Variable Interest Entity Arrangements

3 Months Ended

Mar. 31, 2020

Variable Interest Entity Arrangements [Abstract]

Variable Interest Entity Arrangements

VARIABLE INTEREST ENTITY ARRANGEMENTSOn April 3, 2018 we sold 50% of the ownership interest in Superior. The 50% interest in Superior we sold was acquired by SP Investor Holdings, LLC, a holding company jointly owned by OPTrust and funds managed and/or advised by Partners Group, a global private markets investment manager. Superior will be governed and managed under the Amended and Restated Limited Liability Company Agreement and a Management Services Agreement (MSA). The MSA is between our affiliate, SPC Midstream Operating, L.L.C. (Operator) and Superior. The Operator is a wholly owned subsidiary of Unit Corporation. Under the guidance in ASC 810, Consolidation, we have determined that Superior is a VIE. The two variable interests applicable to

Unit include the 50% equity investment in Superior and the MSA. The MSA gives us the power to direct the activities that most significantly affect Superior's operating performance. The MSA is a separate variable interest. Unit through the MSA has the power to direct Superior’s most significant activities; reciprocally the equity investors lack the power to direct the activities that most affect the entity’s economic performance. Because of this, Unit is considered the primary beneficiary. There have been no changes to the primary beneficiary during the quarter ended March 31, 2020.

As the primary beneficiary of this VIE, we consolidate in our financial statements the financial position, results of operations, and cash flows of this VIE, and all intercompany balances and transactions between us and the VIE are eliminated in our consolidated financial statements. Cash distributions of income, net of agreed on expenses, and estimated expenses are allocated to the equity owners as specified in the relevant agreements.

On the sale or liquidation of Superior, distributions would occur in the order and priority specified in the relevant agreements.

As the Operator, we provide services, like operations and maintenance support, accounting, legal, and human resources to Superior for a monthly service fee of $260,560. Superior's creditors have no recourse to our general credit. Superior's credit agreement is not guaranteed by Unit. The obligations under Superior's credit agreement are secured by, among other things, mortgage liens on certain of Superior’s processing plants and gathering systems.

The carrying value of Superior's assets and liabilities, after eliminations of any intercompany transactions and balances, in the consolidated balance sheets were as follows:

	March 31, 2020		December 31, 2019
	(In thousands)
Current assets:
Cash and cash equivalents	$	23,900	$	—
Accounts receivable	15,305		21,073
Prepaid expenses and other	7,473		7,686
Total current assets	46,678		28,759
Property and equipment:
Gas gathering and processing equipment	829,600		824,699
Transportation equipment	3,397		3,390
	832,997		828,089
Less accumulated depreciation, depletion, amortization, and impairment	483,205		407,144
Net property and equipment	349,792		420,945
Right of use asset	3,227		3,948
Other assets	7,651		9,442
Total assets	$	407,348	$	463,094
Current liabilities:
Accounts payable	$	12,013	$	18,511
Accrued liabilities	3,064		4,198
Current operating lease liability	1,961		2,407
Current portion of other long-term liabilities	8,765		7,060
Total current liabilities	25,803		32,176
Long-term debt	37,000		16,500
Operating lease liability	1,131		1,404
Other long-term liabilities	4,782		8,126
Total liabilities	$	68,716	$	58,206