and Greenfield Member at March 31, 2018 do not equal their agreed equity ownership interests due to the funding structure of the total Black Diamond Acquisition purchase price. See Note 3. Acquisition.
The limited liability company agreement of Black Diamond requires special allocations of gross income to balance the ratio of each member’s capital account to their agreed equity ownership interest over time. The special allocations are accounted for as equity transactions between the Partnership and a subsidiary with no gain or loss recognized.
Use of Estimates   The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Intangible Assets Our intangible assets are comprised of customer contracts and related relationships acquired in the Black Diamond Acquisition and recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Amortization is calculated using the straight-line method, which reflects the pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. The amortization of intangibles is included in depreciation and amortization expense in our consolidated statements of operations. Intangible assets with finite useful lives are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. See Note 3. Acquisition and Note 6. Intangible Assets.
Goodwill As of March 31, 2018, our consolidated balance sheet includes goodwill of $111.1 million. This goodwill resulted from the Black Diamond Acquisition and represents the excess of the consideration paid over fair value of the net identifiable assets of the acquired business. All of our goodwill is assigned to the Gathering Systems reportable segment. Our reportable segments represent our reporting units. See Note 3. Acquisition and Note 9. Segment Information.
Goodwill is not amortized to earnings but is qualitatively assessed for impairment. We will assess goodwill for impairment annually during the third quarter, or more frequently as circumstances require, at the reporting unit level. If, based on our qualitative procedures, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform the two-step goodwill impairment test. The two-step goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. See Recently Issued Accounting Standards – Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, below, for newly issued accounting guidance regarding future goodwill impairment testing.
Fair Value Measurements We measure assets and liabilities requiring fair value presentation and disclose such amounts according to the quality of valuation inputs under the fair value hierarchy. The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature and maturity of the instruments and use Level 1 inputs. 
Income Taxes We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. As taxes are generally borne by our partners through the allocation of taxable income, we do not record deferred taxes related to the aggregate difference in the basis of our assets for financial and tax reporting purposes. During third quarter 2017, we commenced operations in the Delaware Basin and are subject to a Texas margin tax. The tax due is based on an entity’s apportioned taxable margin. We recorded a de minimis state tax provision for the three months ended March 31, 2018.
Supplemental Cash Flow Information We accrued $186.3 million and $48.5 million related to midstream capital expenditures for projects in progress as of March 31, 2018 and March 31, 2017, respectively.
Concentration of Credit Risk For the three months ended March 31, 2018, 66% of our revenues are from Noble and its affiliates. For all other periods presented, 100% of our revenues are from Noble and its affiliates.
Recently Adopted Accounting Standards
Clarifying the Definition of a Business In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2017-01 (ASU 2017-01): Business Combinations - Clarifying the Definition of a Business. ASU 2017-01 assists in determining whether certain transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment provides a screen to be applied to the fair value of an acquisition or disposal to evaluate whether the assets in question are simply assets or if they meet the definition of a business. If the screen is not met, no further evaluation is needed. If the screen is met, certain steps are subsequently taken to make the determination. We adopted ASU 2017-01 in the first quarter of 2018 and have applied the guidance to the Black Diamond Acquisition.
Statement of Cash Flows – Restricted Cash In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18): Statement of Cash Flows - Restricted Cash. We adopted ASU 2016-18 in the first quarter of 2018, using the retrospective method. ASU 2016-18 requires that restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows, but has no other impacts on our results of operations, financial condition or cash flows.
Topic 606, Revenue from Contracts with Customers  In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers (ASC 606). We adopted ASC 606 on January 1, 2018, using the modified retrospective method. See our Revenue Recognition discussion below.
Recently Issued Accounting Standards
Leases In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. ASU 2016-02 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued Accounting Standards

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Update No. 2018-01 (ASU 2018-01): Land Easement Practical Expedient for Transition to Topic 842, to provide an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under Topic 840. The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted.
In the normal course of business, we enter into lease agreements and land easements to support our operations and may lease water-related, field-related and other assets. At this time, we cannot reasonably estimate the financial impact ASU 2016-02 will have on our financial statements; however, we believe adoption and implementation of ASU 2016-02 will likely materially impact our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities. As part of our assessment to date, we have formed an implementation work team, prepared educational and training materials pertinent to ASU 2016-02 and have begun contract review and documentation.
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04): Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment, to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, with an impairment charge being recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU 2017-04 and have not yet determined if we will early adopt.
Reconciliation of Total Cash We define total cash as cash, cash equivalents and restricted cash. The following table provides a reconciliation of total cash:
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Cash and Cash Equivalents at Beginning of Period
$
18,026

 
$
57,421

Restricted Cash at Beginning of Period (1)
37,505

 

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
$
55,531

 
$
57,421

 
 
 
 
Cash and Cash Equivalents at End of Period
$
24,924

 
$
38,859

Restricted Cash at End of Period

 

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
24,924

 
$
38,859

(1) 
Restricted cash represents the amount held in escrow at December 31, 2017 for the Black Diamond Acquisition.
Revenue Recognition We generate revenues by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. Also, we purchase and sell crude oil to customers at various delivery points on our gathering systems. We adopted ASC 606 on January 1, 2018, using the modified retrospective method. Under ASC 606, performance obligations are the unit of account and generally represent distinct goods or services that are promised to customers. The adoption of ASC 606 did not have an impact on the recognition, measurement and presentation of our revenues and expenses.
Performance Obligations For gathering crude oil and natural gas, treating crude oil, delivering and storing fresh water, and collecting, cleaning and disposing of produced water, our performance obligations are satisfied over time using volumes delivered to measure progress. We record revenue related to the volumes delivered at the contract price at the time of delivery.
We began generating revenue from crude oil sales during first quarter 2018 upon closing of the Black Diamond Acquisition. Black Diamond engages in the purchase and sale of crude oil. For our crude oil sales, each unit sold is generally considered a distinct good and the related performance obligation is generally satisfied at a point in time (i.e. at the time control of the crude oil is transferred to the customer). We recognize revenue from the sale of crude oil when our contracted performance obligation to deliver crude oil is satisfied and control of the crude oil is transferred to the customer. This usually occurs when the crude oil is delivered to the location specified in the contract and the title and risks of rewards and ownership are transferred to the customer.
Transaction Price Allocated to Remaining Performance Obligations The majority of our revenue agreements have a term greater than one year, and as such we have utilized the practical expedient in ASC 606, which states that we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our revenue agreements, each delivery generally represents a separate

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


performance obligation; therefore, future volumes delivered are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
The remainder of our revenue agreements, which relate to agreements with third parties, are short-term in nature with a term of one year or less. We have utilized an additional practical expedient in ASC 606 which exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of an agreement that has an original expected duration of one year or less.
Contract Balances Under our revenue agreements, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional. As such, our revenue agreements do not give rise to contract assets or liabilities under ASC 606.
The following is a summary of our types of revenue agreements:
Crude Oil Gathering Under our crude oil gathering agreements, we receive a volumetric fee per barrel (Bbl) for the crude oil gathering services we provide.
Natural Gas Gathering Under our natural gas gathering agreements, we receive a volumetric fee per million British Thermal Unit (MMBtu) for the natural gas gathering services we provide.
Produced Water Services Under our produced water services agreements, we receive a fee for collecting, cleaning or otherwise disposing of water produced from operating crude oil and natural gas wells in the dedication area. The fee is comprised of a volumetric component for services we provide directly and a pass through component for services we provide through contracts with third parties.
Fresh Water Services Under our fresh water services agreements, we receive a fee for delivering fresh water. The fee is comprised of a volumetric component for services we provide directly and a pass through component for services we provide through contracts with third parties. The cost of storing the fresh water is included in the delivery fee.
Crude Oil Treating Under our crude oil treating agreements, we receive a monthly fee for the crude oil treating services we provide based on each well operated by Noble that is producing in paying quantities that is not connected to our crude oil gathering systems during such month.
Crude Oil Purchase and Sale Under our commodity purchase and sale agreements, we purchase and sell crude oil to customers at various delivery points on our gathering systems. For purchase and sale transactions with the same counterparty, the purchase and sale is settled at the same contractually fixed price on a net basis. We account for these transactions on a net basis, in accordance with ASC 845, Non-Monetary Exchanges. We record the residual gathering fee as gathering revenue in our consolidated statements of operations. For purchase and sale transactions with different counterparties, we purchase the crude oil at market-based prices and sell the crude oil to a different counterparty at market-based prices. Market-based pricing is based on the price index applicable for the location of the sale. We account for these transactions on a gross basis.

Note 3. Acquisition
On January 31, 2018, Black Diamond completed the Black Diamond Acquisition for approximately $638.5 million in cash. Noble Member and Greenfield Member each funded its share of the purchase price, approximately $319.9 million and $318.6 million, respectively, through contributions to Black Diamond. Noble Member funded its share of the purchase price through a combination of cash on hand and borrowings under its revolving credit facility. See Note 7. Long-Term Debt.
In addition to the payment to the Seller, Black Diamond, through an additional contribution from Greenfield Member, paid PDC Energy, Inc. (PDC Energy) approximately $24.1 million to expand PDC Energy’s acreage dedication as well as extend the duration of the acreage dedication by five years. In accordance with the limited liability company agreement of Black Diamond, Noble Member is to receive a 54.4% equity ownership interest in Black Diamond and Greenfield Member is to receive a 45.6% equity ownership interest in Black Diamond. Noble Member’s agreed equity ownership includes a 4.4% equity ownership promote which will vest only after Noble Member is allocated an amount of gross revenue equal to the contributions by Greenfield Member in excess of their agreed equity ownership interest.
We serve as the operator of the Black Diamond system which includes a large-scale integrated gathering system located in the DJ Basin with approximately 160 miles of pipeline in operation and delivery capacity of approximately 300 MBbl/d. Black Diamond has approximately 141,000 dedicated acres from six customers under fixed fee arrangements.
In connection with the Black Diamond Acquisition, we have incurred acquisition-related costs of $6.0 million during the three months ended March 31, 2018. Our acquisition-related costs include consulting, advisory, legal and other acquisition-related

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


fees. All acquisition-related costs were expensed and are included in general and administrative expense in our consolidated statements of operations.
Purchase Price Allocation The transaction has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total Black Diamond Acquisition purchase price to the assets acquired and the liabilities assumed based on the fair value at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.
Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-acquisition contingencies and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities, including any goodwill, may be revised as appropriate.
The following table sets forth our preliminary purchase price allocation:
(in thousands)
 
Cash Consideration
$
638,529

PDC Energy Payment
24,120

Current Liabilities Assumed
18,259

Total Purchase Price and Liabilities Assumed
$
680,908

 
 
Cash
$
12,518

Accounts Receivable
10,661

Other Current Assets
1,058

Property, Plant and Equipment
205,766

Intangible Assets  (1)
339,760

Fair Value of Identifiable Assets
569,763

Implied Goodwill (2)
111,145

Total Asset Value
$
680,908

(1) 
See Note 6. Intangible Assets.
(2) 
Based upon the preliminary purchase price allocation, we have recognized $111.1 million of goodwill, all of which is assigned to the Gathering Systems reportable segment. As a result of the acquisition, we expect to realize certain synergies which may result from our operation of the Black Diamond system.
The results of operations attributable to Black Diamond are included in our consolidated statements of operations beginning on February 1, 2018. Revenues of $26.8 million and pre-tax net loss of $4.2 million from Black Diamond were generated from February 1, 2018 to March 31, 2018.

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Pro Forma Results The following pro forma consolidated financial information was derived from the historical financial statements of the Partnership and Saddle Butte and gives effect to the acquisition as if it had occurred on January 1, 2017. The pro forma results of operations do not include any cost savings or other synergies that may result from the Black Diamond Acquisition or any estimated costs that have been or will be incurred by us to integrate the acquired assets. The pro forma consolidated financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the acquisition taken place on January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.
 
Three Months Ended March 31,
(in thousands, except per share amounts)
2018
 
2017
Revenues
$
108,245

 
$
79,940

Net Income
36,747

 
26,333

Net Income Attributable to Noble Midstream Partners LP

$
37,815

 
$
18,948

 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit  Basic and Diluted
 
 
 
Common Units
$
0.96

 
$
0.60

Subordinated Units
$
0.96

 
$
0.60



Note 4. Transactions with Affiliates
Revenues We derive a substantial portion of our revenues from commercial agreements with Noble. Revenues generated from commercial agreements with Noble and its affiliates consist of the following:
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Crude Oil, Natural Gas and Produced Water Gathering
$
43,024

 
$
28,409

Fresh Water Delivery
20,284

 
20,319

Crude Oil Treating
955

 
1,267

Other

 
319

    Total Revenues — Affiliate
$
64,263

 
$
50,314


Expenses General and administrative expense consists of the following:
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
General and Administrative Expense Affiliate
$
1,811

 
$
1,713

General and Administrative Expense Third Party
8,631

 
1,029

    Total General and Administrative Expense
$
10,442

 
$
2,742




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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Note 5. Property, Plant and Equipment
Property, plant and equipment, at cost, is as follows:
(in thousands)
March 31, 2018
 
December 31, 2017
Crude Oil, Natural Gas and Produced Water Gathering Systems and Facilities
$
653,051

 
$
451,275

Fresh Water Delivery Systems
76,915

 
76,745

Crude Oil Treating Facilities 
20,099

 
20,099

Construction-in-Progress (1)
410,947

 
157,920

Total Property, Plant and Equipment, at Cost
1,161,012

 
706,039

Accumulated Depreciation and Amortization
(50,142
)
 
(44,271
)
Property, Plant and Equipment, Net
$
1,110,870

 
$
661,768

(1) 
Construction-in-progress at March 31, 2018 includes $403 million in gathering system projects and $7.9 million in fresh water delivery system projects. Construction-in-progress at December 31, 2017 includes $157.4 million in gathering system projects and $0.5 million in fresh water delivery system projects.

Note 6. Intangible Assets
Our intangible assets as of March 31, 2018 are comprised of customer contracts and relationships from the Black Diamond Acquisition and were recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The customer contracts we acquired are long-term, fixed-fee contracts for the gathering and transportation of crude oil. Fair value was calculated using the multi-period excess earnings method under the income approach for the existing customers. This valuation method is based on first forecasting gross profit for the existing customers and then applying expected attrition rates. The operating cash flows were calculated by determining the costs required to generate gross profit from the existing customers. The key assumptions include overall gross profit growth, attrition rate of existing customers over time and the discount rate. We utilize the straight-line method of amortization for intangible assets with finite lives. The amortization period is reflective of the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset. The estimated economic benefit was determined by assessing the life of the assets related to the contracts and relationships, likelihood of renewals, competitive factors, regulatory or legal provisions and maintenance costs.
Our intangible assets are as follows:
 
 
 
March 31, 2018
 
Useful Life
 
Intangible Assets, Gross
(in thousands)
 
Accumulated Amortization
(in thousands)
 
Intangible Assets, Net
(in thousands)
Customer Contracts and Relationships
7-13 years (1)
 
$
339,760

 
$
5,325

 
$
334,435

(1) 
The weighted average useful life of our customer contracts and customer relationships is 11 years.
Estimated future amortization expense related to the intangible assets at March 31, 2018 is as follows:
(in thousands)
 
Remainder of 2018
$
24,233

2019
32,301

2020
32,390

2021
32,301

2022
32,301

Thereafter
180,909

Total
$
334,435




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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Note 7. Long-Term Debt
We maintain a revolving credit facility to fund working capital and to finance acquisitions and expansion capital expenditures. On January 31, 2018, in connection with the closing of the Black Diamond Acquisition, we entered into an amendment to increase the capacity on our revolving credit facility from $350 million to $530 million. On March 9, 2018, we entered into an additional amendment to extend the maturity of the facility to March 9, 2023 and increase the borrowing capacity to $800 million. The borrowing capacity on our revolving credit facility may be increased by up to an additional $350 million subject to certain conditions including compliance with the covenants contained in the credit agreement and requisite commitments from existing or new lenders.
As of December 31, 2017 and March 31, 2018, there was $85 million and $435 million, respectively, outstanding under our revolving credit facility. During the three months ended March 31, 2018, borrowings under our revolving credit facility were primarily used to fund portions of our construction activities and the Black Diamond Acquisition.
Borrowings under the revolving credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the greater of the federal funds rate or the overnight bank funding rate, plus 0.5% and (3) the LIBOR for an interest period of one month plus 1.00%; or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period.
Interest was incurred on the revolving credit facility at a weighted average annual interest rate of 2.78% during the three months ended March 31, 2018. The unused portion of the revolving credit facility is subject to a commitment fee. Commitment fees began to accrue beginning on the date we entered into the revolving credit facility. As of December 31, 2017 and March 31, 2018, the commitment fee rate was 0.2%. Unamortized debt issuance costs totaled $1.4 million and $3.2 million as of December 31, 2017 and March 31, 2018, respectively.
The revolving credit facility requires us to comply with certain financial covenants as of the end of each fiscal quarter. We were in compliance with such covenants as of March 31, 2018.
Certain lenders that are a party to the credit agreement have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending or commercial banking services for us for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.

Note 8. Asset Retirement Obligations
Asset retirement obligations consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our infrastructure assets. Changes in asset retirement obligations are as follows:
(in thousands)
Three Months Ended March 31, 2018
Asset Retirement Obligations, Beginning Balance
$
10,416

Liabilities Incurred
1,241

Accretion Expense (1)
134

Asset Retirement Obligations, Ending Balance
$
11,791

(1) 
Accretion expense is included in depreciation and amortization expense in the consolidated statements of operations.
Liabilities incurred were primarily related to our Coronado Central Gathering Facility (CGF) in the Delaware Basin.
With respect to property, plant and equipment acquired in the Black Diamond Acquisition, it is our practice and current intent to maintain these assets and continue to make improvements as warranted. As a result, we believe that these assets have indeterminate lives for purposes of estimating asset retirement obligations because dates or ranges of dates upon which we would retire these assets cannot reasonably be estimated at this time; therefore, no asset retirement obligations have been recorded for these assets as of March 31, 2018.

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Note 9. Segment Information
We manage our operations by the nature of the services we offer. Our reportable segments comprise the structure used to make key operating decisions and assess performance. We are organized into the following reportable segments: Gathering Systems (crude oil, natural gas, and produced water gathering, crude oil treating, and crude oil sales), Fresh Water Delivery, and Investments and Other. We often refer to the services of our Gathering Systems and Fresh Water Delivery reportable segments collectively as our midstream services.
Summarized financial information concerning our reportable segments is as follows:
(in thousands)
 
Gathering Systems (1) (2)
 
Fresh Water Delivery (1)
 
Investments and Other (1) (3)
 
Consolidated
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
43,979

 
$
20,284

 
$

 
$
64,263

Midstream Services — Third Party
 
7,458

 
3,902

 

 
11,360

Crude Oil Sales — Third Party
 
22,110

 

 

 
22,110

Total Revenues
 
73,547

 
24,186

 

 
97,733

Income (Loss) Before Income Taxes 
 
30,827

 
17,503

 
(9,120
)
 
39,210

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
29,995

 
$
20,319

 
$

 
$
50,314

Midstream Services — Third Party
 

 

 

 

Crude Oil Sales — Third Party
 

 

 

 

Total Revenues
 
29,995

 
20,319

 

 
50,314

Income (Loss) Before Income Taxes
 
23,254

 
13,333

 
(2,067
)
 
34,520

 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
 
Total Assets
 
$
1,487,620

 
$
68,829

 
$
155,229

 
$
1,711,678

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
Total Assets
 
$
593,590

 
$
68,178

 
$
167,990

 
$
829,758

(1) 
A substantial portion of the financial statement activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. Although our investment in the Advantage Joint Venture is owned through Trinity River DevCo LLC, all financial statement activity associated with our investment is captured within the Investments and Other reportable segment. As our DevCos represent VIEs, see the above reportable segments for our VIEs impact to the consolidated financial statements.
(2) 
Our goodwill resulted from the Black Diamond Acquisition and represents the excess of the consideration paid over fair value of the net identifiable assets of the acquired business. All of our goodwill is assigned to the Gathering Systems reportable segment.
(3) 
The Investments and Other segment includes our investments in the Advantage Joint Venture and White Cliffs Interest, all general Partnership activity not attributable to our DevCos.


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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Note 10. Partnership Distributions
Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date. The following table details the distributions paid in respect of the periods presented below:
 
 
 
 
Distributions
 
 
 
 
Limited Partners
 
 
Period
Record Date
Distribution Date
Distribution per Limited Partner Unit
Common Unitholders(1)
Subordinated Unitholders
Holder of IDRs
Total
Q4 2016(2)
February 6, 2017
February 14, 2017
$
0.4333

$
6,891

$
6,891

$

$
13,782

Q1 2017
May 8, 2017
May 16, 2017
$
0.4108

$
6,533

$
6,533

$

$
13,066

Q2 2017
August 7, 2017
August 14, 2017
$
0.4457

$
8,909

$
7,088

$
92

$
16,089

Q3 2017
November 6, 2017
November 13, 2017
$
0.4665

$
9,330

$
7,418

$
223

$
16,971

Q4 2017
February 5, 2018
February 12, 2018
$
0.4883

$
11,566

$
7,765

$
520

$
19,851

(1) 
Distributions to common unitholders does not include distribution equivalent rights on units that vested under the Noble Midstream Partners LP 2016 Long-Term Incentive Plan (the LTIP).
(2) 
The distribution for the fourth quarter 2016 is comprised of $0.3925 per unit for the fourth quarter 2016 and $0.0408 per unit for the 10-day period beginning on the closing of the initial public offering on September 20, 2016 and ending on September 30, 2016.
Incentive Distribution Rights Noble currently holds Incentive Distribution Rights (IDRs) that entitle it to receive increasing percentages, up to a maximum of 50%, of the available cash we distribute from operating surplus in excess of $0.4313 per unit per quarter. The maximum distribution of 50% does not include any distributions that Noble may receive on Common Units or Subordinated Units that it owns.
Cash Distributions On April 26, 2018, the board of directors of Noble Midstream GP LLC (our general partner) declared a quarterly cash distribution of $0.5110 per unit. The distribution will be paid on May 14, 2018, to unitholders of record on May 7, 2018. Also on May 14, 2018, a cash incentive distribution of $0.8 million will be made to Noble related to its IDRs, based upon the level of distribution paid per Common and Subordinated Unit.

Note 11. Net Income Per Limited Partner Unit
Our net income is attributed to limited partners, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions paid to Noble, the holder of our IDRs. The Common and Subordinated unitholders represent an aggregate 100% limited partner interest in us. Pursuant to our partnership agreement, to the extent that the quarterly distributions exceed certain target levels, Noble, as the holder of our IDRs, is entitled to receive certain incentive distributions that will result in more net income proportionately being allocated to Noble than to the holders of Common Units and Subordinated Units.
Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include Common Units, Subordinated Units and IDRs.
Basic and diluted net income per limited partner Common Unit and Subordinated Unit is computed by dividing the respective limited partners’ interest in net income for the period by the weighted-average number of Common Units and Subordinated Units outstanding for the period. Diluted net income per limited partner Common Unit and Subordinated Unit reflects the potential dilution that could occur if agreements to issue Common Units, such as awards under the LTIP, were settled or converted into Common Units. When it is determined that potential Common Units resulting from an award should be included in the diluted net income per limited partner Common Unit and Subordinated Unit calculation, the impact is reflected by applying the treasury stock method.

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Noble Midstream Partners LP
Notes to Consolidated Financial Statements (Unaudited)


Our calculation of net income per limited partner Common and Subordinated Unit is as follows:
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Net Income Attributable to Noble Midstream Partners LP
$
39,361

 
$
24,342

Less: Net Income Attributable to Incentive Distribution Rights
819

 

Net Income Attributable to Limited Partners
$
38,542

 
$
24,342

 
 
 
 
Net Income Allocable to Common Units
$
23,058

 
$
12,171

Net Income Allocable to Subordinated Units
15,484

 
12,171

Net Income Attributable to Limited Partners
$
38,542

 
$
24,342

 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Basic and Diluted
 
 
 
Common Units
$
0.97

 
$
0.77

Subordinated Units
$
0.97

 
$
0.77

 
 
 
 
Weighted Average Limited Partner Units Outstanding — Basic
 
 
 
Common Units
23,683

 
15,903

Subordinated Units
15,903

 
15,903

 
 
 
 
Weighted Average Limited Partner Units Outstanding — Diluted
 
 
 
Common Units
23,698

 
15,909

Subordinated Units
15,903

 
15,903

 
 
 
 
Antidilutive Restricted Units
21

 
5



Note 12. Commitments and Contingencies
Legal Proceedings  We may become involved in various legal proceedings in the ordinary course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we will regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our combined financial condition, results of operations or cash flows.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a narrative about our business from the perspective of our management. Our MD&A is presented in the following major sections:
Executive Overview;
Operating Outlook;
Results of Operations; and
Liquidity and Capital Resources.
MD&A is our analysis of the Partnership’s financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2017. It contains forward-looking statements including, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. We do not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the our disclosures in Item 3 of this report under the heading: “Disclosure Regarding Forward-Looking Statements.”
EXECUTIVE OVERVIEW
Overview
We are a growth-oriented Delaware master limited partnership formed in December 2014 by our Parent, Noble, to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Our current areas of focus are in the DJ Basin in Colorado and the Delaware Basin in Texas. We currently provide crude oil, natural gas, and water-related midstream services through long-term, fixed-fee contracts, as well as purchase and sell crude oil to third parties at various delivery points on our gathering systems. Our business activities are conducted through three reportable segments: Gathering Systems (crude oil, natural gas and produced water gathering, crude oil treating, and commodity sales), Fresh Water Delivery, and Investments and Other.
We are Noble’s primary vehicle for its midstream operations in the onshore United States. We believe that our diverse midstream infrastructure assets and our relationship with Noble position us as a leading midstream service provider.
Significant Results
The following discussion highlights significant operating and financial results for first quarter 2018.
Significant Operating Highlights Included:
average crude oil gathering volumes of 130 MBbl/d, an increase of 195% as compared with first quarter 2017;
average natural gas gathering volumes of 248 BBtu/d, an increase of 70% as compared with first quarter 2017;
average produced water gathered volumes of 47 MBbl/d, an increase of 422% as compared with first quarter 2017;
average fresh water delivered volumes of 168 MBbl/d, an increase of 29% as compared with first quarter 2017;
completion of construction of the Coronado CGF in the Delaware Basin; and
commencement of crude oil sales upon closing of the Black Diamond Acquisition.
Significant Transactional Highlights Included:
closed the Black Diamond Acquisition on January 31, 2018; and
extended the maturity date of our revolving credit facility to March 2023 and increased the facility size to $800 million with the ability to increase the borrowing capacity by an additional $350 million.
Significant Financial Highlights Included:
net income of $39.1 million, an increase of 13% as compared with first quarter 2017;
net income attributable to the Partnership of $39.4 million, an increase of 62% as compared with first quarter 2017;
net cash provided by operating activities of $45.6 million, an increase of 42% as compared with first quarter 2017;
declared a distribution of $0.5110 per unit, an increase of 4.7% above the fourth quarter 2017 distribution per unit;
Adjusted EBITDA (non-GAAP financial measure) of $57.9 million, an increase of 55% as compared with first quarter 2017;

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Adjusted EBITDA (non-GAAP financial measure) attributable to the Partnership of $54.3 million an increase of 105% as compared with first quarter 2017; and
distributable cash flow (non-GAAP financial measure) of $47.3 million, an increase of 95% as compared with first quarter 2017.
For additional information regarding our non-GAAP financial measures, please see — EBITDA (Non-GAAP Financial Measure), Distributable Cash Flow (Non-GAAP Financial Measure) and Reconciliation of Non-GAAP Financial Measures, below.

OPERATING OUTLOOK
2018 Capital Investment Program
Our 2018 capital investment program will accommodate a gross investment level of approximately $500 to $535 million, with $270 to $285 million attributable to us. We will evaluate the level of capital spending throughout the year based on the following factors, among others, and their effect on project financial returns:
pace of our customers’ development;
operating and construction costs and our ability to achieve material supplier price reductions;
impact of new laws and regulations on our business practices;
indebtedness levels; and
availability of financing or other sources of funding.
We plan to fund our investment program with cash on hand, cash generated from operations, borrowings under our revolving credit facility and, if necessary, the issuance of additional equity or debt securities.
Development Project Updates
Laramie River DevCo LP We completed the integration of the assets acquired in the Black Diamond Acquisition and transitioned operation of the system to us. Subsequent to the integration, we completed the connection of the system to a major oil takeaway outlet in the DJ Basin. The system now connects to all four major oil takeaway outlets in the DJ Basin. Additionally, we connected the legacy gathering system to the acquired Lucerne Terminal.
Blanco River DevCo LP During first quarter 2018, we completed construction of the Coronado CGF and continued construction of two additional CGFs. The Billy Miner II CGF was completed and began operations in April 2018. We estimate that construction of the Collier CGF will be completed during second quarter 2018.
Trinity River DevCo LLC During first quarter 2018, we commenced natural gas compression services in the Delaware Basin for Noble. We expect to increase natural gas compression capacity through the installation of additional horsepower by mid-year 2018. We purchased pumps to expand the capacity of the Advantage pipeline to 200 Mbbl/d from 150 Mbbl/d.
Green River DevCo LP During first quarter 2018, we continued construction of our fresh water delivery infrastructure in the Mustang IDP area and commenced procurement and construction on the gathering systems. We began delivering fresh water in March 2018 and our gathering system is expected to be operational mid-year 2018.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics, each as described in more detail below, to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include:
throughput volumes;
operating costs and expenses;
Adjusted EBITDA (non-GAAP financial measure);
distributable cash flow (non-GAAP financial measure); and
capital expenditures.

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RESULTS OF OPERATIONS
Results of operations were as follows:
 
Three Months Ended March 31,
(thousands)
2018
 
2017
Revenues
 
 
 
Midstream Services — Affiliate
$
64,263

 
$
50,314

Midstream Services — Third Party
11,360

 

Crude Oil Sales — Third Party
22,110

 

Total Revenues
97,733

 
50,314

Costs and Expenses
 
 
 
Cost of Crude Oil Sales
21,439

 

Direct Operating
17,148

 
11,401

Depreciation and Amortization
11,329

 
2,449

General and Administrative
10,442

 
2,742

Total Operating Expenses
60,358

 
16,592

Operating Income
37,375

 
33,722

Other (Income) Expense
 
 
 
Interest Expense, Net of Amount Capitalized
1,033

 
267

Investment Income
(2,868
)
 
(1,065
)
Total Other Income
(1,835
)
 
(798
)
Income Before Income Taxes
39,210

 
34,520

Income Tax Provision
74

 

Net Income
39,136

 
34,520

Less: Net (Loss) Income Attributable to Noncontrolling Interests
(225
)
 
10,178

Net Income Attributable to Noble Midstream Partners LP
$
39,361

 
$
24,342

 
 
 
 
Adjusted EBITDA(1) Attributable to Noble Midstream Partners LP
$
54,277

 
$
26,501

 
 
 
 
Distributable Cash Flow(1) of Noble Midstream Partners LP
$
47,330

 
$
24,225

(1) 
Adjusted EBITDA and Distributable Cash Flow are not measures as determined by GAAP and should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP. For additional information regarding our non-GAAP financial measures, please see — EBITDA (Non-GAAP Financial Measure), Distributable Cash Flow (Non-GAAP Financial Measure) and Reconciliation of Non-GAAP Financial Measures, below.
Throughput and Crude Oil Sales Volumes
The amount of revenue we generate primarily depends on the volumes of crude oil, natural gas and water for which we provide midstream services as well as the crude oil volumes we sell to customers. These volumes are affected primarily by the level of drilling and completion activity by our customers in our areas of operations, and by changes in the supply of and demand for crude oil, natural gas and NGLs in the markets served directly or indirectly by our assets.
Our customers willingness to engage in drilling and completion activity is determined by a number of factors, the most important of which are the prevailing and projected prices of crude oil and natural gas, the cost to drill and operate a well, expected well performance, the availability and cost of capital, and environmental and government regulations. We generally expect the level of drilling to positively correlate with long-term trends in commodity prices. Similarly, production levels nationally and regionally generally tend to positively correlate with drilling activity.
Our customers have dedicated acreage to us based on the services we provide. Our commercial agreements with Noble provide that, in addition to our existing dedicated acreage, any future acreage that is acquired by Noble in the IDP areas, and that is not subject to a pre-existing third-party commitment, will be included in the dedication to us for midstream services, including gathering and treating.

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Throughput and crude oil sales volumes related to our Gathering Systems and Fresh Water Delivery reportable segments were as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Colorado River DevCo LP (Wells Ranch IDP and East Pony IDP) (1) 
 
 
 
Crude Oil Gathering Volumes (Mbbl/d)
67

 
44

Natural Gas Gathering Volumes (BBtu/d)
208

 
146

Produced Water Gathering Volumes (Mbbl/d)
16

 
9

Fresh Water Delivery Volumes (Mbbl/d)
102

 
74

 
 
 
 
San Juan River DevCo LP (East Pony IDP) (1)
 
 
 
Fresh Water Delivery Volumes (Mbbl/d)

 
56

 
 
 
 
Green River DevCo LP (Mustang IDP) (1)
 
 
 
Fresh Water Delivery Volumes (Mbbl/d)
22

 

 
 
 
 
Blanco River DevCo LP (Delaware Basin) (1)
 
 
 
Crude Oil Gathering Volumes (Mbbl/d)
14

 

Natural Gas Gathering Volumes (BBtu/d)
40

 

Produced Water Gathering Volumes (Mbbl/d)
26

 

 
 
 
 
Laramie River DevCo LP (Greeley Crescent IDP) (1)
 
 
 
Crude Oil Sales Volumes (Mbbl/d) (2)
5

 

Crude Oil Gathering Volumes (Mbbl/d)
49

 

Produced Water Gathering Volumes (Mbbl/d)
5

 

Fresh Water Delivery Volumes (Mbbl/d)
44

 

 
 
 
 
Trinity River DevCo LLC (Delaware Basin) (1)
 
 
 
Natural Gas Compression Volumes (BBtu/d)
27

 

 
 
 
 
Total Gathering Systems
 
 
 
Crude Oil Sales Volumes (Mbbl/d) (2)
5

 

Crude Oil Gathering Volumes (Mbbl/d)
130

 
44

Natural Gas Gathering Volumes (BBtu/d)
248

 
146

Barrels of Oil Equivalent (MBoe/d)
162

 
63

Produced Water Gathering Volumes (Mbbl/d)
47

 
9

Natural Gas Compression Volumes (BBtu/d)
27

 

 
 
 
 
Total Fresh Water Delivery
 
 
 
Fresh Water Delivery Volumes (Bbl/d)
168

 
130

(1) 
See Item 1. Financial Statements – Note 1. Organization and Nature of Operations for our DevCo ownership interests.
(2) 
Crude oil sales commenced upon closing of the Black Diamond Acquisition on January 31, 2018. The daily average sales volumes were computed over the period from February 1, 2018 to March 31, 2018.

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Revenues
Revenues from our Gathering System and Fresh Water Delivery reportable segments were as follows:
 
Three Months Ended March 31,
 
Increase (Decrease) From Prior Year
(in thousands)
2018
 
2017
 
Crude Oil, Natural Gas and Produced Water Gathering Affiliate
$
43,024

 
$
28,409

 
51
 %
Crude Oil, Natural Gas and Produced Water Gathering — Third Party
6,570

 

 
N/M

Fresh Water Delivery Affiliate
20,284

 
20,319

 
 %
Fresh Water Delivery — Third Party
3,902

 

 
N/M

Crude Oil Treating — Affiliate
955

 
1,267

 
(25
)%
Crude Oil Sales — Third Party
22,110

 

 
N/M

Other — Affiliate

 
319

 
N/M

Other — Third Party
888

 

 
N/M

Total Revenues
$
97,733

 
$
50,314

 
94
 %
N/M Amount is not meaningful
Revenues Trend Analysis
Revenues increased during first quarter 2018 as compared with first quarter 2017 due to the following:
an increase in gathering revenues and fresh water delivery revenues due to the commencement of services in the Greeley Crescent IDP area and Delaware Basin subsequent to first quarter 2017;
an increase in fresh water delivery revenues due to the timing of well completion activity by Noble in the Mustang IDP area;
the commencement of crude oil sales during first quarter 2018; and
an increase in gathering revenues in the Wells Ranch and East Pony IDP areas due to an increase in the number of wells connected to the gathering systems subsequent to first quarter 2017;
partially offset by:
a decrease in fresh water delivery revenues due to the timing of well completion activity by Noble in the East Pony IDP area.



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Costs and Expenses
Costs and expenses were as follows:
(in thousands)
2018
 
2017
 
Increase
from Prior Year
Three Months Ended March 31,
 
 
 
 
 
Cost of Crude Oil Sales
$
21,439

 
$

 
N/M

Direct Operating
17,148

 
11,401

 
50
%
Depreciation and Amortization
11,329

 
2,449

 
363
%
General and Administrative
10,442

 
2,742

 
281
%
Total Operating Expenses
$
60,358

 
$
16,592

 
264
%
N/M Amount is not meaningful
Costs and Expenses Trend Analysis
Cost of Crude Oil Sales Cost of crude oil sales is recorded within our Gathering Systems reportable segment. The purchase and sale of crude oil commenced upon closing of the Black Diamond Acquisition.
Direct Operating Direct operating expense increased during first quarter 2018 as compared with first quarter 2017. The increases in direct operating expense by reportable segment were as follows:
Gathering Systems Gathering Systems direct operating expense increased during first quarter 2018 as compared with first quarter 2017. The increase was primarily attributable to an increase in gathering systems and facilities operating expense associated with the Billy Miner I CGF and Jesse James CGF that were completed subsequent to first quarter 2017, along with the Black Diamond Acquisition in the first quarter 2018.
Fresh Water Delivery Fresh Water Delivery direct operating expense remained consistent during first quarter 2018 as compared with first quarter 2017.
Depreciation and Amortization Depreciation and amortization expense increased during first quarter 2018 as compared with first quarter 2017. The increases in depreciation and amortization expenses be reportable segment were as follows:
Gathering Systems Gathering Systems depreciation and amortization expense increased during first quarter 2018 as compared with first quarter 2017 primarily due to assets placed in service after first quarter 2017. Assets placed in service were associated with the expansion of the Wells Ranch CGF and gathering system, construction of the Greeley Crescent gathering system, construction of the Delaware Basin gathering facilities, and assets acquired in the Black Diamond Acquisition. Additionally, depreciation and amortization expense includes the amortization of intangible assets that consist of customer contracts and relationship acquired in the Black Diamond Acquisition.
Fresh Water Delivery Fresh Water Delivery depreciation and amortization expense remained consistent during first quarter 2018 as compared with first quarter 2017.
General and Administrative Expense General and administrative expense is recorded within our Investments and Other reportable segment. General and administrative expense increased during first quarter 2018 as compared with first quarter 2017. The increase is due primarily to legal and financial advisory fees associated with the Black Diamond Acquisition. Transaction expenses associated with the Black Diamond Acquisition were approximately $6.0 million.

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Other (Income) Expense Trend Analysis
(in thousands)
2018
 
2017
 
Increase (Decrease) from Prior Year
Three Months Ended March 31,
 
 
 
 
 
Other (Income) Expense
 
 
 
 
 
Interest Expense
$
2,521

 
$
267

 
844
%
Capitalized Interest
(1,488
)
 

 
N/M

Interest Expense, Net
1,033

 
267

 
287
%
Investment Income
(2,868
)
 
(1,065
)
 
169
%
Total Other (Income) Expense
$
(1,835
)
 
$
(798
)
 
130
%
N/M Amount is not meaningful
Interest Expense, Net Interest expense is recorded within our Investments and Other reportable segment. Interest expense represents interest incurred in connection with our revolving credit facility. Our interest expense includes interest on outstanding balances and commitment fees on the undrawn portion of our revolving credit facility as well as the non-cash amortization of origination fees. A portion of the interest expense is capitalized based upon construction-in-progress activity during the year. See Note 5. Property, Plant and Equipment for our Construction-in-Progress balances as of March 31, 2018 and December 31, 2017.
Interest expense and capitalized interest increased during first quarter 2018 as compared with first quarter 2017. During first quarter 2017 no amounts were drawn on our revolving credit facility. As there were no amounts drawn during first quarter 2017, our interest expense consisted of commitment fees on the undrawn portion of our revolving credit facility as well as the non-cash amortization of origination fees.
Investment Income Investment income is recorded within our Investments and Other reportable segment. Investment income increased during first quarter 2018 as compared with first quarter 2017. The increase is primarily due to earnings from our investment in the Advantage Joint Venture.
Income Tax Provision
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Due to operations in the Delaware Basin, we are subject to a Texas margin tax. We recorded a de minimis state tax provision for the three months ended March 31, 2018.


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Table of Contents

Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA should not be considered an alternative to net income, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, our Adjusted EBITDA may not be comparable to similar measures of other companies in our industry.
For a reconciliation of Adjusted EBITDA to its most comparable measures calculated and presented in accordance with GAAP, see Reconciliation of Non-GAAP Financial Measures, below.
We define Adjusted EBITDA as net income (loss) before income taxes, net interest expense, depreciation and amortization, transaction expenses, and unit-based compensation. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:
our operating performance as compared with those of other companies in the midstream energy industry, without regard to financing methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash flow to make distributions to our partners;
our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.
Distributable Cash Flow (Non-GAAP Financial Measure)
Distributable cash flow should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow excludes some, but not all, items that affect net income or net cash provided by operating activities, and these measures may vary from those of other companies. As a result, our distributable cash flow may not be comparable to similar measures of other companies in our industry.
For a a reconciliation of distributable cash flow to its most comparable measures calculated and presented in accordance with GAAP, see Reconciliation of Non-GAAP Financial Measures, below.
We define distributable cash flow as Adjusted EBITDA less estimated maintenance capital expenditures and cash interest paid. Distributable cash flow does not reflect changes in working capital balances. Our partnership agreement requires us to distribute all available cash on a quarterly basis, and distributable cash flow is one of the factors used by the board of directors of our general partner to help determine the amount of cash that is available to our unitholders for a given period. Therefore, we believe distributable cash flow provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. Distributable cash flow should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.

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Reconciliation of Non-GAAP Financial Measures
The following tables present reconciliations of Adjusted EBITDA and distributable cash flow from net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Reconciliation from Net Income
 
 
 
Net Income and Comprehensive Income
$
39,136

 
$
34,520

Add:
 
 
 
Depreciation and Amortization
11,329

 
2,449

Interest Expense, Net of Amount Capitalized
1,033

 
267

Income Tax Provision
74

 

Transaction Expenses
5,969

 

Unit-Based Compensation
321

 
127

Adjusted EBITDA
57,862

 
37,363

Less:
 
 
 
Adjusted EBITDA Attributable to Noncontrolling Interests
3,585

 
10,862

Adjusted EBITDA Attributable to Noble Midstream Partners LP
54,277

 
26,501

Less:
 
 
 
Cash Interest Paid
2,407

 
175

Maintenance Capital Expenditures
4,540

 
2,101

Distributable Cash Flow of Noble Midstream Partners LP
$
47,330

 
$
24,225


Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA and Distributable Cash Flow
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Reconciliation from Net Cash Provided by Operating Activities
 
 
 
Net Cash Provided by Operating Activities
$
45,603

 
$
32,225

Add:
 
 
 
Interest Expense, Net of Amount Capitalized
1,033

 
267

Changes in Operating Assets and Liabilities
5,743

 
4,966

Transaction Expenses
5,969

 

Change in Income Tax Payable
74

 

Other Adjustments
(560
)
 
(95
)
Adjusted EBITDA
57,862

 
37,363

Less:
 
 
 
Adjusted EBITDA Attributable to Noncontrolling Interests
3,585

 
10,862

Adjusted EBITDA Attributable to Noble Midstream Partners LP
54,277

 
26,501

Less:
 
 
 
Cash Interest Paid
2,407

 
175

Maintenance Capital Expenditures
4,540

 
2,101

Distributable Cash Flow of Noble Midstream Partners LP
$
47,330

 
$
24,225


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LIQUIDITY AND CAPITAL RESOURCES
Financing Strategy
Our primary sources of liquidity are cash flows generated from operations based on commercial agreements with Noble and our third party customers. We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and issuances of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. We do not have any commitment from Noble or our general partner or any of their respective affiliates to fund our cash flow deficits or provide other direct or indirect financial assistance to us. Certain consolidated subsidiaries make distributions to or receive contributions from Noble in proportion to Noble’ s ownership in the subsidiary.
Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including our revolving credit facility and the issuance of debt and equity securities, to fund acquisitions and our expansion capital expenditures.
During the first quarter 2018, we utilized our revolving credit facility to fund portions of our construction activities and the Black Diamond Acquisition. See Item 1. Financial Statements – Note 3. Acquisition and Item 1. Financial Statements – Note 7. Long-Term Debt.
Available Liquidity
Information regarding liquidity was as follows:
(in thousands)
March 31, 2018
 
December 31, 2017
Cash, Cash Equivalents, and Restricted Cash (1)
$
24,924

 
$
55,531

Amount Available to be Borrowed Under Our Revolving Credit Facility (2)
365,000

 
265,000

Available Liquidity
$
389,924

 
$
320,531

(1) 
See Item 1. Financial Statements – Note 2. Basis of Presentation.
(2) 
See Item 1. Financial Statements – Note 7. Long-Term Debt.
Revolving Credit Facility
On January 31, 2018, in connection with the closing of the Black Diamond Acquisition, we entered into an amendment to increase the capacity on our revolving credit facility from $350 million to $530 million. On March 9, 2018, we entered into an additional amendment to extend the maturity of our revolving credit facility and increase the borrowing capacity to $800 million. The revolving credit facility is available to fund working capital and to finance acquisitions and expansion capital expenditures. As of March 31, 2018, $435 million was outstanding under our revolving credit facility. See Item 1. Financial Statements – Note 7. Long-Term Debt.
Cash Flows
Summary cash flow information was as follows:
 
Three Months Ended March 31,
(in thousands)
2018
 
2017
Total Cash Provided By (Used in)
 
 
 
Operating Activities
$
45,603

 
$
32,225

Investing Activities
(811,221
)
 
(32,589
)
Financing Activities
735,011

 
(18,198
)
Decrease in Cash, Cash Equivalents, and Restricted Cash
$
(30,607
)
 
$
(18,562
)
Operating Activities Net cash provided by operating activities increased during the first three months of 2018 as compared with the first three months of 2017 primarily due to an increase of net income driven by increased revenues resulting from higher throughput volumes due to expansion of existing systems and providing services to new areas and customers. The increase in revenues was partially offset by an increase in depreciation and amortization due to the construction of new systems as well as an increase in general and administrative expense due to legal and financial advisory fees associated with the Black Diamond Acquisition.