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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
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
nblxupdatedlogoa58.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)
Securities registered pursuant to section 12(b) of the Act:
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Units, Representing Limited Partner Interests
 
NBLX
 
New York Stock Exchange

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  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes     No 
 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
Accelerated filer 
Non-accelerated filer 
Smaller reporting company
Emerging growth 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No
As of October 31, 2019, the registrant had 39,707,343 Common 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)
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
17,571

 
$
10,740

Accounts Receivable — Affiliate
40,475

 
31,613

Accounts Receivable — Third Party
20,251

 
23,091

Other Current Assets
8,579

 
5,875

Total Current Assets
86,876

 
71,319

Property, Plant and Equipment
 
 
 
Total Property, Plant and Equipment, Gross
1,682,820

 
1,500,609

Less: Accumulated Depreciation and Amortization
(114,789
)
 
(79,357
)
Total Property, Plant and Equipment, Net
1,568,031

 
1,421,252

Intangible Assets, Net
286,042

 
310,202

Goodwill
109,734

 
109,734

Investments
565,387

 
82,317

Other Noncurrent Assets
6,696

 
3,093

Total Assets
$
2,622,766

 
$
1,997,917

LIABILITIES, MEZZANINE EQUITY AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts Payable — Affiliate
$
2,568

 
$
2,778

Accounts Payable — Trade
100,157

 
92,756

Other Current Liabilities
10,238

 
9,217

Total Current Liabilities
112,963

 
104,751

Long-Term Liabilities
 
 
 
Long-Term Debt
948,907

 
559,021

  Asset Retirement Obligations
19,268

 
17,330

Other Long-Term Liabilities
1,410

 
582

Total Liabilities
1,082,548

 
681,684

Mezzanine Equity
 
 
 
Redeemable Noncontrolling Interest, Net
102,830

 

Equity
 
 
 
Limited Partner
 
 
 
Common Units (39,712 and 23,759 units outstanding, respectively)
618,049


699,866

Subordinated Units (15,903 units outstanding as of December 31, 2018)

 
(130,207
)
General Partner
5,820

 
2,421

Total Partners’ Equity
623,869

 
572,080

Noncontrolling Interests
813,519

 
744,153

Total Equity
1,437,388

 
1,316,233

Total Liabilities, Mezzanine Equity and Equity
$
2,622,766

 
$
1,997,917

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

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Table of Contents

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

Nine Months Ended September 30,
 
2019

2018

2019

2018
Revenues











Midstream Services — Affiliate
$
100,846


$
73,136


$
278,724


$
204,323

Midstream Services — Third Party
19,607


19,934


63,298


44,763

Crude Oil Sales — Third Party
48,870

 
46,093

 
133,522

 
109,781

Total Revenues
169,323


139,163


475,544


358,867

Costs and Expenses
 
 
 
 
 
 
 
Cost of Crude Oil Sales
46,240

 
44,379

 
125,217

 
105,830

Direct Operating
22,524


23,955


77,677


59,496

Depreciation and Amortization
20,851


18,376


60,487


46,076

General and Administrative
4,129


4,204


12,990


19,626

Other Operating (Income) Expense
(469
)
 

 
(488
)
 

Total Operating Expenses
93,275


90,914


275,883


231,028

Operating Income
76,048


48,249


199,661


127,839

Other Expense (Income)
 
 
 
 
 
 
 
Interest Expense, Net of Amount Capitalized
3,952


3,506


11,507


6,220

Investment Loss (Income)
5,621

 
(3,866
)
 
5,028

 
(10,825
)
Total Other Expense (Income)
9,573


(360
)

16,535


(4,605
)
Income Before Income Taxes
66,475


48,609


183,126


132,444

State Income Tax Provision
92


(94
)

290


163

Net Income
66,383


48,703


182,836


132,281

Less: Net Income Attributable to Noncontrolling Interests
25,751

 
4,086

 
62,236

 
11,719

Net Income Attributable to Noble Midstream Partners LP
40,632

 
44,617

 
120,600

 
120,562

Less: Net Income Attributable to Incentive Distribution Rights
5,820

 
1,462

 
13,967

 
3,415

Net Income Attributable to Limited Partners
$
34,812

 
$
43,155

 
$
106,633

 
$
117,147

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Basic
 
 
 
 
 
 
 
Common Units
$
0.88

 
$
1.09

 
$
2.65

 
$
2.96

Subordinated Units
$

 
$
1.09

 
$
2.89

 
$
2.96

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Diluted
 
 
 
 
 
 
 
Common Units
$
0.88

 
$
1.09

 
$
2.64

 
$
2.96

Subordinated Units
$

 
$
1.09

 
$
2.89

 
$
2.96

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding  Basic
 
 
 
 
 
 
 
Common Units
39,604

 
23,688

 
31,855

 
23,686

Subordinated Units

 
15,903

 
7,747

 
15,903

 
 
 
 
 
 
 
 
Weighted Average Limited Partner Units Outstanding Diluted
 
 
 
 
 
 
 
Common Units
39,624

 
23,704

 
31,879

 
23,701

Subordinated Units

 
15,903

 
7,747

 
15,903

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

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Table of Contents

Noble Midstream Partners LP
Consolidated Statements of Cash Flows
(in thousands, unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash Flows From Operating Activities
 
 
 
Net Income
$
182,836

 
$
132,281

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
 
 
 
Depreciation and Amortization
60,487

 
46,076

Loss (Income) from Equity Method Investees
8,858

 
(7,569
)
Distributions from Equity Method Investees
8,655

 
3,520

Unit-Based Compensation
683

 
1,057

Other Adjustments for Noncash Items Included in Income
573

 
523

Changes in Operating Assets and Liabilities, Net of Assets Acquired and Liabilities Assumed
 
 
 
Increase in Accounts Receivable
(8,696
)
 
(14,054
)
Increase in Accounts Payable
16,886

 
7,173

Other Operating Assets and Liabilities, Net
(4,161
)
 
(1,071
)
Net Cash Provided by Operating Activities
266,121

 
167,936

Cash Flows From Investing Activities
 
 
 
Additions to Property, Plant and Equipment
(189,021
)
 
(540,991
)
Black Diamond Acquisition, Net of Cash Acquired

 
(649,868
)
Additions to Investments
(501,344
)
 
(426
)
Distributions from Cost Method Investee and Other
856

 
1,020

Net Cash Used in Investing Activities
(689,509
)
 
(1,190,265
)
Cash Flows From Financing Activities
 
 
 
Distributions to Noncontrolling Interests
(17,973
)
 
(5,814
)
Contributions from Noncontrolling Interests
45,494

 
593,034

Borrowings Under Revolving Credit Facility
655,000

 
690,000

Repayment of Revolving Credit Facility
(665,000
)
 
(725,000
)
Proceeds from Term Loan Credit Facilities
400,000

 
500,000

Distributions to Unitholders
(83,517
)
 
(63,220
)
Proceeds from Preferred Equity, Net of Issuance Costs
97,198

 

Debt Issuance Costs and Other
(1,884
)
 
(3,050
)
Net Cash Provided by Financing Activities
429,318

 
985,950

Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
5,930

 
(36,379
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period (1)
11,691

 
55,531

Cash, Cash Equivalents, and Restricted Cash at End of Period (1)
$
17,621

 
$
19,152

(1) 
See Note 2. Basis of Presentation for our reconciliation of total cash.
The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Noble Midstream Partners LP
Consolidated Statements of Changes in Equity
(in thousands, unaudited)
 
Partnership
 
 
 
Common Units
Subordinated Units
General Partner
Noncontrolling Interests
Total
December 31, 2018
$
699,866

$
(130,207
)
$
2,421

$
744,153

$
1,316,233

Net Income
23,967

16,085

3,507

19,696

63,255

Contributions from Noncontrolling Interests



15,969

15,969

Distributions to Noncontrolling Interests



(4,669
)
(4,669
)
Distributions to Unitholders
(13,930
)
(9,316
)
(2,421
)

(25,667
)
Black Diamond Equity Ownership Promote Vesting (1)
4,092

2,746


(6,838
)

Unit-Based Compensation and Other
470




470

March 31, 2019
714,465

(120,692
)
3,507

768,311

1,365,591

Net Income
25,487

6,282

4,640

16,789

53,198

Contributions from Noncontrolling Interests



18,141

18,141

Distributions to Noncontrolling Interests



(7,316
)
(7,316
)
Distributions to Unitholders
(14,534
)
(9,751
)
(3,507
)

(27,792
)
Black Diamond Equity Ownership Promote Vesting (1)
8,196



(8,196
)

Conversion of Subordinated Units to Common Units (2)
(124,161
)
124,161




Preferred Equity Accretion
(3,151
)



(3,151
)
Unit-Based Compensation and Other
273




273

June 30, 2019
606,575


4,640

787,729

1,398,944

Net Income
34,812


5,820

25,751

66,383

Contributions from Noncontrolling Interests



11,384

11,384

Distributions to Noncontrolling Interests



(5,988
)
(5,988
)
Distributions to Unitholders
(25,418
)

(4,640
)

(30,058
)
Black Diamond Equity Ownership Promote Vesting (1)
5,357



(5,357
)

Preferred Equity Accretion
(3,114
)



(3,114
)
Unit-Based Compensation and Other
(163
)



(163
)
September 30, 2019
$
618,049

$

$
5,820

$
813,519

$
1,437,388

(1) 
See Note 2. Basis of Presentation for further discussion of the Black Diamond equity ownership promote vesting.
(2) 
See Note 10. Partnership Distributions for further discussion of the conversion of Subordinated Units.
The accompanying notes are an integral part of these consolidated financial statements.














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Table of Contents

Noble Midstream Partners LP
Consolidated Statements 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 and Other
288




288

March 31, 2018
655,602

(159,203
)
819

545,434

1,042,652

Net Income
21,210

14,240

1,134

7,858

44,442

Contributions from Noncontrolling Interests



105,757

105,757

Distributions to Noncontrolling Interests



(522
)
(522
)
Distributions to Unitholders
(12,108
)
(8,126
)
(819
)

(21,053
)
Black Diamond Equity Ownership Promote Vesting (1)
2,731

1,833


(4,564
)

Unit-Based Compensation and Other
395




395

June 30, 2018
667,830

(151,256
)
1,134

653,963

1,171,671

Net Income
25,825

17,330

1,462

4,086

48,703

Contributions from Noncontrolling Interests



77,412

77,412

Distributions to Noncontrolling Interests



(2,285
)
(2,285
)
Distributions to Unitholders
(12,669
)
(8,504
)
(1,134
)

(22,307
)
Black Diamond Equity Ownership Promote Vesting (1)
3,389

2,275


(5,664
)

Unit-Based Compensation and Other
340




340

September 30, 2018
$
684,715

$
(140,155
)
$
1,462

$
727,512

$
1,273,534


(1) 
See Note 2. Basis of Presentation for further discussion of the Black Diamond equity ownership promote vesting.

The accompanying notes are an integral part of these consolidated 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, NBLX, 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
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
100%
N/A
San Juan River DevCo LP
East Pony IDP (DJ Basin)
Water Services
25%
75%
Green River DevCo LP
Mustang IDP (DJ Basin)
Crude Oil Gathering
Natural Gas Gathering
Water Services
25%
75%
Laramie River DevCo LP
Greeley Crescent IDP (DJ Basin)
Crude Oil Gathering
Water Services
100%
N/A
Black Diamond Dedication Area (DJ Basin)
Crude Oil Gathering
Natural Gas Gathering
54.4%
45.6%
Blanco River DevCo LP
Delaware Basin
Crude Oil Gathering
Natural Gas Gathering
Produced Water Services
40%
60%
Gunnison River DevCo LP
Bronco IDP (DJ Basin)
Crude Oil Gathering
Water Services
5%
95%
Trinity River DevCo LLC (2)
Delaware Basin
Crude Oil Transmission
Natural Gas Compression
100%
N/A
Dos Rios DevCo LLC (3)
Delaware Basin
Crude Oil Transmission
Y-Grade Transmission
100%
N/A
(1) 
The noncontrolling interest represents Noble’s retained ownership interest in each DevCo. The noncontrolling interest in Black Diamond Gathering LLC (Black Diamond) represents Greenfield Member’s interest in Black Diamond.
(2) 
Our ownership interest in Advantage Pipeline Holdings, L.L.C. (the Advantage Joint Venture) is owned through Trinity River DevCo LLC. See Note 7. Investments.
(3) 
Our ownership interests in Delaware Crossing LLC (the Delaware Crossing Joint Venture), EPIC Y-Grade, LP (EPIC Y-Grade) and EPIC Crude Holdings, LP (EPIC Crude) are owned through wholly-owned subsidiaries of Dos Rios DevCo LLC. See Note 7. Investments.
Nature of Operations Through our ownership interests in the DevCos, we operate and own interests in the following assets:
crude oil gathering systems;
natural gas gathering systems and compression units;
crude oil treating facilities;
produced water collection, gathering, and cleaning systems;
fresh water storage and delivery systems; and
investments in midstream entities that provide transportation services.
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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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 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 September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and equity for such periods.
In Note 8. Segment Information, we report a new Investments in Midstream Entities reportable segment and present prior period amounts on a comparable basis. Prior period segment information has been reclassified to conform to the current period presentation.
Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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 unconsolidated investments are owned through certain DevCos, all financial statement activity associated with our unconsolidated investments are captured within the Investments in Midstream Entities reportable segment. See Note 7. Investments and Note 8. 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.
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 limited liability company agreement of Black Diamond required special allocations of gross income to balance the ratio of each member’s capital account to its agreed equity ownership interest over time. The special allocations were accounted for as equity transactions between the Partnership and a subsidiary with no gain or loss recognized. As of September 30, 2019, each member’s capital account agreed to its equity ownership interest and no further special allocations are required. See Note 3. Acquisition.
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.
Redeemable Noncontrolling Interest On March 25, 2019, we, through Dos Rios Crude Intermediate LLC, a wholly-owned subsidiary of Dos Rios DevCo LLC, secured a $200 million equity commitment from GIP CAPS Dos Rios Holding Partnership, L.P. (GIP). Upon securing the equity commitment, we issued 100,000 preferred units, with a face value of $1,000 per preferred unit (Preferred Equity). Proceeds from the Preferred Equity totaled $100 million and we incurred offering costs of $3.4 million. The remaining $100 million equity commitment is available for a one-year period, subject to certain conditions precedent. Proceeds from the Preferred Equity were utilized to repay a portion of outstanding borrowings under our revolving credit facility. See Note 6. Debt.

9

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


We can redeem the Preferred Equity in whole or in part at any time for cash at a predetermined redemption price. The predetermined redemption price is based on the greater of a defined internal rate of return or the multiple on invested capital. GIP can request redemption of the Preferred Equity following the later of the sixth anniversary of the Preferred Equity closing or the fifth anniversary of the EPIC Crude pipeline completion date at a pre-determined base return. As GIP’s redemption right is outside of our control, the Preferred Equity is not considered to be a component of equity on the consolidated balance sheet, and such Preferred Equity is reported as mezzanine equity on the consolidated balance sheet. In addition, because the Preferred Equity was issued by a subsidiary of the Partnership and is held by a third party, it is considered a redeemable noncontrolling interest.
The Preferred Equity was recorded initially at fair value on the issuance date. Subsequent to issuance, we accrete changes in the redemption value of the Preferred Equity from the date of issuance to GIP’s earliest redemption date of the Preferred Equity. The Preferred Equity is perpetual and has a 6.5% annual dividend rate, payable quarterly in cash, with the ability to accrue unpaid dividends during the first two years following the closing. During any quarter in which a dividend is accrued, the accreted value of the Preferred Equity will be increased by the accrued but unpaid dividend (i.e., a paid-in-kind dividend). The dividends for the first three quarters of 2019 were paid-in-kind. Accretion during the three and nine months ended September 30, 2019 was approximately $3.1 million and $6.3 million, respectively.
Accounting for Investments We use the equity method of accounting for our investments in the Advantage Joint Venture, the Delaware Crossing Joint Venture, EPIC Y-Grade and EPIC Crude, as we do not control, but do exert significant influence over their operations. We use the cost method of accounting for our investment in White Cliffs Pipeline L.L.C. (White Cliffs) as we have virtually no influence over its operations and financial policies. See Note 7. Investments.
Leases We determine whether an arrangement contains a lease based on the conveyed rights and obligations at the inception date. If an agreement contains a lease, at the commencement date, we record a right-of-use (ROU) asset and a corresponding lease liability based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate to determine the present value of lease payments, we use our hypothetical secured borrowing rate based on information available at lease commencement. The weighted average discount rate is 3.69% for operating leases and 2.80% for our finance lease.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one month to one year or more. Additionally, some of our leases include an option for early termination. We include renewal periods and exclude termination periods from our lease term if, at commencement, it is reasonably likely that we will exercise the option.
Additionally, we have lease agreements that include lease and non-lease components, which are generally accounted for as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. See Note 9. Leases
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.
Intangible Assets Our intangible asset accumulated amortization totaled approximately $53.7 million and $29.6 million as of September 30, 2019 and December 31, 2018, respectively. Intangible asset amortization expense totaled approximately $8.1 million for the three months ended September 30, 2019 and 2018 and $24.2 million and $21.4 million for the nine months ended September 30, 2019 and 2018, respectively. The weighted average amortization period for our intangible assets is approximately 11 years.
Recently Adopted Accounting Standards
Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02), which creates Topic 842 – Leases (ASC 842). The standard requires lessees to recognize a ROU asset and lease liability on the balance sheet for the rights and obligations created by leases. ASC 842 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.


10

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


The new standard provided a number of optional practical expedients. We elected:
the package of ‘practical expedients’, permitting us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs;
the practical expedient pertaining to land easements, allowing us to account for existing land easements under previous accounting policy; and
the practical expedient to not separate lease and non-lease components for the majority of our leases.
We adopted ASC 842 on January 1, 2019 using the modified retrospective approach. The standard did not materially impact our consolidated balance sheet or consolidated statement of operations and had no impact on our consolidated statement of cash flows. Prior period financial statements were not adjusted. See Note 9. Leases.
Recently Issued Accounting Standards
Financial Instruments: Credit Losses In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13): Financial Instruments – Credit Losses, which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses. The standard applies to a broad scope of financial instruments, including financial assets measured at amortized cost and off-balance sheet credit exposures not accounted for as insurance, such as financial guarantees and other unfunded loan commitments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.
We are executing an implementation plan, which includes data collection, contract review and assessment, and determination of necessary systems, processes and internal controls. We continue to evaluate ASU 2016-03; based on our current credit portfolio we do not believe adoption of the standard will have a material impact on our financial statements.
Reconciliation of Total Cash We define total cash as cash, cash equivalents and restricted cash. Our restricted cash is included in other current assets in our consolidated balance sheets. The following table provides a reconciliation of total cash:
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
Cash and Cash Equivalents at Beginning of Period
$
10,740

 
$
18,026

Restricted Cash at Beginning of Period (1) (2)
951

 
37,505

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
$
11,691

 
$
55,531

 
 
 
 
Cash and Cash Equivalents at End of Period
$
17,571

 
$
18,201

Restricted Cash at End of Period (1)
50

 
951

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
17,621

 
$
19,152

(1) 
Restricted cash represents the amount held as collateral at December 31, 2018 and September 30, 2019 for certain of our letters of credit.
(2) 
Restricted cash represents the amount held in escrow at December 31, 2017 for the Black Diamond Acquisition.
Revenue Recognition We recognize revenue at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer, using a five-step process, in accordance with ASC 606 Revenue from Contracts with Customers (ASC 606).
Under ASC 606, remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied as of September 30, 2019. A certain fresh water delivery affiliate revenue agreement contains a minimum volume commitment for the delivery of fresh water for a fixed fee per barrel with annual percentage escalations. The following table includes estimated revenues, as of September 30, 2019, for the agreement. Our actual volumes delivered may exceed the future minimum volume commitment.
(in thousands)
Midstream Services — Affiliate
Remainder of 2019
$
7,616

2020
36,817

2021
37,635

Total
$
82,068



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 6. 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 received a 54.4% equity ownership interest in Black Diamond and Greenfield Member received a 45.6% equity ownership interest in Black Diamond. Noble Member’s agreed equity ownership interest included a 4.4% equity ownership interest promote which was designed to vest only after Noble Member was allocated an amount of gross revenue equal to the contributions by Greenfield Member in excess of its agreed equity ownership interest. As of September 30, 2019, Noble Member has received the necessary allocations of gross revenue and the equity ownership interest promote has vested. See Note 2. Basis of Presentation.
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.
Purchase Price Allocation The transaction has been accounted for as a business combination, using the acquisition method. The following table represents the final 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. The following table sets forth our final purchase price allocation:
(in thousands)
 
Cash Consideration
$
638,266

PDC Energy Payment
24,120

Current Liabilities Assumed
18,259

Total Purchase Price and Liabilities Assumed
$
680,645

 
 
Cash and Restricted Cash
$
12,518

Accounts Receivable
10,661

Other Current Assets
2,206

Property, Plant and Equipment
205,766

Intangible Assets  (1)
339,760

Fair Value of Identifiable Assets
570,911

Implied Goodwill (2)
109,734

Total Asset Value
$
680,645

(1) 
The customer contracts we acquired are long-term, fixed-fee contracts for the purchase and sale of crude oil. Fair value was calculated using the multi-period excess earnings method under the income approach for the existing customers. The fair value was determined using unobservable inputs and is considered to be a Level 3 measurement on the fair value hierarchy.
(2) 
Based upon the final purchase price allocation, we have recognized $109.7 million of goodwill, all of which is assigned to the Black Diamond reporting unit within 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.

12

Table of Contents
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, 2018. 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, 2018; furthermore, the financial information is not intended to be a projection of future results.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands, except per unit amounts)
2019 (1)
 
2018 (1)
 
2019 (1)
 
2018
Revenues
$
169,323

 
$
139,163

 
$
475,544

 
$
369,379

Net Income
66,383

 
48,703

 
182,836

 
129,796

Net Income Attributable to Noble Midstream Partners LP
40,632

 
44,617

 
120,600

 
118,896

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Basic
 
 
 
 
 
 
 
Common Units
$
0.88

 
$
1.09

 
$
2.65

 
$
2.92

Subordinated Units
$

 
$
1.09

 
$
2.89

 
$
2.92

 
 
 
 
 
 
 
 
Net Income Attributable to Limited Partners Per Limited Partner Unit — Diluted
 
 
 
 
 
 
 
Common Units
$
0.88

 
$
1.09

 
$
2.64

 
$
2.92

Subordinated Units
$

 
$
1.09

 
$
2.89

 
$
2.92

(1) 
No pro forma adjustments were made for the period as Black Diamond operations are included in our results for the full period.
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 September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Crude Oil, Natural Gas and Produced Water Gathering
$
79,208

 
$
54,674

 
$
209,530

 
$
144,569

Fresh Water Delivery
20,847

 
17,416

 
66,801

 
56,774

Other
791

 
1,046

 
2,393

 
2,980

    Total Midstream Services — Affiliate
$
100,846

 
$
73,136

 
$
278,724

 
$
204,323


Expenses General and administrative expense consists of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
General and Administrative Expense Affiliate
$
1,805

 
$
1,894

 
$
5,601

 
$
5,599

General and Administrative Expense Third Party
2,324

 
2,310

 
7,389

 
14,027

    Total General and Administrative Expense
$
4,129

 
$
4,204

 
$
12,990

 
$
19,626



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)
September 30, 2019
 
December 31, 2018
Crude Oil, Natural Gas and Produced Water Gathering Systems and Facilities
$
1,403,678

 
$
1,199,679

Fresh Water Delivery Systems
80,840

 
78,820

Crude Oil Treating Facilities
23,140

 
20,027

Construction-in-Progress (1)
175,162

 
202,083

Total Property, Plant and Equipment, at Cost
1,682,820

 
1,500,609

Accumulated Depreciation and Amortization
(114,789
)
 
(79,357
)
Property, Plant and Equipment, Net
$
1,568,031

 
$
1,421,252

(1) 
Construction-in-Progress at September 30, 2019 primarily includes $146.7 million in gathering system projects, $8.3 million in fresh water delivery system projects and $18.8 million in equipment for use in future projects. Construction-in-Progress at December 31, 2018 primarily includes $147.1 million in gathering system projects, $21.6 million in fresh water delivery system projects and $32.8 million in equipment for use in future projects.
Note 6. Debt
Debt consists of the following:
 
September 30, 2019
 
December 31, 2018
(in thousands, except percentages)
Debt
 
Interest Rate
 
Debt
 
Interest Rate
Revolving Credit Facility, due March 9, 2023
$
50,000

 
3.45
%
 
$
60,000

 
3.67
%
2018 Term Loan Credit Facility, due July 31, 2021
500,000

 
3.17
%
 
500,000

 
3.42
%
2019 Term Loan Credit Facility, due August 23, 2022
400,000

 
3.05
%
 

 
%
Finance Lease Obligation (1)
2,082

 
%
 
3,231

 
%
Total
952,082

 
 
 
563,231

 
 
Term Loan Credit Facility Unamortized Debt Issuance Costs
(1,432
)
 
 
 
(979
)
 
 
Total Debt
950,650

 
 
 
562,252

 
 
Finance Lease Obligation Due Within One Year (1)
(1,743
)
 
 
 
(3,231
)
 
 
Long-Term Debt
$
948,907

 
 
 
$
559,021

 
 
(1) 
See Note 9. Leases.
2019 Term Loan Credit Facility On August 23, 2019, we entered into a three-year senior unsecured term loan credit facility that permits aggregate borrowings of up to $400 million. Proceeds from the term loan were primarily used to repay a portion of the outstanding borrowings under our revolving credit facility and pay fees and expenses in connection with the term loan credit facility. We incurred approximately $0.6 million of fees and expenses.
The term loan credit facility contains usual and 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 and the 2018 term loan credit facility. Upon the occurrence and during the continuation of an event of default under the term loan credit facility the lenders may declare all amounts outstanding under the term loan credit facility to be immediately due and payable and exercise other remedies as provided by applicable law.
Compliance with Covenants The revolving credit facility and term loan credit facilities require us to comply with certain financial covenants as of the end of each fiscal quarter. We were in compliance with such covenants as of September 30, 2019.
Fair Value of Long-Term Debt Our revolving credit facility and term loan credit facilities are variable-rate, non-public debt. The fair value of our revolving credit facility and term loan credit facilities approximates the carrying amount. The fair value is estimated based on observable inputs. As such, we consider the fair value of these facilities to be a Level 2 measurement on the fair value hierarchy.

14

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


Note 7. Investments
We have ownership interests in the following entities:
3.33% interest in White Cliffs;
50% interest in the Advantage Joint Venture;
50% interest in the Delaware Crossing Joint Venture;
15% interest in EPIC Y-Grade; and
30% interest in EPIC Crude.
Delaware Crossing Joint Venture On February 7, 2019, we executed definitive agreements with Salt Creek Midstream LLC (Salt Creek) and completed the formation of the Delaware Crossing Joint Venture to construct a crude oil pipeline system with a capacity of 160 MBbl/d in the Delaware Basin. During the first nine months of 2019, we have made capital contributions of approximately $51.5 million.
EPIC Y-Grade On January 31, 2019, we exercised and closed our option with EPIC Midstream Holdings, LP (EPIC) to acquire an interest in EPIC Y-Grade. EPIC Y-Grade is constructing an approximately 700-mile pipeline linking natural gas liquid (NGL) reserves in the Permian Basin and Eagle Ford Shale to Gulf Coast refiners, petrochemical companies, and export markets. During the first nine months of 2019, we have made capital contributions of approximately $166.1 million.
EPIC Crude On January 31, 2019, we exercised our option to acquire an interest in EPIC Crude. On March 8, 2019, we closed our option with EPIC to acquire the interest in EPIC Crude. EPIC Crude is constructing an approximately 700-mile pipeline with a capacity of 590 MBbl/d from the Delaware Basin to the Gulf Coast. During the first nine months of 2019, we have made capital contributions of approximately $268.7 million.
The following table presents our investments at the dates indicated:
(in thousands)
September 30, 2019
 
December 31, 2018
White Cliffs
$
10,274

 
$
9,373

Advantage Joint Venture
74,711

 
72,944

Delaware Crossing Joint Venture
50,435

 

EPIC Y-Grade
166,491

 

EPIC Crude
263,476

 

Total Investments
$
565,387

 
$
82,317


The following table presents our investment loss (income) for the periods indicated:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
White Cliffs
$
(716
)
 
$
(912
)
 
$
(2,605
)
 
$
(2,716
)
Advantage Joint Venture
(1,867
)
 
(2,772
)
 
(5,621
)
 
(7,569
)
Delaware Crossing Joint Venture
512

 

 
2,050

 

EPIC Y-Grade
2,000

 

 
3,054

 

EPIC Crude
6,130

 

 
9,375

 

Other (1)
(438
)
 
(182
)
 
(1,225
)
 
(540
)
Total Investment Loss (Income)
$
5,621