What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 147 added, 151 removed, 255 unchanged (54% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis addresses the results of our operations for the three and six month periods ended June 30, 2022, as compared to our results of operations for the same periods in 2021.

The following discussion and analysis addresses the results of our operations for the three and nine month periods ended September 30, 2022, as compared to our results of operations for the same periods in 2021.

In addition, the discussion and analysis addresses our liquidity, financial condition and other matters for these periods.

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As the Transaction was determined to be a reverse merger, BCP was considered the accounting acquirer and ALTM was considered the legal acquirer.

Therefore, BCP’s net assets, carried at historical value, were presented as the predecessor to the Company’s historical financial statements and the comparable period presented herein reflects the results of operations of BCP for the three and six months ended June 30, 2022.

The results of operations of ALTM is reflected within the Company’s Condensed Consolidated Financial Statements from the Closing Date through June 30, 2022.

The results of operations of ALTM is reflected within the Company’s Condensed Consolidated Financial Statements from the Closing Date through September 30, 2022.

Unless otherwise noted or the context requires otherwise, references herein to Kinetik Holdings Inc.

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On February 22, 2022, the Company consummated the previously announced business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021, by and among the Company, the Partnership, Contributor and BCP.

Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests in BCP and its consolidated subsidiaries, to the Partnership;

and (ii) in exchange for such contribution, the Partnership issued 50,000,000 Common Units and the Company issued 50,000,000 shares of the Company’s Class C Common Stock to Contributor.

The Company’s stockholders immediately prior to the Closing continued to hold their shares of the Company’s Class A Common Stock.

Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests in BCP and BCP Raptor Holdco GP, LLC, a Delaware limited liability company and the general partner of BCP (“BCP GP”), to the Partnership;

and (ii) in exchange for such contribution, the Partnership transferred to Contributor 50,000,000 Common Units and 50,000,000 shares of the Company’s Class C common stock, par value $0.0001 per share (“Class C Common Stock”).

The Company’s stockholders immediately prior to the Closing continued to hold their shares of the Company’s Class A common stock, par value $0.0001 per share (“Class A Common Stock,” together with the Class C Common Stock, the “Common Stock”).

As a result of the Transaction, immediately following the Closing (i) Contributor owns approximately 75% of the issued and outstanding Common Stock, (ii) Apache Midstream owns approximately 20% of the issued and outstanding Common Stock, and (iii) the Company’s remaining stockholders own approximately 5% of the issued and outstanding Common Stock.

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The Transaction also brought in additional volume capacity from ALTM for the Midstream Logistics segment, including 182 miles of in-service natural gas gathering pipelines, approximately 46 miles of residue gas pipelines with four market connections, and approximately 66 miles of NGLs pipelines.

The increased volume capacity has contributed to the increase in operating revenue for the three and six months ended June 30, 2022 compared to the same periods in 2021.

The increased volume capacity has contributed to the increase in operating revenue for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

We are an integrated midstream energy company in the Permian Basin providing comprehensive gathering, transportation, compression, processing, and treating services.

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and crude oil gathering, stabilization, storage and transportation.

We have approximately 2.0 billion cubic feet per day (“Bcf/d”) cryogenic natural gas processing capacity strategically located near the Waha Hub in West Texas.

As measured by processing capacity, we are the largest natural gas processor in the Delaware Basin and fourth largest across the entire Permian Basin.

We have approximately 2.0 Bcf/d cryogenic natural gas processing capacity strategically located near the Waha Hub in West Texas.

As measured by processing capacity, we are the second largest natural gas processor in the Delaware Basin and the fourth largest across the entire Permian Basin.

In addition, we have interests in four long-term contracted pipelines transporting natural gas, NGLs, and crude oil from the Permian Basin to the Gulf Coast.

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The Midstream Logistics segment operates under three service offerings, 1) gas gathering and processing, 2) crude oil gathering, stabilization, and storage services, and 3) water gathering and disposal.

The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with various access points to the Texas Gulf Coast and our Delaware Link Pipeline, which is now expected in commercial service in 2023.

The EMI pipelines transport crude oil, natural gas, and NGLs to the Texas Gulf Coast.

The Pipeline Transportation segment consists of four EMI pipelines originating in the Permian Basin with various access points to the Texas

Gulf Coast, Kinetik NGL Pipeline and Delaware Link Pipeline that is under development.

The pipelines transport crude oil, natural gas, and NGLs within the Permian Basin and to the Texas Gulf Coast.

Midstream Logistics

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Pipeline Transportation

The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast and the Delaware Link Pipeline, which is currently under development.

The Pipeline Transportation segment consists of four EMI pipelines in the Permian Basin with access to various points along the Texas Gulf Coast, Brandywine NGL Pipeline and the Delaware Link Pipeline, which is currently under development.

EMI pipelines include the following:

• An approximate 53.3% equity interest in PHP, which is also owned and operated by Kinder Morgan Texas Pipeline, LLC (“Kinder Morgan”).

• An approximate 53.3% equity interest in Permian Highway Pipeline LLC (“PHP”), which is also owned and operated by Kinder Morgan Texas Pipeline, LLC (“Kinder Morgan”).

PHP transports natural gas from the Waha area in northern Pecos County, Texas to the Katy, Texas area with connections to Texas Gulf Coast and Mexico markets.

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The project will increase PHP’s capacity by nearly 550 MMcf/d with target in-service date in November 2023.

The funding for the expansion is 67% by the Company and the reminder by Kinder Morgan.

As a result, post the in service of the expansion, Kinetik’s ownership interest in PHP will increase to almost 56%.

The funding for the expansion is 67% by the Company and the remainder by Kinder Morgan.

As a result, post the in service of the expansion, Kinetik’s ownership interest in PHP will increase approximately 56.0%.

• A 16% equity interest in the Gulf Coast Express Pipeline (“GCX”), which is owned and operated by Kinder Morgan.

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The Significance of Crude Oil and Producer Volumes on Our Revenues, Cost of Sales and Gross Margin

The Company’s assets include approximately 1,700 miles of NGLs, natural gas, condensate, produced water, and crude oil pipelines as well as approximately 2 Bcf/d of natural gas processing capacity as of June 30, 2022.

Most of the gas gathered and processed by the Company is associated gas included in the oil stream, making producers’ oil break-even prices the primary driver of activity.

The average price of WTI crude oil was $101.77/Bbl during the first half of 2022.

The average price of WTI crude oil was $98.39/Bbl during the first nine months of 2022.

If crude prices were to fall below producers’ break-even prices for a prolonged period of time, drilling activity and volumes might decline and might have a negative impact on our business.

In addition, because the Company’s Pipeline Transportation segment provides NGLs transmission service through its EMI pipelines, a decrease in natural gas and NGL price will have an adverse impact on the Company’s results of operations as it may lead to lower natural gas production and thus lower volumes of NGLs transported.

The average natural gas price was $6.06/MMBtu during the first half of 2022.

The average natural gas price was $6.66/MMBtu during the first nine months of 2022.

For additional risk factors that affect the Company’s business, please refer to Part II, Item 1A — Risk Factors of the Company’s Quarterly Report Form 10-Q for the first quarter of 2022 filed on May 10, 2022.

Recent Developments

Transfer to the New York Stock Exchange

On October 10, 2022, the Company notified the Nasdaq Global Select Market (“Nasdaq”) that it would voluntarily transfer the listing of its Class A Common Stock from Nasdaq to the New York Stock Exchange (the “NYSE”).

The listing and trading of the Common Stock on Nasdaq ended at market close on October 21, 2022, and trading commenced on the NYSE at market open on October 24, 2022.

The Class A Common Stock continues to trade under the current stock symbol “KNTK”.

Brandywine NGL Acquisition

In September 2022, the Company acquired approximately 30 miles of 20 inch NGL pipelines connected to Diamond Cryo called the Brandywine NGL Pipeline (“Brandywine”) for approximately $25 million.

Brandywine is a strategic intrabasin natural gas liquids pipeline, affording Kinetik greater control over its system’s NGLs and providing interconnectivity to Shin Oak.

Comprehensive Refinancing

On June 8, 2022, the Partnership, completed a private placement of $1.00 billion aggregate principal amount of its 5.875% Sustainability-Linked Senior Notes due 2030 (the “Notes”), which are fully and unconditionally guaranteed by the Company.

In addition, the Partnership entered into a new revolving credit agreement (the “Revolving Credit Agreement”), which provides for a $1.25 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on June 8, 2027, and a new term loan agreement (the “TLA”), which provides for a $2.00 billion senior unsecured term loan credit facility (the “Term Loan Credit Facility”) maturing on June 8, 2025.

In addition, the Partnership entered into a new revolving credit agreement (the “RCA”), which provides for a $1.25 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) maturing on June 8, 2027, and a new term loan agreement (the “TLA”), which provides for a $2.00 billion senior unsecured term loan credit facility (the “Term Loan Credit Facility”) maturing on June 8, 2025.

Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering.

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Under this framework, our KPIs are Scope 1 and Scope 2 greenhouse gas emissions intensity, Scope 1 and Scope 2 methane gas emissions intensity and female representation in corporate officer positions and our SPTs are (1) reducing the intensity of all Scope 1 and Scope 2 greenhouse gas emissions from our operations by 35% by 2030 from a 2021 Baseline Year (as defined in the Sustainability Framework), (2) reducing the intensity of Scope 1 and Scope 2 methane gas emissions from our operations by 30% by 2030 from a 2021 Baseline Year, and (3) increasing female representation in corporate officer positions of Vice President and above to 20% by year-end 2026.

Additionally, satisfaction of our SPTs is now linked to our new debt agreements.

Refer to Note 6 — Debt and Financing Costs in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q for further information.

On May 19, 2022, the Company announced a two-for-one stock split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend (the “Stock Split”).

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There has been, and we believe there will continue to be, volatility in commodity prices and in the relationships among NGLs, crude oil and natural gas prices.

As a result of uncertainty around global commodity supply and demand, uncertainty in global economic recovery from COVID-19 pandemics and the armed conflict in Ukraine, global oil and natural gas commodity prices continue to remain volatile.

The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling,

completion and other investment decisions by producers and ultimately supply to our systems.

Although the armed conflict in Ukraine generated commodity price upward pressure, and our operation could benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of international political environment and human and economic hardship result from the conflict would have a highly uncertain impact on the U.S.

As a result of uncertainty around global commodity supply and demand, the impact of China’s zero covid policy, the continued headwinds from a stronger US dollar, both here and abroad, global oil and natural gas commodity prices continue to remain volatile.

The volatility and uncertainty of natural gas, crude oil and NGL prices impact drilling, completion and other investment decisions by producers and ultimately supply to our systems.

Our operations benefit in an environment of higher natural gas, NGLs and condensate prices, the instability of international political environments and human and economic hardship resulting from the international political instability would have a uncertain impact on the U.S.

economy, which in turn, might affect our business and operations adversely.

The Company continues to monitor commodity prices closely and may enter into commodity price hedges from time to time as necessary to mitigate the volatility risk.

The Company continues to monitor commodity prices closely and is likely to enter into commodity price hedges from time to time as necessary to mitigate the volatility risk.

Inflation and Interest Rates

The annual rate of inflation in the United States hit 9.1% in June 2022, as measured by the Consumer Price Index.

We expect that inflation in 2022 will continue to increase our operating costs and the overall cost of capital projects we undertake.

In addition, the Federal Reserve has continued to tighten its monetary policy by raising interest rates by three-quarters of a percentage point in June 2022 and July 2022 to maintain the federal funds rate in a target range of 2.25% - 2.50%.

The annual rate of inflation in the United States hit 8.2% in September 2022, as measured by the Consumer Price Index.

We expect that inflation will continue to increase our operating costs and the overall cost of capital projects we undertake.

In addition, the Federal Reserve has continued to tighten its monetary policy by raising interest rates and Chairman Powell has indicated that the target Federal Funds Rate range will likely be approximately 4.5% by the end of 2022.

Furthermore, the Chairman of the Federal Reserve signaled that the Federal Reserve would continue to take necessary action to bring inflation down and to ensure price stability, including continued rate increases.

Increased interest rates will have a negative impact on the Company’s ability to meet its contractual debt obligations and to fund its operating expenses, capital expenditures, dividends and distributions.

While a significant portion of our debt is floating rate, even with expected further near term rate increases by the Federal Reserve, the possibility of an economic slowdown in 2023 and the uncertainty with the transition from LIBOR to SOFR, the all in cost of floating rate debt under the TLA is expected to remain lower than the current yield on the recent $1 billion Senior Notes issuance.

The Company will continue to actively evaluate and analyze whether any form of interest rate hedging should be implemented to mitigate interest rate exposure.

Supply Chain Considerations

During 2021 and the first half of 2022, challenging supply chain issues have emerged that will continue at least through the remainder of 2022.

During 2021 and 2022, challenging supply chain issues have emerged that will continue at least through the remainder of 2022.

Geopolitical events have further disrupted global supply chains and caused volatile commodity prices for natural gas, NGLs and crude oil.

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The principal supply issues facing our industry for the next twelve months include:

raw materials availability, finished good inventory, rising freight costs, delays due to port congestion and overall labor shortages.

raw materials availability, finished good inventory, rising freight costs, delays due to port congestion and continued labor shortages.

All bidding will require the risk of shipping costs and delays to be factored into proposals.

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The following table presents the Company’s results of operations for the periods presented:

Three Months Ended June 30,* Six Months Ended June 30,*

Three Months Ended

September 30,* Nine Months Ended

September 30,*

2022 2021 % Change 2022 2021 % Change

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Depreciation and amortization 65,005 57,154 14 % 192,609 170,291 13 %

Loss on disposal of assets 8,546 422 1925 % 8,656 454 1807 %

Loss (gain) on disposal of assets 3,946 (37) (10765) % 12,602 417 2922 %

Total operating costs and expenses 279,375 150,546 86 % 812,520 402,217 102 %

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Gain (loss) on debt extinguishment — (56) (100) % (27,975) 4 (699475) %

Unrealized gain on embedded derivatives 91,448 — NM 88,562 — NM

Gain on embedded derivative 488 — NM 89,050 — NM

Interest expense (40,464) (30,541) 32 % (92,585) (88,458) 5 %

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Total other income (expense), net 5,027 (10,193) (149) % 99,026 (39,621) (350) %

Income (loss) before income tax 131,610 (15,366) (957) % 153,675 2,770 5448 %

Current income tax expense 162 — NM 838 — NM

Net income (loss) including noncontrolling interests $ 131,448 $ (15,366) (955) % $ 152,837 $ 2,770 5418 %

Income before income tax 50,828 5,847 769 % 204,503 8,617 2273 %

Current income tax expense 1,406 1,207 16 % 2,244 1,207 86 %

Net income including noncontrolling interests $ 49,422 $ 4,640 965 % $ 202,259 $ 7,410 2630 %

* The results of the legacy ALTM business are not included in the Company’s consolidated financials prior to February 22, 2022.

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NM - Not meaningful

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

For the three months ended June 30, 2022, revenue increased $199.8 million, or 147%, to $335.6 million, compared to $135.8 million for the same period in 2021.

The increase was primarily driven by period to period higher commodity prices, increases in gathered and processed volumes, as well as similar increases in condensate and NGL volumes sold.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

For the three months ended September 30, 2022, revenue increased $158.6 million, or 95%, to $325.2 million, compared to $166.6 million for the same period in 2021.

The increase was primarily driven by period to period higher commodity prices, increases in gathered and processed gas volumes, as well as similar increases in condensate and NGL volumes sold.

Service revenue

Service revenue consists of service fees paid to us by our customers for providing comprehensive gathering, treating, processing and water disposal services necessary to bring natural gas, NGLs and crude oil to market.

Service revenue for the three months ended June 30, 2022, increased by $39.8 million, or 64%, to $102.1 million, compared to $62.2 million for the same period in 2021.

This increase was primarily due to a period over period increase in gathered gas volumes of 596.2 Mcf per day, of which 370.3 Mcf per day are a result of new operations acquired through the Transaction.

Service revenues are included entirely in the Midstream Logistics segment.

Service revenue for the three months ended September 30, 2022, increased by $35.0 million, or 48%, to $107.6 million, compared to $72.6 million for the same period in 2021.

This increase was primarily due to a period over period increase in gathered and processed gas volumes of 585.4 Mcf per day and 541.5 Mcf per day, respectively.

Over 99% of service revenues are included in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue, and NGLs).

Product revenue for the three months ended June 30, 2022, increased by $158.6 million, or 223%, to $229.7 million, compared to $71.1 million for the same period in 2021, primarily due to period over period increases in NGL and condensate prices combined with increased sales volumes of these liquids.

NGL prices increased $10.36 per barrel, or 34%, and condensate prices increased $44.35 per barrel or 73%.

Product revenue for the three months ended September 30, 2022, increased by $120.5 million, or 129%, to $213.8 million, compared to $93.3 million for the same period in 2021, primarily due to period over period increases in condensate prices combined with increased NGL and condensate sales volumes.

C ondensate prices increased $23.30 per barrel or 35%.

NGL and condensate sales volumes increased 3.5 million barrels, or 550%.

This substantial increase was due to our plants being run in recovery for most of the three months ended June 30, 2022 versus rejection during the same period in 2021.

The increase in NGL and condensate sales volumes offset the decreased NGL prices of $5.77 per barrel, or 14%.

This overall increase in NGL and condensate revenue was due to our plants being run in recovery for parts of the three months ended September 30, 2022 versus rejection during the same period in 2021.

For the same reason, natural gas residue sales volumes decreased by 1.9 million MMBtu, or 28%.

Offsetting this decrease in volumes, natural gas prices increased period over period $4.27 per MMBtu, or over 150%.

Partially offsetting this decrease in volumes, natural gas prices increased period over period by $3.34 per MMBtu, or 86%.

Product revenues are included entirely in the Midstream Logistics segment.

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Cost of sales (exclusive of depreciation and amortization) primarily consists of purchases of NGLs and natural gas from our producers at contracted market prices to support product sales to other third parties.

For the three months ended June 30, 2022, cost of sales increased $109.2 million, or 251%, to $152.7 million, compared to $43.5 million for the same period in 2021.

The increase was primarily driven by the period to period increase in commodity prices and condensate and NGL volumes discussed above.

For the three months ended September 30, 2022, cost of sales increased $84.7 million, or 140%, to $145.2 million, compared to $60.5 million for the same period in 2021.

The increase was primarily driven by the period to period increase in commodity prices and increased NGL and condensate volumes.

Cost of sales (exclusive of depreciation and amortization) are included entirely in the Midstream Logistics segment.

Operating expenses

Operating expenses increased by $10.0 million, or 40%, to $35.3 million for the three months ended June 30, 2022, compared to $25.3 million for the same period in 2021.

Of the total increase, $6.0 million was driven by the new operations acquired through the Transaction.

The remaining increase was primarily driven by higher period over period electricity costs of $1.6 million and higher period over period internal labor costs of $1.5 million, $0.5 million of which are integration related.

Operating expenses increased by $13.1 million, or 58%, to $35.8 million for the three months ended September 30, 2022, compared to $22.7 million for the same period in 2021.

Of the total increase, $7.7 million was driven by new operations acquired through the Transaction.

The remaining increases were primarily driven by an increase in repairs and maintenance costs of $1.2 million, higher contract labor costs of $1.2 million, and higher safety and environmental expenditures of $0.8 million.

General and administrative

General and administrative (“G&A”) expense increased by $20.6 million, or 386%, to $26.0 million for the three months ended June 30, 2022, compared to $5.3 million for the same period in 2021.

The increase was primarily driven by share-based compensation recognized of $12.2 million, acquisition and integration costs of $4.3 million incurred in relation to the Transaction closed in February 2022, and an increase of $1.3 million in costs associated with ongoing litigation.

General and administrative (“G&A”) expense increased by $16.5 million, or 237%, to $23.5 million for the three months ended September 30, 2022, compared to $7.0 million for the same period in 2021.

The increases were primarily driven by recognition of share-based compensation of $12.7 million, acquisition and integration costs of $2.7 million incurred in relation to the Transaction, and an increase of $0.8 million in insurance expenses.

Other Income (Expense)

Gain (loss) on debt extinguishment

For the three months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million, compared with a gain of $0.1 million for the same period in 2021.

The change reflected the loss on debt extinguishment recognized in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivatives

For the three months ended June 30, 2022, the Company recognized an unrealized gain on derivatives of $91.4 million.

The unrealized gain is a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units.

The substantial decrease in fair value of this derivative relates to the comprehensive debt refinancing that achieved more favorable interest terms for the Company and the partial redemption of these Preferred Units on July 1, 2022, which was known as of the end of the second quarter.

Equity in earnings of unconsolidated affiliates

Income from EMI pipelines increased by $31.3 million, or 189%, to $47.8 million for the three months ended June 30, 2022, compared to $16.5 million for the same period in 2021.

The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction closed in February 2022 and due to higher earnings.

Income from EMI pipelines increased by $28.2 million, or 167%, to $45.0 million for the three months ended September 30, 2022, compared to $16.8 million for the same period in 2021.

The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP.

Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

For the six months ended June 30, 2022, revenue increased $309.0 million, or 109%, to $592.8 million, compared to $283.9 million for the same period in 2021.

The increase was primarily driven by period to period higher commodity prices, increases in gas gathered and processed volumes, as well as similar increases in condensate and NGL volumes sold.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

For the nine months ended September 30, 2022, revenue increased $467.5 million, or 104%, to $918.0 million, compared to $450.5 million for the same period in 2021.

The increase was primarily driven by period to period higher commodity prices, increases in gathered and processed gas volumes, as well as similar increases in condensate and NGL volumes sold.

Service revenue

Service revenue for the six months ended June 30, 2022, increased by $52.6 million, or 41%, to $182.5 million, compared to $129.9 million for the same period in 2021.

This increase is primarily due to a period over period increase in gathered gas volumes of 547.8 Mcf per day, of which 309.2 Mcf per day are a result of new operations acquired through the Transaction.

Service revenues are included entirely in the Midstream Logistics segment.

Service revenue for the nine months ended September 30, 2022, increased by $87.6 million, or 43%, to $290.1 million, compared to $202.5 million for the same period in 2021.

This increase was primarily due to a period over period increase in gathered and processed gas volumes of 559.9 Mcf per day and 523.8 Mcf per day, respectively.

Over 99% of service revenues are included in the Midstream Logistics segment.

Product revenue

Product revenue consists of commodity sales (including condensate, natural gas residue, and NGLs).

Product revenue for the six months ended June 30, 2022, increased by $253.5 million, or 168%, to $404.6 million, compared to $151.1 million for the same period in 2021, primarily due to period over period increases in NGL and condensate prices combined with increased sales volumes of these liquids.

Product revenue for the nine months ended September 30, 2022, increased by $374.0 million, or 153%, to $618.4 million, compared to $244.4 million for the same period in 2021, primarily due to period over period increases in NGL and condensate prices combined with increased sales volumes of these liquids.

NGL prices increased $6.60 per barrel, or 20%, and condensate prices increased $35.69 per barrel, or 60%.

NGL and condensate sales volumes increased 8.2 million barrels, or 280%.

This substantial increase was due to our plants being run in recovery for part of the six months ended June 30, 2022 versus rejection during the same period in 2021.

This substantial increase was due to our plants being run in recovery for most of the nine months ended September 30, 2022 versus rejection during the same period in 2021.

For the same reason, natural gas residue sales volumes decreased by 3.2 million MMBtu, or 17%.

Offsetting this decrease in volumes, natural gas prices increased period over period by $2.22 per MMBtu, or 65%.

Partially offsetting this decrease in volumes, natural gas prices increased period over period by $2.61 per MMBtu, or 73%.

Product revenues are included entirely in the Midstream Logistics segment.

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For the six months ended June 30, 2022, cost of sales increased $192.5 million, or 239%, to $273.0 million, compared to $80.5 million for the same period in 2021.

For the nine months ended September 30, 2022, cost of sales increased $277.2 million, or 197%, to $418.2 million, compared to $141.0 million for the same period in 2021.

The increase was primarily driven by the period to period increases in commodity prices and NGL and condensate volumes discussed above.

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Operating expenses

Operating expenses increased by $24.3 million, or 60%, to $65.2 million for the six months ended June 30, 2022, compared to $40.8 million for the same period in 2021.

Operating expenses increased by $37.4 million, or 59%, to $101.0 million for the nine months ended September 30, 2022, compared to $63.6 million for the same period in 2021.

Of the total increase, $16.2 million was driven by the new operations acquired through the Transaction.

The remaining increase was primarily driven by higher period over period electricity costs of $10.3 million, and higher internal labor costs of $3.2 million, $1.9 million of which are integration related.

The higher electricity costs were due to electricity credits received from one of our primary electricity providers during the month of February 2021 related to the extreme weather caused by Winter Storm Uri.

The remaining increase was primarily driven by higher period over period electricity costs of $10.7 million, higher salaries and benefits of $3.7 million, higher repairs and maintenance costs of $2.9 million and higher contract labor costs of $2.8 million.

The higher electricity costs were primarily due to electricity credits received in 2021 related to the extreme weather caused by Winter Storm Uri.

General and administrative

General and administrative (“G&A”) expense increased by $37.7 million, or 344%, to $48.7 million for the six months ended June 30, 2022, compared to $11.0 million for the same period in 2021.

The increase was primarily driven by $18.3 million of recognized share-based compensation, acquisition and integration costs of $15.7 million incurred in relation to the Transaction closed in February 2022, and an increase of $1.3 million in costs associated with an ongoing litigation.

General and administrative (“G&A”) expense increased by $54.3 million, or 303%, to $72.2 million for the nine months ended September 30, 2022, compared to $17.9 million for the same period in 2021.

The increases were primarily driven by recognized share-based compensation of $31.0 million, acquisition and integration costs of $18.5 million incurred in relation to the Transaction and an increase in insurance expenses of $2.2 million.

Depreciation and amortization

Depreciation and amortization expense increased by $22.3 million, or 13%, to $192.6 million for the nine months ended September 30, 2022, compared to $170.3 million for the same period in 2021.

The increase was primarily driven by the new assets acquired through the Transaction.

Other Income (Expense)

Gain (loss) on debt extinguishment

For the six months ended June 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million, compared with a gain of $0.1 million for the same period in 2021.

For the nine months ended September 30, 2022, the Company recognized a loss on debt extinguishment of $28.0 million, compared with a gain of $4 thousand for the same period in 2021.

The change reflected the loss on debt extinguishment recognized in relation to the comprehensive refinancing completed in June 2022.

Unrealized gain on embedded derivatives

For the six months ended June 30, 2022, the Company recognized an unrealized gain on derivatives of $88.6 million.

The unrealized gain is a result of the decrease in fair value of the embedded derivative related to the redeemable noncontrolling interest Preferred Units.

Gain on embedded derivative

For the nine months ended September 30, 2022, the Company recognized a gain on embedded derivative of $89.1 million.

The gain is a result of the decrease in fair value of the embedded derivative liability related to the redeemable noncontrolling interest Preferred Units, which was eliminated upon the ultimate redemption of these Preferred Units during July of 2022.

Equity in earnings of unconsolidated affiliates

Income from EMI pipelines increased by $47.8 million, or 172% to $75.7 million for the six months ended June 30, 2022, compared to $27.9 million for the same period in 2021.

Income from EMI pipelines increased by $76.0 million, or 170% to $120.7 million for the nine months ended September 30, 2022, compared to $44.7 million for the same period in 2021.

The increase was primarily due to the acquisition of new EMI pipelines and additional equity interests in the Company’s existing EMI pipeline, PHP, through the Transaction closed in February 2022.

Equity in earnings of unconsolidated affiliates is included entirely in the Pipeline Transportation segment.

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The following table presents a reconciliation of the GAAP financial measure of net income including noncontrolling interests to the non-GAAP financial measure of Adjusted EBITDA.

Three Months Ended June 30,* Six Months Ended June 30,*

Three Months Ended

September 30,* Nine Months Ended

September 30,*

2022 2021 % Change 2022 2021 % Change

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Interest expense 40,464 30,541 32 % 92,585 88,458 5 %

Income tax expense 162 — NM 838 — NM

Income tax expense 1,406 1,207 16 % 2,244 1,207 86 %

Depreciation and amortization 65,005 57,154 14 % 192,609 170,291 13 %

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Share-based compensation 12,661 — NM 30,966 — NM

Loss on sale of assets 8,546 422 1925 % 8,656 454 1807 %

Loss (gain) on sale of assets 3,946 (37) (10765) % 12,602 417 2922 %

Loss (gain) on debt extinguishment — 56 (100) % 27,975 (4) (699475) %

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Integration Costs 2,338 — NM 10,012 — NM

Transaction Costs 674 — NM 6,350 — NM

Acquisition transaction Costs 62 — NM 6,412 — NM

Other one-time cost or amortization 3,752 1,167 222 % 10,969 2,010 446 %

Producer Settlement — 6,827 (100) % — 6,827 (100) %

Producer Settlement — — NM — 6,827 (100) %

Interest and other income — 74 (100) % — 115 (100) %

Gain on redemption of mandatorily redeemable Preferred Units — — NM 9,580 — NM

Unrealized gain on embedded derivatives 91,448 — NM 88,562 — NM

Gain on embedded derivative 488 — NM 89,050 — NM

Equity income from unconsolidated affiliates 45,003 16,826 167 % 120,706 44,692 170 %

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NM - not meaningful

Adjusted EBITDA increased by $120.2 million, or 137%, to $207.9 million for the three months ended June 30, 2022, compared to $87.7 million for the same period in 2021.

The increase was primarily driven by an increase in net income including noncontrolling interest of $146.8 million, or 955%, and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $49.6 million, or 228%, share-based compensation of $12.2 million and depreciation and amortization expense of $9.4 million, which are results of new operations acquired through the Transaction.

Adjusted EBITDA increased by $112.4 million, or 112%, to $212.4 million for the three months ended September 30, 2022, compared to $100.0 million for the same period in 2021.

The increase was primarily driven by an increase in net income including noncontrolling interest of $44.8 million, or 965%, and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $56.7 million, or 261%, share-based compensation of $12.7 million, interest expense of $9.9 million and depreciation and amortization expense of $7.9 million, which are results of new operations acquired through the Transaction.

The increase in adjusted EBITDA was partially offset by increases in EMI pipelines equity income of $28.2 million, which was the result of acquisitions of new EMI pipeline entities and additional PHP equity interests acquired.

Adjusted EBITDA increased by $254.3 million, or 83% to $561.1 million for the nine months ended September 30, 2022, compared to $306.8 million for the same period in 2021.

The increase was primarily driven by an increase in net income including noncontrolling interest of $194.8 million, or 2630%, and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $130.8 million, or 219%, share-based compensation of $31.0 million, depreciation and amortization expense of $22.3 million and integration costs of $10.0 million.

The increase in add back was also due to increase in loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinancing in June 2022.

The increase in adjusted EBITDA was partially offset by increases in unrealized gain on embedded derivatives of $91.4 million and EMI pipelines equity income of $31.3 million.

Adjusted EBITDA increased by $142.4 million, or 69% to $348.7 million for the six months ended June 30, 2022, compared to $206.3 million for the same period in 2021.

The increase was primarily driven by an increase in net income including noncontrolling interest of $150.1 million, or 5418%, and increases in add back related to the Company’s proportionate share of its EMI pipelines’ EBITDA of $74.1 million, or 195%, share-based compensation of $18.3 million, depreciation and amortization expense of $14.5 million and integration costs of $11.4 million, which are results of new operations acquired through the Transaction.

The increase in add back was also due to increase in loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinance in June 2022.

The increase in adjusted EBITDA was partially offset by increases in unrealized gain on embedded derivatives of $88.6 million, EMI pipelines equity income of $47.8 million and a decrease in derivative loss add back due to the Winter Storm Uri of $13.5 million as no similar credit was taken during 2022.

The 2022 Adjusted EBITDA presented in the above table does not include any expected synergies including ad valorem taxes, operating expenses and corporate G&A, which will be recognized over the course of 2022.

The increase in adjusted EBITDA was partially offset by increases in gain on embedded derivatives of $89.1 million, EMI pipelines equity income of $76.0 million and the derivative loss add back due to the Winter Storm Uri of $13.5 million.

The 2022 Adjusted EBITDA presented in the above table does not include any expected synergies including ad valorem taxes, operating expenses and corporate G&A, which continue to be recognized over the course of 2022.

Segment Adjusted EBITDA

Segment Adjusted EBITDA is defined as segment net earnings adjusted to exclude interest expense, income tax expense, depreciation and amortization, the proportionate effect of these same items for our equity method investments and other non-recurring items.

The following table presents segment adjustment EBITDA for the three and six months ended June 30, 2022 and 2021.

The following table presents segment adjustment EBITDA for the three and nine months ended September 30,

2022 and 2021.

Also refer to Note 17—Segments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q for reconciliation of segment adjusted EBITDA to net income including noncontrolling interests.

Three Months Ended June 30,* Six Months Ended June 30,*

Three Months Ended September 30,* Nine Months Ended September 30,*

2022 2021 % Change 2022 2021 % Change

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(ii) are not individually reportable or (iii) have not been allocated to a reportable segment for the purpose of evaluating their performance, including certain general and administrative expense items.

Midstream Logistics segment adjusted EBITDA increased by $71.9 million, or 105%, to $140.7 million for the three months ended June 30, 2022, compared to $68.7 million for the same period in 2021.

The increase was primarily driven by an increase in segment net income including noncontrolling interests of $38.8 million and increases in the add back related to loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinancing in June 2022, loss on sale of assets of $8.2 million for assets retired during the second quarter of 2022 and depreciation and amortization expense of $9.4 million due to new operations acquired through the Transaction.

The increase was offset by a decrease in interest expense add back of $7.2 million.

Midstream Logistics segment adjusted EBITDA increased by $68.8 million, or 39%, to $243.4 million for the six months ended June 30, 2022, compared to $174.5 million for the same period in 2021.

The increase was primarily driven by an increase in segment net income including noncontrolling interests of $39.8 million and increases in the add back related to loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinancing in June 2022, depreciation and amortization expense of $14.5 million and integration costs of $4.7 million due to new operations acquired through the Transaction, and loss on sale of assets of $8.2 million for assets retired during the second quarter of 2022.

The increase was offset by a decrease in derivative loss due to the Winter Storm Uri of $13.5 million as no similar credit was taken in 2022 and a decrease in interest expense add back of $7.9 million.

Pipeline Transportation segment adjusted EBITDA increased by $49.5 million, or 231%, to $70.9 million for the three months ended June 30, 2022, compared to $21.4 million for the same period in 2021.

The increase was driven by investments in GCX, EPIC and Shin Oak and a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction in February 2022.

During the three months ended June 30, 2021, the Company only held a 26.67% interest in PHP.

Pipeline Transportation segment adjusted EBITDA increased by $74.6 million, or 203%, to $111.3 million for the six months ended June 30, 2022, compared to $36.8 million for the same period in 2021.

The increase was driven by investments in GCX and Shin Oak and a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction in February 2022.

During the six months ended June 30, 2021, the Company only held a 26.67% interest in PHP.

Midstream Logistics segment adjusted EBITDA increased by $56.7 million, or 70%, to $137.5 million for the three months ended September 30, 2022, compared to $80.9 million for the same period in 2021.

The increase was primarily driven by an increase in segment net income including noncontrolling interests of $71.7 million and increases in the add back related to depreciation and amortization expense of $7.6 million due to new operations acquired through the Transaction.

Midstream Logistics segment adjusted EBITDA increased by $125.0 million, or 49%, to $380.9 million for the nine months ended September 30, 2022, compared to $255.9 million for the same period in 2021.

The increase was primarily driven by an increase in segment net income including noncontrolling interests of $111.5 million and increases in the add back related to loss on debt extinguishment of $28.0 million as the Company completed its comprehensive refinancing in June 2022, depreciation and amortization expense of $22.1 million due to new operations acquired through the Transaction.

Pipeline Transportation segment adjusted EBITDA increased by $57.3 million, or 268%, to $78.7 million for the three months ended September 30, 2022, compared to $21.4 million for the same period in 2021.

The increase was driven by investments in GCX, EPIC and Shin Oak and a 100% increase in the Company’s investment in PHP, which were all acquired through the Transaction closed in February 2022.

During the three months ended September 30, 2021, the Company only held a 26.67% interest in PHP.

Pipeline Transportation segment adjusted EBITDA increased by $131.9 million, or 227%, to $190.0 million for the nine months ended September 30, 2022, compared to $58.1 million for the same period in 2021.

The increase was driven by the same factors driving the quarter over quarter increase disclosed above.

Capital Resources and Liquidity

The Company’s primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the acquisition of the EMI pipelines and associated subsequent construction costs.

For 2022, the Company’s primary capital spending requirements are anticipated to be related to integration of the Alpine High gathering system with the legacy BCP system, certain integration related synergies including the relocation of compression units and treating assets to the legacy BCP processing plants, the Company’s contractual debt obligation, the Company’s payment of quarterly cash dividend on its Class A Common Stock and Common Units as may be declared by its Board of Directors (the “Board”) and cash payment upon redemption of remaining mandatorily redeemable Preferred Units.

During the six months ended June 30, 2022, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Term Loan Credit Facility, proceeds from the offering of the Notes, and cash generated from operations.

Based on the Company’s current financial plan and related assumptions including the Reinvestment Agreement, the Company believes that cash from operations, a reduced capital program for its midstream infrastructure, and distributions from the EMI pipelines will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend.

Given recent crude oil price volatility and economic uncertainty resulting from inflation, increased interest rates, the armed conflict in Ukraine and related governmental actions, the Company continues to monitor expected natural gas throughput volumes and capacity utilization of the EMI pipelines.

For 2022, the Company’s primary capital spending requirements are anticipated to be related to the PHP expansion project, integration of the Alpine High gathering system with the legacy BCP system, certain integration related synergies including the relocation of compression units and treating assets to the legacy BCP processing plants, organic growth and maintenance capital expenditures in the Midstream Logistic segment, the Company’s contractual debt obligations and the Company’s payment of quarterly cash dividend on its Class A Common Stock and Class C Common Units as may be declared by its Board of Directors (the “Board”).

During the nine months ended September 30, 2022, the Company’s primary sources of cash were distributions from the EMI pipelines, borrowings under the Term Loan and Revolving Credit Facility, proceeds from the offering of the Notes, and cash generated from operations.

Based on the Company’s current financial plan and related assumptions including the Reinvestment Agreement (as defined below), the Company believes that cash from operations and distributions from the EMI pipelines will generate cash flows in excess of capital expenditures and the amount required to fund the Company’s planned quarterly dividend over the next 12 months.

Additionally, the Company has locked in the floating base rate on its Term Loan A through April 2023 to reduce short-term interest rate risk.

Further, the Company entered into an interest rate swap with a $1 billion notional that is effective from May 1, 2023 through May 31, 2025 swapping floating SOFR for a fixed swap rate of 4.46%.

Comprehensive Refinancing

On June 8, 2022, the Partnership completed the private placement of $1.00 billion aggregate principal amount of 5.875% Sustainability-Linked Senior Notes due 2030, which are fully and unconditionally guaranteed by the Company.

In addition, the Partnership entered into a new Revolving Credit Agreement, which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027, and a new TLA, which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025.

In addition, the Partnership entered into the new RCA, which provides for a $1.25 billion senior unsecured Revolving Credit Facility maturing on June 8, 2027, and a new TLA, which provides for a $2.00 billion senior unsecured Term Loan Credit Facility maturing on June 8, 2025.

Proceeds from the Notes and the Term Loan Credit Facility were used to repay all outstanding borrowings under our existing credit facilities and to pay fees and expenses related to the offering.

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Our operations can be capital intensive, requiring investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational regulations.

During the six months ended June 30, 2022 and 2021, capital spending for midstream infrastructure assets totaled $71.4 million and $39.4 million, respectively.

During the nine months ended September 30, 2022 and 2021, capital spending for midstream infrastructure assets totaled $160.5 million and $60.6 million, respectively.

The current year capital spend includes $25 million for the purchase of Brandywine NGL Pipeline and $12.5 million for the ongoing construction of the Delaware Link Pipeline.

Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service its customers.

During the six months ended June 30, 2022, the Company contributed $2.7 million to one of its EMI pipelines compared to $20.5 million contributed in the same period of 2021.

The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets.

During the nine months ended September 30, 2022, the Company contributed $56.2 million to PHP, for the 2022 Capacity Expansion Project, compared to $20.5 million contributed in the same period of 2021.

The Company anticipates its existing capital resources will be sufficient to fund the future capital expenditures for EMI pipelines and the Company’s existing infrastructure assets over the next 12 months.

For further information on EMIs, refer to Note 9—Equity Method Investments in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.

The following tables present cash flows from operating, investing, and financing activities during the periods presented:

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(In thousands)

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Operating Activities .

Net cash provided by operating activities increased by $174.7 million for the six months ended June 30, 2022 compared with the same period in 2021.

Net cash provided by operating activities increased by $293.9 million for the nine months ended September 30, 2022 compared with the same period in 2021.

The change in the operating cash flows reflected increases in net income including noncontrolling interests of $194.8 million, adjustments related to non-cash items of $56.5 million and cash provided by changes in working capital of $42.5 million.

Period over period increase in cash provided by operating activities was primarily driven by the new operations acquired through the Transaction, including three EMI pipelines and additional equity interests of the Company’s existing EMI pipeline acquired through the Transaction.

The increase was also due to the increase in loss on debt extinguishment, which was a result of the comprehensive refinancing completed in June 2022.

The increase was offset by derivative fair value adjustment recognized during the first half of 2022.

Period over period increase in cash provided by operating activities was primarily driven by the new operations acquired through the Transaction, including distributions received from EMI pipelines acquired through the Transaction.

The increase was partially offset by non-cash adjustment related to derivative fair value adjustment recognized during 2022.

Investing Activities .

Net cash used in investing activities increased by $6.5 million for the six months ended June 30, 2022 compared with the same period in 2021.

The increase was primarily driven by increase in property, plant and equipment expenditure of $32.1 million and intangible assets expenditure of $5.8 million.

The increase in cash outflow was offset by an increase in cash inflow of $13.4 million acquired through the acquisition closed in February 2022 and reduction of investments made to unconsolidated affiliates of $17.8 million.

Net cash used in investing activities increased by $135.1 million for the nine months ended September 30, 2022 compared with the same period in 2021.

The increase was primarily driven by an increase in property, plant and equipment expenditures of $99.9 million, which includes the Brandywine asset acquisition, an increase in contribution made to unconsolidated affiliates of $35.7 million and an increase in intangible assets expenditure of $9.6 million.

The increase in cash outflow was offset by an increase in cash inflow of $13.4 million acquired through the acquisition closed in February 2022.

Financing Activities .

Net cash used in financing activities increased by $181.0 million for the six months ended June 30, 2022 compared with the same period in 2021.

The increase was primarily due to increases in cash outflow for redemption of mandatorily redeemable Preferred Units of $152.6 million, net payments to the Company’s outstanding debts of $23.2 million, cash dividends paid to holders of Class A Common Stock of $11.2 million, cash distributions paid to holders of Preferred Units of $8.8 million and reduction of equity contribution receipt of $14.9 million.

The increase in cash outflow was offset by a reduction of cash distributions paid to holders of Class C Common Units of $29.7 million.

Net cash used in financing activities increased by $181.4 million for the nine months ended September 30, 2022 compared with the same period in 2021.

The increase was primarily due to increases in cash outflow for redemption of Preferred Units of $644.8 million, cash dividends paid to holders of Class A Common Stock of $24.4 million, cash distributions paid to holders of Preferred Units of $8.8 million and the increase in cash outflow was offset by net proceeds from the Company’s long-term debt and Revolving Credit Facility of $482.1 million and a reduction of cash distributions paid to holders of Class C Common Units of $29.3 million.

Dividend and Distribution Reinvestment Agreement

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Additionally, the Audit Committee and subsequently the Board resolved that for the calendar year 2022, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in newly issued shares of Class A Common Stock.

On May 17, 2022, the Company made cash dividend payments of $11.7 million to holders of Class A Common Stock and Common Units and $87.7 million was reinvested in shares of Class A Common Stock by each Reinvestment Holder.

During the first nine months of 2022, the Company made cash dividend payments of $24.4 million to holders of Class A Common Stock and $175.5 million was reinvested in shares of Class A Common Stock by the Reinvestment Holders.

On May 19, 2022, the Company announced a two-for-one Stock Split with respect to its Class A Common Stock and Class C Common Stock in the form of a stock dividend.

1 unchanged sentence

The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022.

On July 20, 2022, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock, which will be payable on August 17, 2022.

On July 20, 2022, the Company, through its ownership of the general partner of the Partnership, also declared a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units, which will be payable on August 17, 2022.

On October 19, 2022, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock, which will be payable on November 17, 2022.

The Company, through its ownership of the general partner of the Partnership, also declared a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units, which will be payable on November 17, 2022.

As context requires, dividends paid to holders of Class A Common Stock and distributions paid to holders of Common Units may be referred to collectively as “dividends.”

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Because the Transaction was accounted for as a reverse merger, certain Preferred Units that were issued and outstanding were assumed at Closing for accounting purposes.

The Preferred Units are exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders upon the occurrence of specified events, unless otherwise redeemed by the Company.

The Preferred Units entitle the holders to receive quarterly distributions at a rate of 7% per annum, commencing with the quarter ended June 30, 2019.

The rate increases to 10% per annum upon the occurrence of specified events.

There were 396,417 redeemable noncontrolling interest Preferred Units outstanding as of June 30, 2022.

On the Closing Date of the Transaction, the Company effectuated the Third Amended and Restated Agreement of Limited Partnership of the Partnership (“Partnership LPA”), which, among other things, provides for mandatory redemptions by the Partnership of 50,000 Preferred Units at or prior to each of the six-, twelve- and eighteen-month anniversaries of the effectiveness from the Partnership LPA, for an aggregate of 150,000 Preferred Units over such eighteen-month period.

There were 26,428 mandatory redeemable Preferred Units outstanding as of June 30, 2022.

In July 2022, the Company redeemed the remaining 400,000 Preferred Units along with 22,845 PIK units for an aggregate redemption price of $492.2 million.

For further information on the Preferred Units, refer to Note 11—Series A Cumulative Redeemable Preferred Units in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.

The Company assumed 525,000 Preferred Units as well as 29,983 paid-in-kind (“PIK”) Preferred Units immediately after the Closing.

Since the Closing, the Company redeemed all outstanding Preferred Units and PIK units for an aggregate redemption price of $644.8 million.

The Company recognized a gain of $9.6 million on redemption of the mandatorily redeemable Preferred Units and excess of carrying amount over redemption price of $109.5 million on redemption of the redeemable noncontrolling interest Preferred Units.

Refer to Note 11—Series A Cumulative Redeemable Preferred Units in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.

The following table presents a summary of the Company’s key liquidity indicators at the dates presented:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In thousands)

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Cash and cash equivalents

As of June 30, 2022 and December 31, 2021, the Company had $5.3 million and $18.7 million, respectively, in cash and cash equivalents.

As of September 30, 2022 and December 31, 2021, the Company had $11.7 million and $18.7 million, respectively, in cash and cash equivalents.

The majority of the cash is invested in highly liquid, investment-grade instruments with maturities of three months or less at the time of purchase.

Total Debt and Available credit facilities

There is no assurance that the financial condition of banks with lending commitments to Company will not deteriorate.

There is no assurance that the financial condition of banks with lending commitments to the Company will not deteriorate.

The Company closely monitors the ratings of the banks in the Company’s bank group.

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Under certain of our transportation services agreements with third party pipelines to transport natural gas and NGLs, if we fail to ship a minimum throughput volume during any year, then we will pay a deficiency payment for transportation based on the volume shortfall up to the MVC amount.

The Company has made no historical shortfall payments through June 30, 2022.

The Company has made no historical shortfall payments through September 30, 2022.

Off-Balance Sheet Arrangements

As of June 30, 2022, there were no off-balance sheet arrangements.

As of September 30, 2022, there were no off-balance sheet arrangements.

Critical Accounting Policies

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There has been no significant change to the Company’s significant accounting policies subsequent to the Form 8-K filed on July 5, 2022.

Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in Note 1—Description of the Organization and Summary of Signific ant Account ing Poli cies in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.

Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in Note 1—Description of the Organization and Summary of Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis