Variable Interest Entity Arrangements

6 Months Ended

Jun. 30, 2021

Variable Interest Entity Arrangements [Abstract]

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, a holding company jointly owned by OPTrust and funds managed and/or advised by Partners Group, a global private markets investment manager. Superior is governed and managed under the Amended and Restated Limited Liability Company Agreement (Agreement) and a Management Services Agreement (MSA). The MSA is between our wholly-owned subsidiary, SPC Midstream Operating, L.L.C. (the Operator) and Superior. As the Operator, we provide services, like operations and maintenance support, accounting, legal, and human resources to Superior for a monthly service fee of $263,280. Superior's creditors have no recourse to our general credit. Unit is not a party to and does not guarantee Superior's credit agreement. 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 Agreement specifies how future distributions are to be allocated among the Members. Future distributions may be from available cash or made in conjunction with a sale event (both as defined in the Agreement). In certain circumstances, future distributions could result in Unit receiving distributions that are disproportionately lower than its ownership percentage. Circumstances that could result in Unit receiving less than a proportionate share of future distributions include, but may not be limited to, Unit not fulfilling the drilling commitment described in Note 15 – Commitments and Contingencies or a cumulative return to SP Investor of less than the 7% Liquidation IRR Hurdle provided for SP Investor in the Agreement. Generally, the 7% Liquidation IRR Hurdle calculation requires cumulative distributions to SP Investor in excess of its original $300.0 million investment sufficient to provide SP Investor a 7% IRR on its capital contributions to Superior before any liquidation distribution is made to Unit. After the fifth anniversary of the effective date of the sale, either owner may force a sale of Superior to a third-party or a liquidation of Superior's assets.

Effective at emergence from the Chapter 11 Cases, we record our share of earnings and losses from Superior using the hypothetical liquidation at book value (HLBV) method of accounting which is a balance-sheet approach that calculates the amount we would have received if Superior were liquidated at book value at the end of each measurement period. The change in our allocated amount during the period is recognized in our unaudited condensed consolidated statements of operations. On the sale or liquidation of Superior, distributions would occur in the order and priority specified in the relevant agreements.

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. Under the MSA, Unit 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 June 30, 2021.

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. All intercompany balances and transactions between us and the VIE are eliminated in our unaudited condensed 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.

Superior paid cash distributions totaling $24.7 million in April 2021 related to cumulative available cash as of March 31, 2021 and $7.7 million in July 2021 related to available cash generated during the three months ended June 30, 2021. Unit and SP Investor each received 50% of these distributions. See Note 15 – Commitments and Contingencies for discussion of the Granite Wash/Buffalo Wallow drilling commitment and the potential impact on future distributions.

The amounts below reflect the eliminations of intercompany transactions and balances consistent with the presentation in the unaudited condensed consolidated balance sheets.


	June 30, 2021		December 31, 2020
	(In thousands)

Current assets:
Cash and cash equivalents	$	6,484	$	11,642
Accounts receivable	27,034		27,427
Prepaid expenses and other	3,890		6,746
Total current assets	37,408		45,815
Property and equipment:
Gas gathering and processing equipment	255,338		251,403
Transportation equipment	1,965		1,748
	257,303		253,151
Less accumulated depreciation, depletion, amortization, and impairment	26,736		10,466
Net property and equipment	230,567		242,685
Right of use asset	4,419		2,823
Other assets	1,973		2,309
Total assets	$	274,367	$	293,632

Current liabilities:
Accounts payable	$	20,349	$	17,045
Accrued liabilities	4,541		3,777
Current operating lease liability	1,646		1,762
Current portion of other long-term liabilities	2,116		5,799
Total current liabilities	28,652		28,383

Operating lease liability	626		1,013
Other long-term liabilities	2,773		1,589
Total liabilities	$	32,051	$	30,985