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Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying condensed consolidated financial statements of the Partnership have not been audited by the Partnership’s independent registered public accounting firm, except that the Condensed Consolidated Balance Sheet at December 31, 2019 is derived from audited financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for fair statement of the Partnership’s financial position have been included. Management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
These interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements and should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Annual Report”).
2019 Delaware Acquisition. On November 1, 2019, the Partnership entered into an agreement with Oasis Petroleum, pursuant to which Oasis Petroleum, through OMS (the “Delaware Predecessor”), agreed to assign to Panther DevCo, certain crude oil gathering and produced and flowback water gathering and disposal assets in the Delaware Basin (the “2019 Delaware Acquisition”). The 2019 Delaware Acquisition was accounted for as a transfer of net assets between entities under common control. As a result, the unaudited condensed consolidated financial statements for the period prior to the effective date of November 1, 2019 have been recast. These unaudited condensed consolidated financial statements include the results of the Delaware Predecessor for the three and nine months ended September 30, 2019, which were prepared from Oasis Petroleum’s historical cost-basis accounts and may not necessarily be indicative of the actual results had the Partnership owned the assets during the reported periods.
Consolidation
Consolidation
The Partnership’s condensed consolidated financial statements include its accounts and the accounts of the DevCos, each of which is controlled by the Partnership through its general partner, OMP GP LLC (the “General Partner”). All intercompany balances and transactions have been eliminated upon consolidation.
Variable interest entity. The Partnership determined that Bobcat DevCo is a variable interest entity (“VIE”), since OMS’s equity at risk was established with non-substantive voting rights. The Partnership consolidates Bobcat DevCo in its financial statements under the VIE consolidation model, since the Partnership is the primary beneficiary and has the authority to direct the activities that most significantly affect Bobcat DevCo’s economic performance.
Bighorn DevCo, Beartooth DevCo and Panther DevCo are not VIEs. The Partnership consolidates these entities in its financial statements under the voting interest consolidation model.
Non-controlling interests Non-controlling interests. Non-controlling interests represent OMS’s retained ownership interests in Bobcat DevCo and Beartooth DevCo of 64.7% and 30%, respectively, as of September 30, 2020.
Concentrations of market and credit risk
Concentrations of market and credit risk. The Partnership has limited direct exposure to risks associated with fluctuating commodity prices due to the nature of its business and its long-term, fixed-fee contractual arrangements with its existing customers, including Oasis Petroleum. However, to the extent that the Partnership’s future contractual arrangements with customers, including Oasis Petroleum or third parties, do not provide for fixed-fee structures, the Partnership may become subject to more substantial direct commodity price risk. In addition, in response to a prolonged low commodity price environment, the Partnership’s customers could seek to amend existing contractual arrangements to reduce the volumetric fees the Partnership charges.
As a substantial majority of the Partnership’s revenues are derived from Oasis Petroleum, the Partnership is indirectly subject to risks associated with fluctuating commodity prices to the extent that lower commodity prices adversely affect Oasis Petroleum’s production, drilling schedule or financial condition.
Oasis Petroleum Restructuring. The markets for crude oil, natural gas and NGLs have been volatile, especially over the last several months and years. Commodity prices have weakened to historical lows as a result of the demand impacts from the global novel coronavirus 2019 (“COVID-19”) pandemic, coupled with the supply impacts from actions of Saudi Arabia and Russia. In light of a volatile market environment that drove a severe downturn in crude oil and natural gas prices, as well as the unprecedented impact of the COVID-19 pandemic, Oasis Petroleum engaged with its lenders and an ad hoc committee of
noteholders regarding restructuring alternatives. On September 29, 2020, Oasis Petroleum entered into a restructuring support agreement (“RSA”) which contemplates a restructuring pursuant to a joint “pre-packaged” plan of reorganization (the “Oasis Petroleum Restructuring Plan”) to increase financial flexibility and reduce its debt. On September 30, 2020, in connection with the Oasis Petroleum Restructuring Plan, Oasis Petroleum filed voluntary petitions for relief under chapter 11 of title 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of Texas. The Partnership and its subsidiaries, OMP Operating LLC (“OMP Operating”), Bighorn DevCo, Bobcat DevCo, Beartooth DevCo and Panther DevCo, were not included in Oasis Petroleum’s Chapter 11 filing. Oasis Petroleum continues to operate its business as “debtors-in-possession,” and the United States Bankruptcy Court for the Southern District of Texas has entered orders approving certain relief to enable Oasis Petroleum to operate in the ordinary course of business. Since Oasis Petroleum commenced its Chapter 11 bankruptcy proceedings, the Partnership has continued to interact with Oasis Petroleum under normal course pursuant to the terms of its existing commercial agreements. There are no cross-acceleration or cross-default provisions between the Oasis Petroleum credit agreement and the Partnership’s credit agreement; as a result, there was not an automatic acceleration of the Partnership’s outstanding indebtedness under the Revolving Credit Facility due to Oasis Petroleum’s Chapter 11 filing.
CORVID-19 COVID-19. The Partnership considered the impact of the ongoing COVID-19 pandemic on the assumptions and estimates used by management in the unaudited condensed consolidated financial statements for the reporting periods presented. As a result of lower forecasted throughput volumes driven by the significant decline in commodity prices, the Partnership recognized material asset impairment charges at March 31, 2020 (see Note 6 — Property, Plant and Equipment). Management’s estimates and assumptions were based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional impacts from COVID-19, actual results may differ from the estimates and assumptions used, or conditions may change, which could materially affect amounts reported in the consolidated financial statements in the near term.
Significant Accounting Policies
Significant Accounting Policies
There have been no material changes to the Partnership’s critical accounting policies and estimates from those disclosed in the 2019 Annual Report, other than as noted below.
Financial instruments — credit losses. On January 1, 2020, the Partnership adopted Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects estimated credit losses expected over the life of an exposure and requires consideration of historical data, current market conditions and reasonable and supportable forecasts to develop credit loss estimates. In accordance with ASU 2016-13, the Partnership uses the expected credit loss methodology to measure impairment of financial instruments, including accounts receivable, which may result in earlier recognition of credit losses than under previous GAAP. ASU 2016-13 does not apply to receivables between entities under common control. The adoption of ASU 2016-13 did not have a material impact on the Partnership’s financial position, cash flows or results of operations.
Recent Accounting Pronouncements
Reference rate reform. In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP guidance to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Partnership is currently evaluating its contracts and the optional expedients provided by ASU 2020-04 and the impact the new standard will have on its consolidated financial statements and related disclosures.