ACQUISITIONS

3 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

ACQUISITIONS

3. ACQUISITIONS

On February 27, 2015, Midcoast Energy Partners, L.P., or MEP, acquired a midstream business in Leon, Madison and Grimes Counties, Texas. The acquisition consisted of a natural gas gathering system. MEP acquired the midstream business for $85.0 million in cash and a contingent future payment of up to $17.0 million.

Of the $85.0 million purchase price, $20.0 million was placed into escrow, pending the resolution of a legal matter and completion of additional wells connecting to the system within one year of the acquisition date. As of March 31, 2016, $6.0 million of these escrow funds has been classified as “Other assets, net” in our consolidated statements of financial position, pending the resolution of a legal matter. Since the acquisition date, MEP has released $11.0 million from escrow for additional wells connected to the system. During the first quarter of 2016, the remaining $3.0 million in escrow was returned to MEP as some of the additional wells were not connected to the system within one year of the acquisition date. For the three months ended March 31, 2016, a $3.0 million gain was recognized as an offset to “Operating and administrative” expense in our consolidated statements of income related to the return of these escrow funds.

The purchase and sale agreement contained a provision whereby MEP would have been obligated to make future tiered payments of up to $17.0 million if volumes are delivered into the system at certain tiered volume levels over a five-year period. MEP determined at the time of the acquisition that the potential payment was contingent consideration. At the acquisition date, the fair value of this contingent consideration, using a probability-weighted discounted cash flow model was $2.3 million. The contingent consideration was re-measured on a fair value basis each quarter until December 31, 2015, which resulted in an addition to the liability of $0.3 million for accretion. During the three months ended March 31, 2016, MEP determined, based on current and forecasted volumes, that it is remote that it will be obligated to make any payments at the expiration of the five-year period. Consequently, the liability was reversed and a $2.6 million gain was recognized as an offset to “Operating and administrative” expense in our consolidated statements of income for the three months ended March 31, 2016.