Basis of Presentation and Consolidation Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. The Partnership has no items of other comprehensive income or loss; therefore, its net income is identical to its comprehensive income.

Variable Interest Entities 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 board of directors as well as our responsibility as operator of the Black Diamond 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. All financial statement activity associated with Black Diamond is captured within the Gathering Systems reportable segment. See Note 10. Segment Information.

Drop-Down and Simplification Transaction On November 21, 2019, we closed the Drop-Down and Simplification Transaction with Noble, as described in Note 3. Transactions with Affiliates. The Drop-Down and Simplification Transaction represented a transaction between entities under common control. Prior to the acquisition of the remaining limited partner interests in Blanco River DevCo LP, Green River DevCo LP and San Juan River DevCo LP, the interests were reflected as noncontrolling interests in the Partnership’s consolidated financial statements. As we acquired additional interests in already-consolidated entities, the acquisition of these interests did not result in a change in reporting entity, as defined under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 805, Business Combinations. Therefore, results of operations related to these entities will be accounted for on a prospective basis.

Conversely, the acquisition of all of the issued and outstanding limited liability company interests of NBL Holdings is characterized as a change in reporting entity, as defined under FASB Accounting Standards Codification Topic 805, Business Combinations, as this entity previously had not been consolidated by us. Therefore, results of operations related to NBL Holdings have been accounted for on a retrospective basis. Our financial information has been recast to include the historical results of NBL Holdings for all periods presented. The financial statements of NBL Holdings for periods prior to the Drop-Down and Simplification Transaction have been prepared from the separate records maintained by Noble and may not necessarily be indicative of the results of operations had these entities operated on a consolidated basis during those periods. Because a direct ownership relationship did not exist among the Partnership and NBL Holdings prior to the Drop-Down and Simplification Transaction, the net investment in NBL Holdings is shown as Parent Net Investment, in lieu of partners’ equity, in the accompanying Consolidated Statement of Changes in Equity for periods prior to the Drop-Down and Simplification Transaction.

Equity Method of Accounting We use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. For certain entities, we serve as the operator and exert significant influence over the day-to-day operations. For other entities, we do not serve as the operator; however, our voting position on management committees or the board of directors allows us to exert significant influence over decisions regarding capital investments, budgets, turnarounds, maintenance, monetization decisions and other project matters. Under the equity method of accounting, initially we record the investment at our cost. Differences in the cost, or basis, of the investment and the net asset value of the investee will be amortized into earnings over the remaining useful life of the underlying assets. See Note 6. Investments.

Cost Method of Accounting We use the cost method of accounting for our White Cliffs Interest as we have virtually no influence over its operations and financial policies. Under the cost method of accounting, we recognize cash distributions from White Cliffs Pipeline L.L.C. as investment income in our consolidated statements of operations to the extent there is net income and record cash distributions in excess of our ratable share of earnings as return of investment. See Note 6. Investments.

Redeemable Noncontrolling Interest Our redeemable noncontrolling interest is related to our preferred equity issuance. 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 the greater of (i) an amount necessary to achieve a 12% internal rate of return or (ii) an amount necessary to achieve a 1.375x multiple on invested capital. GIP can request redemption of the preferred equity following the later of the sixth anniversary of the 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 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. 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). See Note 4. Offerings and Acquisition.

Noncontrolling Interests We present our consolidated financial statements with a noncontrolling interest section representing Noble’s retained ownership in the Gunnison River DevCo LP as well as Greenfield Member’s ownership of Black Diamond.

Segment Information Accounting policies for reportable segments are the same as those described in this footnote. Transfers between segments are accounted for at market value. We do not consider interest income and expense or income tax benefit or expense in our evaluation of the performance of reportable segments. See Note 10. Segment Information.

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.

Accounts Receivable and Allowance for Expected Credit Losses Our accounts receivable result primarily from our midstream gathering services, fresh water services and crude oil sales. The majority of these receivables have payment terms of 30 days or less. At the end of each reporting period, we assess the recoverability of all material receivables using historical data, current market conditions, and reasonable and supportable forecasts of future economic conditions to determine their expected collectibility. The loss given default method is used when, based on management's judgment, an allowance for expected credit losses should be accrued on a material receivable to reflect the net amount expected to be collected. See “Recently Adopted Accounting Standards” below for discussion on our early adoption of Accounting Standards Update No. 2016-13 (ASU 2016-13): Financial Instruments - Credit Losses.

Crude Oil Inventory Our crude oil inventory consists of crude oil that has been purchased. It is stated at the lower of cost or net realizable value. Crude oil inventory is recorded within other current assets in our consolidated balance sheets and totaled $5.6 million and $2.2 million as of December 31, 2019 and 2018, respectively.

Property, Plant and Equipment Property, plant and equipment primarily consists of crude oil gathering systems, natural gas gathering systems, natural gas plants and compression units, produced water collection, gathering, and cleaning systems, fresh water storage and delivery systems and crude oil treating facilities. Property and equipment is stated at the lower of historical cost less accumulated depreciation, or fair value, if impaired.

Depreciation Depreciation is computed over the asset’s estimated useful life using the straight line method based on estimated useful lives and asset salvage values. Determination of depreciation expense requires judgment regarding the estimated useful lives and salvage values of property, plant and equipment. As circumstances warrant, depreciation estimates are reviewed to determine if any changes in the underlying assumptions are necessary. The weighted average life of our long-lived assets is 29 years. The depreciation of fixed assets recorded under capital lease agreements is included in depreciation and amortization expense. See Note 5. Property, Plant and Equipment.

Impairment of Long-Lived Assets We routinely assess whether impairment indicators arise during any given quarter and have processes in place to ensure that we become aware of such indicators. Impairment indicators include, but are not limited to, sustained decreases in commodity prices, a decline in customer well results and lower throughput forecasts, changes in customer development plans, and/or increases in our construction or operating costs. In the event that impairment indicators exist, we conduct an impairment test.

We evaluate our ability to recover the carrying amounts of long-lived assets and determine whether such long-lived assets have been impaired. Impairment exists when the carrying value of an asset exceeds the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. When the carrying amount of a long-lived asset exceeds its estimated undiscounted future cash flows, the carrying amount of the asset is reduced to its estimated fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. During 2018, we recorded an asset impairment of $3.5 million related to a damaged gathering system asset. The asset impairment was partially offset by an expected recovery of $2.5 million. The resulting net impairment totaled $1.0 million and is recorded within other operating expense in our consolidated statement of operations.

Asset Retirement Obligations Asset Retirement Obligations (“AROs”) consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our property and equipment. We recognize the fair value of a liability for an ARO in the period in which it is incurred when we have an existing legal obligation associated with the retirement of our infrastructure assets and the obligation can reasonably be estimated. The associated asset retirement cost is capitalized as part of the carrying cost of the infrastructure asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as: the existence of a legal obligation for an ARO; estimated probabilities, amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates.

In periods subsequent to initial measurement of the ARO, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Revisions also result in increases or decreases in the carrying cost of the asset. Increases in the ARO liability due to passage of time impact net income as accretion expense. The related capitalized cost, including revisions thereto, is charged to expense through depreciation and amortization. See Note 9. Asset Retirement Obligations.

Impairment of Investments We routinely assess our investments for impairment whenever changes in facts and circumstances indicate a loss in value has occurred. When impairment indicators exist, the fair value is estimated and compared to the investment carrying amount. When the carrying amount of an investment exceeds its estimated undiscounted future cash flows, the carrying amount of the investment is reduced to its estimated fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. No impairments have been recorded through December 31, 2019.

Intangible Assets Our intangible assets are comprised of customer contracts 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 by customer contract, 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 4. Offerings and Acquisition and Note 7. Intangible Assets.

Goodwill As of December 31, 2019, our consolidated balance sheet includes goodwill of $109.7 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 Black Diamond reporting unit within the Gathering Systems reportable segment. See Note 4. Offerings and Acquisition and Note 10. Segment Information.

Goodwill is not amortized to earnings but is qualitatively assessed for impairment. Goodwill is assessed for impairment annually during the third quarter, or more frequently as circumstances require, at the reporting unit level. If, based on our qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we will perform a quantitative assessment. If, based on our quantitative assessment, we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value.

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.

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 is equivalent to the carrying amount. The fair value is estimated based on significant other observable inputs. As such, we consider the fair value of these facilities to be a Level 2 measurement on the fair value hierarchy. See Note 8. Long-Term Debt.

Certain assets and liabilities, such as property, plant, and equipment, investments, goodwill and other intangible assets, are not required to be measured at fair value on a recurring basis. However, these assets are assessed for impairment, and a resulting impairment would require the asset be recorded at fair value.

Unit-Based Compensation Unit-based compensation issued to individuals providing services to us is recorded at grant-date fair value. Expense is recognized on a straight-line basis over the requisite service period (generally the vesting period of the award) in the consolidated statements of operations. See Note 11. Unit-Based Compensation.

Litigation and Other Contingencies We may become subject to legal proceedings, claims and liabilities that will arise in the ordinary course of business. We will accrue for losses associated with legal claims when such losses are considered probable and the amounts can be reasonably estimated. See Note 15. Commitments and Contingencies.

In connection with the closing of the Drop-Down and Simplification Transaction, we eliminated a deferred tax asset and current tax liability associated with NBL Holdings. The deferred tax asset and current tax liability totaled approximately $26.0 million and $2.9 million, respectively, and represents a non-cash activity.

Reconciliation of Total Cash We define total cash as cash, cash equivalents and restricted cash. The following table provides a reconciliation of total cash:



	Year Ended December 31,
(in thousands)	2019		2018		2017
Cash and Cash Equivalents at Beginning of Period	$	14,761	$	20,090	$	57,443
Restricted Cash at Beginning of Period^{(1) (2)}	951		37,505		—
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	$	15,712	$	57,595	$	57,443

Cash and Cash Equivalents at End of Period	$	12,676	$	14,761	$	20,090
Restricted Cash at End of Period^{(1) (2)}	50		951		37,505
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	12,726	$	15,712	$	57,595

Concentration of Credit Risk For the year ended December 31, 2019, revenues from Noble and its affiliates comprised 81% and 59% of our midstream services revenues and total revenues, respectively. There were no individually significant revenues from a third-party in 2019.

For the year ended December 31, 2018, revenues from Noble and its affiliates comprised 81% and 61% of our midstream services revenues and total revenues, respectively. Revenues from a single third-party customer comprised 66% and 17% of our crude oil sales revenues and total revenues, respectively.

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 crude oil from producers and sell crude oil to customers at various delivery points. 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. See Note 10. Segment Information for disaggregation of revenue by reportable segment.

Performance Obligations For gathering crude oil and natural gas, treating crude oil, processing natural gas, 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. An affiliate of 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 Revenues expected to be recognized from certain performance obligations that are unsatisfied as of December 31, 2019, are reflected in the following table. We have utilized the practical expedients in ASC 606, which state 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 or 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.

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 crude oil from producers and sell crude oil to customers at various delivery points. 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.

Leases Effective January 1, 2019 we adopted Accounting Standards Update No. 2016-02 (“ASU 2016-02”), which created Topic 842 – Leases (“ASC 842”). The standard requires lessees to recognize a right-of-use (“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.

We adopted ASC 842 using the modified retrospective approach. Adoption did not materially impact our consolidated balance sheet or consolidated statement of operations and had no impact on our consolidated statement of cash flows. Our accounting for finance leases remains substantially unchanged.

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 an 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, such as equipment maintenance, 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.

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 an expected credit loss methodology for financial instruments, including financial assets measured at amortized cost, such as trade and joint interest billing receivables, and off-balance sheet credit exposures not accounted for as insurance, such as financial guarantees and other unfunded loan commitments. The amended standard is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We early adopted this ASU in fourth quarter 2019. This adoption did not have a material impact on our financial statements.