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Financial report summary
?Competition
Enbridge Energy Partners • Enbridge • DCP Midstream • DCP Midstream • Dyncorp InternationalRisks
- Our current and future indebtedness levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
- We have identified material weaknesses in our internal controls at December 31, 2018, and we have been unable to remediate the material weaknesses identified in 2016 and 2017. If we fail to remediate these material weaknesses or otherwise fail to develop, implement and maintain appropriate internal controls in future periods, our ability to report our financial condition and results of operations accurately and on a timely basis could be adversely affected.
- The indenture governing our senior notes and our credit facility contain certain financial covenants and ratios and other restrictions. We have had, and may continue to have, difficulty maintaining compliance with such financial covenants and ratios and other restrictions, which could adversely affect our business, financial condition, results of operations and ability to pay distributions to our unitholders.
- Our Credit Agreement currently prohibits us from declaring or making cash distributions to our unitholders until our consolidated total leverage ratio is reduced to less than 5.00:1:00.
- We do not plan to pay distributions on our common units through the completion of the Pending Merger. We may not have sufficient cash from operations to enable us to pay distributions to holders of our common units.
- Any decrease in the volumes of natural gas, NGLs or crude oil that we or our joint ventures gather, process or transport could adversely affect our business and operating results.
- Natural gas, crude oil, NGL and other commodity prices are volatile, and a reduction in these prices in absolute terms, or an adverse change in the prices of natural gas and NGLs relative to one another, could affect the demand for natural gas, NGLs or condensate and could adversely affect our net income and cash flow.
- Our growth strategy, and ability to fund expansion capital projects, requires access to new capital. Our ability to access the capital markets, tightened capital markets or other factors that increase our cost of capital, or limit our access to capital, could impair our ability to grow.
- Our business is subject to a number of weather related risks, including severe weather in the U.S. Gulf of Mexico, which can cause significant damage and disruption to our business interests located in that region.
- We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers and counterparties in the ordinary course of our business.
- If third-party pipelines or other midstream facilities interconnected to our gathering or transportation systems become partially or fully unavailable, or if the volumes we gather or transport do not meet the natural gas quality requirements of such pipelines or facilities, our revenue and cash available for distribution could be adversely affected.
- Our operations are subject to laws and regulations, including environmental laws and regulations relating to climate change and greenhouse gas emissions, which may restrict our operations or expose us to significant costs, liabilities, and expenditures that could exceed our expectations.
- A significant portion of our cash flows come from our joint ventures in which we often hold a non-controlling minority ownership position. We may experience reductions in cash flows from our joint ventures due to contractual step-downs in cash distributions, operational or other issues that are beyond our control. We may acquire similar non-controlling minority ownership positions in joint ventures in the future.
- Our industry is highly competitive and increased competitive pressure could adversely affect our business and operating results.
- Our gathering, processing, transportation and terminal contracts subject us to renewal risks.
- The value of our interests in operations located in the U.S. Gulf of Mexico could be adversely impacted by increased regulation and continuing regulatory uncertainty.
- Significant portions of our pipeline systems have been in service for several decades and we have a limited ownership history with respect to all of our assets. There could be unknown events or conditions or increased maintenance or repair expenses and downtime associated with our pipelines that could have a material adverse effect on our business and results of operations.
- A downgrade in our credit ratings could impact our access to capital and costs of doing business, and maintaining credit ratings is under the control of independent third parties.
- If we are unable to repay, extend or refinance our existing and future debt as it becomes due on terms reasonably acceptable to us, or at all, we may be unable to continue as a going concern.
- In connection with our expansion capital programs, we have agreed, and may in the future agree, to construct oil and gas gathering pipelines to service existing and future oil and gas properties, which involves potential risks.
- Our business involves many hazards, operational risks and litigation risks, some of which may not be fully covered by insurance. If a significant accident, event or judgment occurs for which we are not adequately insured, our operations and financial results could be adversely affected.
- We may be unable to obtain or renew permits necessary for our operations or the operations we may acquire in future acquisitions.
- We do not own all of the land on which our pipelines and facilities are located, which could result in disruptions to our operations.
- A failure in our operational systems or cybersecurity attacks on any of our facilities, or those of third parties, may adversely affect our financial results.
- Terrorist attacks and the threat of terrorist attacks may adversely impact our results of operations.
- We may be unable to obtain the regulatory clearances required to complete the Pending Merger or, in order to do so, we may be required to comply with material restrictions or satisfy material conditions.
- We may have difficulty attracting, motivating and retaining employees in light of the Pending Merger.
- We are subject to business uncertainties and contractual restrictions relating to the Pending Merger, which could adversely affect our business and operations.
- The Pending Merger is subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Failure to complete the Pending Merger, or significant delays in completing the Pending Merger, could negatively affect the trading price of our common units and our future business and financial results.
- We will incur substantial transaction-related costs in connection with the Pending Merger.
- The Pending Merger involves a conflict of interest between ArcLight and the Partnership.
- Risks Related to Our Units, Partnership Structure and Ownership
- Affiliates of ArcLight directly own our General Partner, which has sole responsibility for conducting our business and managing our operations. These affiliates elect all of the members of the Board. These affiliates and our General Partner have conflicts of interest with us and limited fiduciary duties, and they may favor their own interests to the detriment of us and our unitholders, including in connection with the Pending Merger.
- The affiliates of ArcLight that own our General Partner are not limited in their ability to compete with us and are not obligated to offer us the opportunity to acquire additional assets or businesses, which could limit our ability to grow and could adversely affect our results of operations and cash available for distribution to our unitholders.
- The New York Stock Exchange (“NYSE”) does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.
- If you are not an eligible holder, you may not receive distributions or allocations of income or loss on your common units and your common units will be subject to redemption.
- Common units held by persons who are non-taxpaying assignees will be subject to the possibility of redemption.
- Our Partnership Agreement requires that we pay a distribution to holders of Series C Units in cash before we are permitted to make any distribution in respect of our common units for the quarter ending March 31, 2019 and each quarter thereafter.
- Our Partnership Agreement replaces our General Partner’s duties to us with limited contractual duties and the holders of our common units and restricts the remedies available to holders of our common units for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
- Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its directors.
- Even if holders of our common units are dissatisfied, it will be difficult to remove our General Partner without its consent.
- Our Partnership Agreement restricts the voting rights of unitholders owning 20% or more of our common units.
- Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
- We may issue additional units, including units that are senior to the common units and pari passu with our existing convertible preferred units, without your approval, which would dilute your existing ownership interests.
- In the event that the Pending Merger is not consummated, ArcLight may sell units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.
- As our common units are designed to be yield-oriented securities, suspension of distributions and increases in interest rates could adversely impact our unit price, our ability to issue equity or incur debt for acquisitions or other purposes and our ability to make cash distributions at our intended levels.
- In the event that the Pending Merger is not consummated, our General Partner has a limited call right that may require you to sell your units at an undesirable time or price.
- Your liability may not be limited if a court finds that unitholder action constitutes control of our business.
- Unitholders may have liability to repay distributions that were wrongfully distributed to them.
- If we are deemed an “investment company” under the Investment Company Act of 1940, it would adversely affect the price of our common units and could have a material adverse effect on our business.
- Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for U.S. federal income tax purposes or we become subject to material additional amounts of entity-level taxation for state tax purposes, then our cash available for distribution to the unitholders would be substantially reduced.
- The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
- Compliance with and changes in tax laws could adversely affect our performance.
- If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted, and the cost of any IRS contest will reduce our cash available for distribution to the unitholders.
- If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it may collect any resulting taxes (including any applicable penalties and interest) directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced.
- The unitholders' share of our income will be taxable to them for U.S. federal income tax purposes even if the unitholders do not receive any cash distributions from us.
- Certain actions that we may take, such as issuing additional units, may increase the U.S. federal income tax liability of unitholders.
- Unitholders may be subject to limitations on their ability to deduct interest expense we incur.
- There are limits on the deductibility of losses that may adversely affect unitholders.
- Tax gain or loss on the disposition of our common units could be more or less than expected.
- Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.
- We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
- We prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among the unitholders.
- A unitholder whose units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of units) may be considered to have disposed of those units. If so, the unitholder would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and could recognize gain or loss from the disposition.
- We have adopted certain valuation methodologies for tax purposes that may result in a shift of income, gain, loss and deduction between our General Partner and the unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.
- Unitholders may be subject to state and local taxes and return filing requirements in states and jurisdictions where they do not reside as a result of investing in our units.
Management Discussion
- The table below contains key segment performance indicators for the years ended December 31, 2018 and 2017 related to our Gas Gathering and Processing Services segment (in thousands, except operating data and percentages).
- Commodity sales. Commodity sales for the year ended December 31, 2018 were $131.5 million, an increase of $6.6 million, or 5%, compared to the year ended December 31, 2017, primarily due to the following:
- Services. Services for the year ended December 31, 2018 were $44.1 million, an increase of $18.7 million, or 74%, compared to the year ended December 31, 2017, due to increased fee revenue primarily on Yellow Rose, Chapel Hill and Lavaca of $5.5 million. Additionally, as a result of our adoption of Topic 606, we have determined that certain POP contracts should be recorded on a net basis, resulting in a $15.3 million increase in Services revenue. Offsetting these increases is a decrease in revenue for AMID NGL Trucking of $2.3 million, primarily due to expired contracts during the year.