UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form


FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2017

2020

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to

_________

Commission File Number: 001-38048

KAYNE ANDERSON ACQUISITION CORP.

Altus Midstream Company
(Exact name of Registrantregistrant as specified in its charter)

Delaware81-4675947

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

811 Main Street

14th Floor

Houston, TX

77002
(Address of principal executive offices)(Zip Code)

(713)493-2000

One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas77056-4400
(Address of principal executive offices) (Zip Code)
(713) 296-6000
(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par valueALTMNasdaq Global Market
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer ☐Accelerated filerAccelerated Filer☒
Non-accelerated filer☐Smaller reporting company ☐
Non-accelerated filer ☒  (do not check if a smaller reporting company) Emerging growth company ☒
Smaller reporting company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☒☐ No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of November 10, 2017, there were 37,732,112 Class A common stock, par value $0.0001 (“Class A Common Stock”) and 9,433,028 shares of the Company’s Class B common stock, par value $0.0001 (“Class B Common Stock”), issued and outstanding.

KAYNE ANDERSON ACQUISITION CORP.

TABLE OF CONTENTS

☒

PART I — FINANCIAL INFORMATION

Number of shares of registrant’s Class A common stock, par value $0.0001 per share issued and outstanding as of July 29, 2020		3,746,460
Number of shares of registrant’s Class C common stock, par value $0.0001 per share issued and outstanding as of July 29, 202012,500,000


TABLE OF CONTENTS
Item Page
 PART I — FINANCIAL INFORMATION 
   
1.
FINANCIAL STATEMENTS
1
   
 
STATEMENT OF CONSOLIDATED OPERATIONS
1
   
 
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
2
   
 
CONSOLIDATED BALANCE SHEET
3
   
 
STATEMENT OF CONSOLIDATED CASH FLOWS
4
   
 
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
5
   
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
   
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22
   
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
34
   
4.
CONTROLS AND PROCEDURES
35
   
 PART II — OTHER INFORMATION 
   
1.
LEGAL PROCEEDINGS
36
   
1A.
RISK FACTORS
36
   
5.
OTHER INFORMATION 
36
   
6.
EXHIBITS
37


i

FORWARD-LOOKING STATEMENTS AND RISK
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding the Company’s future financial position, business strategy, budgets, projected revenues, projected costs and plans, and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on the Company’s examination of historical operating trends, production and growth forecasts of Apache Corporation’s Alpine High field development and other data in the Company’s possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “should,” “would,” or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable under the circumstances, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, its assumptions about:
the scope, duration, and reoccurrence of any epidemics or pandemics (including specifically the coronavirus disease 2019 (COVID-19) pandemic) and the actions taken by third parties, including, but not limited to, governmental authorities, customers, contractors, and suppliers, in response to such epidemics or pandemics;
the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;
pipeline and gathering system capacity and availability;
production rates, throughput volumes, reserve levels and development success of dedicated oil and gas fields;
economic and competitive conditions;
the availability of capital;
cash flow and the timing of expenditures;
capital expenditures and other contractual obligations;
weather conditions;
inflation rates;
the availability of goods and services;
legislative, regulatory, or policy changes;
terrorism or cyberattacks;
occurrence of property acquisitions or divestitures;
the integration of acquisitions;
a decline in oil, natural gas, and NGL production, and the impact of general economic conditions on the demand for oil, natural gas, and NGLs;
the impact of environmental, health and safety, and other governmental regulations and of current or pending legislation;
environmental risks;
the effects of competition;
the retention of key members of senior management and key technical personnel;
increases in interest rates;

ii

the effectiveness of the Company’s business strategy;
changes in technology;
market-related risks, such as general credit, liquidity and interest-rate risks;
the timing, amount and terms of the Company’s future issuances of equity and debt securities;
other factors disclosed under Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in the Company’s most recently filed Annual Report on Form 10-K;
other risks and uncertainties disclosed in the Company’s second-quarter 2020 earnings release;
other factors disclosed under Part II, Item 1A-Risk Factors in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020;

•

other factors disclosed under Part II, Item 1.    Financial Statements

1A—Risk Factors of this Quarterly Report on Form 10-Q; and
any other factors disclosed in the other filings that the Company makes with the Securities and Exchange Commission (SEC).
Other factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, the Company assumes no duty to update or revise its forward-looking statements, whether based on changes in internal estimates or expectations, new information, future developments, or otherwise.



iii

GLOSSARY OF TERMS

The following are abbreviations and definitions of certain terms used in this Quarterly Report on Form 10-Q and certain terms which are commonly used in the exploration, production and midstream sectors of the oil and natural gas industry:

    Condensed Balance Sheets as•

Bbl. One stock tank barrel of September  30, 2017 (unaudited) and December 31, 2016

142 United States (U.S.) gallons liquid volume used herein in reference to crude oil, condensate or NGLs.

     Condensed Statements of Operations for the three and nine months ended September 30, 2017 (unaudited)

•		2
Bbl/d. One Bbl per day.

     Condensed Statement•

Bcf. One billion cubic feet of Changes in Stockholders’ Equity for the nine months ended September 30, 2017 (unaudited)

3natural gas.

     Condensed Statement of Cash Flows for the nine months ended September 30, 2017 (unaudited)

•		4
Bcf/d. One Bcf per day.

    Notes•

Btu. One British thermal unit, which is the quantity of heat required to Condensed Financial Statements (unaudited)

5raise the temperature of a one-pound mass of water by one degree Fahrenheit.

Item 2.     Management’s Discussion•

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and Analysis of Financial Condition and Results of Operations

12the underground productive formations.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

•		15
Formation. A layer of rock which has distinct characteristics that differs from nearby rock.

Item 4.    Controls and Procedures

•		15
MBbl. One thousand barrels of crude oil, condensate or NGLs.

PART II — OTHER INFORMATION

•
MBbl/d. One MBbl per day.

Item 1.    Legal Proceedings

•		15
Mcf. One thousand cubic feet of natural gas.

Item 1A.    Risk Factors

•		15
Mcf/d. One Mcf per day.

Item 2.     Unregistered Sales•

MMBbl. One million barrels of Equity Securities and Use of Proceeds

15crude oil, condensate or NGLs.

Item 3.    Defaults Upon Senior Securities

•		15
MMBtu. One million British thermal units.

Item 4.    Mine Safety Disclosures

•		15
MMcf. One million cubic feet of natural gas.

Item 5.    Other Information

•		16
MMcf/d. One MMcf per day.

Item 6.    Exhibits

•		16
NGLs. Natural gas liquids. Hydrocarbons found in natural gas, which may be extracted as liquefied petroleum gas and natural gasoline.


Effective February 14, 2019, each of the Altus Midstream Entities’ (as defined herein) names were changed to replace “Alpine High” in each name with “Altus Midstream.”

References to “Altus” and the “Company” include Altus Midstream Company and its consolidated subsidiaries, unless otherwise specifically stated.



iv


PART I — FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
         
  (In thousands, except per share data)
REVENUES:        
Midstream services revenue — affiliate (Note 2) $31,616
 $24,139
 $72,383
 $57,985
Total revenues 31,616
 24,139
 72,383
 57,985
COSTS AND EXPENSES:        
Operations and maintenance(1)
 9,508
 14,005
 20,099
 30,403
General and administrative(2)
 2,988
 2,081
 7,166
 5,072
Depreciation and accretion 4,062
 9,107
 7,976

16,758
Taxes other than income 3,347
 3,888
 6,790
 6,463
Total costs and expenses 19,905
 29,081
 42,031
 58,696
OPERATING INCOME (LOSS) 11,711
 (4,942) 30,352
 (711)
OTHER INCOME (LOSS):        
Unrealized derivative instrument loss (10,585) —
 (72,569) —
Interest income 2
 806
 9

2,967
Income (loss) from equity method interests, net 16,923
 (1,297) 33,221

(1,028)
Other (97) (17) (274) (17)
Total other income (loss) 6,243
 (508) (39,613) 1,922
Financing costs, net of capitalized interest 292
 478
 565

986
NET INCOME (LOSS) BEFORE INCOME TAXES 17,662
 (5,928) (9,826) 225
Current income tax benefit —
 —
 (696) —
Deferred income tax benefit —
 (430) —

(5)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS 17,662
 (5,498) (9,130)
230
Net income attributable to Preferred Unit limited partners 18,764
 4,143
 37,026
 4,143
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS (1,102) (9,641) (46,156) (3,913)
Net loss attributable to Apache limited partner (847) (7,348) (36,048) (2,720)
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS $(255) $(2,293) $(10,108) $(1,193)
         
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS, PER SHARE(3)
        
Basic $(0.07) $(0.61) $(2.70) $(0.32)
Diluted $(0.07) $(0.61) $(2.84) $(0.32)
WEIGHTED AVERAGE SHARES(3)
        
Basic 3,746
 3,746
 3,746
 3,746
Diluted 3,746
 3,746
 16,246
 3,746

Item 1.Financial Statements
(1)
Includes amounts of $1.3 million and $2.0 million associated with related parties for the three months ended June 30, 2020 and 2019, respectively, and $2.8 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively. Refer to Note 2—Transactions with Affiliates.

KAYNE ANDERSON ACQUISITION CORP.

CONDENSED BALANCE SHEETS

   September 30,
2017		  December 31,
2016		 
   (unaudited)    

ASSETS

   

Current assets

   

Cash

  $555,254  $7,500 

Prepaid expenses and other current assets

   130,792   —   
  

 

 

  

 

 

 

Total Current Assets

   686,046   7,500 

Investment held in trust account

   378,284,003   —   

Deferred offering costs

   —     38,234 
  

 

 

  

 

 

 

Total Assets

  $378,970,049  $45,734 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

Current liabilities

   

Accrued formation and offering costs

  $—    $3,110 

Accrued expenses

   685,175   —   

Accrued franchise taxes

   98,900  

Accrued income taxes

   35,694   —   

Sponsor note

   —     20,000 
  

 

 

  

 

 

 

Total Current Liabilities

   819,769   23,110 

Deferred underwriting compensation

   13,206,239   —   
  

 

 

  

 

 

 

Total Liabilities

   14,026,008   23,110 

Class A common stock subject to possible redemption; 35,994,404 and 0 shares, respectively, at September 30, 2017 and December 31, 2016 (at redemption value of approximately $10.00 per share)

   359,944,040   —   

Stockholders’ equity:

   

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding

   —     —   

Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 1,737,708 and 0 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively (excluding 35,994,404 shares subject to possible redemption as of September 30, 2017)

   174   —   

Class B convertible common stock, $0.0001 par value; 20,000,000 shares authorized; 9,433,028 and 10,062,500 shares issued and outstanding of September 30, 2017 and December 31, 2016, respectively

   943   1,006 

Additionalpaid-in capital

   5,513,873   23,994 

Accumulated deficit

   (514,989)   (2,376) 
  

 

 

  

 

 

 

Total Stockholders’ Equity

   5,000,001   22,624 
  

 

 

  

 

 

 

Total Liabilities and Stockholders’ Equity

  $378,970,049  $45,734 
  

 

 

  

 

 

 

See
(2)
Includes amounts of $1.6 million and $1.0 million associated with related parties for the three months ended June 30, 2020 and 2019, respectively, and $3.6 million and $2.6 million for the six months ended June 30, 2020 and 2019, respectively. Refer to Note 2—Transactions with Affiliates.
(3)
Share and per share amounts have been retroactively restated to reflect the Company’s reverse stock split, which was effected June 30, 2020. Refer to Note 9—Equity for further information.


The accompanying notes to condensedconsolidated financial statements

KAYNE ANDERSON ACQUISITION CORP.

are an integral part of this statement.

CONDENSED STATEMENTS


ALTUS MIDSTREAM COMPANY
STATEMENT OF OPERATIONS

(unaudited)

   Three Months
Ended
September 30,
2017		  Nine months
Ended
September 30,
2017		 

Revenues

  $—    $—   

Expenses

   

General and administrative expenses

   276,956   1,340,902 

Franchise tax expense

   55,900   98,900 
  

 

 

  

 

 

 

Total expenses

   332,856   1,439,802 
  

 

 

  

 

 

 

Loss from operations

   (332,856)   (1,439,802) 

Other income — investment income on Trust Account

   809,858   1,353,883 
  

 

 

  

 

 

 

Income (loss) before income taxes

   477,002   (85,919) 

Current income tax expense

   (256,345)   (426,694) 
  

 

 

  

 

 

 

Net income (loss) attributable to common shares

  $220,657  $(512,613) 
  

 

 

  

 

 

 

Weighted average number of shares outstanding:

   

Basic (excluding shares subject to redemption)

   11,191,898   10,582,053 
  

 

 

  

 

 

 

Diluted

   47,165,140   10,582,053 
  

 

 

  

 

 

 

Net income (loss) per common share:

   

Basic

  $0.02  $(0.05) 
  

 

 

  

 

 

 

Diluted

  $0.00  $(0.05) 
  

 

 

  

 

 

 

SeeCONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(Unaudited)
  Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
         
  (In thousands)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS $17,662
 $(5,498) $(9,130) $230
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
Share of equity method interests other comprehensive income (loss) 390
 (1,043) (794) (1,043)
COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS 18,052
 (6,541) (9,924) (813)
Comprehensive income attributable to Preferred Unit limited partners 18,764
 4,143
 37,026
 4,143
Comprehensive loss attributable to Apache limited partner (547) (8,191) (36,659) (3,563)
COMPREHENSIVE LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS $(165) $(2,493) $(10,291) $(1,393)












































The accompanying notes to condensedconsolidated financial statements

KAYNE ANDERSON ACQUISITION CORP.

are an integral part of this statement.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the nine months ended September 30, 2017

(unaudited)

   Class A Common
Stock		  Class B Common
Stock		  Additional
Paid-in
Capital		  Accumulated
Deficit		  Stockholders’
Equity		 
   Shares  Amount  Shares  Amount    

Balances, December 31, 2016

   —    $—     10,062,500  $1,006  $23,994  $(2,376)  $22,624 

Sale of Class A Common Stock to Public

   37,732,112   3,773   —     —     377,317,347   —     377,321,120 

Forfeiture of Class B Common Stock by Sponsor

   —     —     (629,472)   (63)   63   —     —   

Underwriters’ discount and offering expenses

   —     —     —     —     (21,433,512)   —     (21,433,512) 

Sale of 6,364,281 Private Placement Warrants at $1.50 per warrant

   —     —     —     —     9,546,422   —     9,546,422 

Shares subject to possible redemption

   (35,994,404)   (3,599)   —     —     (359,940,441)   —     (359,944,040) 

Net loss

   —     —     —     —     —     (512,613)   (512,613) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balances, September 30, 2017

   1,737,708  $174   9,433,028  $943  $5,513,873  $(514,989)  $5,000,001 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See



ALTUS MIDSTREAM COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
  June 30, December 31,
  2020 2019
     
  (In thousands)
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents $1,880
 $5,983
Accounts receivable from Apache Corporation (Note 1) —
 5,195
Revenue receivables (Note 3) 13,572
 15,461
Inventories 3,771
 4,027
Prepaid assets and other 1,713
 1,071
  20,936
 31,737
PROPERTY, PLANT AND EQUIPMENT:    
Property, plant and equipment 214,389
 207,270
Less: Accumulated depreciation and amortization (7,085) (1,468)
  207,304
 205,802
OTHER ASSETS:    
Equity method interests 1,408,479
 1,258,048
Deferred charges and other 5,524
 5,267
  1,414,003
 1,263,315
Total assets $1,642,243
 $1,500,854
     
LIABILITIES, NONCONTROLLING INTERESTS, AND EQUITY    
CURRENT LIABILITIES:    
Accounts payable to Apache Corporation (Note 1) $165
 $—
Current debt (Note 5) —
 9,767
Other current liabilities (Note 6) 11,941
 23,925
  12,106
 33,692
LONG-TERM DEBT 493,000
 396,000
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:    
Asset retirement obligation 62,041
 60,095
Embedded derivative 175,498
 102,929
Other non-current liabilities 5,998
 4,614
  243,537
 167,638
Total liabilities 748,643
 597,330
     
COMMITMENTS AND CONTINGENCIES (Note 7) 

 

     
Redeemable noncontrolling interest — Apache limited partner 230,631
 701,000
Redeemable noncontrolling interest — Preferred Unit limited partners 592,625
 555,599
     
EQUITY:    
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 3,746,460 shares issued and outstanding at June 30, 2020 and December 31, 2019(1)
 1
 1
Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 12,500,000 shares issued and outstanding at June 30, 2020 and December 31, 2019(1)
 1
 1
Additional paid-in capital 473,532
 39,822
Accumulated deficit (402,741) (392,633)
Accumulated other comprehensive loss (449) (266)
  70,344
 (353,075)
Total liabilities, noncontrolling interests, and equity $1,642,243
 $1,500,854

(1)
Share amounts have been retroactively restated to reflect the Company’s reverse stock split, which was effected June 30, 2020. Refer to Note 9—Equity for further information.
The accompanying notes to condensedconsolidated financial statements

KAYNE ANDERSON ACQUISITION CORP.

are an integral part of this statement.

CONDENSED


ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS

For the nine months ended September 30, 2017

(unaudited)

Cash flows from operating activities:

  

Net loss

  $(512,613) 

Adjustments to reconcile net loss to net cash used in operating activities:

  

Trust income retained in Trust Account (net of $391,000 for income taxes paid)

   (962,883) 

Changes in operating assets and liabilities:

  

Increase in prepaid expenses and other assets

   (130,792) 

Increase in accrued expenses and taxes, net

   816,659 
  

 

 

 

Net cash used in operating activities

   (789,629) 

Net cash used in investing activities,

  

Cash deposited into Trust Account

   (377,321,120) 

Cash flows from financing activities:

  

Proceeds from Public Offering

   377,321,120 

Proceeds from sale of Private Placement Warrants

   9,546,422 

Payment of underwriting costs

   (7,546,422) 

Payment of offering costs

   (642,617) 

Proceeds from Sponsor note

   245,000 

Payment of Sponsor note

   (265,000) 
  

 

 

 

Net cash provided by financing activities

   378,658,503 

Net increase in cash

   547,754 

Cash at beginning of period

   7,500 
  

 

 

 

Cash at end of period

  $555,254 
  

 

 

 

Supplemental disclosure of cash flow information:

  

Deferred underwriting compensation

  $13,206,239 
  

 

 

 

Income taxes paid

  $391,000 
  

 

 

 

See

(Unaudited)
  Six Months Ended June 30,
  2020 2019
     
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) including noncontrolling interests $(9,130) $230
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Unrealized derivative instrument loss 72,569
 —
Depreciation and accretion 7,976
 16,758
Deferred income tax benefit —
 (5)
Income (loss) from equity method interests, net (33,221) 1,028
Distributions from equity method interests 37,536
 —
Other 489
 (564)
Changes in operating assets and liabilities:    
(Increase) decrease in inventories 256
 (484)
Increase in prepaid assets and other (642) (311)
Decrease in revenue receivables (Note 2) 1,889
 1,930
(Increase) decrease in account receivables from/payable to affiliate 1,301
 (3,347)
Increase in accrued expenses 6,392
 6,453
Increase deferred credits and noncurrent liabilities 1,382
 —
NET CASH PROVIDED BY OPERATING ACTIVITIES 86,797
 21,688
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures(1)
 (26,520) (259,295)
Proceeds from sale of assets 6,773
 —
Contributions to equity method interests (154,386) (210,238)
Distributions from equity method interests 4,211
 —
Acquisition of equity method interests —
 (228,165)
Capitalized interest paid (5,373) —
NET CASH USED IN INVESTING ACTIVITIES (175,295) (697,698)
     
CASH FLOWS FROM FINANCING ACTIVITIES:    
Redeemable noncontrolling interest — Preferred Unit limited partners, net
 —
 611,249
Proceeds from revolving credit facility 97,000
 —
Finance lease (11,789) (7,462)
Deferred facility fees (816) (792)
NET CASH PROVIDED BY FINANCING ACTIVITIES 84,395
 602,995
     
DECREASE IN CASH AND CASH EQUIVALENTS (4,103) (73,015)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,983
 449,935
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,880

$376,920
SUPPLEMENTAL CASH FLOW DATA:    
Accrued capital expenditures(2)
 $1,409
 $30,330
Finance lease liability(3)
 —
 29,000
Interest paid, net of capitalized interest —
 1,493
Cash received for income tax refunds 696
 —

(1)
Following the Business Combination (as defined herein), capital expenditure amounts represent the portion of the total settlements with Apache in the period that are capital in nature, pursuant to the terms of the Construction, Operations and Maintenance Agreement (COMA). Refer to Note 1—Summary of Significant Accounting Policies and Note 2—Transactions with Affiliates for more information.
(2)
Includes $0.7 million due to Apache and $3.6 million due from Apache for the six months ended June 30, 2020 and 2019, respectively, pursuant to the terms of the COMA. Refer to Note 2—Transactions with Affiliates for more information.
(3)The Company entered into a finance lease in the first quarter of 2019 for power generators, which ended during the first quarter of 2020. The Company then exercised its option to purchase the generators.

The accompanying notes to condensedconsolidated financial statements

KAYNE ANDERSON ACQUISITION CORP.

are an integral part of this statement.



ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
(Unaudited)
 
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(1)
 Redeemable Noncontrolling Interest — Apache Limited Partner  Class A Common Stock Class C Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Equity
    
Shares(2)
 Amount 
Shares(2)
 Amount    
                     
 (In thousands)  (In thousands)
                     
For the Quarter Ended June 30, 2019                    
Balance at March 31, 2019$—
 $1,504,500
  3,746
 $1
 12,500
 $1
 $440,658
 $(212,646) $—
 $228,014
Issuance of Series A Cumulative Redeemable Preferred Units516,790
 —
  —
 —
 —
 —
 —
 —
 —
 —
Net income (loss)3,364
 (7,348)  —
 —
 —
 —
��—
 (1,514) —
 (1,514)
Accretion of redeemable noncontrolling interest779
 —
  —
 —
 —
 —
 —
 (779) —
 (779)
Change in redemption value of noncontrolling interests—
 (223,657)  —
 —
 —
 —
 32,874
 190,783
 —
 223,657
Accumulated other comprehensive loss—
 (843)  —
 —
 —
 —
 —
 —
 (200) (200)
Balance at June 30, 2019$520,933
 $1,272,652
  3,746
 $1
 12,500
 $1
 $473,532
 $(24,156) $(200) $449,178
                     
For the Quarter Ended June 30, 2020                    
Balance at March 31, 2020$573,861
 $231,178
  3,746
 $1
 12,500
 $1
 $473,532
 $(402,486) $(539) $70,509
Net income (loss)18,764
 (847)  —
 —
 —
 —
 —
 (255) —
 (255)
Accumulated other comprehensive income—
 300
  —
 —
 —
 —
 —
 —
 90
 90
Balance at June 30, 2020$592,625
 $230,631
  3,746
 $1
 12,500
 $1
 $473,532
 $(402,741) $(449) $70,344
(1)
Certain redemption features embedded within the Preferred Units require bifurcation and measurement at fair value. For further detail, refer to Note 10—Series A Cumulative Redeemable Preferred Units.
(2)
Share amounts have been retroactively restated to reflect the Company’s reverse stock split, which was effected June 30, 2020. Refer to Note 9—Equity for further information.












The accompanying notes to consolidated financial statements are an integral part of this statement.


ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS — (Continued)
(Unaudited)
 
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners(1)
 Redeemable Noncontrolling Interest — Apache Limited Partner  Class A Common Stock Class C Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Loss Total Equity
    
Shares(2)
 Amount 
Shares(2)
 Amount    
                     
 (In thousands)  (In thousands)
                     
For the Six Months Ended June 30, 2019                    
Balance at December 31, 2018$—
 $1,940,500
  3,746
 $1
 12,500
 $1
 $30
 $(213,746) $—
 $(213,714)
Issuance of Series A Cumulative Redeemable Preferred Units516,790
 —
  —
 —
 —
 —
 —
 —
 —
 —
Net income (loss)3,364
 (2,720)  —
 —
 —
 —
 —
 (414) —
 (414)
Accretion of redeemable noncontrolling interest779
 —
  —
 —
 —
 —
 —
 (779) —
 (779)
Change in redemption value of noncontrolling interests—
 (664,285)  —
 —
 —
 —
 473,502
 190,783
 —
 664,285
Accumulated other comprehensive loss—
 (843)  —
 —
 —
 —
 —
 —
 (200) (200)
Balance at June 30, 2019$520,933
 $1,272,652
  3,746
 $1
 12,500
 $1
 $473,532
 $(24,156) $(200) $449,178
                     
For the Six Months Ended June 30, 2020                    
Balance at December 31, 2019$555,599
 $701,000
  3,746
 $1
 12,500
 $1
 $39,822
 $(392,633) $(266) $(353,075)
Net income (loss)37,026
 (36,048)  —
 —
 —
 —
 —
 (10,108) —
 (10,108)
Change in redemption value of noncontrolling interests—
 (433,710)  —
 —
 —
 —
 433,710
 —
 —
 433,710
Accumulated other comprehensive loss—
 (611)  —
 —
 —
 —
 —
 —
 (183) (183)
Balance at June 30, 2020$592,625
 $230,631
  3,746
 $1
 12,500
 $1
 $473,532
 $(402,741) $(449) $70,344
(1)
Certain redemption features embedded within the Preferred Units require bifurcation and measurement at fair value. For further detail, refer to Note 10—Series A Cumulative Redeemable Preferred Units.
(2)
Share amounts have been retroactively restated to reflect the Company’s reverse stock split, which was effected June 30, 2020. Refer to Note 9—Equity for further information.








The accompanying notes to consolidated financial statements are an integral part of this statement.


ALTUS MIDSTREAM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Description

(Unaudited)
These consolidated financial statements have been prepared by Altus Midstream Company without audit, pursuant to the rules and regulations of Organizationthe Securities and BusinessExchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited financial statements, with the exception of recently adopted accounting pronouncements discussed below. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Altus Midstream Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (Form 10-K), which contains a summary of the Company’s significant accounting policies and other disclosures. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Form 10-K.
Unless the context otherwise requires, the “Company,” “ALTM” and “Altus” refers to Altus Midstream Company and its consolidated subsidiaries. “Altus Midstream” refers to Altus Midstream LP and its consolidated subsidiaries. “Apache” refers to Apache Corporation and its consolidated subsidiaries.
Nature of Operations

Organization

Through its consolidated subsidiaries, the Company owns gas gathering, processing and General

transmission assets in the Permian Basin of West Texas. Construction on the assets began in the fourth quarter of 2016, and operations commenced in the second quarter of 2017. Additionally, the Company owns equity interests in 4 separate Permian Basin pipeline entities that have or will have access to various points along the Texas Gulf Coast. The Company’s operations consist of 1 reportable segment.  

Organization
The Company originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (the “Company”) was incorporated in Delaware on December 12, 2016. The Company was formed(KAAC), for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). The Company’s focus is to search for a target business in the energy industry. The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

On April 4, 2017, the Company closedbusinesses. KAAC completed its initial public offering (“Public Offering”) (See Notein the second quarter of 2017.

On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and Note 6)wholly-owned subsidiary of KAAC. On August 8, 2018, KAAC and Altus Midstream LP entered into a contribution agreement (the Contribution Agreement) with certain wholly-owned subsidiaries of Apache , including the Altus Midstream Entities. The Altus Midstream Entities comprise 4 Delaware limited partnerships (collectively, Altus Midstream Operating) and their general partner (Altus Midstream Subsidiary GP LLC, a Delaware limited liability company), formed by Apache between May 2016 and January 2017 for the purpose of acquiring, developing, and operating midstream oil and gas assets in the Alpine High resource play and surrounding areas (Alpine High).
On November 9, 2018 (the Closing Date) and pursuant to the terms of the Contribution Agreement, KAAC acquired from Apache the entire equity interests of the Altus Midstream Entities and options to acquire equity interests in five separate third-party pipeline projects (the Pipeline Options). The Company will not generate any operating revenues until afteracquisition of the entities and the Pipeline Options is referred to herein as the Business Combination. In exchange, the consideration provided to Apache included economic voting and non-economic voting shares in KAAC and common units representing limited partner interests in Altus Midstream LP (Common Units). Following the Closing Date and in connection with the completion of its Initialthe Business Combination, atKAAC changed its name to Altus Midstream Company.
Ownership of Altus Midstream LP
Following the earliest. The Company will generatenon-operating incomeClosing Date and in connection with the formcompletion of interest income on cash and cash equivalents from the proceeds derived fromBusiness Combination, the Public Offering. The Company has selected December 31 as its fiscal year end.

Sponsor

The Company’s sponsor is Kayne Anderson Sponsor,wholly-owned subsidiary, Altus Midstream GP LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for(Altus Midstream GP), is the Company’s Public Offering (as described in Note 3) was declared effective by the United States Securities and Exchange Commission (the “SEC”) on March 29, 2017.

The Trust Account

The proceeds held in the trust account with American Stock Transfer & Trust Company, LLC acting as trustee (the “Trust Account”) are invested in money market funds that meet certain conditions under Rule2a-7 under the Investment Company Actsole general partner of 1940, as amended (the “Investment Company Act”) and that invest only in direct U.S. government obligations. Funds will remain in the Trust Account until the earlier of (i) the consummation of the Initial Business Combination or (ii) the distribution of the Trust Account proceeds as described below. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.

The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay taxes, if any, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Initial Business Combination; (ii) the redemption of any shares of Class A Common Stock included in the units (the “Public Shares”) sold in the Public Offering that have been properly tendered in connection with a stockholder vote to amend the Company’s certificate of incorporation to modify the substance or timing of its obligation to redeem 100% of such shares of Class A Common Stock if it does not complete the Initial Business Combination within 24 months from the closing of the Public Offering; and (iii) the redemption of 100% of the shares of Class A Common Stock included in the Units sold in the Public Offering if the Company is unable to complete an Initial Business Combination within 24 months from the closing of the Public Offering (subject to the requirements of law). The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.

Initial Business Combination

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially all of the net proceeds of the Public Offering are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the Initial Business Combination. Furthermore, there is no assurance that the Company will be able to successfully effect an Initial Business Combination.

Altus Midstream LP. The Company after signing a definitive agreement for an Initial Business Combination, will either (i) seek stockholder approval of the Initial Business Combination at a meeting called for such purpose in connection withoperates its business through Altus Midstream LP and its subsidiaries, which stockholders may seek to redeem their shares, regardless of whether they vote for or against the Initial Business Combination, for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable, or (ii) provide stockholders with the opportunity to sell their Public Shares to theinclude Altus Midstream Operating. The Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount in cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. The decision as to whether the Company will seek stockholder approval of the Initial Business Combination or will allow stockholders to sell their Public Shares in a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval, unless a vote is required by law or under rules of The Nasdaq Stock Market. If the Company seeks stockholder approval, it will complete its Initial Business Combination only if a majorityholds approximately 23.1 percent of the outstanding shares of common stock voted are votedCommon Units, and a controlling interest in favor ofAltus Midstream, while Apache holds the Initial Business Combination. However, in no event will the Company redeem its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001 upon consummation of the Initial Business Combination. In such case, the Company would not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may search for an alternate Initial Business Combination.

If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A Common Stock will be recorded at redemption amount and classified as temporary equity upon the completion of the Public Offering, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity.”

Pursuant to the Company’s amended and restated certificate of incorporation, if the Company is unable to complete the Initial Business Combination within 24 months from the closing of the Public Offering, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, subject to lawfully available funds therefor, redeem the Public Shares, at aper-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to us to pay the Company’s franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The Sponsor and the Company’s officers and directors have entered into letter agreements with the Company, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares (as defined below) held by them if the Company fails to complete the Initial Business Combination within 24 months of the closing of the Public Offering. However, if the Sponsor or any of the Company’s directors, officers or affiliates acquire shares of Class A Common Stock in or after the Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete the Initial Business Combination within the prescribed time period.

In the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that the Company will provide its stockholders with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, upon the completion of the Initial Business Combination, subject to the limitations described herein.

Note 2—Summary of Significant Accounting Policies

76.9 percent.




1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The accompanying unaudited interim condensedconsolidated financial statements of the Company are presentedhave been prepared in U.S. dollars in conformityaccordance with accounting principles generally accepted in the United States (GAAP).
Principles of America (“GAAP”) and pursuantConsolidation
The consolidated financial results of Altus Midstream are included in the Company’s consolidated financial statements due to the accountingCompany’s 100 percent ownership interest in Altus Midstream GP, and disclosure rulesAltus Midstream GP’s control of Altus Midstream.
The Company has no independent operations or material assets other than its partnership interests in Altus Midstream, which constitutes all of its business. Additionally, the Company’s balance sheet reflects the presentation of noncontrolling interest ownership attributable to the limited partner interests in Altus Midstream held by Apache and regulationsthe Series A Cumulative Redeemable Preferred Units holders (the Preferred Units). Refer to Note 9—Equity and Note 10—Series A Cumulative Redeemable Preferred Units for further information.
Variable Interest Entity
Altus Midstream is a variable interest entity (VIE) because the partners in Altus Midstream with equity at risk lack the power, through voting or similar rights, to direct the activities that most significantly impact Altus Midstream’s economic performance.
A reporting entity that concludes it has a variable interest in a VIE must evaluate whether it has a controlling financial interest in the VIE, such that it is the VIE’s primary beneficiary and should consolidate. The Company is the primary beneficiary of Altus Midstream, and therefore should consolidate Altus Midstream because (i) the Company has the ability to direct the activities of Altus Midstream that most significantly affect its economic performance, and (ii) the Company has the right to receive benefits or the obligation to absorb losses that could be potentially significant to Altus Midstream.
Redeemable Noncontrolling Interest — Apache Limited Partner
The Company’s redeemable noncontrolling interest presented in the consolidated financial statements consists of Common Units representing limited partner interests in Altus Midstream held by Apache. Pursuant to certain provisions of the Securities and Exchange Commission (“SEC”), and reflect all adjustments, consisting onlypartnership agreement of normal recurring adjustments, which are,Altus Midstream (as amended in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2017 and the results of operations and cash flows for the period presented. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a full year.

In connection with the Company’s assessment of going concern considerations in accordance with ASU2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, as of September 30, 2017, the Company does not have sufficient liquidity to meet its current obligations. However, management has determined that the Company has access to funds from the Sponsor that are sufficient to fund the working capital needs of the Company for a minimum one year from the date ofBusiness Combination, and subsequent issuance of these financial statements.

The accompanying unaudited interim condensed financial statements should be read in conjunction withPreferred Units, the audited financial statements and notes thereto included inAmended LPA), the final prospectus filedlimited partner interests held by the Company with the SEC on March 30, 2017 and with the audited balance sheet included in the Form8-K filed by the Company with the SEC on April 10, 2017 and the unaudited pro forma balance sheet included in the Form8-K filed by the Company with the SEC on April 26, 2017.

Emerging Growth Company

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being requiredApache are equal to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities and Exchange Act of 1934, as amended, or the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply tonon-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Net Income (Loss) Per Common Share

Net income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period, plus, to the extent dilutive, the incremental number of shares of the Company’s Class C common stock, $0.0001 par value (Class C Common Stock), held by Apache.

The Company initially recorded the redeemable noncontrolling interest upon the issuance of the Common Units to Apache as part of the Business Combination and based on the recapitalization value ascribed at the Closing Date to the limited partner interest. All or a portion of these Common Units may be redeemed at Apache’s option. The Company has the ability to settle warrants, as calculated using the treasury stock method. An aggregate of 35,994,404redemption option either (i) in shares of Class A common stock, $0.0001 par value (Class A Common Stock), on a 1-for-one basis or (ii) in cash (based on the fair market value of the Class A Common Stock as determined pursuant to the Contribution Agreement), subject to possiblecustomary conversion rate adjustments for stock splits, stock dividends, and reclassifications. Upon the future redemption or exchange of Common Units held by Apache, a corresponding number of shares of Class C Common Stock will be cancelled.
The Company’s policy is to record the redeemable noncontrolling interest represented by the Common Units held by Apache at September 30, 2017 have been excluded from the calculationhigher of basic income per common share. The Company has not considered(i) its initial fair value plus accumulated earnings/losses associated with the effectnoncontrolling interest or (ii) the redemption value as of the warrantsbalance sheet date.
See discussion and additional detail further discussed in Note 9—Equity.
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering, and the Public Offering (including the consummationpurchasers of the over-allotment) and Private Placement Warrants to purchase 18,941,651Preferred Units were admitted as limited partners of Altus Midstream. The Preferred Units will be exchangeable for shares of the Company’s Class A common stock inCommon Stock at the calculation of diluted income per share, since the exerciseoption of the warrants andPreferred Unit holders after the conversionseventh anniversary of the rights into shares of common stock is contingentClosing or upon the occurrence of future events.

Concentrationspecified events, unless otherwise redeemed by Altus Midstream.



The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of Credit Risk

Financial instruments that potentially subject the Company to concentrationsPreferred Units. Certain redemption features embedded within the terms of credit risk consist of cash accountsthe Preferred Units require bifurcation and measurement at fair value and are accounted for on the Company’s consolidated balance sheet as a long-term liability embedded derivative.

See discussion and additional detail further discussed in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. Note 10—Series A Cumulative Redeemable Preferred Units.
Equity Method Interests
The Company hasfollows the equity method of accounting when it does not experiencedexercise control over its equity interests, but can exercise significant influence over the operating and financial policies of the entity. Under this method, the equity interests are carried originally at acquisition cost, increased by Altus’ proportionate share of the equity interest’s net income and contributions made by Altus, and decreased by Altus’ proportionate share of the equity interest’s net losses on these accounts and management believes the Company is not exposeddistributions received by Altus. Please refer to significant risks on such accounts.

Financial Instruments

The fair valueNote 8—Equity Method Interests, for further details of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet.

equity method interests.

Use of Estimates

The preparation

Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results couldmay differ from those estimates.

Deferred Offering Costs

these estimates and assumptions used in preparation of its financial statements, and changes in these estimates are recorded when known.

Fair Value Measurements
Accounting Standards Codification (ASC) 820-10-35, “Fair Value Measurement” (ASC 820), provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models, and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Embedded features identified within the Company’s agreements are bifurcated and measured at fair value at the end of each period on the Company’s consolidated balance sheet. Such recurring fair value measurements are presented in further detail in Note 13—Fair Value Measurements. The Company compliesalso uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment.
Accounts Receivable From/Payable To Apache
The accounts receivable from or payable to Apache represent the net result of Altus Midstream’s monthly revenue, capital and operating expenditures, and other miscellaneous transactions to be settled with Apache as provided under the requirementsCOMA between the two entities. Generally, cash in this amount will be transferred to or from Apache in the month after the Company’s transactions are processed and the net results of operations are determined. However, from time to time, the FASBCompany may estimate and transfer the cash settlement amount in the month the transactions are processed, in order to minimize related-party working capital balances. See discussion and additional detail in Note 2—Transactions with Affiliates.
Change in Accounting Policy
Historically, the Company reported income and loss from equity method interests on a one-month reporting lag. Effective October 1, 2019, the Company eliminated this one-month reporting lag. In accordance with ASC340-10-S99-1 810-10-45-13, “A Change in the Fiscal Year-End Lag Between Subsidiary and SEC StaffParent” (ASC 810), the elimination of this previously existing reporting lag is considered a voluntary change in accounting principle in accordance with ASC 250-10-50, “Change in Accounting Bulletin Topic 5A—“Expenses of Offering.Principle.” The Company incurred approximately $681,000believes that this change in accounting principle is preferable as it provides the Company with the ability to present the results of offering costs in connection with preparationits equity method interests for the Public Offering. These costs together with the underwriting discounts of $20,752,661 (including $13,206,239 of which payment is deferred), were charged to additional paid in capital upon completionsame period as all other consolidated results of the Public Offering in April 2017.

Income Taxes

Company, which improves



overall financial reporting to investors by providing the most current information available. The Company followshas not retrospectively applied the assetchange in accounting principle since its impact to the consolidated balance sheet and liabilityrelated statements of operations and cash flows was immaterial for all periods. For more information on equity method interests owned by the Company, please refer to Note 8—Equity Method Interests.
Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments-Credit Losses.” The standard changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans, and other financial assets measured at amortized cost. This ASU requires the use of a new forward-looking “expected loss” model compared to the current “incurred loss” model, resulting in accelerated recognition of credit losses. The Company adopted this standard in the first quarter of 2020 with no material impact on its financial statements.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This pronouncement is part of the Simplification Initiative and simplifies the accounting for income taxes under FASBby removing certain exceptions to the general principles of ASC Topic 740 “Income Taxes.” Deferred tax assetsIn addition, the amendment improves consistent application of and liabilities are recognizedsimplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This update is effective for the estimated future tax consequencesCompany beginning in the first quarter of 2021, with early adoption permitted. The Company early adopted this standard in the first quarter of 2020 with no material impact on its financial statements.
2.    TRANSACTIONS WITH AFFILIATES
Revenues
The Company has contracted to provide services including gas gathering, compression, processing, transmission, and NGL transmission, pursuant to acreage dedications provided by Apache, comprising the entire Alpine High acreage. In accordance with the terms of these agreements, the Company receives prescribed fees based on the type and volume of product for which the services are provided. For the periods presented, the Company’s only significant customer was Apache.
Revenues generated under these agreements are presented on the Company’s statement of consolidated operations as “Midstream services revenue — affiliate.” Revenues earned that have not yet been invoiced to Apache are presented on the Company’s consolidated balance sheet as “Revenue receivables.” Refer to Note 3—Revenue Recognition for further discussion.
Cost and Expenses
The Company has no employees, and prior to the Business Combination, the Company had no banking or cash management facilities. As such, the Company has contracted with Apache to receive certain operational, maintenance, and management services. In accordance with the terms of these agreements, the Company incurred operations and maintenance expenses of $1.3 million and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and $2.8 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively. The Company incurred general and administrative (G&A) expenses of $1.6 million and $1.0 million for the three months ended June 30, 2020 and 2019, respectively, and $3.6 million and $2.6 million for the six months ended June 30, 2020 and 2019, respectively, including expenses related to the operational services agreement and the COMA as further described below. Further information on the related-party operating lease agreement in place during the period is also provided below.
Construction, Operations and Maintenance Agreement
At the closing of the Business Combination, the Company entered into the COMA with Apache. Under the terms of the COMA, Apache provides certain services related to the design, development, construction, operation, management and maintenance of certain gathering, processing and other midstream assets, on behalf of the Company. In return, the Company paid or will pay fees to Apache of (i) $3.0 million for the period beginning on the execution of the COMA at the closing of the Business Combination through December 31, 2019, (ii) $5.0 million for the period of January 1, 2020 through December 31, 2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021 and (iv) $9.0 million annually thereafter, adjusted based on actual internal overhead and general and administrative costs incurred, until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for indirect costs of performing administrative corporate functions for the Company, including services for information technology, risk management, corporate planning, accounting, cash management, and others.
In addition, Apache may be reimbursed for certain internal costs and third-party costs incurred in connection with its role as service provider under the COMA. Costs incurred by Apache directly associated with midstream activity, where substantially all the services are rendered for Altus Midstream, are charged to Altus Midstream on a monthly basis.


The COMA stipulates that the Company shall provide reimbursement of amounts owing to Apache attributable to differences betweena particular month by no later than the last day of the immediately following month. Unpaid amounts accrue interest until settled.
The COMA will continue to be effective until terminated (i) upon the mutual consent of Altus and Apache, (ii) by either of Altus and Apache, at its option, upon 30 days’ prior written notice in the event Apache or an affiliate no longer owns a direct or indirect interest in at least 50 percent of the voting or other equity securities of Altus, or (iii) by Altus if Apache fails to perform any of its covenants or obligations due to willful misconduct of certain key personnel and such failure has a material adverse financial statements carryingimpact on Altus.
Lease Agreement
Concurrent with the closing of the Business Combination, Altus Midstream entered into an operating lease agreement with Apache (the Lease Agreement) relating to the use of certain office buildings, warehouse and storage facilities located in Reeves County, Texas. Under the terms of the Lease Agreement, Altus Midstream shall pay to Apache on a monthly basis the sum of (i) a base rental charge of $44,500 and (ii) an amount based on Apache’s estimate of the annual costs it expects to incur in connection with the ownership, operation, repair, and/or maintenance of the facilities. The Company incurred total expenses of $0.2 million and $0.3 million for the three months ended June 30, 2020 and 2019, respectively, and $0.4 million and $0.5 million for the six months ended June 30, 2020 and 2019, respectively, in relation to the Lease Agreement, which are included within operations and maintenance expenses. Unpaid amounts accrue interest until settled. The initial term of the Lease Agreement is four years and may be extended by Altus Midstream for 3 additional, consecutive periods of twenty-four months.
3.    REVENUE RECOGNITION
Revenue Recognition
The following table presents a disaggregation of the Company’s midstream services revenue by service type.
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
MIDSTREAM SERVICES REVENUE — AFFILIATE:       
Gas gathering and compression$4,394
 $2,697
 $10,114
 $6,310
Gas processing23,184
 18,395
 53,080
 43,679
Transmission3,226
 2,977
 7,401
 7,831
NGL transmission587
 70
 1,413
 165
Other225
 —
 375
 —
 $31,616
 $24,139
 $72,383
 $57,985

The Company generates revenue from its contracts with customers for the gathering, compression, processing, and transmission of natural gas and NGLs in exchange for a fee per unit of volumes processed during a given month. For all periods presented, revenues with affiliates recorded on the Company’s consolidated statement of operations were attributable to services performed by Altus Midstream for Apache pursuant to separate long-term commercial midstream agreements comprising acreage dedications in Apache’s entire Alpine High resource play.
As part of these agreements, substantially all of Apache’s natural gas production from its existing assets and liabilitiesfuture owned or controlled properties within the dedicated area is provided to the Company, so long as Apache has the right to market such product. There are no provisions for minimum volume commitments under the existing agreements, and their respective tax bases. Deferred tax assetsthe Company does not own or take title to the volumes it services under these agreements. Altus Midstream, in return for its performance, receives a fee per unit of natural gas or NGLs received during a given month. The service fee charged per unit is set forth for each contract year, subject to yearly fee escalation recalculations.


Providing the related service on each volumetric unit represents a single, distinct performance obligation that is satisfied over time as services are rendered. As the amount of volumes serviced are not subject to minimum commitments and liabilities areeach midstream service agreement contains provisions for fee recalculations, substantially all of the transaction price is variable at inception of each contract term. Revenue is measured using enacted tax rates expected to apply to taxable incomethe output method based on the amount of volumes serviced each month and the applicable service fee and recognized over time in the yearsamount to which Altus Midstream has the right to invoice, as performance completed to date corresponds directly with the value to its customers. The transaction price is not constrained as variability is resolved prior to the recognition of revenue.
Payment under the midstream service agreements are due the month immediately following the month of service. Amounts settled with Apache each month are based on the net amount owed to Altus Midstream or owed to Apache. Revenue receivables from the Company’s contracts with Apache totaled $13.6 million and $15.5 million as of June 30, 2020 and December 31, 2019, respectively, as presented on the Company’s consolidated balance sheet.
In accordance with the provisions of ASC Topic 606, “Revenue from Contracts with Customers,” a variable transaction price for each short-term sale is allocated to each performance obligation as the terms of payment relate specifically to the Company’s efforts to satisfy its obligations. As such, the Company has elected the practical expedients available under the standard to not disclose the aggregate transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations as of the end of the reporting period.
4.    PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at carrying value, is as follows:
  June 30, December 31,
  2020 2019
     
  (In thousands)
Gathering, processing and transmission systems and facilities $210,738
 $198,133
Construction in progress(1)
 328
 5,443
Other property and equipment 3,323
 3,694
Total property, plant and equipment 214,389
 207,270
Less: accumulated depreciation and amortization (7,085) (1,468)
Total property, plant and equipment, net $207,304
 $205,802
(1)
Included in construction in progress was capitalized interest of $0.6 million at December 31, 2019. There was 0 capitalized interest included in construction in progress as of June 30, 2020.

The cost of property classified as “Construction in which those temporary differencesprogress” is excluded from capitalized costs being depreciated. These amounts represent property that is not yet available to be placed into productive service as of the respective balance sheet date.
Property, plant, and equipment are evaluated for potential impairment when events or changes in circumstances indicate a possible significant deterioration in future cash flows expected to be recoveredgenerated by an asset group. In conjunction with Apache’s decision in the fourth quarter of 2019 to materially reduce funding to Alpine High, Altus management assessed its long-lived infrastructure assets for impairment given the expected reduction to future throughput volumes. As a result of this assessment, Altus recorded impairments totaling $1.3 billion on its gathering, processing, and transmission assets in the fourth quarter of 2019. The fair values of the impaired assets were determined to be $203.6 million as of the time of the impairment and were estimated using the income approach. Altus has classified these nonrecurring fair value measurements as Level 3 in the fair value hierarchy. NaN impairments were recorded for the six months ended June 30, 2020 and 2019.
5.    DEBT AND FINANCING COSTS
In November 2018, Altus Midstream entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream’s 2, one year extension options). The agreement for this revolving credit facility, as amended (the Amended Credit Agreement), provides aggregate commitments from a syndicate of banks of $800.0 million. The aggregate commitments include a letter of credit subfacility of up to $100.0 million and a swingline loan subfacility of up to $100.0 million. Altus Midstream may increase commitments up to an aggregate $1.5 billion by adding new lenders or settled.obtaining the consent of any increasing existing lenders. As of June 30, 2020 and December 31, 2019, total outstanding borrowings were $493.0 million and $396.0 million, respectively, and 0 letters of credit were outstanding under this facility.


Altus Midstream’s revolving credit facility is unsecured and is not guaranteed by the Company, Apache, or any of their respective subsidiaries.
At Altus Midstream’s option, the interest rate per annum for borrowings under this facility is either a base rate, as defined, plus a margin, or the London Interbank Offered Rate (LIBOR), plus a margin. Altus Midstream also pays quarterly a facility fee at a rate per annum on total commitments. The margins and the facility fee vary based upon (i) the Leverage Ratio (as defined below) until Altus Midstream has a senior long-term debt rating and (ii) such senior long-term debt rating once it exists. The Leverage Ratio is the ratio of (1) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (2) EBITDA (as defined in the Amended Credit Agreement) of Altus Midstream and its restricted subsidiaries for the 12-month period ending immediately before the determination date. At June 30, 2020, the base rate margin was 0.05 percent, the LIBOR margin was 1.05 percent, and the facility fee was 0.20 percent. In addition, a commission is payable quarterly to the lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks.
The Amended Credit Agreement contains restrictive covenants that may limit the ability of Altus Midstream and its restricted subsidiaries to, among other things, incur additional indebtedness or guaranty indebtedness, sell assets, make investments in unrestricted subsidiaries, enter into mergers, make certain payments and distributions, incur liens on certain property securing indebtedness, and engage in certain other transactions without the prior consent of the lenders. Altus Midstream also is subject to a financial covenant under the Amended Credit Agreement, which requires it to maintain a Leverage Ratio not exceeding 5.00:1.00 at the end of any fiscal quarter, starting with the quarter ended December 31, 2019 except that during the period of up to one year following a qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of any fiscal quarter. Unless the Leverage Ratio is less than or equal to 4.00:1.00, the Amended Credit Agreement limits distributions in respect of Altus Midstream LP’s capital to $30 million per calendar year until either (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the Amended Credit Agreement, for three consecutive calendar months equals or exceeds $350.0 million on an annualized basis or (ii) Altus Midstream LP has a specified senior long-term debt rating; in addition, before the occurrence of one of those events, the Leverage Ratio must be less than or equal to 5.00:1.00. In no event can any distribution be made that would, after giving effect to it on deferred tax assetsa pro forma basis, result in a Leverage Ratio greater than (i) 5.00:1.00 or (ii) for a specified period after a qualifying acquisition, 5.50:1.00. The Leverage Ratio as of June 30, 2020 was less than 4.00:1.00.
The terms of Altus Midstream’s Preferred Units also contain certain restrictions on distributions on Altus Midstream LP’s Common Units, including the Common Units held by the Company, and liabilitiesany other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further information. In addition, the amount of any cash distributions to Altus Midstream LP by any entity in which it has an interest accounted for by the equity method is subject to such entity’s compliance with the terms of any debt or other agreements by which it may be bound, which in turn may impact the amount of funds available for distribution by Altus Midstream LP to its partners.
There are no clauses in the Amended Credit Agreement that permit the lenders to accelerate payments or refuse to lend based on unspecified material adverse changes. The Amended Credit Agreement has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. However, the agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other breaches, and if Altus Midstream or any of its restricted subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and terminate lending and issuance commitments if Altus Midstream undergoes a specified change in tax rates is recognizedcontrol or has specified pension plan liabilities in incomeexcess of the stated threshold. Altus Midstream was in compliance with the terms of the Amended Credit Agreement as of June 30, 2020.
As of June 30, 2020 and December 31, 2019, the Company had debt outstanding totaling $493.0 million and $405.8 million, respectively. At December 31, 2019, $9.8 million of debt outstanding was related to a finance lease obligation for which the term ended in the periodfirst quarter of 2020.


Interest Income and Financing Costs, Net of Capitalized Interest
The following table presents the components of Altus Midstream’s interest income and financing costs, net of capitalized interest:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
Interest income$2
 $806
 $9
 $2,967
Interest income$2
 $806
 $9
 $2,967
        
Interest expense$2,007
 $1,030
 $5,365
 $1,739
Amortization of deferred facility fees292
 221
 565
 415
Capitalized interest(2,007) (773) (5,365) (1,168)
Financing costs, net of capitalized interest$292
 $478
 $565
 $986

6.    OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities at June 30, 2020 and December 31, 2019:
  June 30, December 31,
  2020 2019
     

 (In thousands)
Accrued taxes other than income $6,974
 $689
Accrued operations and maintenance expense 1,339
 1,520
Accrued incentive compensation 733
 1,425
Accrued professional and consulting fees 692
 158
Accrued capital costs 686
 17,035
Accrued finance lease liability —
 1,989
Other 1,517
 1,109
Total other current liabilities $11,941
 $23,925

7.    COMMITMENTS AND CONTINGENCIES

Accruals for loss contingencies arising from claims, assessments, litigation, environmental, and other sources are recorded when it is probable that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets toa liability has been incurred and the amount expected tocan be realized.

FASB ASC 740 prescribes a recognition thresholdreasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. As of June 30, 2020 and a measurement attributeDecember 31, 2019, there were 0 accruals for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2017. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. loss contingencies.

Litigation
The Company is subject to income tax examinationsgovernmental and regulatory controls arising in the ordinary course of business. The Company is not aware of any pending or threatened legal proceedings against it at the time of the filing of this Quarterly Report on Form 10-Q.
On April 30, 2020, a case styled Sierra Club v. US Army Corp of Engineers et al. was filedin the United States District Court, Western District of Texas. Plaintiff seeks to invalidate verifications issued by major taxing authorities since inception.

During the threeArmy Corps of Engineers allowing Permian Highway Pipeline LLC to conduct dredging and nine months ended September 30, 2017,filling activities and to enjoin certain further dredging and other ground disturbing activities in jurisdictional waters. Permian Highway Pipeline LLC has intervened in the suit in defense of the verifications and in opposition to any injunctive relief. The Company has a minority equity interest in Permian Highway Pipeline LLC.



Environmental Matters
As an owner of infrastructure assets and with rights to surface lands, the Company recorded income tax expenseis subject to various local and federal laws and regulations relating to discharge of $256,345materials into, and $426,694, respectively. Untilprotection of, the environment. These laws and regulations may, among other things, impose liability on the Company completes an Initialfor the cost of pollution clean-up resulting from operations and subject the Company to liability for pollution damages. In some instances, Altus Midstream may be directed to suspend or cease operations. The Company maintains insurance coverage, which management believes is customary in the industry, although insurance does not fully cover against all environmental risks. Additionally, there can be no assurance that current regulatory requirements will not change or past non-compliance with environmental laws will not be discovered. The Company is not aware of any environmental claims existing as of June 30, 2020, that have not been provided for or would otherwise have a material impact on its financial position, results of operations, or liquidity.
Contractual Obligations
Altus Midstream’s existing fee-based midstream services agreements, which have no minimum volume commitments or firm transportation commitments, are underpinned by acreage dedications covering Alpine High. Pursuant to these agreements, Altus Midstream is obligated to perform low and high pressure gathering, processing, dehydration, compression, treating, conditioning, and transportation on all volumes produced from the dedicated acreage, so long as Apache has the right to market such gas.

At the closing of the Business Combination, its general and administrative expenses will be deferred for tax purposes but any interest income on the Trust Account net of franchise taxes will result in taxable income. During the three months ended September 30, 2017, the Company made an estimated federal income tax paymententered into the COMA and the Lease Agreement with Apache, which include contractual obligations for the Company to pay certain management and lease rental fees, respectively, to Apache over the term of $391,000 resultingthe agreements. Refer to Note 2—Transactions with Affiliates for further discussion.

In the second quarter of 2019, Altus Midstream issued and sold the Preferred Units. Under the terms of the Amended LPA, the Preferred Unit holders are entitled to receive quarterly distributions until such time as the Preferred Units are redeemed or exchanged. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further discussion regarding the terms of the Preferred Units and the rights of the holders thereof.

Additionally, the Company is required to fund its pro-rata portion of any future capital expenditures for the development of the pipeline projects as referenced in an income tax liabilityNote 8—Equity Method Interests.
At June 30, 2020 and December 31, 2019, there were no other material contractual obligations related to the entities included in the consolidated financial statements other than the performance of $35,694.

Current Tax Liability

  $(35,694) 

Deferred Tax Asset:

  

Deferred general and administrative expenses

  $455,906 

Valuation allowance

   (455,906) 
  

 

 

 

Deferred Tax Asset, net

  $—   

At Septemberasset retirement obligations and required credit facility fees discussed in Note 5—Debt and Financing Costs.



8.    EQUITY METHOD INTERESTS
As of June 30, 2017,2020, the Company owned the following equity method interests in Permian Basin long-haul pipeline entities. For each of the equity method interests, the Company has $1,340,902 of deferred generalthe ability to exercise significant influence based on certain governance provisions and administrative expenses resultingits participation in a deferred tax asset of $455,906. Management has determinedthe significant activities and decisions that a full valuation allowance onimpact the deferred tax asset is appropriate at this time after consideration of all available positivemanagement and negative evidence related to the realizationeconomic performance of the deferred tax asset.

equity method interests. The table below presents the ownership percentage held by the Company for each entity:

   June 30, 2020 December 31, 2019
 Ownership Amount Amount
      
   (In thousands)
Gulf Coast Express Pipeline LLC16.0% $286,833
 $291,628
EPIC Crude Holdings, LP15.0% 175,051
 163,199
Permian Highway Pipeline LLC26.7% 454,381
 310,421
Breviloba, LLC33.0% 492,214
 492,800
   $1,408,479
 $1,258,048

As of June 30, 2020 and December 31, 2019, unamortized basis differences included in the equity method interest balances were $34.7 million and $29.7 million, respectively. These amounts represent differences in the Company’s federal statutory income tax rate is 34%contributions to date and the effective tax rateCompany’s underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into net income over the useful lives of the underlying pipeline assets when they are placed into service.
The following table presents the activity in the Company’s equity method interests for the three and ninesix months ended SeptemberJune 30, 2017 was 54% and -497% which is a result of the full valuation allowance against its deferred tax asset. 2020:
 Gulf Coast Express Pipeline LLC EPIC Crude Holdings, LP Permian Highway Pipeline LLC Breviloba, LLC  
     Total
          
 (In thousands)
Balance at December 31, 2019$291,628
 $163,199
 $310,421
 $492,800
 $1,258,048
Contributions919
 15,000
 138,467
 —
 154,386
Distributions(26,171) —
 —
 (15,576) (41,747)
Capitalized interest(1)
—
 —
 5,365
 —
 5,365
Equity income (loss), net(2)
20,457
 (2,354) 128
 14,990
 33,221
Accumulated other comprehensive loss—
 (794) —
 —
 (794)
Balance at June 30, 2020$286,833
 $175,051
 $454,381
 $492,214
 $1,408,479

(1)Altus’ proportionate share of the Permian Highway Pipeline (PHP) construction costs is funded with the revolving credit facility. Accordingly, Altus capitalized $5.4 million of related interest expense during the six months ended June 30, 2020, which is included in the basis of the PHP equity interest.
(2)As of June 30, 2020, the amount of consolidated retained earnings, net of amortized basis differences, which represents undistributed earnings, was $3.0 million from Breviloba, LLC.


Summarized Financial Information
The totalfollowing table represents aggregated selected income taxes were different from the amount computed by applying the federal statutory income tax rate of 34% to income before income taxes as follows:

   Three Months
Ended
September 30,
2017		  Nine Months
Ended
September 30,
2017		 

Computed federal income tax benefit (expense) at 34%

  $(162,181)  $29,212 

Deferred general and administrative (expenses)

   (94,164)   (455,906) 
  

 

 

  

 

 

 

Total income tax (expense)

  $(256,345)  $(426,694) 
  

 

 

  

 

 

 

Recent Accounting Pronouncements

The Company’s management does not believe any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect onstatement data for the Company’s financial statements.

Note 3—Public Offering

In April 2017,equity method interests (on a 100 percent basis):

  Six Months Ended June 30,
  2020 
2019(1)
  Gulf Coast Express Pipeline LLC EPIC Crude Holdings, LP Permian Highway Pipeline LLC Breviloba, LLC Gulf Coast Express Pipeline LLC EPIC Crude Holdings, LP Permian Highway Pipeline LLC Breviloba, LLC
         
                 
  (In thousands)
Revenues $182,231
 $85,971
 $—
 $83,120
 $4,974
 $—
 $—
 $46,928
Operating expenses 53,359
 83,508
 46
 31,831
 512
 7,728
 35
 14,744
Operating income (loss) 128,872
 2,463
 (46) 51,289
 4,462
 (7,728) (35) 32,184
Net income (loss) 128,470
 (16,263) 480
 46,345
 5,382
 (16,653) 422
 32,184
Other comprehensive loss —
 (5,037) —
 —
 —
 (9,337) —
  

(1)Although the Company’s interests in EPIC Crude Holdings, LP, Permian Highway Pipeline LLC, and Breviloba, LLC were acquired in March, May, and July of 2019, respectively, the financial results are presented for the six months ended June 30, 2019 for comparability.
9. EQUITY
Reverse Stock Split
On June 30, 2020, the Company closed its Public Offering of 37,732,112 units ateffected a price of $10.00 per unit (the “Units”), with gross proceeds of $377,321,120 from the sale of Units. The closings occurred on April 4, 2017 with respect to 35,000,000 Units and on April 21, 2017 with respect to 2,732,112 Units related to the partial exercise of the underwriters’ over-allotment option.

Each Unit consists of one sharereverse stock split of the Company’s Class A Common Stock andone-third of one warrant (each, a “Warrant” and, collectively, the “Warrants”). Each whole Warrant entitles the holder to purchase one share of Class AC Common Stock atby a priceratio of $11.50 per share. Each Warrant will become exercisable onone-for-20. The par value and number of authorized shares of common stock and preferred stock were not affected by the laterreverse stock split. A corresponding number of 30 days after the completionAltus Midstream Common Units were also restated as part of the Company’s Initial Business Combination or 12 months fromreverse stock split. All per-share and share amounts have been retroactively restated in this Quarterly Report on Form 10-Q for all periods presented to reflect the closingreverse stock split.

Redeemable Noncontrolling Interest — Apache Limited Partner
In conjunction with the Class C Common Stock, Apache owns 12,500,000 Altus Midstream Common Units, approximately 76.9 percent of the Public Offering,total Common Units issued and will expire five years afteroutstanding. The financial results of Altus Midstream and its subsidiaries are included in the completionCompany’s consolidated financial statements as detailed in Note 1—Summary of Significant Accounting Policies, under the section titled “Principles of Consolidation.”
Apache has the right, at any time, to cause Altus Midstream to redeem all or a portion of the Company’s Initial Business Combination or earlier upon redemption or liquidation. Once the Warrants become exercisable, the Company may redeem the outstanding WarrantsCommon Units issued to Apache, in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale priceexchange for shares of the Company’s Class A Common Stock equalson a 1-for-one basis or, exceeds $18.00 per shareat Altus Midstream’s option, an equivalent amount of cash; provided that the Company may, at its option, effect a direct exchange of cash or Class A Common Stock for any 20 trading days withinsuch Common Units in lieu of such a30-trading day period ending redemption by Altus Midstream. Upon the future redemption or exchange of Common Units held by Apache, a corresponding number of shares of Class C Common Stock held by Apache will be cancelled.
Apache’s limited partner interest associated with the Common Units issued with the Class C Common Stock is reflected as a redeemable noncontrolling interest in the Company. The redeemable noncontrolling interest is recognized at the higher of (i) its initial fair value plus accumulated earnings/losses associated with the noncontrolling interest and (ii) the maximum redemption value as of the balance sheet date. The redemption value is determined based on a 5-day volume weighted average closing price of the Class A Common Stock (5-day VWAP) as defined in the Amended LPA, a Level 1 non-recurring fair value measurement. At June 30, 2020, the redeemable noncontrolling interest of $230.6 million was recorded based on the third trading day priorinitial fair value plus accumulated earnings and losses to date. The maximum redemption value at June 30, 2020 based on the date5-day VWAP was $151 million. At December 31, 2019, the redeemable noncontrolling interest was recorded at the maximum redemption value based on which the Company sent the notice5-day VWAP of redemption$701.0 million.
For further discussion of Apache’s right to the Warrant holders.

Commencing on April 27, 2017, the holders of Units issued in its Public Offering may elect to separately tradereceive additional shares of Class A Common Stock, and Warrants included in the Units. The Units not separated will continue to trade on The Nasdaq Capital Market under the symbol “KAACU.” Shares of Class A Common Stockother outstanding equity instruments that may impact ownership interests and the Warrants are trading onlimited partner interests of Altus Midstream in future periods, see Note 12—Net Income (Loss) Per Share.



Redeemable Noncontrolling Interest — Preferred Unit Limited Partners
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering, and the purchasers of the Preferred Units were admitted as limited partners of Altus Midstream. The Nasdaq Capital Market under the symbols “KAAC” and “KAACW,” respectively. No fractional warrantsPreferred Units will be issued upon separationexchangeable for shares of the Units and only whole Warrants will trade.

The Company paid an underwriting discount of 2.0% of the per Unit offering price (or $7,546,422) to the underwriters at the closing of the Public Offering, with an additional fee (the “Deferred Discount”) of 3.5% of the gross offering proceeds (or $13,206,239) payable upon the Company’s completion of an Initial Business Combination. The Deferred Discount will become payable to the underwriters from the amounts held in the Trust Account solely in the event the Company completes its Initial Business Combination.

The Company granted the underwriters a45-day option to purchase up to 5,250,000 additional Units to cover over-allotments, if any (“Over-Allotment Units”) at the initial public offering price less the underwriting discounts and commissions. The 2,732,112 Units issued in connection with the over-allotment option are identical to the Units issued in the Public Offering.

Note 4—Related Party Transactions

Founder Shares

During December 2016, the Sponsor purchased 10,062,500 shares of Class B Common Stock (the “Founder Shares”) for an aggregate price of $25,000, or approximately $0.002 per share. During the nine months ended September 30, 2017, the Sponsor transferred 40,000 Founder Shares to each of the Company’s three independent directors (or an aggregate of 120,000 Founder Shares) at their original purchase price. As used herein, unless the context otherwise requires, Founder Shares shall be deemed to include the shares of Class A Common Stock issuable upon conversion thereof. The Founder Shares are identical to the Class A common stock included in the Units sold in the Public Offering except that the Founder Shares automatically convert into shares of Class A Common Stock at the timeoption of the Preferred Unit holders after the seventh anniversary of Closing (as defined below) or upon the occurrence of specified events, unless otherwise redeemed by Altus Midstream. Refer to Note 10—Series A Cumulative Redeemable Preferred Units for further discussion.

10.    SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Closing). The Closing occurred pursuant to a Preferred Unit Purchase Agreement among Altus Midstream, the Company, and the purchasers party thereto, dated as of May 8, 2019. A total of 625,000 Preferred Units were sold at a price of $1,000 per Preferred Unit, for an aggregate issue price of $625.0 million. Altus Midstream received approximately $611.2 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers.
Accounting for the Preferred Units
Classification
The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of the Preferred Units, including the redemption rights with respect thereto.
Initial Business CombinationMeasurement
The net transaction price as shown below was based on the negotiated transaction price, less issue discounts and transaction costs.
  June 12, 2019
  (In thousands)
Transaction price, gross $625,000
Issue discount (3,675)
Transaction costs to other third parties (10,076)
Transaction price, net $611,249
Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. As such, the net transaction price shown in the table above was allocated to the preferred redeemable noncontrolling interest and the embedded features according to the associated initial fair value measurements as follows:
  June 12, 2019
  (In thousands)
Redeemable noncontrolling interest - Preferred Units $516,790
Long-term liability: Embedded derivative(1)
 94,459
  $611,249
(1)
See Note 13—Fair Value Measurements for further discussion on the nature and recognition of the embedded derivative.
Subsequent Measurement
The Company applies a two-step approach to subsequently measure the redeemable noncontrolling interest related to the Preferred Units, by first allocating a portion of the net income of Altus Midstream in accordance with the terms of the Amended LPA described above.


After consideration of the foregoing, the Company records an additional adjustment to the carrying value of the Preferred Unit redeemable noncontrolling interest at each period end, if applicable. The amount of such adjustment is determined based upon the accreted value method to reflect the passage of time until the Preferred Units are exchangeable at the option of the holder. Pursuant to this method, the net transaction price is accreted using the effective interest method, to the Redemption Price calculated at the seventh anniversary of Closing. The total adjustment is limited to an amount such that the carrying amount of the Preferred Unit redeemable noncontrolling interest at each period end is equal to the greater of (a) the sum of (i) the carrying amount of the Preferred Units determined in accordance with ASC 810, plus (ii) the fair value of the embedded derivative liability and (b) the accreted value of the net transaction price.
Activity related to the Preferred Units during the six months ended June 30, 2020 is as follows:
  Six Months Ended June 30, 2020
  Units Outstanding 
Financial Position(2)
  (In thousands, except for unit data)
Redeemable noncontrolling interest — Preferred Units: at December 31, 2019 638,163
 $555,599
Distribution of in-kind additional Preferred Units 22,531
 —
Allocation of Altus Midstream net income N/A
 37,026
Redeemable noncontrolling interest — Preferred Units: at June 30, 2020 660,694
 $592,625
Embedded derivative liability(1)
   175,498
    $768,123

(1)
See Note 13—Fair Value Measurements for discussion of the fair value changes in the embedded derivative liability during the period.
(2)As of June 30, 2020, the aggregate Redemption Price was $700.8 million, based on an internal rate of return of 11.5 percent.
N/A - not applicable.
11. INCOME TAXES
The Company is subject to certain transfer restrictions,U.S. federal income tax and the Texas margin tax. Altus Midstream LP is a partnership for federal income tax purposes and passes through its taxable income to its partners, the Company, Apache, and the Preferred Unit Holders. Thus, Altus Midstream LP does not record a federal income tax provision. Altus Midstream LP is subject to the Texas margin tax and as describedsuch, records a state income tax provision.
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in more detail below. Holdersresponse to the COVID-19 pandemic. Under the CARES Act, 100 percent of Founder Sharesnet operating losses arising in tax years beginning after December 31, 2017, and before January 1, 2021 may also electbe carried back to convert their shareseach of the five preceding tax years of such loss. In the first quarter of 2020, the Company recorded a current income tax benefit of $0.7 million associated with a net operating loss carryback claim.
During the three and six months ended June 30, 2020, the Company’s effective income tax rate was primarily impacted by an increase in valuation allowance. During the three and six months ended June 30, 2019, the Company’s effective income tax rate was primarily impacted by net income attributable to the noncontrolling interest, income allocated to the Preferred Unit holders, accretion of the net transaction price, and the impact of state income taxes.
In the first quarter of 2020, the Company early adopted ASU 2019-12, “Simplifying the Accounting for Income Taxes.” The Company’s early adoption of ASU 2019-12 during the quarter ended March 31, 2020 using the prospective transition approach did not result in a material impact on the consolidated financial statements.

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. Each quarter, the Company assesses the recognition amount and, as a result, may increase (expense) or reduce (benefit) the amount of interest and penalties. Interest and penalties are recorded as a component of income tax expense. The contributor of Altus Midstream’s operating assets, Apache, is currently under IRS audit for the 2014-2017 tax years as part of its normal course of business.


12.    NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss available to Class B Common Stock into an equalA common shareholders by the weighted average number of shares of Class A Common Stock subject to adjustment as provided above, at any time. Prior tooutstanding during the Public Offering, the Sponsor agreed to forfeit up to 1,312,500 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriters. The forfeiture was to be adjusted to the extent that the over-allotment option was not exercised in full by the underwriters so that the Founder Shares would represent 20.0% of the Company’s issued and outstanding shares after the Public Offering. On April 21, 2017, as a result of the partial exercise of the over-allotment option, the Sponsor forfeited 629,472 of its Founder Shares.

The Company’s initial stockholders agreed subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination, (x) if the last sale price of the Company’speriod. Class AC Common Stock equals or exceeds $12.00is excluded from the weighted average shares outstanding immediately following the Closing Date for the calculation of basic net loss per share, (as adjusted for stock splits, stockas holders of Class C Common Stock are not entitled to any dividends reorganizations, recapitalizations andor liquidating distributions.

The Company uses the like) for any 20 trading days within any30-trading day period commencing at least 150 days after“if-converted method” to determine the Initial Business Combination, or (y)potential dilutive effect of (i) an assumed exchange of outstanding Common Units of Altus Midstream (and the date on which the Company completescancellation of a liquidation, merger, stock exchange or other similar transaction that results in allcorresponding number of the Company’s stockholders having the right to exchange their shares of common stockoutstanding Class C Common Stock) for cash, securities or other property.

Private Placement Warrants

Upon the closing of the Public Offering on April 4, 2017 and April 21, 2017, the Sponsor purchased an aggregate of 6,364,281 warrants at a price of $1.50 per warrant in a private placement (the “Private Placement Warrants”) (includes 364,281 warrants related to the Over-Allotment Units exercised) at a price of $1.50 per whole warrant ($9,546,422 in the aggregate) in a private placement. Each whole Private Placement Warrant is exercisable for one whole share of the Company’s Class A Common Stock at a price of $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering to be held in the Trust Account. If the Initial Business Combination is not completed within 24 months from the closing of the Public Offering, the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless. The Private Placement Warrants will benon-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.

The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the Initial Business Combination.

Registration Rights

The holders of Founder Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans, if any, are entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A Common Stock) pursuant to a registration rights agreement. These holders will be entitled to certain demand and “piggyback” registration rights.

The holders of Founder Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans will not be able to sell these securities until the termination of the applicablelock-up period for the securities to be registered. The Company will bear the expenses incurredStock, (ii) earn-out consideration payable in connection with the filing of any such registration statements.

Related Party Loans

On December 23, 2016, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Public Offering pursuant to a promissory note (the “Note”). On April 4, 2017, upon completion of the Public Offering, the Company paid in full the aggregate $265,000 of borrowings under the Note.

Administrative Support Agreement

The Company has agreed to pay an affiliate of the Sponsor a total of $5,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Initial Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. The Company paid the affiliate of the Sponsor $15,000 and $30,000 for such services for the three and nine months ended September 30, 2017, respectively.

Note 5—Stockholders’ Equity

Common Stock

The authorized common stock of the Company includes up to 200,000,000 shares of Class A Common Stock, and 20,000,000(iii) an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Class BA Common Stock. IfThe treasury stock method is used to determine the potential dilutive effect of its outstanding warrants.

The computation of basic and diluted net loss per share for the periods presented in the consolidated financial statements is shown in the tables below.
 Three Months Ended June 30,
 2020 2019
 Loss 
Shares(1)
 
Per Share(1)
 Loss 
Shares(1)
 
Per Share(1)
            
 (In thousands, except per share data)
Basic and diluted:           
Net loss attributable to Class A common shareholders$(255) 3,746
 $(0.07) $(2,293) 3,746
 $(0.61)
Effect of dilutive securities:           
Redeemable noncontrolling interest — Apache limited partner$—
 —
   $—
 —
  
Diluted(2):
           
Net loss attributable to Class A common shareholders$(255) 3,746
 $(0.07) $(2,293) 3,746
 $(0.61)
 Six Months Ended June 30,
 2020 2019
 Loss 
Shares(1)
 
Per Share(1)
 Loss 
Shares(1)
 
Per Share(1)
            
 (In thousands, except per share data)
Basic:           
Net loss attributable to Class A common shareholders$(10,108) 3,746
 $(2.70) $(1,193) 3,746
 $(0.32)
Effect of dilutive securities:           
Redeemable noncontrolling interest — Apache limited partner$(36,048) 12,500
   $—
 —
 

Diluted(2):
           
Net loss attributable to Class A common shareholders$(46,156) 16,246
 $(2.84) $(1,193) 3,746
 $(0.32)
(1)
Share and per share amounts have been retroactively restated to reflect the Company’s reverse stock split which was effected June 30, 2020. Refer to Note 9—Equity for further information.
(2)The effect of the exchange of outstanding Common Units of Altus Midstream (and the cancellation of a corresponding number of shares of outstanding Class C Common Stock) would have been anti-dilutive for the three month periods ended June 30, 2020 and 2019, and also for the six month period ended June 30, 2019.
The diluted earnings per share calculation excludes the effects of the following, since the associated impacts would have been anti-dilutive for all relevant periods presented:
an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Class A Common Stock; and
outstanding warrants of the Company enters intoto purchase an Initial Business Combination, it may (depending onaggregate 947,082 shares of Class A Common Stock.
Further discussion of the terms of such an Initial Business Combination)Preferred Units and associated embedded features can be requiredfound in Note 10—Series A Cumulative Redeemable Preferred Units and Note 13—Fair Value Measurements, respectively. Earn-out consideration granting Apache the right to increase the number ofreceive additional shares of Class A Common Stock whichis not included in the Company is authorized to issue at the same timeearnings per share calculation above, as the conditions for issuance were not satisfied as of June 30, 2020.


13. FAIR VALUE MEASUREMENTS
The Company’s stockholders vote on the Initial Business Combination, to the extent the Company seeks stockholder approval in connection with the Initial Business Combination. Holders of the Company’s common stock are entitled to one vote for each share of common stock. At September 30, 2017, there were 37,732,112 shares of Class A Common Stock issuedfinancial assets and outstanding, including 35,994,404 shares which are subject to redemptionliabilities measured at that date. At September 30, 2017 and December 31, 2016, there were 9,433,028 and 10,062,500 shares of Class B Common Stock issued and outstanding, respectively.

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September 30, 2017 and December 31, 2016, there were no shares of preferred stock issued or outstanding.

Note 6—Fair Value Measurements

The following table presents information about the Company’s assets that are measuredfair value on a recurring basis asconsist of: cash and cash equivalents; revenue receivables; accounts receivable from/payable to Apache; and an embedded derivative liability related to the issuance of September 30, 2017Preferred Units (as further described above). This embedded derivative liability is recorded on the Company’s consolidated balance sheet at fair value. The carrying amount of Altus Midstream’s revolving credit facility approximates fair value because the interest rate is variable and indicatesreflective of market rates. The carrying amounts reported on the consolidated balance sheet for the Company’s remaining financial assets and liabilities approximate fair value due to their short-term nature. There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 2020 or year ended December 31, 2019.

The Company bifurcated and recognized the embedded derivative associated with the Preferred Units related to the exchange option provided to the Preferred Unit holders under the terms of the Amended LPA. The valuation techniques thatof the embedded derivative (using an income approach) was based on a range of factors including: expected future interest rates using the Black-Karasinski model, the Company’s imputed interest rate, the timing of periodic cash distributions and dividend yields of the Preferred Units. The Company recorded an unrealized loss of $10.6 million and $72.6 million for the three and six month periods ended June 30, 2020, respectively, which are recorded in “Unrealized derivative instrument loss” in the statement of consolidated operations. Altus has classified these recurring fair value measurements as Level 3 in the fair value hierarchy.
As of the June 30, 2020 valuation date, the Company utilizedused the forward B-rated Energy Bond Yield curve to determine such fair value. In general, fair values determined by Level 1develop the following key unobservable inputs utilize quoted prices (unadjusted)used to value this embedded derivative:
  Quantitative Information About Level 3 Fair Value Measurements
  Fair Value at June 30, 2020 Valuation Technique Significant Unobservable Inputs Range/Value
         
  (In thousands)      
Preferred Units Embedded Derivative $175,498
 Option Model Altus Midstream Company’s Imputed Interest Rate 14.16-15.57%
      Interest Rate Volatility 35.56%


The Company’s comparative imputed interest rate at December 31, 2019 ranged from 9.60 percent to 12.68 percent, with an interest rate volatility assumption of 21.89 percent. A one percent increase in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data pointsthe imputed interest rate assumption would significantly increase the value of the embedded derivative at June 30, 2020, while a one percent decrease would have the directionally inverse affect as of June 30, 2020.
The Company has additional embedded derivatives in the Preferred Units related to the exchange option and redemption features that are observable, such as quoted prices, interest rates and yield curves. Fair values determined byaccounted for separately from the Preferred Units. Level 3 inputsvaluation of the embedded derivatives are unobservable data pointsbased on a range of factors including the likelihood of the event occurring, and these factors are assessed quarterly. There was no value associated with these additional identified embedded derivatives for the asset or liability, and includes situations where there is little, if any market activity for the asset or liability.

Description

  September 30, 2017   Quoted Prices in
Active Markets
(Level 1)		   Significant Other
Observable
Inputs (Level 2)		   Significant Other
Unobservable
Inputs (Level 3)		 

Investments held in Trust Account

  $378,284,003   $378,284,003   $—     $—   
  

 

 

   

 

 

   

 

 

   

 

 

 

applicable period presented.



Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “us” or “we” refer to Kayne Anderson Acquisition Corp.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunctiontogether with the condensedCompany’s consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as the Company’s consolidated financial statements, accompanying notes thereto contained elsewhere in this report.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form10-Q including, without limitation, statements under “Management’sand Management’s Discussion and Analysis of Financial Condition and Results of Operations” regardingOperations included in the Company’s financial position, business strategyAnnual Report on Form 10-K for the fiscal year ended December 31, 2019 (Form 10-K). Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Form 10-K.

Overview
Altus Midstream Company (the Company or Altus), through its ownership interest in Altus Midstream LP (Altus Midstream), owns gas gathering, processing, and transmission assets in the Permian Basin of West Texas, anchored by midstream service agreements to service Apache Corporation’s (Apache) production from its Alpine High resource play and surrounding areas (Alpine High). Additionally, the Company owns equity interests in four Permian Basin pipelines (the Equity Method Interest Pipelines) that have or will have access to various points along the Texas Gulf Coast. The Company’s operations consist of one reportable segment.
The Company has no independent operations or material assets outside its ownership interest in Altus Midstream, which is reported on a consolidated basis. As of June 30, 2020, Altus Midstream’s assets included approximately 182 miles of in-service natural gas gathering pipelines, approximately 46 miles of residue gas pipelines with four market connections, and approximately 38 miles of NGL pipelines. Three cryogenic processing trains, each with nameplate capacity of 200 MMcf/d, were placed into service during 2019. Other assets include an NGL truck loading terminal with six Lease Automatic Custody Transfer units and eight NGL bullet tanks with 90,000 gallon capacity per tank. The Company’s existing gathering, processing, and transmission infrastructure is expected to provide capacity levels capable of fulfilling its midstream contracts to service Apache’s production from Alpine High and potential third-party customers.
As of June 30, 2020, the Company owns the following Equity Method Interest Pipelines:
a 16 percent equity interest in the Gulf Coast Express Pipeline Project (GCX), which is owned and operated by Kinder Morgan Texas Pipeline, LLC (Kinder Morgan);
a 15 percent equity interest in the EPIC crude oil pipeline (EPIC), which is owned by EPIC Pipeline LP and operated by EPIC Consolidated Operations, LLC;
an approximate 26.7 percent equity interest in the Permian Highway Pipeline (PHP), which is also owned and operated by Kinder Morgan; and
a 33 percent equity interest in the Shin Oak NGL Pipeline (Shin Oak), which is owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC.
The global economy and the plansenergy industry have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and objectivesrelated governmental actions. Uncertainty in the oil markets and the negative demand implications of the COVID-19 pandemic continue to impact oil supply and demand. Altus management forcontinues to monitor natural gas throughput volumes from Apache and capacity utilization of its equity method interests. The Company remains focused on increasing third-party processing opportunities in addition to Alpine High; however, the current market situation has slowed the pace of this activity. Altus has no upcoming debt maturities, and the credit facility revolver extends through November of 2023 to provide liquidity to meet foreseeable investment needs. Additionally, the Company expects to be cash flow positive upon the start-up of PHP anticipated in early 2021, at which point future capital requirements are expected to be minimal.
The current crisis, however, is still evolving and may become more severe and complex. As a result, the COVID-19 pandemic may still materially and adversely affect Altus’ results in a manner that is either not currently known or that the Company does not currently consider to be a significant risk to its business. For additional information about the business risks relating to the COVID-19 pandemic, please refer to Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q.



Altus Midstream Operational Metrics
The Company uses a variety of financial and operational metrics to assess the performance of its operations and growth compared to expected plan estimates. These metrics include:
Throughput volumes and associated revenues;
Costs and expenses; and
Adjusted EBITDA (as defined below).
Throughput Volumes and Associated Revenues
The Company’s results are forward-looking statements. When useddriven primarily by the volume of natural gas gathered, processed, compressed, and/or transmitted. For the periods presented, substantially all revenues were generated through fee-based agreements with Apache, a related party. The volumes of natural gas that Altus gathers or processes in this Form10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are basedfuture periods will depend on the beliefsproduction level of management, as well as assumptions madeApache’s assets in areas Altus services and any additional third-party service contracts. The Company’s assets were initially constructed to serve Apache’s anticipated development of Alpine High and its surrounding areas. As such, the amount and pace of upstream development activity by Apache will directly impact Altus’ aggregate gathering and information currently availableprocessing volumes because the production rate of natural gas wells declines over time.
In the second quarter of 2020, several events had a negative impact on throughput volumes and associated revenues. Apache shut in approximately 70 MMcf/d of production in response to the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statementslow commodity prices, which fell as a result of certain factors detailed in our filingslower demand and higher uncertainty associated with the SEC.

Overview

We are a blank check company incorporated on December 12, 2016 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). We intendCOVID-19 pandemic. In addition, unplanned downtime to focus our search for a target businessaddress moisture in the energy industry. For our purposes, we defineresidue pipeline reduced throughput by approximately 40 MMcf/d. These volumes are now back on-line.

Additionally, other producers are also developing oil and gas plays in surrounding areas that may provide Altus opportunities to enter into third-party processing and gathering agreements. Producers’ willingness to engage in new drilling is determined by a number of factors, all of which are affected by the energy industry as companies that ownCOVID-19 pandemic, the most important of which are the prevailing and projected prices of oil, natural gas, and NGLs, the cost to drill and operate a well, the availability and cost of capital, and environmental and government regulations. Company management believes that its midstream assets that are usedpositioned in or provided services toone of the energy sector, including, but not limited to, assets usedmost active regions for oil and gas exploration and development activities in exploring, developing, producing, transporting, storing, gathering, processing, fractionating, refining, distributing or marketingthe United States, and the Company is actively pursuing new supplies of natural gas natural gas liquids, crude oil or refined products. We intendand processing arrangements with third parties to effectuate our Initial Business Combination using cash from the proceeds of our public offering (the “Public Offering”)increase throughput volumes in its systems.
Costs and the sale of warrants in a private placementExpenses
Operations and maintenance
Operations and maintenance expenses primarily comprise those costs that occurred simultaneouslyare directly associated with the Public Offering (the “Private Placement Warrants”), our capital stock, debtoperations of the Company’s assets. The most significant of these costs are associated with direct labor and supervision, power, repair and maintenance expenses, and equipment rentals. Fluctuations in commodity prices impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs such as power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals.
Depreciation and accretion
Depreciation on the capitalized costs incurred to acquire and develop the Company’s midstream assets is computed based on estimated useful lives and estimated salvage values. Also included within this expense is the accretion associated with estimated asset retirement obligations (ARO). Depreciation and accretion expense would be expected to increase during future periods in-line with additional infrastructure costs incurred; however, any future asset sales or a combination of cash, stocklong-lived asset impairments would decrease expected depreciation expense to commensurate levels.
General and debt.

The issuance of additional shares of our stock in a business combination:

administrative
may significantly diluteGeneral and administrative (G&A) expense represents indirect costs and overhead expenditures incurred by the equity interest of investors, which dilution would increase ifCompany, associated with managing the anti-dilution provisionsmidstream assets. These expenses primarily comprise fixed fees set forth in the Class B common stock resultedConstruction,Operations and Maintenance Agreement (COMA) entered into with Apache. Refer to Note 2—Transactions with Affiliates in the issuanceNotes to Consolidated Financial Statements set forth in Part I of sharesthis Quarterly Report on Form 10-Q for further information.
Taxes other than income
Taxes other than income are primarily related to ad valorem taxes on the Company’s midstream assets.


Adjusted EBITDA
The Company defines Adjusted EBITDA as net income (loss) including noncontrolling interests before financing costs (net of Class A common stockcapitalized interest), interest income, income taxes, depreciation, and accretion and adjusts such items, as applicable, from income from equity method interests. Altus also excludes (when applicable) impairments, unrealized gains or losses on a greaterderivative instruments, and other items affecting comparability of results to peers. Company management believes Adjusted EBITDA is useful for evaluating operating performance and comparing results of operations from period-to-period and against peers without regard to financing or capital structure. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than,one-to-one basis upon conversion net income (loss) including noncontrolling interests or any other measure determined in accordance with accounting principles generally accepted in the United States (GAAP) or as an indicator of the Class B common stock;

may subordinate the rightsCompany’s operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing Altus’ financial performance, such as cost of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;

could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any,capital and could result in the resignation or removal of our present officers and directors;

may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and

may adversely affect prevailing market prices for our Class A common stock and/or warrants.

Similarly, if we issue debt securities, it could result in:

default and foreclosure on our assets if our operating revenues after an Initial Business Combination are insufficient to repay our debt obligations;

acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;

our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

our inability to pay dividends on our common stock;

using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;

limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and

other purposes and other disadvantages compared to our competitors who have less debt.

We expect to incur significant costs in the pursuit of our business combination plans. We cannot assure you that our plans to raise capital or to complete our Initial Business Combination will be successful.

Results of Operations and Known Trends or Future Events

We have neither engaged in any operations nor generated any operating revenue to date. Our only activities since inception relate to our formation, the Public Offering which was consummated on April 4, 2017 and efforts directed toward locating a suitable Initial Business Combination. We will not generate any operating revenue until after completion of an Initial Business Combination, at the earliest. Prior to such time, we will generatenon-operating income in form of interest income on cash and cash equivalents. We incur increased expenses as a result of being a public company (for legal, financial reporting and auditing compliance),tax structure, as well as expensesthe historic costs of depreciable assets, none of which are components of Adjusted EBITDA. The presentation of Adjusted EBITDA should not be construed as we conduct due diligence on prospective business combination candidates.

For the three months ended September 30, 2017, we had a net income of $220,657, which consisted primarily of interest income from the Trust Account of $809,858. This income was partially offset by general and administrative expenses of $276,956 (including $15,000 administrative fees paid to related party and $153,000 of due diligence costs), franchise tax expense of $55,900 and income tax expense of $256,345.

For the nine months ended September 30, 2017, we had a net loss of $512,613, which consisted primarily of general and administrative expenses of $1,340,902 (including $30,000 administrative fees paid to related party and $1,045,000 of due diligence costs), franchise tax expense of $98,900 and income tax expense of $426,694. These expenses were partially offset by interest received from the Trust Account of $1,353,883. During the period, we incurred significant costs conducting due diligence around potential acquisitionsan inference that we are no longer pursuing.

Liquidity and Capital Resources

In April 2017, upon the completing the Public Offering (including the sale of Over-Allotment Units) and the Private Placement Warrants, $377,321,120 was deposited in a trust account with American Stock Transfer & Trust Company acting as trustee (the “Trust Account”). Other than the withdrawal of interest to pay taxes, the proceeds held in the Trust Account will remain in the Trust Account until the earlier (i) the completion of the Initial Business Combination; (ii) the redemption of any shares of Class A Common Stock included in the Units sold in the Public Offering that have been properly tendered in connection with a stockholder vote to amend the Company’s certificateresults will be unaffected by unusual or non-recurring items. Additionally, the Company’s computation of incorporation to modify the substance or timing of our obligation to redeem 100% of such shares of Class A Common Stock if we do not complete the Initial Business Combination within 24 months from the closing of the Public Offering; and (iii) the redemption of 100% of the shares of Class A Common Stock included in the Units sold in the Public Offering if the Company is unable to complete an Initial Business Combination within 24 months from the closing of the Public Offering (subject to the requirements of law).

Until the consummation of the Public Offering, our liquidity needs were satisfied through loans from our Sponsor of $265,000 under an unsecured promissory note. The loans werenon-interest bearing and were paid in full on April 4, 2017 upon completion of the Public Offering. As of September 30, 2017, we had $555,254 in cash held outside the Trust Account which may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. In addition, interest income on the funds held in the Trust Account may be released to pay our franchise and income taxes. During September, we paid $391,000 of estimated federal income tax with funds held in the Trust Account. At September 30, 2017, $962,883 is available to pay any additional taxes.

To the extent that we require additional funds to operate our business prior to the consummation of an Initial Business Combination, we expect our Sponsor or an affiliate of our Sponsor or certain of our officers and directors to loan us funds as may be required. If we complete our Initial Business Combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our Initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used to repay such loaned amounts. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.50 per warrant, at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to the exercise price, exercisability and exercise period.

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

As of September 30, 2017, we did not have anyoff-balance sheet arrangements as defined in Item 303(a)(4)(ii) of RegulationS-K and did not have any commitments or contractual obligations. In connection with our Public Offering, we entered into an Administrative Services Agreement, by and between us and KA Fund Advisors, LLC an affiliate of our Sponsor. We have agreed to pay KA Fund Advisors, LLC a total of $5,000 per month for office space, utilities and secretarial and administrative support. Upon completion of our Initial Business Combination or our liquidation, we will cease paying these monthly fees.

The underwriters are entitled to underwriting discounts and commissions of 5.5%, of which 2.0% ($7,546,422) were paid at the closing of the Public Offering and 3.5% ($13,206,239) was deferred and placed in the Trust Account. The deferred discount will become payable to the underwriters only on completion of the Initial Business Combination, subject to the terms of the underwriting agreement.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required fornon-emerging growth companies. As a result, our financial statementsAdjusted EBITDA may not be comparable to companiesother similarly titled measures of other companies.

Adjusted EBITDA is not defined in GAAP
The GAAP measure used by the Company that complyis most directly comparable to Adjusted EBITDA is net income (loss) including noncontrolling interests. Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income (loss) including noncontrolling interests or any other measure of financial performance presented in accordance with newGAAP. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income (loss) including noncontrolling interests. Adjusted EBITDA should not be considered in isolation or revised accounting pronouncements as of public company effective dates.

Critical Accounting Policies and Estimates

This management’s discussion anda substitute for analysis of ourthe Company’s results as reported under GAAP. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in the industry, thereby diminishing its utility.

Reconciliation of non-GAAP financial conditionmeasure
Company management compensates for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP measure, understanding the differences between Adjusted EBITDA as compared to net income (loss) including noncontrolling interests, and incorporating this knowledge into its decision-making processes. Management believes that investors benefit from having access to the same financial measure that the Company uses in evaluating operating results.
The following table presents a reconciliation of the GAAP financial measure of net income (loss) including noncontrolling interest to the non-GAAP financial measure of Adjusted EBITDA.
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
Reconciliation of net income (loss) including noncontrolling interests       
Net income (loss) including noncontrolling interests$17,662
 $(5,498) $(9,130) $230
Add:       
Financing costs, net of capitalized interest292
 478
 565
 986
  Depreciation and accretion4,062
 9,107
 7,976
 16,758
Unrealized derivative instrument loss10,585
 —
 72,569
 —
Equity method interests Adjusted EBITDA28,231
 (60) 51,917
 166
Other—
 —
 290
 —
Less:       
Gain on sale of assets, net264
 —
 76
 —
  Interest income2
 806
 9
 2,967
Income (loss) from equity method interests, net16,923
 (1,297) 33,221
 (1,028)
Income tax benefit—
 430
 696
 5
Other2
 —
 2
 —
Adjusted EBITDA$43,641
 $4,088

$90,183

$16,196


Results of Operations

The following table presents the Company’s results of operations for the periods presented:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
REVENUES:       
Midstream services revenue — affiliate$31,616
 $24,139
 $72,383
 $57,985
Total revenues31,616
 24,139
 72,383
 57,985
COSTS AND EXPENSES:       
Operations and maintenance9,508
 14,005
 20,099
 30,403
General and administrative2,988
 2,081
 7,166
 5,072
Depreciation and accretion4,062
 9,107
 7,976
 16,758
Taxes other than income3,347
 3,888
 6,790
 6,463
Total costs and expenses19,905
 29,081
 42,031
 58,696
OPERATING INCOME (LOSS)11,711
 (4,942) 30,352
 (711)
OTHER INCOME (LOSS):       
Unrealized derivative instrument loss(10,585) —

(72,569) —
Interest income2
 806

9
 2,967
Income (loss) from equity method interests, net16,923
 (1,297)
33,221
 (1,028)
Other(97) (17)
(274) (17)
Total other income (loss)6,243
 (508) (39,613) 1,922
Financing costs, net of capitalized interest292
 478
 565
 986
NET INCOME (LOSS) BEFORE INCOME TAXES17,662
 (5,928) (9,826) 225
Current income tax benefit—
 —
 (696) —
Deferred income tax benefit—
 (430) —
 (5)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS17,662
 (5,498) (9,130) 230
Net income attributable to Preferred Unit limited partners18,764
 4,143
 37,026
 4,143
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS(1,102) (9,641) (46,156) (3,913)
Net loss attributable to Apache limited partner(847) (7,348) (36,048) (2,720)
NET LOSS ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS$(255) $(2,293) $(10,108) $(1,193)
KEY PERFORMANCE METRICS:       
Adjusted EBITDA(1)
$43,641
 $4,088
 $90,183
 $16,196
OPERATING DATA:       
Average throughput volumes of natural gas (MMcf/d)434
 363
 505
 463
Average volumes of natural gas processed (MMcf/d)429
 363
 500
 463
(1)
Adjusted EBITDA is not defined by GAAP and should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), net cash provided by (used in) operating activities or any other measures prepared under GAAP. For the definition and reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see the section entitled Adjusted EBITDA above.
Since the Company commenced operations in the second quarter of 2017, its only significant customer has been Apache. Altus Midstream is pursuing similar long-term commercial service contracts with third-parties that could be accommodated by existing capacity. Altus’ midstream service agreements with Apache contain no minimum volume commitments, and as such, future results of operations may be materially impacted by Apache’s production volumes from Alpine High and Altus’ ability to contract third-party business. Refer to Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Part II, Item 1A—Risk Factors of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and Part I, Item 3—Quantitative and Qualitative Disclosures About Market Risk and Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q, for further discussion.


Midstream Revenues
The following table summarizes the Company’s revenues for the periods presented:
  Three Months Ended June 30, Six Months Ended June 30,
  2020 2019 2020 2019
         
  (In thousands)
REVENUES:        
Midstream services revenue — affiliate $31,616
 $24,139
 $72,383
 $57,985
Total revenues $31,616
 $24,139
 $72,383
 $57,985
Substantially all revenues were generated from fee-based midstream services provided under the terms of separate commercial midstream service agreements with Apache for the gas gathering, processing, and transmission of volumes from the dedicated area in the Alpine High field. Altus receives a per-unit fee based on our financial statements, which have been preparedthe quantity of natural gas and natural gas liquid volumes that flow through its systems. During the periods presented, Altus did not own or take title to the volumes that were processed through its systems.
Three months ended June 30, 2020 as compared to three months ended June 30, 2019
Midstream services revenue from affiliate increased by $7.5 million to $31.6 million for the three months ended June 30, 2020, as compared to $24.1 million for the three months ended June 30, 2019. The increase was primarily driven by higher throughput of rich natural gas volumes due to increased capacity as a result of the three cryogenic processing trains coming on line starting in accordance with U.S. GAAP.the second quarter of 2019.
Six months ended June 30, 2020 as compared to six months ended June 30, 2019
Midstream services revenue from affiliate increased by $14.4 million to $72.4 million for the six months ended June 30, 2020, as compared to $58.0 million for the six months ended June 30, 2019. The preparationincrease was primarily driven by higher throughput of these financial statements requires usrich natural gas volumes due to make estimatesincreased capacity as a result of the three cryogenic processing trains coming on line starting in the second quarter of 2019.
Costs and judgments that affectExpenses
The following table summarizes the reported amounts of assets, liabilities, revenuesCompany’s costs and expenses for the periods presented:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
Operations and maintenance$9,508
 $14,005
 $20,099
 $30,403
General and administrative2,988
 2,081
 7,166
 5,072
Depreciation and accretion4,062
 9,107
 7,976
 16,758
Taxes other than income3,347
 3,888
 6,790
 6,463
Total costs and expenses$19,905
 $29,081
 $42,031
 $58,696
Three months ended June 30, 2020 as compared to three months ended June 30, 2019
Operations and maintenance
Operations and maintenance expenses decreased by $4.5 million to $9.5 million for the disclosurethree months ended June 30, 2020, as compared to $14.0 million for the three months ended June 30, 2019, primarily driven by increased operational efficiency as a result of contingent assetstransitioning from mechanical refrigeration units to the Company’s centralized Diamond cryogenic complex starting in the second quarter of 2019. The transition resulted in decreases in employee-related costs, contract labor, lower supplies expenses, and liabilitieslower equipment rentals. These savings are coupled with an overall decrease in our financial statements. On an ongoing basis, we evaluate our estimatesCompany labor from headcount reductions.


General and judgments, including thoseadministrative
G&A expense increased by $0.9 million to $3.0 million for the three months ended June 30, 2020, as compared to $2.1 million for the three months ended June 30, 2019, primarily driven by higher employee-related costs charged to Altus by Apache under the terms of the COMA, insurance costs, and incentive and stock compensation.
Depreciation and accretion
Depreciation and accretion expense decreased by $5.0 million to $4.1 million for the three months ended June 30, 2020, as compared to $9.1 million for the three months ended June 30, 2019. The decrease was a result of impairments recorded on the carrying value of the property, plant, and equipment at the end of 2019.
Taxes other than income
The decrease in taxes other than income was driven by changes related to ad valorem taxes, which decreased by $0.5 million to $3.3 million for the three months ended June 30, 2020, as compared to $3.8 million for the three months ended June 30, 2019. The $0.5 million decrease reflect adjustments in estimated tax assessments related to the completion of construction and capacity utilization of certain assets.
Six months ended June 30, 2020 as compared to six months ended June 30, 2019
Operations and maintenance
Operations and maintenance expenses decreased by $10.3 million to $20.1 million for the six months ended June 30, 2020, as compared to $30.4 million for the six months ended June 30, 2019, primarily driven by increased operational efficiency as a result of transitioning from mechanical refrigeration units to the Company’s centralized Diamond cryogenic complex starting in the second quarter of 2019. The transition resulted in decreases in employee-related costs, contract labor, lower supplies expenses, and lower equipment rentals. These savings are coupled with an overall decrease in Company labor from headcount reductions.
General and administrative
G&A expense increased by $2.1 million to $7.2 million for the six months ended June 30, 2020, as compared to $5.1 million for the six months ended June 30, 2019, primarily driven by higher expenses incurred related to professional fees, higher employee-related costs charged to Altus by Apache under the terms of the COMA, insurance and severance costs. These increases were partially offset by lower incentive and stock compensation.
Depreciation and accretion
Depreciation and accretion expense decreased by $8.8 million to $8.0 million for the six months ended June 30, 2020, as compared to $16.8 million for the six months ended June 30, 2019. The decrease was a result of impairments recorded to the carrying value of the property, plant, and equipment at the end of 2019.
Taxes other than income
The increase in taxes other than income was driven by ad valorem taxes, which increased by $0.3 million to $6.6 million for the six months ended June 30, 2020, as compared to $6.3 million for the six months ended June 30, 2019.


Other Income (Loss) and Financing Costs, Net of Capitalized Interest
The components of other income, other loss and financing costs, net of capitalized interest are presented below:
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
        
 (In thousands)
Unrealized derivative instrument loss$(10,585) $—
 $(72,569) $—
Interest income2
 806
 9
 2,967
Income (loss) from equity method interests, net16,923
 (1,297) 33,221
 (1,028)
Other(97) (17) (274) (17)
Total other income (loss)$6,243
 $(508) $(39,613) $1,922
        
Interest expense$2,007
 $1,030
 $5,365
 $1,739
Amortization of deferred facility fees292
 221
 565
 415
Capitalized interest(2,007) (773) (5,365) (1,168)
Financing costs, net of capitalized interest$292
 $478
 $565
 $986
Unrealized derivative instrument loss
During the three and six months ended June 30, 2020, the Company recognized an unrealized loss of $10.6 million and $72.6 million, respectively, in relation to an embedded feature identified upon the issuance and sale of Series A Cumulative Redeemable Preferred Units (the Preferred Units) in the second quarter of 2019. The associated derivative is recorded on the consolidated balance sheet at fair value. The fair value of financial instrumentthe embedded derivative is determined (using an income approach) by a range of factors including: expected future interest rates using the Black-Karasinski model; the Company’s imputed interest rate; the timing of periodic cash distributions and accrued expenses. We base our estimatesdividend yields of the Preferred Units. The value of the derivative during the six months ended June 30, 2020 changed significantly based on historical experience, known trendsthe volatility of expected future interest rates, mainly given current macroeconomic factors associated with the COVID-19 pandemic and eventsrelated governmental actions. Refer to Note 13—Fair Value Measurements within Part I, Item 1—Financial Statements of this Quarterly Report on Form 10-Q for further discussion.
Income from equity method interests, net
Income from equity method interests increased $18.2 million and various other factors that we believe$34.2 million for the three and six months ended June 30, 2020, respectively, as compared to the three and six months ended June 30, 2019. The increase was primarily generated from the Company’s proportionate share of net income in the GCX and Shin Oak pipelines, in which the Company owns a 16 percent and 33 percent interest, respectively. GCX was placed into service in September of 2019, and Shin Oak was in-service when the Company acquired its equity interest in the pipeline during the third quarter of 2019.
Interest Income
Interest income decreased $0.8 million and $3.0 million for the three and six months ended June 30, 2020, respectively, as compared to the three and six months ended June 30, 2019, as a result of a decrease in cash and cash equivalents.
Financing costs, net of capitalized interest
Financing costs incurred, net of capitalized interest, decreased $0.2 million and $0.4 million for the three and six months ended June 30, 2020, respectively, as compared to the three and six months ended June 30, 2019. The decrease is primarily driven by the expiration of the finance lease obligation in January 2020, for which its interest expense was not eligible to be reasonablecapitalized. The decrease in interest expense, net of capitalized interest, was slightly offset by higher amortization of fees on increased draw downs on the revolving credit facility.


Provision for Income Taxes
During the three and six months ended June 30, 2020, the Company recognized a current income tax benefit of nil and $0.7 million, respectively, as compared to nilfor the three and six months ended June 30, 2019. On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in response to the COVID-19 pandemic. Under the CARES Act, 100 percent of net operating losses arising in tax years beginning after December 31, 2017, and before January 1, 2021 may be carried back to each of the five preceding tax years of such loss. In the first quarter of 2020, the Company recorded a current income tax benefit of $0.7 million associated with a net operating loss carryback claim.
The Company recorded nodeferred income tax expense during the three and six months ended June 30, 2020, as compared to $0.4 million and nil for the three and six months ended June 30, 2019, respectively. The reduction to deferred income tax expense in the first and second quarter of 2020 is the result of an increase in valuation allowance against the Company’s deferred tax assets.
Key Performance Metrics
Three months ended June 30, 2020 as compared to three months ended June 30, 2019
Net income before income taxes was $17.7 million for the three months ended June 30, 2020, an increase of $23.6 million from a net loss before income taxes of $5.9 million for the three months ended June 30, 2019. In addition to the movements in relation to Adjusted EBITDA discussed below, the net income before income taxes was impacted by a $10.6 million increase to expense related to the fair value measurement of an embedded derivative at June 30, 2020. Adjusted EBITDA increased by $39.5 million for the three months ended June 30, 2020 compared to the prior year period, primarily due to a $28.3 million increase in the Company’s proportionate share of EBITDA generated by its equity method interests, a $7.5 million increase in midstream services revenue from affiliate coupled with a $4.5 million decrease in operations and maintenance expenses and a $0.5 million decrease in taxes other than income. These amounts were offset by individually insignificant increases, in aggregate, of $1.3 million to G&A and other expenses.
Six months ended June 30, 2020 as compared to six months ended June 30, 2019
Net loss before income taxes was $9.8 million for the six months ended June 30, 2020, a decrease of $10.1 million from a net income before income taxes of $0.2 million for the six months ended June 30, 2019. In addition to the movements in relation to Adjusted EBITDA discussed below, the net loss before income taxes was primarily driven by a $72.6 million increase to expense related to the fair value measurement of an embedded derivative at June 30, 2020. Adjusted EBITDA increased by $74.0 million for the six months ended June 30, 2020 compared to the prior year period, primarily due to a $51.8 million increase in the Company’s proportionate share of EBITDA generated by its equity method interests, a $14.4 million increase in midstream services revenue from affiliate coupled with a $10.3 million decrease in operations and maintenance expenses. These amounts were offset by individually insignificant increases, in aggregate, of $2.5 million to G&A and other expenses.



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 Equity Method Interest Pipelines and associated subsequent construction costs. For 2020, the Company’s primary use of capital will be for equity contributions associated with its proportionate share of costs relating to the Equity Method Interest Pipelines still under construction.
During the six months ended June 30, 2020, the Company’s primary sources of cash were borrowings under the circumstances,revolving credit facility, cash generated from operations, distributions from equity method interests, and proceeds from sale of assets. Based on Altus’ current financial plan and related assumptions, the Company believes that cash from operations, a reduced capital program for its midstream infrastructure, and distributions from equity method interests will begin to generate operating cash flows in excess of capital expenditures by the first quarter of 2021.
Given the recent crude oil price collapse on lower demand and economic activity resulting from the COVID-19 pandemic and related governmental actions, the Company continues to monitor expected natural gas throughput volumes from Apache and capacity utilization of its Equity Method Interest Pipelines. Projections for 2020 and 2021 remain dynamic. Altus' results, including projections related to capital resources and liquidity, could be materially affected by the continuing COVID-19 pandemic.
Altus Midstream Capital Requirements
During the six months ended June 30, 2020 and 2019, capital spending for midstream infrastructure assets totaled $26.5 million and $259.3 million, respectively. Management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service Apache’s production from Alpine High and any potential third-party customers. As such, the Company expects remaining capital requirements for its existing infrastructure assets during 2020 to be primarily related to maintenance of these assets.
Additionally, during the six months ended June 30, 2020 and 2019, the Company made cash contributions of $154.4 million and $438.4 million, respectively, for certain of its Equity Method Interest Pipelines as described below:
A 16.0 percent interest in GCX, which formdelivers natural gas from the Waha area in West Texas to Agua Dulce near the Texas Gulf Coast. Full commercial service began at the end of September 2019, and the total capacity of 2.0 Bcf/d is fully subscribed under long-term contracts.
A 15.0 percent interest in EPIC, which began full service during the second quarter of 2020. The pipeline has initial capacity of approximately 600 MBbl/d and transports crude oil from Orla, Texas to the Port of Corpus Christi, Texas.
An approximate 26.7 percent interest in PHP, a long-haul pipeline under construction that is expected to have approximately 2.1 Bcf/d of natural gas transportation capacity. The pipeline will transport natural gas from the Waha area in northern Pecos County, Texas, to the Katy, Texas area, with connections to Texas Gulf Coast and other markets. PHP is anticipated to be in service in early 2021.
A 33.0 percent interest in Shin Oak, which transports NGLs primarily from the Permian Basin to Mont Belvieu, Texas. Shin Oak, which was in-service when the Company acquired its equity interest in the pipeline during the third quarter of 2019, has capacity of approximately 550 MBbl/d.
With Shin Oak, GCX, and EPIC already in service, the Company anticipates that its existing capital resources will be sufficient to fund the Company’s continuing obligations, primarily related to the remaining construction of PHP.


Sources and Uses of Cash
The following table presents the sources and uses of the Company’s cash and cash equivalents for the periods presented.
  For the Six Months Ended
June 30,
  2020 2019
     
  (In thousands)
Sources of cash and cash equivalents:    
Redeemable noncontrolling interest — Preferred Unit limited partners, net $—
 $611,249
Proceeds from revolving credit facility 97,000
 —
Proceeds from sale of assets 6,773
 —
Capital distributions from equity method interests 4,211
 —
Net cash provided by operating activities 86,797
 21,688
  $194,781
 $632,937
Uses of cash and cash equivalents:    
Capital expenditures(1)
 $(26,520) $(259,295)
Contributions to and acquisition of equity method interests (154,386) (438,403)
Finance lease payments (11,789) (7,462)
Deferred facility fees (816) (792)
Capitalized interest paid (5,373) —
  (198,884) (705,952)
Decrease in cash and cash equivalents $(4,103) $(73,015)
(1)The table presents capital expenditures on a cash basis; therefore, the amounts may differ from those discussed elsewhere in this document, which include accruals.
Liquidity
The following table presents a summary of the Company’s key financial indicators at the dates presented:
  June 30, 2020 December 31, 2019
     
  (In thousands)
Cash and cash equivalents $1,880
 $5,983
Total debt 493,000
 405,767
Available committed borrowing capacity 307,000
 404,000
Cash and cash equivalents
As of June 30, 2020 and December 31, 2019, the Company had $1.9 million and $6.0 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.
Debt
As of June 30, 2020 and December 31, 2019, the Company had debt outstanding totaling $493.0 million and $405.8 million, respectively. At December 31, 2019, $9.8 million of debt outstanding was related to a finance lease obligation which expired during the first quarter of 2020.
Available credit facilities
In November 2018, Altus Midstream entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream’s two, one-year extension options). The agreement for this revolving credit facility, as amended (the Amended Credit Agreement), provides aggregate commitments from a syndicate of banks of $800.0 million. The aggregate commitments include a letter of credit subfacility of up to $100.0 million and a swingline loan subfacility of up to $100.0 million. Altus Midstream may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of June 30, 2020 and December 31, 2019, total outstanding borrowings were $493.0 million and $396.0 million, respectively, and no letters of credit were outstanding under this facility.


Altus Midstream’s revolving credit facility is unsecured and is not guaranteed by the Company, Apache, or any of their respective subsidiaries.
At Altus Midstream’s option, the interest rate per annum for borrowings under this amended credit facility is either a base rate, as defined, plus a margin, or the London Interbank Offered Rate (LIBOR), plus a margin. Altus Midstream also pays quarterly a facility fee at a rate per annum on total commitments. The margins and the facility fee vary based upon (i) the Leverage Ratio (as defined below) until Altus Midstream has a senior long-term debt rating and (ii) such senior long-term debt rating once it exists. The Leverage Ratio is the ratio of (1) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (2) EBITDA (as defined in the Amended Credit Agreement) of Altus Midstream and its restricted subsidiaries for the 12-month period ending immediately before the determination date. At June 30, 2020, the base rate margin was 0.05 percent, the LIBOR margin was 1.05 percent, and the facility fee was 0.20 percent. In addition a commission is payable quarterly to the lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks.
The Amended Credit Agreement contains restrictive covenants that may limit the ability of Altus Midstream and its restricted subsidiaries to, among other things, incur additional indebtedness or guaranty indebtedness, sell assets, make investments in unrestricted subsidiaries, enter into mergers, make certain payments and distributions, incur liens on certain property securing indebtedness, and engage in certain other transactions without the prior consent of the lenders. Altus Midstream also is subject to a financial covenant under the Amended Credit Agreement, which requires it to maintain a Leverage Ratio not exceeding 5.00:1.00 at the end of any fiscal quarter, starting with the quarter ended December 31, 2019, except that during the period of up to one year following a qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of any fiscal quarter. Unless the Leverage Ratio is less than or equal to 4.00:1.00, the Amended Credit Agreement limits distributions in respect of Altus Midstream LP’s capital to $30 million per calendar year until either (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the Amended Credit Agreement, for three consecutive calendar months equals or exceeds $350.0 million on an annualized basis or (ii) Altus Midstream LP has a specified senior long-term debt rating; in addition, before the occurrence of one of those two events, the Leverage Ratio must be less than or equal to 5.00:1.00. In no event can any distribution be made that would, after giving effect to it on a pro forma basis, result in a Leverage Ratio greater than (i) 5.00:1.00 or (ii) for making judgments abouta specified period after a qualifying acquisition, 5.50:1.00. The Leverage Ratio as of June 30, 2020 was less than 4.00:1.00.
The terms of Altus Midstream’s Preferred Units also contain certain restrictions on distributions on Altus Midstream LP’s Common Units, including the carrying valuesCommon Units held by the Company, and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. Refer to Note 10—Series A Cumulative Redeemable Preferred Units in the Notes to Consolidated Financial Statements set forth in Part I of assetsthis Quarterly Report on Form 10-Q for further information. In addition, the amount of any cash distributions to Altus Midstream LP by any entity in which it has an interest accounted for by the equity method is subject to such entity’s compliance with the terms of any debt or other agreements by which it may be bound, which in turn may impact the amount of funds available for distribution by Altus Midstream LP to its partners.
There are no clauses in the Amended Credit Agreement that permit the lenders to accelerate payments or refuse to lend based on unspecified material adverse changes. The Amended Credit Agreement has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. However, the agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other breaches, and if Altus Midstream or any of its restricted subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and terminate lending and issuance commitments if Altus Midstream undergoes a specified change in control or has specified pension plan liabilities in excess of the stated threshold. Altus Midstream was in compliance with the terms of the Amended Credit Agreement as of June 30, 2020.
There is no assurance that the financial condition of banks with lending commitments to Altus Midstream will not deteriorate. Altus closely monitors the ratings of the banks in the Company’s bank group. Having a large bank group allows the Company to mitigate the potential impact of any bank’s failure to honor its lending commitment.
Series A Cumulative Redeemable Preferred Units
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Closing). The Closing occurred pursuant to a Preferred Unit Purchase Agreement among Altus Midstream, the Company, and the purchasers party thereto, dated as of May 8, 2019. A total of 625,000 Preferred Units were sold at a price of $1,000 per Preferred Unit, for an aggregate issue price of $625.0 million. Altus Midstream received approximately $611.2 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers. These proceeds were used to fund ongoing capital contributions related to Altus’ Equity Method Interest Pipelines and repayment of outstanding principal on the revolving credit facility (discussed above).


Off-Balance Sheet Arrangements

Other than the arrangements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, the Company has not entered into any transactions, agreements, or other contractual arrangements with unconsolidated entities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptionsreasonably likely to materially affect the Company’s liquidity or conditions.

capital resource positions.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.

During April 2017, $377,321,120

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks, including the effects of adverse changes in commodity prices and credit risk as described below. The Company continually monitors its market risk exposure, including the impact and developments related to the COVID-19 pandemic, which has introduced significant volatility in the financial markets subsequent to the year ended December 31, 2019.
Commodity Price Risk
Currently, essentially all of the net proceedsCompany’s midstream service agreements are fee-based, with no direct commodity price exposure to oil, natural gas, or NGLs, and only an immaterial portion of the Public Offeringagreements are based on the underlying value of a commodity. However, the Company is indirectly exposed to adverse changes in commodity prices through Apache and potential third-party customers’ economic decisions to develop and produce oil and natural gas from which Altus receives revenues for providing gathering, processing, and transmission services.
Fluctuations in commodity prices also impact operating cost elements both directly and indirectly. For example, commodity prices directly impact costs such as power and fuel, which are expenses that increase (or decrease) in line with changes in commodity prices. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as labor and equipment rentals. Management regularly reviews the Company’s potential exposure to commodity price risk, and may periodically enter into financial or physical arrangements intended to mitigate potential volatility.
Interest Rate Risk
At June 30, 2020, Altus had $493.0 million of loans outstanding under its revolving credit facility. The interest rate for the facility is variable, which exposes the Company to the risk of increased interest expense in the event of increases to short-term interest rates. If interest rates increased by 1.0 percent, consolidated interest expense would have increased by approximately $1.2 million for the quarter ended June 30, 2020. Accordingly, the results of operations, cash flows, financial condition, and the sale of Private Placement Warrants were deposited into a trust account that is invested solelyability to make cash distributions could be adversely affected by significant increases in a money market funds meeting certain conditions under Rule2a-7 under the Investment Company Act of 1940, as amended, which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will beinterest rates. Altus currently has no associated material exposure to interest rate derivative instruments outstanding, but the Company continues to monitor its interest rate exposure and may enter into interest rate derivative instruments in the future if it determines that it is necessary to invest in such instruments in order to mitigate its interest rate risk.

Credit Risk
The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, Apache and current and potential third-party customers. Any increase in the nonpayment and nonperformance by, or the insolvency or liquidation of, the Company’s customers could adversely affect the Company’s results of operations.

Item 4.Controls and Procedures.

Evaluation of

ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures

Disclosure

The Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and the Company’s Chief Financial Officer and Treasurer, in his capacity as principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures areas of June 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and other procedures that are designedwere effective, providing effective means to ensure that the information the Company is required to be disclosed in our reports filed or submitteddisclose under the Securitiesapplicable laws and Exchange Act of 1934, as amended (the “Exchange Act”)regulations is recorded, processed, summarized, and reported within the time periods specified in the SEC’sCommission’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officerits principal executive officer and Chief Financial Officer,principal financial officer, to allow timely decisions regarding required disclosure.

As required by Rules13a-15 and15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of

The Company periodically reviews the design and operationeffectiveness of ourits disclosure controls, including compliance with various laws and regulations that apply to operations. The Company makes modifications to improve the design and effectiveness of its disclosure controls, and procedures as of September 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as definedmay take other corrective action, if the Company’s reviews identify deficiencies or weaknesses in Rules13a-15 (e) and15d-15 (e) under the Exchange Act) were effective.

its controls.

Changes in Internal Control overOver Financial Reporting

During


There were no changes in the three months ended September 30, 2017, there has been no change in ourCompany’s internal controlcontrols over financial reporting during the quarter ended June 30, 2020, that hashave materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal controlcontrols over financial reporting.

reporting, including any changes related to the COVID-19 pandemic and the transition to a remote working environment.


PART II — OTHER INFORMATION


Item 1.Legal Proceedings.

None.

ITEM 1. LEGAL PROCEEDINGS

The Company is not aware of any pending or threatened legal proceedings against it at the time of the filing of this Quarterly Report on Form 10-Q.

On April 30, 2020, a case styled Sierra Club v. US Army Corp of Engineers et al. was filedin the United States District Court, Western District of Texas. Plaintiff seeks to invalidate verifications issued by the Army Corps of Engineers allowing Permian Highway Pipeline LLC to conduct dredging and filling activities and to enjoin certain further dredging and other ground disturbing activities in jurisdictional waters. Permian Highway Pipeline LLC has intervened in the suit in defense of the verifications and in opposition to any injunctive relief. The Company has a minority equity interest in Permian Highway Pipeline LLC.

Item 1A.Risk Factors.

As

ITEM 1A. RISK FACTORS 
Please refer to Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Part II, Item 1A-Risk Factors of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and Part I, Item 3—Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q.
The global economy and the energy industry have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. Uncertainty in the oil markets and the negative demand implications of the COVID-19 pandemic continue to impact oil supply and demand. The COVID-19 pandemic and its unprecedented consequences have amplified certain risks identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, including, without limitation, risks related to: the demand for and prices of oil, natural gas, and NGLs; economic and competitive conditions; the availability of capital; cash flow and the timing of expenditures; inflation rates; the availability of goods and services; legislative, regulatory or policy changes; terrorism or cyberattacks; property acquisitions or divestitures; the impact of health and safety and other governmental regulations; the effectiveness of the Company’s business strategy; market-related risks; the timing, amount and terms of the future issuances of debt and equity securities; the completion and performance of the third-party pipelines in which the Company holds a minority equity interest; and the Company’s exposure to customer, partner, and counterparty credit risk. Given the uncertainty regarding the duration and scope of the COVID-19 pandemic and its prolonged impact on the global economy and the energy industry, there can be no assurance that the pandemic will not materially and adversely affect the Company’s business, financial condition, cash flows, and results of operations in the future.
Any discussion of the impact of the COVID-19 pandemic included in this Quarterly Report on Form 10-Q speaks only as of the filing date of this Quarterly Report there have been no material changeson Form 10-Q and is subject to change without notice, as the risk factors disclosed in our prospectus dated March 29, 2017 except we may disclose changesCompany cannot predict all risks related to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.Defaults Upon Senior Securities.

None

Item 4.Mine Safety Disclosures.

Not Applicable.

this rapidly evolving event.

ITEM 5. OTHER INFORMATION
The registrant elects to disclose under this Item 5 the following information otherwise disclosable in a report on Form 8-K under “Item 1.01 Entry into a Material Definitive Agreement”:
Effective July 27, 2020, Apache Corporation, a Delaware corporation (“Landlord”), and Altus Midstream LP, a Delaware limited partnership (“Tenant”), entered into a First Amendment to Lease Agreement (the “First Amendment”), which amends the Lease Agreement between Landlord and Tenant, dated effective November 9, 2018 (the “Lease”). Altus Midstream Company, a Delaware corporation (the “Company”), indirectly controls, and owns an equity interest in, Tenant. Landlord owns an equity interest in Tenant and a controlling equity interest in the Company.

The Lease covers Tenant’s lease from Landlord of certain real property and buildings in Reeves County, Texas for an initial term of four years expiring in November 2022. To accommodate Tenant’s desire to vacate the leased premises, the First Amendment provides for termination of the Lease with respect to all or any portion of the leased premises which Landlord may sell, with a pro rata rent reduction if Landlord sells less than all of the leased premises. The First Amendment also terminates Tenant’s conditional right to use a man-camp on land owned by Landlord near the leased premises.
The foregoing summary of the First Amendment and the Lease does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the First Amendment, a copy of which is filed as Exhibit 10.2 to this report, and the Lease, a copy of which is filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 13, 2018, each of which is incorporated herein by reference.

ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1***–
Contribution Agreement, dated as of August 8, 2018, by and among Kayne Anderson Acquisition Corp., Altus Midstream LP, Apache Midstream LLC, Alpine High Gathering LP, Alpine High Pipeline LP, Alpine High Processing LP, Alpine High NGL Pipeline LP and Alpine High Subsidiary GP LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 8, 2018, SEC File No. 001-38048).
3.1–
Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 13, 2018, SEC File No. 001-38048).
3.2–
First Amendment to Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 1, 2020, SEC File No. 001-38048).
3.3–
Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 filed on March 7, 2017, SEC File No. 333-216514).
10.1*–
First Amendment to Second Amended and Restated Agreement of Limited Partnership of Altus Midstream LP, dated as of June 30, 2020. 
10.2*–
First Amendment to Lease Agreement, dated effective July 27, 2020, by and between Apache Corporation and Altus Midstream LP.
31.1*–
Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2*–
Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1**–
Certification of the Principal Executive Officer and Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(b) and 18 U.S.C. 1350.
101*–The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Statement of Consolidated Operations, (ii) Statement of Consolidated Comprehensive Income (Loss), (iii) Consolidated Balance Sheet, (iv) Statement of Consolidated Cash Flows, (v) Statement of Consolidated Changes in Equity and Noncontrolling Interests and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH*–Inline XBRL Taxonomy Schema Document.
101.CAL*–Inline XBRL Calculation Linkbase Document.
101.DEF*–Inline XBRL Definition Linkbase Document.
101.LAB*–Inline XBRL Label Linkbase Document.
101.PRE*–Inline XBRL Presentation Linkbase Document.
104*–Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Item 5.Other Information.

None

Item 6.Exhibits.

Exhibit

Number

Description

* Filed herewith.
31.1** Furnished herewith.
Certification of the Principal Executive Officer Pursuant*** Schedules and exhibits to Rules13a-14(a) and15d-14(a) under the Securities Exchange Act of 1934, as adoptedthis Exhibit have been omitted pursuant to Section 302Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Sarbanes-Oxley Act of 2002.
31.2Certification of the Principal Financial Officer Pursuant to Rules13a-14(a) and15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*Certification of the Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*Certification of the Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentSEC upon request.

*Furnished herewith


SIGNATURES

In accordance


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.

 ALTUS MIDSTREAM COMPANY
 KAYNE ANDERSON ACQUISITION CORP.
Dated:
Date: November 13, 2017July 30, 2020 /s/ ROBERT S. PURGASONBen C. Rodgers
 Ben C. Rodgers
 Robert S. PurgasonChief Financial Officer and Treasurer
 (Principal Financial Officer)
 

Chief Executive Officer

(Principal Executive Officer)

Dated:
Date: November 13, 2017July 30, 2020 /s/ TERRYRebecca A. HARTHoyt    
 Rebecca A. Hoyt
 Terry A. HartSenior Vice President, Chief Accounting Officer, and Controller
 

Chief Financial Officer)

(Principal Financial and Accounting Officer)

17



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