7. ACQUISITIONS

On February 27, 2015, MEP acquired a midstream business which consisted of a natural gas gathering system in Leon, Madison and Grimes Counties, Texas. MEP acquired the midstream business for $85.0 million in cash and a contingent future payment of up to $17.0 million. Funding for the acquisition was provided by us and MEP based on our proportionate ownership percentages in Midcoast Operating, L.P., or Midcoast Operating, at the time of acquisition, which was 48.4% and 51.6%, respectively. This business is part of our Natural Gas segment.

Of the $85.0 million purchase price, $20.0 million was placed into escrow, pending the resolution of a legal matter and completion and connection of additional wells to the system by February 2016. Since the acquisition date, MEP released $17.0 million from escrow for additional wells connected to our system and for the resolution of the legal matter. During the first quarter of 2016, $3.0 million in escrow was returned to MEP as some of the additional wells were not connected to the system by February 2016. As a result, we recognized a $3.0 million gain as a reduction to “Operating and administrative” expense, which is reflected in our consolidated statements of income for the year ended December 31, 2016. At December 31, 2016, no amounts remained in escrow. At December 31, 2015, “Restricted cash” and “Other assets, net” included $6.0 million and $6.0 million of amounts in escrow, respectively, in our consolidated statements of financial position.

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 were 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 first quarter of 2016, and in subsequent reassessments, MEP determined, based on current and forecasted volumes, that it was remote that MEP would be obligated to make any payments at the expiration of the five-year period. Consequently, we reversed the liability and recognized a $2.6 million gain as a reduction to “Operating and administrative” expense in our consolidated statements of income for the year ended December 31, 2016.