VARIABLE INTEREST ENTITIES

12 Months Ended

Dec. 31, 2021

Variable Interest Entity Arrangements [Abstract]

On 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 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, such as operations and maintenance support, accounting, legal, and human resources to Superior for a monthly service fee of $0.3 million. 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.

We have determined that Superior is a VIE as the equity holders as a group (Unit Corporation and SP Investor) (Members) lack the power to control without the Operator. The Agreement and MSA give us the power to direct the activities that most significantly affect Superior's operating performance through common control of the Operator. Accordingly, Unit is considered the primary beneficiary and consolidates the financial position, operating results, and cash flows of Superior.

The Agreement specifies how future distributions are to be allocated among the Members. Distributions from Available Cash (as defined in the Agreement) were generally split evenly between the Members prior to December 31, 2021, when the three-year period for Unit's commitment to spend $150.0 million (Drilling Commitment Amount) to drill wells in the Granite Wash/Buffalo Wallow area ended. The total amount spent by Unit towards the Drilling Commitment Amount was $24.6 million. Accordingly, SP Investor will receive 100% of Available Cash distributions related to periods subsequent to December 31, 2021 until the $72.7 million Drilling Commitment Adjustment Amount (as defined in the Agreement) is satisfied.

After April 1, 2023, either Member may initiate a sale process of Superior to a third-party or a liquidation of Superior's assets (Sale Event). In a Sale Event, the Agreement generally requires cumulative distributions to SP Investor in excess of its original $300.0 million investment sufficient to provide SP Investor a 7% internal rate of return on its capital contributions to Superior before any liquidation distribution is made to Unit. As of December 31, 2021, liquidation distributions paid first to SP Investor of $361.7 million would be required for SP Investor to reach its 7% Liquidation IRR Hurdle at which point Unit would then be entitled to receive up to $361.7 million of the remaining liquidation distributions to satisfy Unit's 7% Liquidation IRR Hurdle with any remaining liquidation distributions paid as outlined within the Agreement.

Superior paid cash distributions totaling $24.7 million in April 2021 related to cumulative available cash as of March 31, 2021, $7.7 million in July 2021 related to available cash generated during the three months ended June 30, 2021, $13.9 million in October 2021 related to available cash generated during the three months ended September 30, 2021, and $19.0 million in January 2022 related to available cash generated during the three months ended December 31, 2021. Unit and SP Investor each received 50% of these distributions.

Subsequent to the Effective Date, we have allocated Unit's and SP Investor's share of earnings and losses from Superior in our consolidated statement of operations using the hypothetical liquidation at book value (HLBV) method which is a balance-sheet approach that calculates the change in the hypothetical amount Unit and SP Investor would be entitled to receive if Superior were liquidated at book value at the end of each period, adjusted for any contributions made and distributions received during the period.

The amounts below reflect the Superior balance sheet accounts consolidated in our consolidated balance sheets without elimination of intercompany receivables from and payables to Unit:


	December 31, 2021		December 31, 2020
	(In thousands)
Current assets:
Cash and cash equivalents	$	17,246	$	11,642
Accounts receivable	42,628		27,427
Prepaid expenses and other	1,263		6,746
Total current assets	61,137		45,815
Property and equipment:
Gas gathering and processing equipment	274,748		251,403
Transportation equipment	2,801		1,748
	277,549		253,151
Less accumulated depreciation, depletion, amortization, and impairment	53,792		10,466
Net property and equipment	223,757		242,685
Right of use assets	3,485		2,823
Other assets	2,226		2,309
Total assets	$	290,605	$	293,632

Current liabilities:
Accounts payable	$	34,010	$	17,045
Accrued liabilities	5,292		3,777
Current operating lease liability	1,548		1,762
Current portion of other long-term liabilities	1,450		5,799
Total current liabilities	42,300		28,383
Long-term debt less debt issuance costs	19,200		—
Operating lease liability	2,036		1,013
Other long-term liabilities	—		1,589
Total liabilities	$	63,536	$	30,985

Subsequent Amendments to Superior Agreement and MSA

Effective March 1, 2022, the employees of the Operator were transferred to Superior and the MSA was amended and restated to remove the operating services the Operator was providing to Superior. There was no change to the monthly service fee for shared services. The power to direct the activities that most significantly affect Superior's operating performance is now shared by the equity holders (Unit Corporation and SP Investor) rather than held by the Operator. Superior no longer qualifies as a VIE subsequent to these amendments and we will no longer consolidate the financial position, operating results, and cash flows of Superior as of March 1, 2022. A loss on deconsolidation during the three months ended March 31, 2022 is possible as any difference between the March 1, 2022 estimated fair value of our retained investment in Superior and our net investment in Superior, which totaled $14.8 million as of December 31, 2021, will be recognized as a gain or loss. We will subsequently account for our investment in Superior as an equity method investment under the HLBV method.