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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 June 30, 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
nblxupdatedlogoa39.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 July 31, 2018, the registrant had 23,761,859 Common Units and 15,902,584 Subordinated Units outstanding.




Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A.  Risk Factors
 
 
 
 
Item 6.  Exhibits
 
 

2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Noble Midstream Partners LP
Consolidated Balance Sheets
(in thousands, unaudited)
 
June 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
16,202

 
$
18,026

Restricted Cash

 
37,505

Accounts Receivable — Affiliate
25,631

 
27,539

Accounts Receivable — Third Party
20,085

 
2,641

Crude Oil Inventory
3,314

 

Other Current Assets
3,896

 
389

Total Current Assets
69,128

 
86,100

Property, Plant and Equipment
 
 
 
Total Property, Plant and Equipment, Gross
1,331,831

 
706,039

Less: Accumulated Depreciation and Amortization
(58,414
)
 
(44,271
)
Total Property, Plant and Equipment, Net
1,273,417

 
661,768

Intangible Assets, Net
326,485

 

Goodwill
111,145

 

Investments
81,234

 
80,461

Deferred Charges
3,056

 
1,429

Total Assets
$
1,864,465

 
$
829,758

LIABILITIES
 
 
 
Current Liabilities
 
 
 
Accounts Payable — Affiliate
$
2,951

 
$
1,616

Accounts Payable — Trade
136,196

 
109,893

Other Current Liabilities
5,605

 
2,876

Total Current Liabilities
144,752

 
114,385

Long-Term Liabilities
 
 
 
Long-Term Debt
530,000

 
85,000

  Asset Retirement Obligations
15,576

 
10,416

Other Long-Term Liabilities
2,466

 
3,727

Total Liabilities
692,794

 
213,528

EQUITY
 
 
 
Partners’ Equity
 
 
 
Limited Partner
 
 
 
Common Units (23,762 and 23,712 units outstanding, respectively)
667,830


642,616

Subordinated Units (15,903 units outstanding)
(151,256
)
 
(168,136
)
General Partner
1,134

 
520

Total Partners’ Equity
517,708

 
475,000

Noncontrolling Interests
653,963

 
141,230

Total Equity
1,171,671

 
616,230

Total Liabilities and Equity
$
1,864,465

 
$
829,758


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

3

Table of Contents

Noble Midstream Partners LP
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per unit amounts, unaudited)
 
Three Months Ended June 30,

Six Months Ended June 30,
 
2018

2017

2018

2017
Revenues











Midstream Services — Affiliate
$
66,924


$
54,117


$
131,187


$
104,431

Midstream Services — Third Party
13,469


3,666


24,829


3,666

Crude Oil Sales — Third Party
41,578

 

 
63,688

 

Total Revenues
121,971


57,783


219,704


108,097

Costs and Expenses
 
 
 
 
 
 
 
Cost of Crude Oil Sales
40,012

 

 
61,451

 

Direct Operating
18,393


14,293


35,541


25,694

Depreciation and Amortization
16,371


2,472


27,700


4,921

General and Administrative
4,980


3,452


15,422


6,194

Total Operating Expenses
79,756


20,217


140,114


36,809

Operating Income
42,215


37,566


79,590


71,288

Other (Income) Expense
 
 
 
 
 
 
 
Interest Expense, Net of Amount Capitalized
1,681


100


2,714


367

Investment Income
(4,091
)
 
(1,641
)
 
(6,959
)
 
(2,706
)
Total Other Income
(2,410
)

(1,541
)

(4,245
)

(2,339
)
Income Before Income Taxes
44,625


39,107


83,835


73,627

State Income Tax Provision
183




257



Net Income
44,442


39,107


83,578


73,627

Less: Net Income Attributable to Noncontrolling Interests
7,858

 
7,515

 
7,633

 
17,693

Net Income Attributable to Noble Midstream Partners LP
36,584

 
31,592

 
75,945

 
55,934

Less: Net Income Attributable to Incentive Distribution Rights
1,134

 
92

 
1,953

 
92

Net Income Attributable to Limited Partners
$
35,450

 
$
31,500

 
$
73,992

 
$
55,842

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit  Basic and Diluted
 
 
 
 
 
 
 
Common Units
$
0.90

 
$
0.98

 
$
1.87

 
$
1.75

Subordinated Units
$
0.90

 
$
0.98

 
$
1.87

 
$
1.75

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding  Basic
 
 
 
 
 
 
 
Common Units
23,686

 
16,127

 
23,684

 
16,015

Subordinated Units
15,903

 
15,903

 
15,903

 
15,903

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding Diluted
 
 
 
 
 
 
 
Common Units
23,700

 
16,137

 
23,699

 
16,024

Subordinated Units
15,903

 
15,903

 
15,903

 
15,903


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)
 
Six Months Ended June 30,
 
2018
 
2017
Cash Flows From Operating Activities
 
 
 
Net Income
$
83,578

 
$
73,627

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
 
 
 
Depreciation and Amortization
27,700

 
4,921

Income from Equity Method Investee, Net of Dividends
(1,278
)
 
(405
)
Unit-Based Compensation
714

 
333

Other Adjustments for Noncash Items Included in Income
329

 
191

Changes in Operating Assets and Liabilities, Net of Assets Acquired and Liabilities Assumed
 
 
 
Increase in Accounts Receivable
(4,874
)
 
(5,423
)
Increase in Accounts Payable
3,241

 
1,409

Other Operating Assets and Liabilities, Net
(4,338
)
 
(126
)
Net Cash Provided by Operating Activities
105,072

 
74,527

Cash Flows From Investing Activities
 
 
 
Additions to Property, Plant and Equipment
(409,059
)
 
(109,449
)
Black Diamond Acquisition, Net of Cash Acquired
(650,131
)
 

Additions to Investments
(119
)
 
(68,485
)
Distributions from Cost Method Investee
715

 
474

Net Cash Used in Investing Activities
(1,058,594
)
 
(177,460
)
Cash Flows From Financing Activities
 
 
 
Distributions to Noncontrolling Interests
(3,529
)
 
(19,452
)
Contributions from Noncontrolling Interests
515,622

 
29,330

Borrowings Under Revolving Credit Facility
610,000

 
195,000

Repayment of Revolving Credit Facility
(165,000
)
 
(5,000
)
Proceeds from Equity Offering, Net of Cash Offering Costs

 
138,089

Distribution to Noble for Contributed Assets

 
(245,000
)
Distributions to Unitholders
(40,913
)
 
(26,848
)
Revolving Credit Facility Amendment Fees and Other
(1,987
)
 
(982
)
Net Cash Provided by Financing Activities
914,193

 
65,137

Decrease in Cash, Cash Equivalents, and Restricted Cash
(39,329
)
 
(37,796
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
55,531

 
57,421

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
16,202

 
$
19,625

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
44,268

29,724

1,953

7,633

83,578

Contributions from Noncontrolling Interests



515,622

515,622

Distributions to Noncontrolling Interests



(3,529
)
(3,529
)
Distributions to Unitholders
(23,683
)
(15,891
)
(1,339
)

(40,913
)
Black Diamond Equity Ownership Promote Vesting (1)
3,946

3,047


(6,993
)

Unit-Based Compensation
714




714

Other
(31
)



(31
)
June 30, 2018
$
667,830

$
(151,256
)
$
1,134

$
653,963

$
1,171,671


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

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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
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 gathering systems;
natural gas gathering systems and compression units;
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.

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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 United States (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 June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 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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Table of Contents
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 intangible assets 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 June 30, 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.
Crude Oil Inventory Our crude oil inventory consists of crude oil that has been purchased at the wellhead. Our crude oil inventory is stated at the lower of cost or net realizable value.
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. 
State Income Tax We are not a taxable entity for United States 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 income tax provision for the three and six months ended June 30, 2018.
Supplemental Cash Flow Information We accrued $106.0 million and $54.5 million related to capital expenditures for projects in progress as of June 30, 2018 and June 30, 2017, respectively.
Concentration of Credit Risk For the three and six months ended June 30, 2018, 55% and 60%, respectively, of our revenues are from Noble and its affiliates. For the three and six months ended June 30, 201794% and 97%, respectively, 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.


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


Recently Issued Accounting Standards
Leases In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The standard 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 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. In July 2018, the FASB issued Accounting Standards Update No. 2018-10 (ASU 2018-10): Codification Improvements to Topic 842, Leases, to clarify application of certain aspects of the standard and to remove inconsistencies within the guidance. Furthermore, in July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11): Leases (Topic 842): Targeted Improvements, which provides for another transition method, in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019) and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (i.e. comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases)). 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. We will adopt the new standard on the effective date of January 1, 2019. Although we continue to assess the impact of the standard on our consolidated financial statements, we believe adoption and implementation will result in an increase in assets and liabilities as well as additional disclosures. We do not expect a material impact on our consolidated statement of operations. We have developed and are executing a project plan, which includes contract review and assessment, as well as evaluation of our systems, processes and internal controls. In addition, we plan to implement new lease accounting software.
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:
 
Six Months Ended June 30,
(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
$
16,202

 
$
19,625

Restricted Cash at End of Period

 

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
16,202

 
$
19,625

(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.

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


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 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 the contracted unit of measure 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 contractual price index 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 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.


11

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


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. We acquired 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 as well as approximately 141,000 dedicated acres from six customers under fixed-fee arrangements.
In connection with the Black Diamond Acquisition, we have incurred acquisition and integration costs of $7.2 million during the six months ended June 30, 2018. Our acquisition and integration costs include consulting, advisory, legal, transition services and other fees. All acquisition and integration 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, 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 $76.4 million and pre-tax net loss of $9.7 million from Black Diamond were generated from

12

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


February 1, 2018 to June 30, 2018 and revenues of $49.6 million and pre-tax net loss of $5.5 million from Black Diamond were generated during the three months ended June 30, 2018.
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 June 30,
 
Six Months Ended June 30,
(in thousands, except per share amounts)
2018
 
2017
 
2018
 
2017
Revenues
$
121,971

 
$
78,016

 
$
230,216

 
$
158,275

Net Income
44,442

 
32,688

 
81,092

 
61,915

Net Income Attributable to Noble Midstream Partners LP

$
36,584

 
$
27,159

 
$
74,279

 
$
47,682

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit  Basic and Diluted
 
 
 
 
 
 
 
Common Units
$
0.90

 
$
0.85

 
$
1.83

 
$
1.49

Subordinated Units
$
0.90

 
$
0.85

 
$
1.83

 
$
1.49



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 June 30,
 
Six Months Ended June 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Crude Oil, Natural Gas and Produced Water Gathering
$
46,871

 
$
32,328

 
$
89,895

 
$
60,737

Fresh Water Delivery
19,074

 
20,348

 
39,358

 
40,667

Crude Oil Treating
979

 
1,169

 
1,934

 
2,436

Other

 
272

 

 
591

    Total Revenues — Affiliate
$
66,924

 
$
54,117

 
$
131,187

 
$
104,431


Expenses General and administrative expense consists of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2018
 
2017
 
2018
 
2017
General and Administrative Expense Affiliate
$
1,894

 
$
1,713

 
$
3,705

 
$
3,425

General and Administrative Expense Third Party
3,086

 
1,739

 
11,717

 
2,769

    Total General and Administrative Expense
$
4,980

 
$
3,452

 
$
15,422

 
$
6,194




13

Table of Contents
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)
June 30, 2018
 
December 31, 2017
Crude Oil, Natural Gas and Produced Water Gathering Systems and Facilities
$
954,329

 
$
451,275

Fresh Water Delivery Systems
78,232

 
76,745

Crude Oil Treating Facilities 
20,099

 
20,099

Construction-in-Progress (1)
279,171

 
157,920

Total Property, Plant and Equipment, at Cost
1,331,831

 
706,039

Accumulated Depreciation and Amortization
(58,414
)
 
(44,271
)
Property, Plant and Equipment, Net
$
1,273,417

 
$
661,768

(1) 
Construction-in-progress at June 30, 2018 includes $256.6 million in gathering system projects, $11.6 million in fresh water delivery system projects and $11.0 million in equipment for use in future 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 June 30, 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 purchase and sale of crude oil. See Note 2. Basis of Presentation for further discussion of our crude oil purchase and sale revenue agreements. 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:
 
 
 
June 30, 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

 
$
13,275

 
$
326,485

(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 June 30, 2018 is as follows:
(in thousands)
 
Remainder of 2018
$
16,283

2019
32,301

2020
32,390

2021
32,301

2022
32,301

Thereafter
180,909

Total
$
326,485




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


Note 7. Long-Term Debt
Revolving Credit Facility 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 June 30, 2018, there was $85 million and $530 million, respectively, outstanding under our revolving credit facility. During the six months ended June 30, 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.
As of December 31, 2017 and June 30, 2018, our weighted average annual interest rate was 2.75% and 3.25%, respectively. 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 June 30, 2018, the commitment fee rate was 0.2%. Unamortized debt issuance costs totaled $1.4 million and $3.1 million as of December 31, 2017 and June 30, 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 June 30, 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.
Subsequent Event On July 31, 2018, we entered into a three year senior unsecured term loan credit facility (Term Credit Agreement) that permits aggregate borrowings of up to $500 million. Proceeds from the Term Credit Agreement will be used to repay a portion of the outstanding borrowings under our revolving credit facility, pay fees and expenses in connection with the Term Credit Agreement transactions and for working capital, capital expenditures, acquisitions and other purposes of the Partnership.
Borrowings under the Term Credit Agreement will bear interest at a rate equal to, at our option, either (1) a base rate plus an applicable margin between 0.00% and 0.50% per annum or (2) a Eurodollar rate plus an applicable margin between 1.00% and 1.50% per annum.
The Term Credit Agreement contains customary representations and warranties, affirmative and negative covenants, and events of default that are substantially the same as those contained in our revolving credit facility. Upon the occurrence and during the continuation of an event of default under the Term Credit Agreement, the lenders may declare all amounts outstanding under the Term Credit Agreement to be immediately due and payable and exercise other remedies as provided by applicable law.

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


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)
Six Months Ended June 30, 2018
Asset Retirement Obligations, Beginning Balance
$
10,416

Liabilities Incurred
4,878

Accretion Expense (1)
282

Asset Retirement Obligations, Ending Balance
$
15,576

(1) 
Accretion expense is included in depreciation and amortization expense in the consolidated statements of operations.
Liabilities incurred were primarily related to the completion of Central Gathering Facilities (CGFs) in the Delaware Basin. During 2018, we completed the Coronado, Collier and Billy Miner Train II CGFs.
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 June 30, 2018.

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.

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


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 June 30, 2018
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
47,850

 
$
19,074

 
$

 
$
66,924

Midstream Services — Third Party
 
10,368

 
3,101

 

 
13,469

Crude Oil Sales — Third Party
 
41,578

 

 

 
41,578

Total Revenues
 
99,796

 
22,175

 

 
121,971

Income (Loss) Before Income Taxes
 
29,066

 
18,434

 
(2,875
)
 
44,625

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
33,769

 
$
20,348

 
$

 
$
54,117

Midstream Services — Third Party
 

 
3,666

 

 
3,666

Total Revenues
 
33,769

 
24,014

 

 
57,783

Income (Loss) Before Income Taxes
 
22,343

 
18,872

 
(2,108
)
 
39,107

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
91,829

 
$
39,358

 
$

 
$
131,187

Midstream Services — Third Party
 
17,826

 
7,003

 

 
24,829

Crude Oil Sales — Third Party
 
63,688

 

 

 
63,688

Total Revenues
 
173,343

 
46,361

 

 
219,704

Income (Loss) Before Income Taxes 
 
59,894

 
35,937

 
(11,996
)
 
83,835

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
Midstream Services — Affiliate
 
$
63,764

 
$
40,667

 
$

 
$
104,431

Midstream Services — Third Party
 

 
3,666

 

 
3,666

Total Revenues
 
63,764

 
44,333

 

 
108,097

Income (Loss) Before Income Taxes
 
42,326

 
35,475

 
(4,174
)
 
73,627

 
 
 
 
 
 
 
 
 
June 30, 2018
 
 
 
 
 
 
 
 
Total Assets
 
$
1,625,130

 
$
79,574

 
$
159,761

 
$
1,864,465

 
 
 
 
 
 
 
 
 
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
(in thousands)
 
 
 
 
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

Q1 2018
May 7, 2018
May 14, 2018
$
0.5110

$
12,103

$
8,126

$
819

$
21,048

(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 July 26, 2018, the board of directors of Noble Midstream GP LLC (our general partner) declared a quarterly cash distribution of $0.5348 per unit. The distribution will be paid on August 13 2018, to unitholders of record on August 6, 2018. Also on August 13, 2018, a cash incentive distribution of $1.1 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 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 June 30,
 
Six Months Ended June 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Net Income Attributable to Noble Midstream Partners LP
$
36,584

 
$
31,592

 
$
75,945

 
$
55,934

Less: Net Income Attributable to Incentive Distribution Rights
1,134

 
92

 
1,953

 
92

Net Income Attributable to Limited Partners
$
35,450

 
$
31,500

 
$
73,992

 
$
55,842

 
 
 
 
 
 
 
 
Net Income Attributable to Common Units
$
21,210

 
$
15,862

 
$
44,268

 
$
28,033

Net Income Attributable to Subordinated Units
14,240

 
15,638

 
29,724

 
27,809

Net Income Attributable to Limited Partners
$
35,450

 
$
31,500

 
$
73,992

 
$
55,842

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Basic and Diluted
 
 
 
 
 
 
 
Common Units
$
0.90

 
$
0.98

 
$
1.87

 
$
1.75

Subordinated Units
$
0.90

 
$
0.98

 
$
1.87

 
$
1.75

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding — Basic
 
 
 
 
 
 
 
Common Units
23,686

 
16,127

 
23,684

 
16,015

Subordinated Units
15,903

 
15,903

 
15,903

 
15,903

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding — Diluted
 
 
 
 
 
 
 
Common Units
23,700

 
16,137

 
23,699

 
16,024

Subordinated Units
15,903

 
15,903

 
15,903

 
15,903

 
 
 
 
 
 
 
 
Antidilutive Restricted Units
27

 
7

 
21

 
6



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 customers 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 crude oil sales), Fresh Water Delivery, and Investments and Other.
We are Noble’s primary vehicle for its midstream operations in the onshore United States (U.S.). 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 second quarter 2018.
Significant Operating Highlights Included:
average crude oil gathering volumes of 150,589 Bbl/d, an increase of 180% as compared with second quarter 2017;
average natural gas gathering volumes of 268,087 MMBtu/d, an increase of 69% as compared with second quarter 2017;
average produced water gathered volumes of 86,412 Bbl/d, an increase of 585% as compared with second quarter 2017; and
completed construction of the Collier and Billy Miner Train II CGFs in the Delaware Basin.
Significant Financial Highlights Included:
net income of $44.4 million, an increase of 14% as compared with second quarter 2017;
net income attributable to the Partnership of $36.6 million, an increase of 16% as compared with second quarter 2017;
net cash provided by operating activities of $105.1 million, an increase of 41% as compared with second quarter 2017;
declared a distribution of $0.5348 per unit, an increase of 20% above the second quarter 2017 distribution per unit;
Adjusted EBITDA (non-GAAP financial measure) of $64.4 million, an increase of 54% as compared with second quarter 2017;
Adjusted EBITDA (non-GAAP financial measure) attributable to the Partnership of $48.7 million an increase of 44% as compared with second quarter 2017; and
distributable cash flow (non-GAAP financial measure) of $39.9 million, an increase of 31% as compared with second 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.

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OPERATING OUTLOOK
2018 Capital Investment Program
We have revised our capital investment program to accommodate a gross investment level of approximately $530 million to $550 million. The investment level attributable to the Partnership remains $270 million to $285 million. Approximately 70% of the net capital budget was spent in the first half of the year completing major projects for our customers. The revised capital investment program reflects new customer additions in the DJ and Delaware Basins as well as higher spending on infrastructure for Noble within the Delaware Basin and Mustang IDP area, partially offset by lower capital expenditures within the Greeley Crescent IDP area. We will continue to evaluate the level of capital spending throughout the year based on the following factors, among others, and their effect on project financial returns: