UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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 September 30, 20192020
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
Altus Midstream Company
(Exact name of registrant as specified in its charter)
Delaware81-4675947
(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices) (Zip Code)
(713) 296-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class  Trading Symbol(s) Name of each exchange on which registered
Class A common stock, $0.0001 par value  ALTM NASDAQNasdaq Global Select Market
Indicate by check mark whether the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer ☒
Non-accelerated filer ☐Smaller reporting company ☐
   Emerging growth 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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of registrant’s Class A common stock, par value $0.0001 per share issued and outstanding as of October 31, 2019202074,929,3053,746,460
Number of shares of registrant’s Class C common stock, par value $0.0001 per share issued and outstanding as of October 31, 2019

2020		250,000,00012,500,000


TABLE OF CONTENTS
 
Item Page Page
PART I — FINANCIAL INFORMATION PART I — FINANCIAL INFORMATION 
  
1.
FINANCIAL STATEMENTS
1
FINANCIAL STATEMENTS
1
  
STATEMENT OF CONSOLIDATED OPERATIONS
1
STATEMENT OF CONSOLIDATED OPERATIONS
1
  
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
2
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
2
  
CONSOLIDATED BALANCE SHEET
3
CONSOLIDATED BALANCE SHEET
3
  
STATEMENT OF CONSOLIDATED CASH FLOWS
4
STATEMENT OF CONSOLIDATED CASH FLOWS
4
  
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
5
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTERESTS
5
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
  
2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
23
  
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
36
  
4.
CONTROLS AND PROCEDURES
38
CONTROLS AND PROCEDURES
37
  
PART II — OTHER INFORMATION PART II — OTHER INFORMATION 
  
1.
LEGAL PROCEEDINGS
39
LEGAL PROCEEDINGS
38
  
1A.
RISK FACTORS
39
RISK FACTORS
38
  
6.
EXHIBITS
40
EXHIBITS
39
 


i

FORWARD-LOOKING STATEMENTS AND RISK
This reportQuarterly 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 report,Quarterly Report on Form 10-Q, including, without limitation, statements regarding ourthe 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 ourthe Company’s examination of historical operating trends, production and growth forecasts of Apache Corporation’s Alpine High field development and other data in ourthe 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,” or “continue”“continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “prospect,” “should,” “would,” or similar terminology.terminology, but the absence of these words does not mean that a statement is not forward looking. Although we believethe Company believes that the expectations reflected in such forward-looking statements are reasonable weunder 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 ourthe Company’s expectations include, but are not limited to, ourits 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;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 cyber attacks;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;
our ability to retainthe retention of key members of our senior management and key technical employees;personnel;
increases in interest rates;

ii

the effectiveness of ourthe 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 ourthe Company’s future issuances of equity and debt securities; and

ii

other factors disclosed under Item 1A — 1A—Risk Factors, Item 7 — 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A — 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in ourthe Company’s most recently filed Annual Report on Form 10-K, 10-K;
other risks and uncertainties disclosed in ourthe Company’s third-quarter 20192020 earnings release, release;
other factors disclosed under Part II, Item 1A — Risk1A-Risk Factors of thisin the Company’s Quarterly Report on Form 10-Q and for the quarterly period ended March 31, 2020;
•
other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q; and
any other factors disclosed in the other filings that we makethe Company makes with the Securities and Exchange Commission.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. We assumeExcept as required by law, the Company assumes no duty to update or revise ourits 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 reportQuarterly 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:
•
Bbl. One stock tank barrel of 42 U.S.United States (U.S.) gallons liquid volume used herein in reference to crude oil, condensate or NGLs.
•
Bbl/d. One Bbl per day.
•
Bcf. One billion cubic feet of natural gas.
•
Bcf/d. One billion cubic feet of natural gasBcf per day.
•
Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one degree Fahrenheit.
•
COMA. Construction, Operations and Maintenance Agreement
•
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 the underground productive formations.
•
Formation. A layer of rock which has distinct characteristics that differs from nearby rock.
•
MBbl. One thousand barrels of crude oil, condensate or NGLs.
•
MBbl/d. One thousand barrels of crude oil, condensate or NGLsMBbl per day.
•
Mcf. One thousand cubic feet of natural gas.
•
Mcf/d. One Mcf per day.
•
MMBbl. One million barrels of crude oil, condensate or NGLs.
•
MMBtu. One million British thermal units.
•
MMcf. One million cubic feet of natural gas.
•
MMcf/d. One MMcf per day.
•
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 Alpine HighAltus Midstream Entities’ (as defined herein) names were changed to replace “Alpine High” in each name with “Altus Midstream.” As such, references

References to “Altus” and the “Company” include Altus Midstream EntitiesCompany and Altus Midstream Operating shall have the same meanings as ascribed to the Alpine High Entities and Alpine High Midstream, respectively, in the Company’s most recently filed Annual Report on Form 10-K.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 September 30, Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019
2019 2018 2019 2018        
(In thousands, except per share data) (In thousands, except per share data)
REVENUES:               
Midstream services revenue — affiliate (Note 3)$34,009
 $25,437
 $91,994
 $50,053
Midstream services revenue — affiliate (Note 2) $38,869
 $34,009
 $111,252
 $91,994
Product sales — third parties
 1,303
 0
 1,900
 0
Total revenues34,009
 25,437
 91,994
 50,053
 40,172
 34,009
 113,152
 91,994
COSTS AND EXPENSES:               
Costs of product sales 1,177
 0
 1,693
 0
Operations and maintenance (1)
13,063
 16,579
 43,466
 38,798
 8,960
 13,063
 29,059
 43,466
General and administrative (2)
3,242
 1,865
 8,314
 5,126
 2,936
 3,242
 10,102
 8,314
Depreciation and accretion11,710

5,483

28,468

14,404
 4,008
 11,710
 11,984

28,468
Impairments9,338
 —
 9,338
 —
 0
 9,338
 0
 9,338
Taxes other than income3,239
 1,226
 9,702
 6,479
 4,143
 3,239
 10,933
 9,702
Total costs and expenses40,592
 25,153
 99,288
 64,807
 21,224
 40,592
 63,771
 99,288
Operating income (loss)(6,583) 284
 (7,294) (14,754)
OPERATING INCOME (LOSS) 18,948
 (6,583) 49,381
 (7,294)
OTHER INCOME (LOSS):        
Unrealized derivative instrument loss(3,769) —
 (3,769) —
 (3,533) (3,769) (76,102) (3,769)
Interest income617

—

3,584

—
 0
 617
 9

3,584
Income from equity method interests, net1,564

—

536

—
 14,320
 1,564
 47,541

536
Other—
 —
 (17) —
 0
 0
 (355) (17)
Total other income (loss)(1,588) —
 334
 —
 10,787
 (1,588) (28,907) 334
Financing costs, net of capitalized interest522

—

1,508

—
 413
 522
 978

1,508
NET INCOME (LOSS) BEFORE INCOME TAXES(8,693) 284
 (8,468) (14,754) 29,322
 (8,693) 19,496
 (8,468)
Current income tax benefit 0
 0
 (696) 0
Deferred income tax benefit(505)
(18,924)
(510)
(9,733) 0
 (505) 0

(510)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS(8,188)
19,208

(7,958)
(5,021) 29,322
 (8,188) 20,192

(7,958)
Net income attributable to Preferred Unit limited partners17,480
 —
 21,623
 —
 19,332
 17,480
 56,358
 21,623
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS(25,668) 19,208
 (29,581) (5,021) 9,990
 (25,668) (36,166) (29,581)
Net loss attributable to Apache limited partner(20,804) —
 (23,524) —
Net income (loss) attributable to Apache limited partner 7,687
 (20,804) (28,361) (23,524)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS$(4,864) $19,208
 $(6,057) $(5,021) $2,303
 $(4,864) $(7,805) $(6,057)
               
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS, PER SHARE(3)
               
Basic$(0.06) $0.09
 $(0.08) $(0.03) $0.61
 $(1.30) $(2.08) $(1.62)
Diluted$(0.07) $0.09
 $(0.09) $(0.03) $0.30
 $(1.48) $(2.23) $(1.72)
WEIGHTED AVERAGE SHARES (3)
               
Basic74,929
 218,470
 74,929
 179,493
 3,746
 3,746
 3,746
 3,746
Diluted324,929
 218,470
 324,929
 179,493
 97,355
 16,246
 16,246
 16,246

(1)
Includes amounts of $1.2 million and $2.2 million and $2.3 million toassociated with related parties for the three months ended September 30, 20192020 and 2018,2019, respectively, and $7.1$4.0 million and $6.6$7.1 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. Refer to Note 3 — 2—Transactions with Affiliates.Affiliates.
(2)
Includes amounts of $1.6 million and $2.1 million and $1.8 million toassociated with related parties for the three months ended September 30, 20192020 and 2018,2019, respectively, and $4.7$5.1 million and $5.1$4.7 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. Refer to Note 3 — 2—Transactions with Affiliates.Affiliates.
(3)For periods prior to the Business Combination (as defined below), the number of shares has
Share and per share amounts have been retroactively restated to reflect the number of shares received by Apache. ForCompany’s reverse stock split, which was effected June 30, 2020. Refer to Note 9—Equity for further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.information.



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


ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS$(8,188) $19,208
 $(7,958) $(5,021)
OTHER COMPREHENSIVE LOSS, NET OF TAX:       
Share of equity method interests other comprehensive loss(591) —
 (1,634) —
COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS(8,779) 19,208
 (9,592) (5,021)
Comprehensive income attributable to Preferred Unit limited partners17,480
 —
 21,623
 —
Comprehensive loss attributable to Apache limited partner(21,282) —
 (24,845) —
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS$(4,977) $19,208
 $(6,370) $(5,021)


  Three Months Ended September 30, Nine Months Ended September 30,
  2020 2019 2020 2019
         
  (In thousands)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS $29,322
 $(8,188) $20,192
 $(7,958)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
Share of equity method interests other comprehensive income (loss) 681
 (591) (113) (1,634)
COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS 30,003
 (8,779) 20,079
 (9,592)
Comprehensive income attributable to Preferred Unit limited partners 19,332
 17,480
 56,358
 21,623
Comprehensive income (loss) attributable to Apache limited partner 8,211
 (21,282) (28,448) (24,845)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS $2,460
 $(4,977) $(7,831) $(6,370)













































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


ALTUS MIDSTREAM COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
 September 30, December 31,
 September 30, December 31, 2020 2019
 2019 2018    
 (In thousands, except per share data) (In thousands)
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents $2,594
 $449,935
 $1,983
 $5,983
Accounts receivable 556
 0
Accounts receivable from Apache Corporation (Note 1) 1,135
 —
 1,213
 5,195
Revenue receivables (Note 3) 11,726
 10,914
 11,975
 15,461
Inventories and other 15,181
 5,802
Assets held for sale 18,183
 —
Inventories 3,661
 4,027
Prepaid assets and other 1,153
 1,379
 999
 1,071
 49,972
 468,030
 20,387
 31,737
PROPERTY, PLANT AND EQUIPMENT:        
Property, plant and equipment 1,494,658
 1,251,217
 215,402
 207,270
Less: Accumulated depreciation and amortization (51,608) (24,320) (10,092) (1,468)
 1,443,050
 1,226,897
 205,310
 205,802
OTHER ASSETS:        
Equity method interests 1,094,564
 91,100
 1,524,410
 1,258,048
Deferred tax asset 68,598
 67,558
Deferred charges and other 5,651
 3,734
 6,263
 5,267
 1,168,813
 162,392
 1,530,673
 1,263,315
Total assets $2,661,835
 $1,857,319
 $1,756,370
 $1,500,854
        
LIABILITIES, NONCONTROLLING INTERESTS, AND EQUITY        
CURRENT LIABILITIES:        
Accounts payable to Apache Corporation (Note 1) $—
 $13,595
Current debt (Note 6) 17,562
 —
Other current liabilities (Note 7) 38,816
 84,926
Current debt (Note 5) $0
 $9,767
Other current liabilities (Note 6) 16,544
 23,925
 56,378
 98,521
 16,544
 33,692
LONG-TERM DEBT 235,000
 —
 580,000
 396,000
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:        
Asset retirement obligation 33,950
 29,369
 63,043
 60,095
Deferred tax liability 3,089
 2,643
Embedded derivative 98,228
 —
 179,031
 102,929
Other non-current liabilities 1,206
 —
 5,711
 4,614
 136,473
 32,012
 247,785
 167,638
Total liabilities 427,851
 130,533
 844,329
 597,330
        
COMMITMENTS AND CONTINGENCIES (Note 9) 

 

COMMITMENTS AND CONTINGENCIES (Note 7) 

 

        
Redeemable noncontrolling interest — Apache limited partner 1,251,370
 1,940,500
 238,842
 701,000
Redeemable noncontrolling interest — Preferred Unit limited partners 538,413
 —
 600,395
 555,599
        
EQUITY:        
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 74,929,305 shares issued and outstanding at September 30, 2019 and December 31, 2018 7
 7
Class C Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 250,000,000 shares issued and outstanding at September 30, 2019 and December 31, 2018 25
 25
Class A Common Stock: $0.0001 par, 1,500,000,000 shares authorized, 3,746,460 shares issued and outstanding at September 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 September 30, 2020 and December 31, 2019(1)
 1
 1
Additional paid-in capital 473,502
 —
 473,532
 39,822
Accumulated deficit (29,020) (213,746) (400,438) (392,633)
Accumulated other comprehensive loss (313) —
 (292) (266)
 444,201
 (213,714) 72,804
 (353,075)
Total liabilities, noncontrolling interests, and equity $2,661,835
 $1,857,319
 $1,756,370
 $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 consolidated financial statements are an integral part of this statement.


ALTUS MIDSTREAM COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,
 Nine Months Ended September 30, 2020 2019
 2019 
2018 (1)
    
 (In thousands) (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss including noncontrolling interests $(7,958) $(5,021)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Net income (loss) including noncontrolling interests $20,192
 $(7,958)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Unrealized derivative instrument loss 3,769
 —
 76,102
 3,769
Depreciation and accretion 28,468
 14,404
 11,984
 28,468
Deferred income tax benefit (510) (9,733) 0
 (510)
Income from equity method interests, net (536) —
 (47,541) (536)
Distributions from equity method interests 3,391
 —
 60,435
 3,391
Impairments 9,338
 —
 0
 9,338
Adjustment for non-cash transactions with affiliate(1)
 —
 (4,738)
Other 666
 —
 781
 666
Changes in operating assets and liabilities:        
Increase in inventories and other (676) (1,412)
Decrease in prepaid and other 237
 —
Increase in revenue receivables (Note 3) (798) (3,119)
Increase in accounts receivable from/payable to affiliate (5,011) —
(Increase) decrease in inventories 366
 (676)
Decrease in prepaid assets and other 72
 237
Increase in accounts receivable (556) 0
(Increase) decrease in revenue receivables (Note 2) 3,486
 (798)
(Increase) decrease in account receivables from/payable to affiliate 917
 (5,011)
Increase in accrued expenses 9,056
 9,619
 11,145
 9,056
Increase in deferred charges, deferred credits, and other noncurrent liabilities 64
 0
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,436
 —
 137,447
 39,436
        
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures (2)
 (307,010) —
Capital expenditures(1)
 (29,540) (307,010)
Proceeds from sale of assets 7,629
 0
Contributions to equity method interests (337,412) —
 (286,227) (337,412)
Distributions from equity method interests 14,235
 0
Acquisition of equity method interests (670,625) —
 0
 (670,625)
Capitalized interest paid (7,377) 0
NET CASH USED IN INVESTING ACTIVITIES (1,315,047) —
 (301,280) (1,315,047)
        
CASH FLOWS FROM FINANCING ACTIVITIES:        
Redeemable noncontrolling interest - Preferred Unit limited partners, net
611,249
 —
Redeemable noncontrolling interest — Preferred Unit limited partners, net
 0
 611,249
Distributions paid to Preferred Unit limited partners (11,562) 0
Proceeds from revolving credit facility 235,000
 —
 184,000
 235,000
Finance lease (17,187) —
 (11,789) (17,187)
Deferred facility fees (792) —
 (816) (792)
NET CASH PROVIDED BY FINANCING ACTIVITIES 828,270
 —
 159,833
 828,270
        
NET DECREASE IN CASH AND CASH EQUIVALENTS (447,341) —
DECREASE IN CASH AND CASH EQUIVALENTS (4,000) (447,341)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 449,935
 —
 5,983
 449,935
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,594

$—
 $1,983

$2,594
SUPPLEMENTAL CASH FLOW DATA:        
Accrued capital expenditures (3)
 $24,306
 $67,031
Finance lease liability(4)
 29,000
 —
Accrued capital expenditures(2)
 $256
 $24,306
Finance lease liability(3)
 0
 29,000
Interest paid, net of capitalized interest 685
 —
 94
 685
Cash received for income tax refunds 696
 0

(1)In all periods prior to
Following the Business Combination the Company had no banking or cash management activities. Transactions with Apache and asset transfers to and from the Company were not settled in cash and are therefore reflected as a component of equity and redeemable noncontrolling interests on the consolidated balance sheet. In addition, Apache contributed its investments in gas gathering, processing and transmission facilities of approximately $408.4 million that is included within equity and redeemable noncontrolling interests for the nine months ended September 30, 2018. Refer to Note 3 — Transactions with Affiliates for more information.
(2)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 — 1—Summary of Significant Accounting Policies and Note 3 — 2—Transactions with Affiliates for more information.
(3)(2)
Includes $0.3 million and $0.6 million due from Apache as of September 30, 2020 and 2019, respectively, pursuant to the terms of the COMA. Refer to Note 3 — 2—Transactions with Affiliates for more information.
(4)(3)The Company entered into a finance lease in the first quarter of 2019. Refer2019 for power generators, which ended during the first quarter of 2020. The Company then exercised its option to Note 1 — Summary of Significant Accounting Policies for more information.purchase the generators.

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
(Unaudited)
Redeemable Noncontrolling Interest — Preferred Unit Limited Partners (2)
 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
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(1)
 
Amount(1)
 
Shares(1)
 
Amount(1)
   
Shares(2)
 Amount 
Shares(2)
 Amount 
                                        
(In thousands)  (In thousands)(In thousands)  (In thousands)
                                        
For the Quarter Ended September 30, 2018                    
Balance at June 30, 2018$—
 $—
  6,197
 $—
 211,847
 $21
 $857,127
 $(42,804) $—
 $814,344
Issuance of shares—
 —
  1,116
 —
 38,153
 4
 121,175
 —
 —
 121,179
Net income—
 —
  —
 —
 —
 —
 —
 19,208
 —
 19,208
Balance at September 30, 2018$—
 $—
  7,313
 $—
 250,000
 $25
 $978,302
 $(23,596) $—
 $954,731
                    
For the Quarter Ended September 30, 2019                                        
Balance at June 30, 2019$520,933
 $1,272,652
  74,929
 $7
 250,000
 $25
 $473,502
 $(24,156) $(200) $449,178
$520,933
 $1,272,652
  3,746
 $1
 12,500
 $1
 $473,532
 $(24,156) $(200) $449,178
Net income (loss)17,480
 (20,804)  —
 —
 —
 —
 —
 (4,864) —
 (4,864)17,480
 (20,804)  —
 —
 —
 —
 —
 (4,864) —
 (4,864)
Accumulated other comprehensive loss—
 (478)  —
 —
 —
 —
 —
 —
 (113) (113)—
 (478)  —
 —
 —
 —
 —
 —
 (113) (113)
Balance at September 30, 2019$538,413
 $1,251,370
  74,929
 $7
 250,000
 $25
 $473,502
 $(29,020) $(313) $444,201
$538,413
 $1,251,370
  3,746
 $1
 12,500
 $1
 $473,532
 $(29,020) $(313) $444,201
                    
For the Quarter Ended September 30, 2020                    
Balance at June 30, 2020$592,625
 $230,631
  3,746
 $1
 12,500
 $1
 $473,532
 $(402,741) $(449) $70,344
Distributions paid to Preferred Unit limited partners(11,562) —
  —
 —
 —
 —
 —
 —
 —
 —
Net income19,332
 7,687
  —
 —
 —
 —
 —
 2,303
 —
 2,303
Accumulated other comprehensive income—
 524
  —
 —
 —
 —
 —
 —
 157
 157
Balance at September 30, 2020$600,395
 $238,842
  3,746
 $1
 12,500
 $1
 $473,532
 $(400,438) $(292) $72,804
(1)For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
(2)
Certain redemption features embedded within the Preferred Unit purchase agreementUnits require bifurcation and measurement at fair value. For further detail, refer to Note 12 — 10—Series A Cumulative Redeemable Preferred Units.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 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
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(1)
 
Amount(1)
 
Shares(1)
 
Amount(1)
   
Shares(2)
 Amount 
Shares(2)
 Amount 
                                        
(In thousands)  (In thousands)(In thousands)  (In thousands)
                                        
For the Nine Months Ended September 30, 2018                    
Balance at December 31, 2017$—
 $—
  3,965
 $—
 135,540
 $14
 $574,611
 $(18,575) $—
 $556,050
Issuance of shares—
 —
  3,348
 —
 114,460
 11
 403,691
 —
 —
 403,702
Net loss—
 —
  —
 —
 —
 —
 —
 (5,021) —
 (5,021)
Balance at September 30, 2018$—
 $—
  7,313
 $—
 250,000
 $25
 $978,302
 $(23,596) $—
 $954,731
                    
For the Nine Months Ended September 30, 2019                                        
Balance at December 31, 2018$—
 $1,940,500
  74,929
 $7
 250,000
 $25
 $—
 $(213,746) $—
 $(213,714)$0
 $1,940,500
  3,746
 $1
 12,500
 $1
 $30
 $(213,746) $0
 $(213,714)
Issuance of Series A Cumulative Redeemable Preferred Units(2)
516,790
 —
  —
 —
 —
 —
 —
 —
 —
 —
Issuance of Series A Cumulative Redeemable Preferred Units516,790
 —
  —
 —
 —
 —
 —
 —
 —
 —
Net income (loss)21,623
 (23,524)  —
 —
 —
 —
 —
 (6,057) —
 (6,057)21,623
 (23,524)  —
 —
 —
 —
 —
 (6,057) —
 (6,057)
Change in redemption value of noncontrolling interests—
 (664,285)  —
 —
 —
 —
 473,502
 190,783
 —
 664,285
—
 (664,285)  —
 —
 —
 —
 473,502
 190,783
 —
 664,285
Accumulated other comprehensive loss—
 (1,321)  —
 —
 —
 —
 —
 —
 (313) (313)—
 (1,321)  —
 —
 —
 —
 —
 —
 (313) (313)
Balance at September 30, 2019$538,413
 $1,251,370
  74,929
 $7
 250,000
 $25
 $473,502
 $(29,020) $(313) $444,201
$538,413
 $1,251,370
  3,746
 $1
 12,500
 $1
 $473,532
 $(29,020) $(313) $444,201
                    
For the Nine Months Ended September 30, 2020                    
Balance at December 31, 2019$555,599
 $701,000
  3,746
 $1
 12,500
 $1
 $39,822
 $(392,633) $(266) $(353,075)
Distributions paid to Preferred Unit limited partners(11,562) —
  —
 —
 —
 —
 —
 —
 —
 —
Net income (loss)56,358
 (28,361)  —
 —
 —
 —
 —
 (7,805) —
 (7,805)
Change in redemption value of noncontrolling interests—
 (433,710)  —
 —
 —
 —
 433,710
 —
 —
 433,710
Accumulated other comprehensive loss—
 (87)  —
 —
 —
 —
 —
 —
 (26) (26)
Balance at September 30, 2020$600,395
 $238,842
  3,746
 $1
 12,500
 $1
 $473,532
 $(400,438) $(292) $72,804
(1)For periods prior to the Business Combination, the number of shares has been retroactively restated to reflect the number of shares received by Apache. For further detail of the Business Combination and associated financial statement presentation, please refer to Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.
(2)
Certain redemption features embedded within the Preferred Unit purchase agreementUnits require bifurcation and measurement at fair value. For further detail, refer to Note 12 — 10—Series A Cumulative Redeemable Preferred Units.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)
These consolidated financial statements have been prepared by Altus Midstream Company without audit, pursuant to the rules and regulations of the Securities and Exchange 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, 20182019 (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, “we,” “us,” “our,” 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
    
Through its consolidated subsidiaries, Altus Midstreamthe Company owns gas gathering, processing and 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 or has options to own, equity interests in a total of 54 separate Permian Basin pipelines.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
AltusThe Company originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (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 Company closedKAAC completed its initial public offering in the second quarter of 2017.
On August 3, 2018, Altus Midstream LP was formed in Delaware as a limited partnership and wholly-owned subsidiary of the Company.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, Corporation (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 that certainthe 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 acquisition of the entities and the Pipeline Options is referred to herein as the Business Combination. In exchange, the consideration provided to Apache included equity consideration, comprising 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 the Business Combination, KAAC changed its name to Altus Midstream Company. Refer to Note 2 — Recapitalization Transaction, for further discussion.
Ownership of Altus Midstream LP
UponFollowing the closingClosing Date and in connection with the completion of the Business Combination, and as of September 30, 2019, Altus’the Company’s wholly-owned subsidiary, Altus Midstream GP LLC, a Delaware limited liability company (Altus Midstream GP), wasis the sole general partner of Altus Midstream.Midstream LP. The Company heldoperates its business through Altus Midstream LP and its subsidiaries, which include Altus Midstream Operating. The Company holds approximately 23.1 percent of the outstanding Common Units, ofand a controlling interest in Altus Midstream, while Apache heldholds the remaining 76.9 percent. Additionally, as of the Closing Date and as of September 30, 2019, Apache was the largest single holder of the Company’s voting common stock, comprising 100 percent of non-economic Class C Common Stock and approximately 9.8 percent of economic Class A Common Stock.


On June 12, 2019, Altus Midstream issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) in a private offering. Concurrently, the Preferred Units were established as a new class of partnership unit representing limited partner interests in Altus Midstream pursuant to the terms of a Second Amended and Restated Agreement of Limited Partnership of Altus Midstream (the Amended LPA), and the purchasers were admitted as limited partners of Altus Midstream. For further details on the terms of the Preferred Units and the rights of the holders thereof, refer to Note 12 — Series A Cumulative Redeemable Preferred Units.
The Amended LPA contains certain provisions intended to ensure that a 1-to-one ratio is maintained, at all times and subject only to limited exceptions, between (i) the number of outstanding shares of Class A Common Stock and the number of Altus Midstream Common Units held by Altus and (ii) the number of outstanding shares of Class C Common Stock and the number of Altus Midstream Common Units held by Apache.

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).
Principles of Consolidation
The consolidated financial results of Altus Midstream are included in Altus Midstreamthe Company’s consolidated financial statements due to Altus Midstreamthe Company’s 100 percent ownership interest in Altus Midstream GP, and Altus Midstream GP’s control of Altus Midstream.
Altus MidstreamThe Company has no independent operations or material assets other than its partnership interests in Altus Midstream, which constitutes all of its business. Altus Midstream Company’s only material net assets separate from Altus Midstream relate to deferred taxes andAdditionally, the current and deferred income tax expense (benefit) associated with its investment in Altus Midstream. The deferred tax asset balance was $68.6 million and $67.6 million as of September 30, 2019 and December 31, 2018, respectively. Additionally, Altus Midstream Company’s balance sheet reflects the presentation of noncontrolling interest ownership attributable to the limited partner interests in Altus Midstream held by Apache and the Preferred Unit holders. Refer to Note 13 — Income Taxes, Note 11 — Equity and Note 12 — Series A Cumulative Redeemable Preferred Units holders (the Preferred Units). Refer to Note 9—Equity and Note 10—Series A Cumulative Redeemable Preferred Unitsfor 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. Altus MidstreamThe Company is the primary beneficiary of the VIE,Altus Midstream, and therefore should consolidate Altus Midstream because (i) Altus Midstreamthe Company has the ability to direct the activities of Altus Midstream that most significantly affect its economic performance, and (ii) Altus Midstreamthe Company has the right to receive benefits or the obligation to absorb losses that could be potentially significant to Altus Midstream.
Financial Statement PresentationRedeemable Noncontrolling Interest — Apache Limited Partner
WhileThe Company’s redeemable noncontrolling interest presented in the consolidated financial statements consists of Common Units representing limited partner interests in Altus Midstream Company (formerly KAAC) washeld by Apache. Pursuant to certain provisions of the surviving legal entity,partnership agreement of Altus Midstream (as amended in connection with the Business Combination, was accounted for as a reverse recapitalization. As such, Altus Midstream Company was treated asand subsequent issuance of Preferred Units, the acquired company for financial reporting purposes.
As a resultAmended LPA), the limited partner interests held by Apache are equal to the number of shares of the Altus Midstream Entities beingCompany’s Class C common stock, $0.0001 par value (Class C Common Stock), held by Apache.
The Company initially recorded the accounting acquirer,redeemable noncontrolling interest upon the historical operationsissuance of the Altus Midstream Entities are deemedCommon Units to be those of the Company. Thus, the financial statements included in this report reflect: (i) the historical operating results of the Altus Midstream Entities prior to the Business Combination; (ii) the net assets of the Altus Midstream Entities at their historical cost; (iii) the consolidated results of the Company and the Altus Midstream Entities following the closingApache as part of the Business Combination;Combination and (iv)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 the redemption 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 customary 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 the higher of (i) its initial fair value plus accumulated earnings/losses associated with the noncontrolling interest or (ii) the redemption value as of the balance 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 purchasers of the Preferred 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 at the option of the Preferred Unit holders after the seventh anniversary of Closing or upon the occurrence of specified 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 the Preferred Units. Certain redemption features embedded within the terms of the 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 Note 10—Series A Cumulative Redeemable Preferred Units.
Equity Method Interests
The Company follows the equity method of accounting when it does not exercise 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 and distributions received by Altus. Please refer to Note 8—Equity Method Interests, for further details of the Company’s equity structure for all periods presented. No step-up in basis of the contributed assets and no intangible assets or goodwill was recorded in the Business Combination.


method interests.
Use of Estimates
Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities requires management to make estimates and assumptions that affect reported amounts of 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 may differ from 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 15 — 13—Fair Value Measurements.Measurements. The Company also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. During the three and nine month periods ended September 30, 2019, the Company recorded an impairment of $9.3 million on certain assets. Refer to Note 5 — Property, Plant and Equipment for further detail.
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 COMA.COMA 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 Company 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 3 — 2—Transactions with Affiliates.Affiliates.
LeasesChange in Accounting Policy

On JanuaryHistorically, the Company reported income and loss from equity method interests on a one-month reporting lag. Effective October 1, 2019, the Company adoptedeliminated this one-month reporting lag. In accordance with ASC 810-10-45-13, “A Change in the Fiscal Year-End Lag Between Subsidiary and Parent” (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 Standards Update (ASU) 2016-02, “Leases (Topic 842),Principle.” The Company believes that this change in accounting principle is preferable as it provides the Company with the ability to present the results of its equity method interests for the same period as all other consolidated results of the Company, which requires lesseesimproves


overall financial reporting to recognize separate right-of-use (ROU) assetsinvestors by providing the most current information available. The Company has not retrospectively applied the change in accounting principle since its impact to the consolidated balance sheet and lease liabilitiesrelated statements of operations and cash flows was immaterial for most leases classified as operating leases under previous GAAP. Priorall periods. For more information on equity method interests owned by the Company, please refer to adoption,Note 8—Equity Method Interests.
Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued transition guidance permitting an entity the option to not evaluate under ASU 2016-02 those existing or expired land easements that were not previously accounted for as leases, as well as an option to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the financial statements. The Company elected both transitional practical expedients. Under these transition options, comparative reporting was not required, and the provisions of the standard were applied prospectively to leases in effect at the date of adoption.

As allowed under the standard, the Company also applied practical expedients to carry forward its historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. The Company also elected to exclude short-term leases (those with terms of 12 months or less) from the balance sheet presentation and accounts for non-lease and lease components as a single lease component for all asset classes. Short-term lease expense was not material for the third quarter and first nine months of 2019.



The Company determines if an arrangement is an operating or finance lease at the inception of each contract. If the contract is classified as an operating lease, Altus records an ROU asset and corresponding liability reflecting the total remaining present value of fixed lease payments over the expected term of the lease agreement. The expected term of the lease may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. In the normal course of business, the Company enters into various lease agreements for real estate and equipment related to its midstream activities which are typically classified as operating leases under the provisions of the standard. ROU assets are reflected within “Deferred charges and other” on the Company’s consolidated balance sheet, and the associated operating lease liabilities are reflected within “Other current liabilities” and “Other noncurrent liabilities,” as applicable.

Operating lease expense associated with the ROU assets is recognized on a straight-line basis over the lease term. Lease expense is reflected on the statement of consolidated operations commensurate with the leased activities and nature of the services performed. Fixed operating lease expense was $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively.
In addition, the Company periodically enters into finance leases that are similar to those leases classified as capital leases under previous GAAP. The Company currently has 1 short-term finance lease, which is included in “Property, Plant and Equipment” on the consolidated balance sheet, and the associated finance lease liability is reflected within “Current debt.” The associated interest expense is reflected in the statement of consolidated operations within “Financing costs, net of capitalized interest.” Depreciation on the Company’s finance lease asset was $1.2 million and $3.7 million for the three and nine months ended September 30, 2019, respectively. Interest on the Company’s finance lease asset was $0.2 million and $0.8 million for the three and nine months ended September 30, 2019, respectively.

The following table represents the Company’s weighted average lease term and discount rate as of September 30, 2019:
  Operating Leases Finance Lease
Weighted average remaining lease term 2.9 years
 0.3 years
Weighted average discount rate 4.2% 4.2%

The undiscounted future minimum lease payments reconciled to the carrying value of the lease liabilities as of September 30, 2019 were as follows:
Net Minimum Commitments 
Operating Leases(1)
 
Finance Lease(2)
  (In thousands)
2019 $163
 $7,954
2020 652
 9,800
2021 622
 —
2022 445
 —
2023 —
 —
Thereafter —
 —
Total future minimum lease payments 1,882
 17,754
Less: imputed interest (105) (192)
Total lease liabilities 1,777
 17,562
Current portion (596)
(17,562)
Non-current portion $1,181
 $—
(1)Amounts are primarily associated with the Lease Agreement (as defined below) entered into with Apache relating to the use of certain office buildings, warehouse and storage facilities as described in Note 3 — Transactions with Affiliates.
(2)Amounts represent the Company’s finance lease obligation entered into during the first quarter of 2019 related to physical power generators being leased on a one-year term with the right to purchase.
The lease liability reflected in the table above represents the Company’s fixed minimum payments that are settled in accordance with the lease terms. Actual lease payments during the period may also include variable lease components such as common area maintenance, usage-based sales taxes and rate differentials, or other similar costs that are not determinable at the inception of the lease. Variable lease payments for the three and nine months ended September 30, 2019 were $0.1 million and $0.3 million, respectively.


Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASUUpdate (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. TheThis ASU requires the use of a new forward-looking “expected loss” model compared to the current “incurred loss” model;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 by removing certain exceptions to the general principles of ASC Topic 740 “Income Taxes.” In addition, the amendment improves consistent application of and simplifies GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. This update is effective for the Company 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.
New Pronouncements Issued But Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. This update is effective for Altus beginning in the first quarter of 2020,2022, with early adoption permitted.permitted, using either the modified or fully retrospective method with a cumulative effect adjustment to the opening balance of retained earnings. The Company is inevaluating the processeffect of finalizing its project plan for the implementationadoption of the ASU and continues to evaluate and monitor standard setting activity. The Company does not believe the adoption and implementation of this ASUit will have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. ASU 2018-13 is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures.
2.    RECAPITALIZATION TRANSACTION
Background and Summary
On August 8, 2018, KAAC and its then wholly-owned subsidiary, Altus Midstream LP, entered into the Contribution Agreement with certain wholly-owned subsidiaries of Apache, including the Altus Midstream Entities. The terms of the Contribution Agreement included that Altus Midstream would acquire from Apache, all of the outstanding equity interests in each of the Altus Midstream Entities and the Pipeline Options to acquire equity interests in certain third-party pipeline projects.
The Company consummated the Business Combination and certain other transactions contemplated by the Contribution Agreement on the Closing Date. On the Closing Date:
Altus Midstream issued Common Units to Apache, and the Company issued to Apache an equivalent number of shares of a newly-created class of voting-only common stock (Class C Common Stock).
The Company issued to Apache (i) newly issued shares of Class A Common Stock, (ii) warrants exercisable for shares of Class A Common Stock, and (iii) the right to receive additional shares of Class A Common Stock, based upon the achievement of certain price and operational thresholds.
The Company contributed $628.2 million in cash to Altus Midstream and in return, Altus Midstream issued to the Company a number of Common Units equal to the total number of shares of the Company’s Class A Common Stock outstanding as of the Closing Date.
For further discussion of Apache’s right to receive additional shares of Class A Common Stock, and other outstanding equity instruments that may impact ownership interests and the limited partnership interests of Altus Midstream in future periods, please see Note 11 — Equity.










Number of Shares at the Closing Date

The number of shares issued and outstanding immediately following the closing of the Business Combination is summarized in the table below.
number of sharesClass A Common Stock 
Class B Common Stock(1)
 Class C Common Stock
Shares outstanding prior to the Business Combination37,732,112
 9,433,028
 —
Less: redemption of public shares (2)
(29,469,858) —
 —
Add: shares issued in private placement57,234,023
 —
 —
Total shares outstanding prior to the Business Combination65,496,277
 9,433,028
 —
Shares, in connection with the Business Combination:     
Forfeited (3)
—
 (7,313,028) —
Converted (1)
2,120,000
 (2,120,000) —
Total shares outstanding immediately prior to the Closing Date67,616,277
 —
 —
Issued as consideration to Apache (4)
7,313,028
 —
 250,000,000
Total shares outstanding at the Closing Date74,929,305
 —
 250,000,000
(1)Shares of Class B Common Stock, $0.0001 par value (Class B Common Stock), were purchased by the Sponsor upon the Company’s incorporation in December 2016. Class B Common Stock is identical to Class A Common Stock except that they automatically converted to Class A Common Stock at the time of the Business Combination.
(2)Pursuant to the terms of KAAC’s amended and restated certificate of incorporation, public stockholders had the opportunity, in connection with the Business Combination, to redeem shares of Class A Common Stock. A total of 29,469,858 shares were redeemed for an aggregate amount of approximately $298.8 million.
(3)In connection with the Business Combination, the Sponsor agreed to forfeit shares of Class B Common Stock. As part of the consideration transferred in the Business Combination, 7,313,028 newly issued shares of Class A Common Stock were issued to Apache, equivalent to the number of shares of Class B Common Stock forfeited by the Sponsor. Additionally, the Sponsor forfeited a number of warrants originally issued simultaneously with the public offering.
(4)
The equity structure of the Altus Midstream Entities (the accounting acquirer) has been restated to reflect the number of shares of Altus Midstream Company (the accounting acquiree) issued in the recapitalization transaction. Please refer to the section below entitled “Basis of Presentation of Equity Structure” for further discussion.
Basis of Presentation of Equity Structure
As discussed in Note 1 — Summary of Significant Accounting Policies, the Business Combination was accounted for as a reverse recapitalization, with Altus Midstream Company treated as the acquired company, and the Altus Midstream Entities treated as the acquirer, for financial reporting purposes. Therefore, the equity structure in the consolidated financial statements is that of the Company restated for all periods presented.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares issued to Apache in connection with the recapitalization transaction. The value allocated to the shares issued to Apache reflects the capital structure of the Altus Midstream Entities prior to the Business Combination, which solely comprised capital contributions from Apache. Accordingly, shares of common stock issued to Apache in exchange for its ownership interests in the Altus Midstream Entities are retroactively restated from May 26, 2016 (inception), proportionate to the capital contributions made by Apache to the Altus Midstream Entities up to the Closing Date.


3.    TRANSACTIONS WITH AFFILIATES
Revenues
The Company has contracted to provide services including gas gathering, compression, processing, transportation,transmission, and NGL transportation,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 all of the periods presented, the Company’s only customer was Apache, although Altus Midstream is pursuing contracts with third parties that could be accommodated by existing capacity.
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 4 — 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 $2.2$1.2 million and $2.3$2.2 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $7.1$4.0 million and $6.6$7.1 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. The Company incurred general and administrative (G&A) expenses of $2.1$1.6 million and $1.8$2.1 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $4.7$5.1 million and $5.1$4.7 million for the nine months ended September 30, 20192020 and 2018,2019, respectively, including expenses related to the operational services agreement and the COMA as further described below.
Further information on the related-party agreementsoperating lease agreement in place during the period is also provided below.
Operational Services Agreement
Prior to the Business Combination, Apache provided operations, maintenance and management services to Altus Midstream Operating, pursuant to a service agreement (the Services Agreement). In accordance with the terms of the Services Agreement, Apache received a fixed fee per month for its overhead and indirect costs incurred on behalf of Altus Midstream Operating. All costs incurred by Altus Midstream Operating were paid by Apache.
Construction, Operations and Maintenance Agreement
At the closing of the Business Combination, the Company entered into the COMA with Apache, which superseded the Services Agreement.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: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;2019, (ii) $5.0 million for the period of January 1, 2020 through December 31, 2020;2020, (iii) $7.0 million for the period of January 1, 2021 through December 31, 2021;2021 and (iv) $9.0 million annually thereafter, as may be adjusted upwards based on actual internal overhead and general and administrative costs incurred, costs, until terminated. The annual fee was negotiated as part of the Business Combination to reimburse Apache for indirect costs incurred inof 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 directly incurred in connection with its role as service provider under the COMA. Costs incurred by Apache records costs directly associated with midstream activity, where substantially all the services are rendered for Altus Midstream, to unique midstream cost centers that are subsequently charged to Altus Midstream on a monthly basis.
The COMA stipulates that the Company shall provide reimbursement of amounts owing to Apache attributable to a 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 impact 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 September 30, 2020 and 2019, respectively, and $0.7 million and $0.8 million for the three and nine months ended September 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 for four years and may be extended by Altus Midstream for 3 additional, consecutive periods of twenty-four months.
Capitalized Interest

Prior To accommodate Altus Midstream’s desire to vacate the Business Combination,leased premises, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated aLease Agreement was amended in July 2020 to provide for its termination  with respect to all or any portion of interest on its corporate debt in determining capitalized interest associatedthe leased premises which Apache may sell, with the development of Altus Midstream Operating. Commensurate with Apache’s calculation, interest is capitalized as parta pro rata rent reduction if Apache sells less than all of the historical cost of developing and constructing assets. Significant midstream development assets that have not commenced operations qualify for interest capitalization. The associated capitalized interest was determined by multiplying Apache’s weighted-average borrowing cost of debt by the average amount of qualifying midstream assets. The amount of interest allocated and capitalized was $2.5 million and $7.1 million for the three and nine months ended September 30, 2018, respectively. Following the closing of the Business Combination, capitalized interest is determined based on interest expense incurred by Altus Midstream. Refer to Note 6 — Debt and Financing Costs for further information.leased premises.


4.


3.    REVENUE RECOGNITION
Revenue Recognition
The following table presents a disaggregation of the Company’s midstream services revenue by service type.revenue.
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 20182020 2019 2020 2019
 (In thousands)       
MIDSTREAM SERVICES REVENUE — AFFILIATE:        
Gas gathering $4,604
 $2,563
 $10,914
 $4,578
(In thousands)
Gas gathering and compression$5,352
 $4,604
 $15,466
 $10,914
Gas processing 25,315
 18,150
 68,994
 33,657
28,533
 25,315
 81,613
 68,994
Transmission 3,388
 4,671
 11,219
 11,756
3,861
 3,388
 11,262
 11,219
NGL transmission 702
 53
 867
 62
708
 702
 2,121
 867
 $34,009
 $25,437
 $91,994
 $50,053
Other415
 0
 790
 0
Midstream services revenue — affiliate38,869
 34,009
 111,252
 91,994
Product sales — third parties
1,303
 0
 1,900
 0
Total revenues$40,172
 $34,009
 $113,152
 $91,994

The Company currently recognizesprimarily generates revenue from its contracts with customers for the gathering, compression, processing, and transmission, and sale of natural gas and NGLs in exchange for a fee per unit of volumes processed or delivered during a given month.
Midstream Services Revenue — Affiliate
Midstream services revenue is attributable to services performed for Apache pursuant to separate long-term commercial midstream service agreements entered into with Apache for the midstream services presented above. These midstream service agreements have no minimum volume commitments or firm transportation commitments, instead they are underpinned by acreage dedications covering Alpine High. Pursuant toagreements. As part of these agreements, Altus Midstream is obligated to perform services onsubstantially all volumes producedof Apache’s natural gas production from its existing and future owned or controlled properties within the dedicated acreage,area of its entire Alpine High resource play is provided to the Company, so long as Apache has the right to market such product. Providing the production. In exchange for the aboverelated service on each volumetric unit represents a single, distinct performance obligation that is satisfied over time as services and in accordance with the terms of the midstream service agreements, theare rendered. The Company charges a fixed fee on a per-unit basis. Altus Midstream does not own or take title to the volumes that it handles.services under these agreements. Altus Midstream, in return for its performance, receives a fee per volumetric unit serviced during a given month. The related service fee charged per unit is set forth for each contract year, subject to yearly fee escalation recalculations.
These performance obligationsAs the amount of volumes serviced are satisfiednot subject to minimum commitments and each 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 the output method based on the amount of volumes serviced each month and the applicable service fee and recognized over time as Apache simultaneously receives and consumes the benefits of the services performed. Service revenues are recognized when the right to invoice has been met, sincein the amount that the Companyto which Altus Midstream has the right to invoice, (based upon the fixed fee and throughput volumes)as performance completed to date corresponds directly with the value received by Apache.
Pursuantto its customers. The transaction price is not constrained as variability is resolved prior to the termsrecognition of revenue.
Product Sales Revenue
Product sales revenues are attributable to the Contribution Agreement, all accounts receivablesale of purchased and processed NGL volumes with third party customers. As part of these agreements, Altus Midstream purchases volumes from Apache (including revenue receivables) on ora third party, which it then owns, controls and services, prior to September 30, 2018,ultimate sale to the customer. The physical delivery of each unit of quantity represents a single, distinct performance obligation that is satisfied at a point in time when control transfers to the customer, generally determined as the point of delivery. Prices are determined based on market-indexed values, adjusted for quality and other market-reflective differentials. As there are no provisions for minimum volume commitments and pricing is variable based on index values, revenue is measured by allocating an entirely variable market price to each performance obligation and recognized at a point in time when control is transferred to the account of Apache. No cash settlement of such balances was contemplatedcustomer. The transaction price is not constrained as variability is resolved prior to September 30, 2018the recognition of revenue.
Sales revenues and associated expenses related to such third-party purchases are recorded as such, revenue“Product sales — third parties” and “Costs of product sales,” respectively, in the Company’s statement of consolidated operations.




Payment Terms and Contract Balances
Payments are due the month immediately following the month of service. Amounts settled with Apache each month are based on the net amount owed to either party. Revenue receivables generated prior to this date were treated as a reduction to additional paid-in capital within equity. Followingfrom the Business Combination, service revenue invoices are provided toCompany’s contracts with Apache on a monthly basis, pursuant to the terms of the COMA. Amounts owing to Apache under the terms of the COMA are reduced by the amounts of these invoices. Net cash settlement is performed on a monthly basis. The Company recognized services revenue earned but not yet invoiced to Apache of $11.7totaled $12.0 million and $15.5 million as of September 30, 2019.2020 and December 31, 2019, respectively, as presented on the Company’s consolidated balance sheet. Sales revenue receivables from the Company’s contracts with third parties totaled $0.6 million as of September 30, 2020 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.


5.4.    PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at carrying value, is as follows:
 September 30, December 31,
 September 30, December 31, 2020 2019
 2019 2018    
 (In thousands) (In thousands)
Gathering, processing and transmission systems and facilities $1,304,175
 $729,585
 $211,975
 $198,133
Construction in progress (1)
 152,551
 521,609
 104
 5,443
Finance lease asset 34,749
 —
Other property and equipment 3,183
 23
 3,323
 3,694
Total property, plant and equipment 1,494,658
 1,251,217
 215,402
 207,270
Less: accumulated depreciation and amortization (51,608) (24,320) (10,092) (1,468)
Total property, plant and equipment, net $1,443,050
 $1,226,897
 $205,310
 $205,802
(1)
Included in the Company’s construction in progress iswas capitalized interest of $2.7 million and $6.9$0.6 million at December 31, 2019. There was 0 capitalized interest included in construction in progress as of September 30, 2019 and December 31, 2018, respectively.2020.

The cost of property classified as “Construction in progress” 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.

DuringProperty, 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 generated by an asset group. In conjunction with Apache’s decision in the thirdfourth 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.
The Company also elected to cancel construction on a compressor station givenin the deferralthird quarter of previous processing expansion plans. Certain2019, and as a result certain of theits components were then marketed by the Company, and it was determined that these components met the criteria to be classified as held for sale. Accordingly, Altus management reclassified these componentsassets to current assets held for sale, and they were initially measured at fair value less costs to sell. The fair value was determined using the market approach and Level 1 inputs. As a result, the assets were written down to their estimated fair value of $18.1 million, and the Company recorded an impairment of $9.3 million on these assets, which were written down to their fair value of $18.2 million. The fair value of the assets was determined using the market approach based on estimated sales proceeds, classified as Level 1 inputs in the fair value hierarchy. NaN impairments were recorded for the three and nine months ended September 30, 2019. The impairment is recorded within “Impairments” on the Company’s statement of consolidated operations. Subsequent to September 30, 2019, the Company received cash proceeds of approximately $13 million in relation to the sale of certain of the assets classified as held for sale.

Other components of the compressor station totaling $8.7 million will be stored and used as inventory by the Company and are therefore recorded within inventory on the consolidated balance sheet as of September 30, 2019. These components will be recorded at the lower of cost or net realizable value at each balance sheet date.2020.
6.


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 $650.0 million until the consolidated net income of Altus Midstream and its restricted subsidiaries, as adjusted pursuant to the agreement (EBITDA), for the immediately preceding fiscal quarter equals or exceeds $175.0 million on an annualized basis (such period, the Initial Period). Upon achieving such EBITDA, the Initial Period ends and the aggregate commitments increase to $800.0 million. AllThe 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. After the Initial Period, 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 September 30, 2020 and December 31, 2019, total outstanding borrowings were $235.0$580.0 million and $396.0 million, respectively, and 0 letters of credit were outstanding under this facility. There were 0 outstanding borrowings or letters of credit as of December 31, 2018.
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 Inter-bankInterbank Offered Rate (LIBOR), plus a margin; in each case, the margin during the Initial Period is 0.05 percent greater than the margin after the Initial Period.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 September 30, 2019,2020, the base rate margin was 0.100.05 percent, the LIBOR margin was 1.101.05 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 one of the following financial ratios:
during the Initial Period, a debt-to-capital ratio of not greater than 30.0 percent at the end of any fiscal quarter, determined by reference to (i) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (ii) (A) the consolidated partners’ equity of Altus Midstream and its restricted subsidiaries plus (B) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries; and

beginning with the quarter ending on the earlier of (i) March 31, 2020 or (ii) the last day of the fiscal quarter during which the Initial Period ends, 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 a 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 September 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 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 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 September 30, 2019.2020.


As of September 30, 2020 and December 31, 2019, the Company had debt outstanding totaling $252.6$580.0 million and $405.8 million, respectively. At December 31, 2019, $9.8 million of which $17.6 million isdebt outstanding was related to a finance lease obligation. As a resultobligation for which the term ended in the first quarter of the debt outstanding and giving effect to the debt-to-capital ratio requirements under the credit agreement, the maximum amount of net assets available to be transferred from Altus Midstream to Altus Midstream Company was $0.9 billion. This amount of net assets available to be transferred does not include the proportionate share of net assets of entities in which Altus Midstream has an interest accounted for by the equity method. Additionally, the amount of any cash distributions that may be transferred from these entities to Altus Midstream is subject to compliance with the terms of any debt or similar agreements held by the entities, as applicable. The terms of Altus Midstream’s Preferred Units also contain certain restrictions on distributions on Altus Midstream’s Common Units, including the Common 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 12 — Series A Cumulative Redeemable Preferred Units for further information.


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 September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
        
 (In thousands)
Interest income$0
 $617
 $9
 $3,584
Interest income$0
 $617
 $9
 $3,584
        
Interest expense$2,133
 $1,496
 $7,498
 $3,234
Amortization of deferred facility fees292
 237
 857
 652
Capitalized interest(2,012) (1,211) (7,377) (2,378)
Financing costs, net of capitalized interest$413
 $522
 $978
 $1,508

  Three Months Ended September 30, Nine Months Ended September 30,
  2019 
2018(1)
 2019 
2018(1)
  (In thousands)
Interest income $617
 $—
 $3,584
 $—
Interest income $617
 $—
 $3,584
 $—
         
Interest expense $1,496
 $2,504
 $3,234
 $7,054
Amortization of deferred facility fees 237
 —
 652
 —
Capitalized interest (1,211) (2,504) (2,378) (7,054)
Financing costs, net of capitalized interest $522
 $—
 $1,508
 $—
(1)Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a portion of interest on its corporate debt in determining capitalized interest associated with the development of Alpine High infrastructure. Refer to Note 3 — Transactions with Affiliates for further information.
7.6.    OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities at September 30, 20192020 and December 31, 2018:2019:
 September 30, December 31, September 30, December 31,
 2019 2018 2020 2019

 (In thousands)    
Accrued capital costs $24,931
 $80,696

 (In thousands)
Accrued taxes other than income 9,408
 69
 $11,054
 $689
Accrued operations and maintenance expense 1,864
 2,863
 1,470
 1,520
Accrued incentive compensation 1,362
 468
 1,100
 1,425
Operating lease liability - current 596
 —
Accrued interest 463
 232
Accrued professional and consulting fees 360
 158
Accrued capital costs 527
 17,035
Accrued finance lease liability 0
 1,989
Other 192
 598
 2,033
 1,109
Total other current liabilities $38,816
 $84,926
 $16,544
 $23,925

8.    ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the nine months ended September 30, 2019:
  (In thousands)
Asset retirement obligation at December 31, 2018 $29,369
Liabilities incurred during the period 3,406
Accretion expense 1,175
Asset retirement obligation at September 30, 2019 $33,950

ARO reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with the Company’s infrastructure assets which include central processing facilities, gathering systems and pipelines. Management utilizes independent valuation reports and estimates of current costs to project expected cash outflows for retirement obligations. Management estimates the ultimate productive life of the properties, a risk-adjusted discount rate, and an inflation factor in order to determine the current present value of this obligation. To the extent future revisions to these assumptions impact the present value of existing ARO, a corresponding adjustment is made to the property, plant and equipment balance.


9.7.    COMMITMENTS AND CONTINGENCIES

Accruals for loss contingencies arising from claims, assessments, litigation, environmental, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. As of September 30, 20192020 and December 31, 2018,2019, there were 0 accruals for loss contingencies.
Litigation
The Company is subject to governmental and regulatory controls arising in the ordinary course of business. ItThe Company is not aware of any pending or threatened legal proceedings against it at the opiniontime of managementthe filing of this Quarterly Report on Form 10-Q that any claims and litigation involving the Company are not likely towould have a material adverse effectimpact on the Company’s reportedits financial position, or results of operations.operations, or liquidity.
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.
Environmental Matters
As an owner of the infrastructure assets and with rights to surface lands, the Company is subject to various local and federal laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the Company for the cost of pollution clean-up resulting from operations and subject usthe 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 September 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.
Pursuant to the COMA with Apache, Altus Midstream will indirectly receive G&A support services including information technology, risk management, corporate planning, accounting, cash management, human resources, and other general corporate services. The COMA established a fixed annual support services fee to Apache of $3.0 million for the period from the execution of the COMA at
At the closing of the Business Combination, through December 31, 2019, $5.0 million in 2020, and $7.0 million in 2021. Beginning in 2022 through the term ofCompany entered into the COMA the associated fee will be $9.0 million annually and may be adjusted upwards based on actual incurred costs.
Concurrent with the closing of the Business Combination, Altus Midstream entered into the Lease Agreement with Apache, relatingwhich include contractual obligations for the Company to the use ofpay certain office buildings, warehousemanagement and storage facilities located in Reeves County, Texas. Under the terms of the Lease Agreement, Altus Midstream shall paylease rental fees, respectively, to Apache on a monthly basisover 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 initial term of the Lease Agreement isagreements. Refer to Note 2—Transactions with Affiliates for four years and may be extended by Altus Midstream for 3 additional, consecutive periods of twenty-four months.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 12 — 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 Note 8—Equity Method Interests.
At September 30, 20192020 and December 31, 2018,2019, there were no other material contractual obligations related to the entities included in the consolidated financial statements other than the performance of asset retirement obligations as referenced in Note 8 — Asset Retirement Obligation and required credit facility fees discussed in Note 6 — 5—Debt and Financing Costs.
Following the exercise of each Pipeline Option, the Company will be required to fund its pro-rata portion of any future capital expenditures for the development of the respective pipeline projects as referenced in Note 10 — Equity Method Interests.

Costs.


10.8.    EQUITY METHOD INTERESTS

As of September 30, 2019,2020, the Company had exercised 4 of its 5 Pipeline Options and, as a result, ownsowned the following equity method interests in Permian Basin long-haul pipeline entities. For each of the equity method interests, the Company has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the equity method interests. The table below presents the ownership percentage held by the Company for each entity:
September 30, 2019 December 31, 2018  September 30, 2020 December 31, 2019
In thousands, unless statedOwnership Amount Ownership Amount
Ownership Amount Amount
    
 (In thousands)
Gulf Coast Express Pipeline LLCGulf Coast Express Pipeline LLC16.0% $274,727
 15.0% $91,100
Gulf Coast Express Pipeline LLC16.0% $284,849
 $291,628
EPIC Crude Holdings, LPEPIC Crude Holdings, LP15.0% 127,742
 —% —
EPIC Crude Holdings, LP15.0% 182,260
 163,199
Permian Highway Pipeline LLCPermian Highway Pipeline LLC26.7% 224,152
 —% —
Permian Highway Pipeline LLC26.7% 575,782
 310,421
Breviloba, LLCBreviloba, LLC33.0% 467,943
 —% —
Breviloba, LLC33.0% 481,519
 492,800
  $1,094,564
   $91,100
  $1,524,410
 $1,258,048

As of September 30, 20192020 and December 31, 2018,2019, unamortized basis differences included in the equity method interest balances were $25.7$36.5 million and $5.8$29.7 million, respectively. These amounts represent differences in the Company’s contributions to date and Altus’the Company’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 nine months ended September 30, 2019:2020:
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  
 Total  Total
(In thousands)          
Balance at December 31, 2018$91,100
 $—
 $—
 $—
 $91,100
Acquisitions15,274
 51,810
 161,081
 442,460
 670,625
(In thousands)
Balance at December 31, 2019Balance at December 31, 2019$291,628
 $163,199
 $310,421
 $492,800
 $1,258,048
ContributionsContributions169,131
 82,499
 62,895
 22,887
 337,412
Contributions1,399
 27,000
 257,828
 0
 286,227
DistributionsDistributions(3,391) —
 —
 —
 (3,391)Distributions(39,304) 0
 0
 (35,366) (74,670)
Capitalized interest(1)
Capitalized interest(1)
0
 0
 7,377
 0
 7,377
Equity income (loss), netEquity income (loss), net2,613
 (4,849) 176
 2,596
 536
Equity income (loss), net31,126
 (7,826) 156
 24,085
 47,541
Accumulated other comprehensive lossAccumulated other comprehensive loss—
 (1,718) —
 —
 (1,718)Accumulated other comprehensive loss0
 (113) 0
 0
 (113)
Balance at September 30, 2019$274,727
 $127,742
 $224,152
 $467,943
 $1,094,564
Balance at September 30, 2020Balance at September 30, 2020$284,849
 $182,260
 $575,782
 $481,519
 $1,524,410

(1)Altus’ proportionate share of the Permian Highway Pipeline (PHP) construction costs is funded with the revolving credit facility. Accordingly, Altus capitalized $7.4 million of related interest expense during the nine months ended September 30, 2020, which is included in the basis of the PHP equity interest.



Summarized Financial Information
The following table represents aggregated selected income statement data for the Company’s equity method interests (on a 100 percent basis):
  Nine Months Ended September 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 $273,760
 $128,837
 $0
 $128,727
 $16,476
 $8,015
 $0
 $78,749
Operating expenses 77,606
 138,945
 69
 47,980
 1,218
 33,610
 41
 27,189
Operating income (loss) 196,154
 (10,108) (69) 80,747
 15,258
 (25,595) (41) 51,560
Net income (loss) 195,460
 (53,048) 587
 74,188
 17,090
 (35,620) 785
 51,560
Other comprehensive loss 0
 (752) 0
 0
 0
 (11,450) 0
 —
  
Three Months Ended September 30, 2019(1)
 
Nine Months Ended September 30, 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 $12,039
 $8,015
 $—
 $41,765
 $16,476
 $8,015
 $—
 $78,749
Operating expenses 1,033
 27,679
 21
 12,857
 1,218
 33,610
 41
 27,189
Operating income (loss) 11,006
 (19,664) (21) 28,908
 15,258
 (25,595) (41) 51,560
Net income (loss) 11,776
 (20,890) 554
 28,908
 17,090
 (35,620) 785
 51,560
Other comprehensive loss —
 (4,145) —
 —
 —
 (11,450) —
 —

(1)Although ourthe Company’s interests in EPIC Crude Holdings, LP, Permian Highway Pipeline LLC, and Breviloba, LLC were acquired on February 4, 2019,in March, May, 17, 2019, and July 31,of 2019, respectively, the financial results are presented for the entire three and nine month periodsmonths ended September 30, 2019 for comparability. Due to the timing for availability of financial statement information, summarized income statement data is presented on a one month delay for all equity interests.


11.9. EQUITY

Reverse Stock Split
Common Stock and Warrants
TheOn June 30, 2020, the Company effected a reverse stock split of the Company’s second amended and restated certificate of incorporation authorizes the issuance of 1,500,000,000 shares of Class A Common Stock, $0.0001 par value, and 1,500,000,000 shares of Class C Common Stock, $0.0001 par value. The Company’s shares of Class A Common Stock are listed on the NASDAQ Global Select Market under the symbol “ALTM.” As of September 30, 2019, there were 74,929,305 and 250,000,000 issued and outstanding shares of Class A Common Stock and Class C Common Stock respectively.
Holdersby a ratio of eachone-for-twenty. The par value and number of authorized shares of common stock and preferred stock were not affected by the reverse stock split. A corresponding number of Altus Midstream Common Units were also restated as part of the Class A Common Stockreverse stock split. All per-share and Class C Common Stock vote together as a single classshare amounts have been retroactively restated in this Quarterly Report on Form 10-Q for all matters submittedperiods presented to a vote of our stockholders, except as required by law. Only holders of Class A Common Stock are entitled to dividends or other liquidating distributions made byreflect the Company.
Shares of Class A Common Stock and certain warrants were originally issued in connection with the Company’s public offering, while shares of Class C Common Stock were newly issued in connection with the Business Combination.
Public Warrants
As of September 30, 2019, there were 12,577,350 Public Warrants outstanding. Each whole Public Warrant entitles the holder to purchase one share of Class A Common Stock at a price of $11.50 per share. The Public Warrants will expire five years after closing of the Business Combination or earlier upon redemption or liquidation. The Company may call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant with not less than 30 days’ notice provided to the Public Warrant holders. However, this redemption right can only be exercised if the reported last sale price of the Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days prior to sending the notice of redemption to the Public Warrant holders.
Following the closing of the Business Combination, the Public Warrants continued trading under the symbol “ALTMW.” On December 11, 2018, the Company received notice from the Staff of the NASDAQ of a delisting determination with respect to our Public Warrants for failure to satisfy the NASDAQ’s minimum round lot holder listing requirement. The Public Warrants ceased trading on the NASDAQ at the opening of business on December 20, 2018. The delisting of the Public Warrants did not impact the listing or trading of the Company’s Class A Common Stock.
Private Placement Warrants
As of September 30, 2019, there were 6,364,281 Private Placement Warrants, of which Apache holds 3,182,140. The Private Placement Warrants are identical to the Public Warrants discussed above, except (i) they will not be redeemable by the Company so long as they are held by the initial holders or their respective permitted transferees and (ii) they may be exercised by the holders on a cashless basis.reverse stock split.
Redeemable Noncontrolling Interest -— Apache Limited Partner
In conjunction with the issuance of the Class C Common Stock, Apache received 250,000,000owns 12,500,000 Altus Midstream Common Units, representing approximately 76.9 percent of the total Common Units issued and outstanding. The financial results of Altus Midstream and its subsidiaries are included in the Company’s consolidated financial statements as detailed in Note 1 —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 Common Units issued to Apache, in exchange for shares of the Company’s Class A Common Stock on a 1-for-one basis or, at 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 such Common Units in lieu of such a 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 orand (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 September 30, 2019,2020, the redeemable noncontrolling interest of $238.8 million was recorded based on the initial fair value plus accumulated earnings and losses to date. The maximum redemption value at September 30, 20192020 based on the 5-day VWAP was $713.1$137.8 million. At December 31, 2018,2019, the redeemable noncontrolling interest was recorded at the maximum redemption value based on the 5-day VWAP.VWAP of $701.0 million.
For further discussion of Apache’s right to receive additional shares of Class A Common Stock, and other outstanding equity instruments that may impact ownership interests and the limited partner interests of Altus Midstream in future periods, see Note 14 — 12—Net Income (Loss) Per Share.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 Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option 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 12 — 10—Series A Cumulative Redeemable Preferred Units for further discussion.
12.10.    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.
At the Closing, the partners of Altus Midstream entered into the Amended LPA. The Amended LPA provides the terms of the Preferred Units, including the distribution rate, redemption rights, and rights to exchange the Preferred Units for shares of the Company’s Class A Common Stock, as well as rights of holders of the Preferred Units to approve certain partnership business, financial, and governance-related matters. The Preferred Units have a perpetual term, unless redeemed or exchanged as described below. Pursuant to the Amended LPA:
The Preferred Units entitle the holders thereof to receive quarterly distributions at a rate of 7 percent per annum, commencing with the quarter ended June 30, 2019. The rate increases to 10 percent per annum after the fifth anniversary of Closing and upon the occurrence of specified events. For any quarter ending on or prior to December 31, 2020, Altus Midstream may pay distributions in-kind.
The Preferred Units are redeemable at Altus Midstream’s option at any time in cash at a redemption price (the Redemption Price) equal to (a) the greater of (i) an 11.5 percent internal rate of return (increasing to 13.75 percent after the fifth anniversary of Closing), and (ii) a 1.3x multiple of invested capital plus (b) if applicable, the value of any accrued and unpaid distributions. The Preferred Units will be redeemable at the holder’s option upon a change of control or liquidation of Altus Midstream and certain other events, including certain asset dispositions. Subject to compliance with minimum ownership requirements and redemption restrictions of the Amended LPA, Apache’s election to cause its Common Units in Altus Midstream to be redeemed for shares of the Company’s Class A Common Stock or cash (as further discussed in Note 11 — Equity) would not be a change of control.
The Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders after the seventh anniversary of Closing or upon the occurrence of specified events. Each Preferred Unit will be exchangeable for a number of shares of Class A Common Stock equal to the Redemption Price divided by the volume-weighted average trading price of the Class A Common Stock on the NASDAQ Global Select Market for the 20 trading days immediately preceding the second trading day prior to the applicable exchange date, less a 6 percent discount.
Each outstanding Preferred Unit has a liquidation preference equal to the Redemption Price payable before any amounts are paid in respect of Altus Midstream’s Common Units and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. 


Altus Midstream is restricted from declaring or making cash distributions on its Common Units until all required distributions on the Preferred Units have been paid. In addition, before the fifth anniversary of Closing, aggregate cash distributions on, and redemptions of, Common Units are limited to $650 million of cash from ordinary course of operations if permitted under the Amended Credit Agreement. Cash distributions on, and redemptions of, Common Units also are subject to satisfaction of leverage ratio requirements specified in the Amended LPA.
Since the Preferred Units could be exchanged for a number of shares of Class A Common Stock equal to 20 percent or more of the Company’s outstanding voting power, the Company has agreed to submit the potential issuance of such shares for approval of its stockholders (the Stockholder Approval) at its annual stockholder meeting in 2020. In connection with the Closing, Apache, the Company, and certain purchasers of Preferred Units entered into a voting agreement pursuant to which Apache has agreed to vote all shares of common stock of the Company over which Apache has beneficial ownership in favor of the Stockholder Approval. The Amended LPA provides that the Preferred Units will not be exchangeable into more than 19.5 percent of the outstanding voting power of the Company unless the Stockholder Approval is obtained.
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 Measurement
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 15 — 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 orand (b) the accreted value of the net transaction price.


Activity related to the Preferred Units during the nine months ended September 30, 20192020 is as follows:
  Nine Months Ended September 30, 2019
  Units Outstanding 
Financial Position(3)
  (In thousands, except for unit data)
Redeemable noncontrolling interest - Preferred Units: beginning of period —
 $—
  Issuance of Preferred Units, net 625,000
 516,790
Distribution of in-kind additional Preferred Units(1)
 2,188
 —
Allocation of Altus Midstream net income N/A
 20,844
Accreted value adjustment N/A
 779
Redeemable noncontrolling interest - Preferred Units: end of period 627,188
 $538,413
Embedded derivative liability(2)
   98,228
    $636,641
  Nine Months Ended September 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
 —
Cash distributions paid to Preferred Unit limited partners —
 (11,562)
Allocation of Altus Midstream net income N/A
 56,358
Redeemable noncontrolling interest — Preferred Units: at September 30, 2020 660,694
 $600,395
Embedded derivative liability(1)
   179,031
    $779,426

(1)Subsequent to the balance sheet date, Altus Midstream provided notice to the Preferred Unit holders of record at September 30, 2019 of the amount of the distribution on the Preferred Units for the quarter ended September 30, 2019. The holders also were notified that Altus Midstream elected to pay the entire amount of the approximate $11.0 million distribution in-kind in additional Preferred Units (PIK Units) on November 14, 2019. In total, 10,975.8 PIK Units will be issued in satisfaction of the required distribution.
(2)
See Note 15 — 13—Fair Value Measurements for discussion of the fair value changes in the embedded derivative liability during the period.
(3)(2)The Preferred Units are redeemable at Altus Midstream’s option at September 30, 2020 at a price (the Redemption Price) equal to (a) the greater of (i) an 11.5 percent internal rate of return and (ii) a 1.3 times multiple of invested capital. As of September 30, 2019,2020, the greater of these two amounts was a 1.3 times multiple of invested capital which equaled $812.5 million. As of September 30, 2020, the aggregate Redemption Price was $645.8 million, based onusing an 11.5 percent internal rate of return of 11.5 percent.was $708.6 million.

N/A - not applicable.
13.11. INCOME TAXES
Altus MidstreamThe Company is subject to U.S. federal income tax and the Texas Marginmargin tax. At September 30, 2019, Altus Midstream Company had a net deferred tax asset of $68.6 million, primarily related to its net operating loss carryforward and its investment in Altus Midstream LP. Altus Midstream LP is a partnership for federal income tax purposes and passes through its taxable income to its partners.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 Marginmargin tax and as such, records a state income tax provision. At
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.
During the three and nine months ended September 30, 2019, Altus Midstream LP had a net deferred state income tax liability of $3.1 million.
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering that admitted additional limited partners with separate rights for the Preferred Unit holders. The Preferred Units are accounted for on the Company’s consolidated balance sheet as a redeemable noncontrolling interest classified as temporary equity. For financial statement reporting purposes, the Company applies a two-step approach to subsequent measurement of the Preferred Units. Under this approach, net income is first allocated to the Preferred Unit holders in accordance with the terms of the Amended LPA. An additional adjustment may be made to increase the carrying amount after the attribution of net income, as further described in Note 12 — Series A Cumulative Redeemable Preferred Units. Both the allocation of net income and any subsequent adjustment based upon accretion of the net transaction price (if applicable) reflect income that will be taxable to the Preferred Unit holders. Accordingly, Altus Midstream Company’s federal income tax provision reflects this income allocation as a reduction in2020, the Company’s effective income tax rate.

rate was primarily impacted by an increase in valuation allowance. During the three and nine months ended September 30, 2019, the Company’s effective income tax rate was primarily impacted by the net loss attributable to Apache limited partner, subsequent measurement ofthe noncontrolling interest, income allocated to the Preferred Units as described above,Unit holders, and the impact of state income taxes. During
In the three and nine monthsfirst 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 September 30, 2018,March 31, 2020 using the Company’s effective income tax rate was primarily impacted byprospective transition approach did not result in a material impact on the release of the valuation allowance.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.



14.12.    NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income (loss) availableattributable to Class A common shareholders by the weighted average numbersnumber of shares of Class A Common Stock outstanding during the period. Class C Common Stock is excluded from the weighted average shares outstanding immediately following the Closing Date for the calculation of basic net income (loss) per share, as holders of Class C Common Stock are not entitled to any dividends or liquidating distributions.
The Company uses the “if-converted method” to determine the potential dilutive effect of (i) exchangesan assumed exchange of outstanding Common Units of Altus Midstream and(and the cancellation of a corresponding number of shares of its outstanding Class C Common Stock) for shares of Class A Common Stock, (ii) earn-out consideration payable in shares of Class A Common Stock, and (iii) an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Class A Common Stock. The treasury stock method is used to determine the potential dilutive effect of its outstanding warrants.
The computation of basic and diluted net income (loss) per share for the periods presented in the consolidated financial statements is shown in the tabletables below.
 Three Months Ended September 30,
 2019 
2018(1)
 Loss Shares Per Share Income Shares Per Share
 (In thousands, except per share data)
Basic:           
Net income (loss) attributable to Class A common shareholders$(4,864) 74,929
 $(0.06) $19,208
 218,470
 $0.09
            
Effective of dilutive securities:           
Redeemable noncontrolling interest — Apache limited partner$(19,222)
250,000
  
$—

—
  
            
Diluted:           
Net income (loss) attributable to Class A common shareholders$(24,086) 324,929
 $(0.07)
$19,208

218,470
 $0.09

 Three Months Ended September 30,
 2020 2019
 Income Shares Per Share Loss 
Shares(1)
 
Per Share(1)
            
 (In thousands, except per share data)
Basic and diluted:           
Net income (loss) attributable to Class A common shareholders$2,303
 3,746
 $0.61
 $(4,864) 3,746
 $(1.30)
Effect of dilutive securities:           
Redeemable noncontrolling interest — Apache limited partner$0
 0
   $(19,222) 12,500
  
Redeemable noncontrolling interest — Preferred Unit limited partners$26,813
 93,609
   $0
 0
  
Diluted(2)(3):
           
Net income (loss) attributable to Class A common shareholders$29,116
 97,355
 $0.30
 $(24,086) 16,246
 $(1.48)
Nine Months Ended September 30,
Nine Months Ended September 30,2020 2019
2019 
2018(1)
Loss Shares Per Share Loss 
Shares(1)
 
Per Share(1)
Loss Shares Per Share Loss Shares Per Share           
(In thousands, except per share data)(In thousands, except per share data)
Basic:                      
Net loss attributable to Class A common shareholders$(6,057) 74,929
 $(0.08) $(5,021) 179,493
 $(0.03)$(7,805) 3,746
 $(2.08) $(6,057) 3,746
 $(1.62)
           
Effective of dilutive securities:           
Effect of dilutive securities:           
Redeemable noncontrolling interest — Apache limited partner$(21,919) 250,000
   $—
 —
  $(28,361) 12,500
   $(21,919) 12,500
 

           
Diluted:           
Diluted(2):
           
Net loss attributable to Class A common shareholders$(27,976) 324,929
 $(0.09) $(5,021) 179,493
 $(0.03)$(36,166) 16,246
 $(2.23) $(27,976) 16,246
 $(1.72)
(1)Shares
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 an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Class A Common Stock would have been anti-dilutive for the three month period ended September 30, 2019, and also the nine month periods ended September 30, 2020 and 2019.
(3)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 issued to Apache in exchangeStock) would have been anti-dilutive for its ownership interests in the Altus Midstream Entities were retroactively restated from May 26, 2016 (inception) to the Closing Date, based on the proportionate value of the capital contributions made by Apache to the Altus Midstream Entities. The calculation of the weighted average shares outstanding from inception up to the Closing Date includes all shares issued to Apache, in order to reflect Apache’s 100 percent economic interest in the Altus Midstream Entities until that time. For further detail of the Business Combination and associated financial statement presentation, see Note 1 — Summary of Significant Accounting Policies and Note 2 — Recapitalization Transaction.three month period ended September 30, 2020.


The diluted earnings per share calculation excludes the effect of an assumed exchange of the Preferred Units for shares of Class A Common Stock and the effecteffects of the outstanding warrants of the Company to purchase an aggregate 18,941,631947,082 shares of Class A Common Stock since the associated impacts would have been anti-dilutive for all relevant periods presented. Further discussion of the Company’s outstanding common stock, warrants and earn-out consideration as well as any applicable redemption rights is provided in Note 11 — Equity.
Further discussion of the Preferred Units and associated embedded features can be found in Note 12 — 10—Series A Cumulative Redeemable Preferred Units and Note 15 — 13—Fair Value Measurements, respectively. Earn-out consideration granting Apache the right to receive up to 37,500,000additional shares of Class A Common Stock is not included in the earnings per share calculation above, as the conditions for issuance were not satisfied as of the quarter ended September 30, 2019.2020.
15.


13. FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of: cash and cash equivalents; revenue receivables; accounts receivable from, or from/payable to ApacheApache; and an embedded derivative liability related to the issuance of Preferred 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 reflective 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. The carrying amount of Altus Midstream’s revolving credit facility approximates fair value because the interest rate is variable and reflective of market rates. There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the quarternine months ended September 30, 20192020 or September 30, 2018.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 of the embedded derivative (using an income approach) was based on a range of factors including: expected future interest rates using the Black-Karasinski model;model, the Company’s imputed interest rate;rate, the timing of periodic cash distributions and dividend yields of the Preferred Units. The embedded derivative liability hadCompany recorded an initial fair valueunrealized loss of $94.5$3.5 million at Closing. Duringand $3.8 million for the three months ended September 30, 2020 and 2019, respectively, and an unrealized loss of $76.1 million and $3.8 million for the nine months ended September 30, 2020 and 2019, the Company recorded an unrealized loss related to this derivative liability totaling $3.8 million,respectively, which isare recorded in “unrealized“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 September 30, 2020 valuation date, the Company used the forward B-rated Energy Bond Yield curve to develop the following key unobservable inputs used to value this embedded derivative:
  Quantitative Information About Level 3 Fair Value Measurements
  Fair Value at September 30, 2020 Valuation Technique Significant Unobservable Inputs Range/Value
         
  (In thousands)      
Preferred Units Embedded Derivative $179,031
 Option Model Altus Midstream Company’s Imputed Interest Rate 14.54-16.18%
      Interest Rate Volatility 35.32%


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 the imputed interest rate assumption would significantly increase the value of the embedded derivative at September 30, 2020, while a one percent decrease would have the directionally inverse affect as of September 30, 2020.
The Company has additional embedded derivatives in the Preferred Units related to the exchange option and redemption features that are accounted for separately from the Preferred Units. Level 3 valuationvaluations of the embedded derivatives are based 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 any applicable period presented.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the Company’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 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 (Form 10-K). 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, “we,” “us,” “our,” 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.
Overview
Altus Midstream Company (the Company or Altus), through ourits 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, we own, or have options to own,the Company owns equity interests in a total of fivefour Permian Basin pipelines (the Pipeline Options), four of which goEquity Method Interest Pipelines) that have or will have access to various points along the Texas Gulf Coast, providing the Company with additional access to fully integrated, wellhead-to-water connectivity. OurCoast. The Company’s operations compriseconsist of one reportable segment.
We haveThe Company has no independent operations or material assets outside ourits ownership interest in Altus Midstream, which we reportis reported on a consolidated basis. As of September 30, 2019,2020, Altus Midstream’s assets included approximately 178182 miles of in-service natural gas gathering pipelines, approximately 5546 miles of residue gas pipelines with four market connections, and approximately 38 miles of NGL pipelines. Two of three planned newThree cryogenic processing trains, each with nameplate capacity of 200 MMcf/d, were placed into service in the first nine months of 2019. Construction on the third train is complete and is expected to be in-service in the fourth quarter ofduring 2019. Other assets include an NGL truck loading terminal with six lease automatic custody transfer (LACT)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.
Corporate HistoryAs of September 30, 2020, the Company owns the following Equity Method Interest Pipelines:
We were originally incorporated on December 12, 2016 in Delaware under the name Kayne Anderson Acquisition Corp. (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. We completed our initial public offering16 percent equity interest in the second quarterGulf 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 energy industry have been deeply impacted by the effects of 2017, after which our initial securities began trading on the NASDAQ Global Select Market.
On August 8, 2018, KAACcoronavirus disease 2019 (COVID-19) pandemic and our then wholly-owned subsidiary,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. Altus Midstream LP, a Delaware limited partnership, 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 four 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 andmanagement continues to monitor natural gas assets in Alpine High.
On November 9, 2018 (the Closing Date) and pursuant to the terms of that certain Contribution Agreement, we acquiredthroughput 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 entire equity interestscurrent market situation has slowed the pace of thethis activity. Altus Midstream Entities and Pipeline Options to acquire equity interests in five separate third-party pipeline projects. We refer to the acquisition of the entitieshas no upcoming debt maturities, and the Pipeline Options ascredit facility revolver extends through November of 2023 to provide liquidity to meet foreseeable investment needs. Additionally, the Business Combination. In exchange,Company expects to be cash flow positive upon the consideration providedstart-up of PHP anticipated in early 2021, at which point future capital requirements are expected to Apache included economic votingbe minimal.
The current crisis, however, is still evolving and non-economic voting shares in Altus Midstream Companymay become more severe and common partnership units representing limited partner interests in Altus Midstream (Common Units). At the time of the Business Combination, we changed our name from Kayne Anderson Acquisition Corp. to Altus Midstream Company.
Presentation of Financial and Operating Information
While Altus Midstream Company (formerly KAAC) was the surviving legal entity, the Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Altus Midstream Company was treated as the acquired company for financial reporting purposes.complex. As a result, the historical operations of Altus Midstream Operating are deemedCOVID-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 thosea 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 the Company. Thus, the financial statements and related information included in this Quarterly Report on Form 10-Q reflect (i) the historical operating results of Altus Midstream Operating prior to the Closing Date, (ii) the net assets of Altus Midstream Operating at their historical cost, (iii) the consolidated results of Altus and Altus Midstream Operating after the Closing Date, and (iv) Altus’ equity structure for all periods presented.10-Q.



Altus Midstream Operational AssessmentMetrics
We useThe Company uses a variety of financial and operational metrics to assess the performance of ourits 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 driven 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 future periods will depend on the production level of Apache’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 processing 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;revenues. Apache shut in approximately 70 MMcf/d of production in response to low commodity prices, which fell as a result of lower demand and higher uncertainty associated with the COVID-19 pandemic. In addition, unplanned downtime to address moisture in the residue pipeline reduced throughput by approximately 40 MMcf/d. These volumes were back on-line at the beginning of the third quarter.
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 COVID-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 are positioned in one of the most active regions for oil and gas exploration and development activities in the United States, and the Company is actively pursuing new supplies of natural gas and processing arrangements with third parties to increase throughput volumes in its systems.
Costs and expenses.Expenses
Operations and maintenance
Operations and maintenance expenses primarily comprise those costs that are directly associated with the operations 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 long-lived asset impairments would decrease expected depreciation expense to commensurate levels.
General and administrative
General and administrative (G&A) expense represents indirect costs and overhead expenditures incurred by the Company associated with managing the midstream assets. These expenses primarily comprise fixed fees set forth in the Construction,Operations and Maintenance Agreement (COMA) entered into with Apache. Refer to Note 2—Transactions with Affiliates in the Notes to Consolidated Financial Statements set forth in Part I of this 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
We defineThe Company defines Adjusted EBITDA as net income (loss) including noncontrolling interests before financing costs (net of capitalized interest), interest income, income taxes, depreciation, and accretion and adjustadjusts such items, as applicable, from income from our equity method interests. WeAltus also excludeexcludes (when applicable) impairments, unrealized gains or losses on derivative instruments, and other items affecting comparability of results to peers. OurCompany management believes Adjusted EBITDA is useful for evaluating our operating performance and comparing results of our 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, 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 ourthe Company’s operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing ourAltus’ financial performance, such as our cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. The presentation of Adjusted EBITDA should not be construed as an inference that ourthe Company’s results will be unaffected by unusual or non-recurring items. Additionally, ourthe Company’s computation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA is not defined in GAAP
The GAAP measure used by the Company that is 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 GAAP. 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 as a substitute for analysis of the Company’s results as reported under GAAP. Our definitionsThe Company’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies in ourthe industry, thereby diminishing its utility.
Reconciliation of non-GAAP financial measuresmeasure
OurCompany 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. Our managementManagement believes that investors benefit from having access to the same financial measuresmeasure 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 September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
  (In thousands)
Reconciliation of net income (loss) including noncontrolling interests to Adjusted EBITDA        
Net income (loss) including noncontrolling interests $(8,188) $19,208
 $(7,958) $(5,021)
Add:        
Financing costs, net of capitalized interest 522
 —
 1,508
 —
Deferred income tax benefit (505) (18,924) (510) (9,733)
  Depreciation and accretion 11,710
 5,483
 28,468
 14,404
Impairments 9,338
 —
 9,338
 —
Unrealized derivative instrument loss 3,769
 —
 3,769
 —
Equity method interests Adjusted EBITDA 2,707
 —
 2,873
 —
Other 644
 —
 644
 —
Less:        
  Interest income 617
 —
 3,584
 —
Income from equity method interests, net 1,564
 —
 536
 —
Adjusted EBITDA $17,816

$5,767

$34,012

$(350)


 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
        
 (In thousands)
Reconciliation of net income (loss) including noncontrolling interests       
Net income (loss) including noncontrolling interests$29,322
 $(8,188) $20,192
 $(7,958)
Add:       
Financing costs, net of capitalized interest413
 522
 978
 1,508
  Depreciation and accretion4,008
 11,710
 11,984
 28,468
Impairments—
 9,338
 —
 9,338
Unrealized derivative instrument loss3,533
 3,769
 76,102
 3,769
Equity method interests Adjusted EBITDA29,952
 2,707
 81,869
 2,873
Other—
 644
 290
 644
Less:       
Gain on sale of assets, net—
 —
 76
 —
  Interest income—
 617
 9
 3,584
Income from equity method interests, net14,320
 1,564
 47,541
 536
Income tax benefit—
 505
 696
 510
Other—
 —
 2
 —
Adjusted EBITDA$52,908
 $17,816

$143,091

$34,012


Results of Operations

The following table presents the Company’s results of operations for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
 Three Months Ended September 30, Nine Months Ended September 30,2020 2019 2020 2019
 2019 2018 2019 2018       
 (In thousands)(In thousands)
REVENUES:               
Midstream services revenue — affiliate $34,009
 $25,437
 $91,994
 $50,053
$38,869
 $34,009
 $111,252
 $91,994
Product sales — third parties1,303
 —
 1,900
 —
Total revenues 34,009
 25,437
 91,994
 50,053
40,172
 34,009
 113,152
 91,994
COSTS AND EXPENSES:               
Costs of product sales1,177
 —
 1,693
 —
Operations and maintenance 13,063
 16,579
 43,466
 38,798
8,960
 13,063
 29,059
 43,466
General and administrative 3,242
 1,865
 8,314
 5,126
2,936
 3,242
 10,102
 8,314
Depreciation and accretion 11,710
 5,483
 28,468
 14,404
4,008
 11,710
 11,984
 28,468
Impairments 9,338
 —
 9,338
 —
—
 9,338
 —
 9,338
Taxes other than income 3,239
 1,226
 9,702
 6,479
4,143
 3,239
 10,933
 9,702
Total costs and expenses 40,592
 25,153
 99,288
 64,807
21,224
 40,592
 63,771
 99,288
Operating income (loss) (6,583) 284
 (7,294) (14,754)
OPERATING INCOME (LOSS)18,948
 (6,583) 49,381
 (7,294)
OTHER INCOME (LOSS):       
Unrealized derivative instrument loss
(3,769)
—

(3,769)
—
(3,533) (3,769)
(76,102) (3,769)
Interest income
617

—

3,584

—
—
 617

9
 3,584
Income from equity method interests, net
1,564

—

536

—
14,320
 1,564

47,541
 536
Other
—

—

(17)
—
—
 —

(355) (17)
Total other income (loss) (1,588) —
 334
 —
10,787
 (1,588) (28,907) 334
Financing costs, net of capitalized interest 522
 —
 1,508
 —
413
 522
 978
 1,508
NET INCOME (LOSS) BEFORE INCOME TAXES (8,693) 284
 (8,468) (14,754)29,322
 (8,693) 19,496
 (8,468)
Current income tax benefit—
 —
 (696) —
Deferred income tax benefit (505) (18,924) (510) (9,733)—
 (505) —
 (510)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS (8,188) 19,208
 (7,958) (5,021)29,322
 (8,188) 20,192
 (7,958)
Net income attributable to Preferred Unit limited partners 17,480
 —
 21,623
 —
19,332
 17,480
 56,358
 21,623
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS (25,668) 19,208
 (29,581) (5,021)9,990
 (25,668) (36,166) (29,581)
Net loss attributable to Apache limited partner (20,804) —
 (23,524) —
Net income (loss) attributable to Apache limited partner7,687
 (20,804) (28,361) (23,524)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS $(4,864) $19,208
 $(6,057) $(5,021)$2,303
 $(4,864) $(7,805) $(6,057)
KEY PERFORMANCE METRICS:               
Adjusted EBITDA (1)
 $17,816
 $5,767
 $34,012
 $(350)$52,908
 $17,816
 $143,091
 $34,012
OPERATING DATA:               
Average throughput volumes of natural gas (MMcf/d) 467
 392
 464
 286
531
 467
 514
 464
Average volumes of natural gas processed (MMcf/d) 467
 392
 464
 286
525
 467
 509
 464
(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 definitionsthe definition and reconciliationsreconciliation of Adjusted EBITDA to its most directly comparable to GAAP measures,measure, see the section entitled “Adjusted EBITDA”EBITDA above.
Our

Since the Company commenced operations commenced in the second quarter of 2017, and since that time, ourits only significant customer has been Apache, althoughApache. Altus Midstream is pursuing similar long-term commercial service contracts with third-parties that could be accommodated by existing capacity. OurAltus’ midstream service agreements with Apache contain no minimum volume commitments, and as such, our future results of operations may be materially impacted depending onby Apache’s production volumes from Alpine High and ourAltus’ ability to contract third-party business. Refer to Part I, Item 1A — 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, 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 — 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.


For purposes of the following discussion, any increases or decreases “for the three months ended September 30, 2019” refer to the comparison of the three months ended September 30, 2019 to the three months ended September 30, 2018 and any increases or decreases “for the nine months ended September 30, 2019” refer to the comparison of the nine months ended September 30, 2019 to the nine months ended September 30, 2018.
Midstream Revenues
The following table summarizes the Company’s revenues for the periods presented:
 Three Months Ended September 30, Nine Months Ended September 30,
 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019
 2019 2018 2019 2018        
 (In thousands) (In thousands)
REVENUES:                
Midstream services revenue — affiliate $34,009
 $25,437
 $91,994
 $50,053
 $38,869
 $34,009
 $111,252
 $91,994
Product sales — third parties 1,303
 —
 1,900
 —
Total revenues $34,009
 $25,437
 $91,994
 $50,053
 $40,172
 $34,009
 $113,152
 $91,994
AllSubstantially all midstream services revenues wererevenue was generated through ourfrom fee-based midstream services provided under the terms of separate commercial midstream service agreements with Apache. These services includeApache for the gas gathering, processing, and transmission. The revenue earnedtransmission of volumes from these services is directly related to the volumededicated area in the Alpine High field. Altus receives a per-unit fee based on the quantity of natural gas and NGLsnatural gas liquid volumes that flow through our systems,its systems. During the periods presented, Altus did not own or take title to the affiliate volumes that were processed through its systems.
Product sales revenues were generated from sales of NGLs and we do not take ownership of the natural gas or NGLs handled for Apache.condensates purchased and processed by Altus from a third-party and subsequently sold to non-affiliated customers.
Three months ended September 30, 20192020 as compared to three months ended September 30, 20182019
Midstream services revenue from affiliate increased by $8.6$4.9 million to $38.9 million for the three months ended September 30, 2020, as compared to $34.0 million for the three months ended September 30, 2019, as compared to $25.4 million for the three months ended September 30, 2018.2019. The increase was primarily driven by higher throughput of rich natural gas volumes whichdue to increased revenuescapacity as a result of the third cryogenic processing train being placed into service during the fourth quarter of 2019.

The $1.3 million in product sales was driven by approximately $7.8 million for the three months ended September 30, 2019. Lean gas throughputpurchased NGLs and condensates volumes increased throughout the quarter, as Apache ramped up production following deferral of a portion of its gas volumes at Alpine Highprocessed and sold to third-parties starting in April 2019 in response to price weakness in the region.2020.
Nine months ended September 30, 20192020 as compared to nine months ended September 30, 20182019
Midstream services revenue from affiliate increased by $41.9$19.3 million to $111.3 million for the nine months ended September 30, 2020, as compared to $92.0 million for the nine months ended September 30, 2019, as compared to $50.1 million for the nine months ended September 30, 2018. Approximately $28.7 million of the2019. The increase was primarily driven by higher throughput volumes of rich natural gas volumes due to increased capacity as Apache increased production from Alpine High. The volume increase was partially limited by Apache’s deferrala result of a portion of its gas volumes at Alpine High beginning April 2019, in response to price weaknessthe three cryogenic processing trains coming on line starting in the region. These volumes returned incrementally throughout the thirdsecond quarter of 2019. A further $11.4

The $1.9 million is attributable in product sales was driven by purchased NGLs and condensates volumes processed and sold to changesthird-parties starting in rates pursuant to the terms of new midstream service agreements with Apache, which became effective during 2018.2020.



Costs and Expenses
The following table summarizes the Company’s costs and expenses for the periods presented:
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
  (In thousands)
Operations and maintenance $13,063
 $16,579
 $43,466
 $38,798
General and administrative 3,242
 1,865
 8,314
 5,126
Depreciation and accretion 11,710
 5,483
 28,468
 14,404
Impairments 9,338
 —
 9,338
 —
Taxes other than income 3,239
 1,226
 9,702
 6,479
Total costs and expenses $40,592
 $25,153
 $99,288
 $64,807



 Three Months Ended September 30, Nine Months Ended September 30,
 2020 2019 2020 2019
        
 (In thousands)
Costs of product sales$1,177
 $—
 $1,693
 $—
Operations and maintenance8,960
 13,063
 29,059
 43,466
General and administrative2,936
 3,242
 10,102
 8,314
Depreciation and accretion4,008
 11,710
 11,984
 28,468
Impairments—
 9,338
 —
 9,338
Taxes other than income4,143
 3,239
 10,933
 9,702
Total costs and expenses$21,224
 $40,592
 $63,771
 $99,288
Three months ended September 30, 20192020 as compared to three months ended September 30, 20182019
Costs of product sales
The $1.2 million in costs of product sales represent purchases of NGLs from a third-party starting in 2020.
Operations and maintenance
Operations and maintenance expenses decreased by $3.5$4.1 million to $9.0 million for the three months ended September 30, 2020, as compared to $13.1 million for the three months ended September 30, 2019, primarily driven by increased operational efficiency as compareda result of transitioning from mechanical refrigeration units to $16.6the 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 decreased by $0.3 million to $2.9 million for the three months ended September 30, 2018, primarily driven by a decrease in employee related costs and lower repair and maintenance expenses2020, as a result of transitioning to our centralized Diamond cryogenic complex from mechanical refrigeration units.
General and administrative expense
General and administrative (G&A) expense increased by $1.3 millioncompared to $3.2 million for the three months ended September 30, 2019, as comparedprimarily driven by lower expenses incurred related to $1.9severance costs, salaries and wages, and incentive and stock compensation. These decreases were partially offset by a higher COMA fee in 2020.
Depreciation and accretion
Depreciation and accretion expense decreased by $7.7 million to $4.0 million for the three months ended September 30, 2018, primarily driven by higher expenses incurred related to severance costs, insurance, legal, audit and other public company requirements. These increases were partially offset by lower employee related costs charged to Altus by Apache under the terms of the COMA.
Depreciation and accretion expense
Depreciation and accretion expense increased by $6.2 million2020, as compared to $11.7 million for the three months ended September 30, 2019, as compared2019. 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 increase in taxes other than income was driven by changes related to $5.5ad valorem taxes, which increased by $0.9 million to $4.1 million for the three months ended September 30, 2018. The $6.2 million increase represents the timing of placing assets into service following construction activity over the historical period. Depreciation and accretion expense is expected2020, as compared to increase over the next year as a result of the cryogenic plants being placed into service in the second half of 2019.
Impairments
The impairment charge of $9.3$3.2 million for the three months ended September 30, 2019 relates2019. The $0.9 million increase reflect adjustments in estimated tax assessments related to the cancellationcompletion of construction on a previously planned compressor station. The Company expects to selland capacity utilization of certain of the underlying components in the fourth quarter of 2019. Refer to Note 5 — Property, Plant and Equipment within Part I, Item 1 — Financial Statements of this Quarterly Report on Form 10-Q.assets.
No impairments were recorded for the threeNine months ended September 30, 2018.2020 as compared to nine months ended September 30, 2019
Costs of product sales
The $1.7 million in costs of product sales represent purchases of NGLs from a third-party starting in 2020.




Operations and maintenance
Operations and maintenance expenses decreased by $14.4 million to $29.1 million for the nine months ended September 30, 2020, as compared to $43.5 million for the nine months ended September 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 $1.8 million to $10.1 million for the nine months ended September 30, 2020, as compared to $8.3 million for the nine months ended September 30, 2019, primarily driven by higher expenses incurred related to a higher COMA fee in 2020, professional fees, and insurance. These increases were partially offset by lower severance costs, salaries and wages, legal fees, and incentive and stock compensation.
Depreciation and accretion
Depreciation and accretion expense decreased by $16.5 million to $12.0 million for the nine months ended September 30, 2020, as compared to $28.5 million for the nine months ended September 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 $2.0$1.2 million to $3.2 million for the three months ended September 30, 2019, as compared to $1.2 million for the three months ended September 30, 2018. The $2.0 million increase represents the higher tax assessment in the current year related to completion of construction of certain assets.
Nine months ended September 30, 2019 as compared to nine months ended September 30, 2018
Operations and maintenance
Operations and maintenance expenses increased by $4.7 million to $43.5$10.7 million for the nine months ended September 30, 2019,2020, as compared to $38.8 million for the nine months ended September 30, 2018, primarily driven by higher operating costs including contract labor, equipment rentals and supplies as a result of increased throughput volumes.
General and administrative expense
G&A expense increased by $3.2 million to $8.3 million for the nine months ended September 30, 2019, as compared to $5.1 million for the nine months ended September 30, 2018, primarily driven by higher expenses incurred related to severance costs, insurance, legal, audit and other public filing requirements. These increases were partially offset by lower employee related costs charged to Altus by Apache under the terms of the COMA.
Depreciation and accretion expense
Depreciation and accretion expense increased by $14.1 million to $28.5 million for the nine months ended September 30, 2019, as compared to $14.4 million for the nine months ended September 30, 2018. The increase represents the timing of placing assets into service following construction activity over the historical period. Depreciation and accretion expense is expected to increase over the next year as a result of the cryogenic plants being placed into service in the second half of 2019.



Impairments
The impairment charge of $9.3 million for the nine months ended September 30, 2019 relates to the cancellation of construction on a previously planned compressor station. The Company expects to sell certain of the underlying components in the fourth quarter of 2019. Refer to Note 5 — Property, Plant and Equipment within Part I, Item 1 — Financial Statements of this Quarterly Report on Form 10-Q.
Taxes other than income
The increase in taxes other than income was driven by ad valorem taxes, which increased by $3.1 million to $9.5 million for the nine months ended September 30, 2019, as compared to $6.4 million for the nine months ended September 30, 2018.2019. The $3.1$1.2 million increase represents the higherreflect adjustments in estimated tax assessment in the current yearassessments related to the completion of construction and capacity utilization of certain assets.
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 September 30, Nine Months Ended September 30,
 Three Months Ended September 30, Nine Months Ended September 30,2020 2019 2020 2019
 2019 
2018(1)
 2019 
2018(1)
       
 (In thousands)(In thousands)
Unrealized derivative instrument loss $(3,769) $—
 $(3,769) $—
$(3,533) $(3,769) $(76,102) $(3,769)
Interest income 617
 —
 3,584
 —
—
 617
 9
 3,584
Income from equity method interests, net 1,564
 —
 536
 —
14,320
 1,564
 47,541
 536
Other —
 —
 (17) —
—
 —
 (355) (17)
Total other income (loss) $(1,588) $—
 $334
 $—
$10,787
 $(1,588) $(28,907) $334
               
Interest expense $1,496
 $2,504
 $3,234
 $7,054
$2,133
 $1,496
 $7,498
 $3,234
Amortization of deferred facility fees 237
 —
 652
 —
292
 237
 857
 652
Capitalized interest (1,211) (2,504) (2,378) (7,054)(2,012) (1,211) (7,377) (2,378)
Financing costs, net of capitalized interest $522
 $—
 $1,508
 $—
$413
 $522
 $978
 $1,508
(1)Prior to the Business Combination, the Company’s operations were funded entirely by contributions from Apache. Accordingly, Apache allocated a portion of interest on its corporate debt in determining capitalized interest associated with the development of Alpine High infrastructure.


Unrealized derivative instrument loss
During the three and nine month periods endingmonths ended September 30, 2019,2020, the Company recognized an unrealized loss of $3.8$3.5 million and $76.1 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 recognized loss was $3.8 million for the three and nine months ended September 30, 2019. The associated derivative is recorded on the consolidated balance sheet at fair value. The fair value of the 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 dividend yields of the Preferred Units. The value of the derivative during the nine months ended September 30, 2020 changed significantly based on the volatility of expected future interest rates, mainly given current macroeconomic factors associated with the COVID-19 pandemic and related governmental actions. Refer to Note 12 — Series A Cumulative Redeemable Preferred Units13—Fair Value Measurements within Part I, Item 1 — 1—Financial Statements of this Quarterly Report on Form 10-Q for further discussion.
Income from equity method interests, net
InIncome from equity method interests increased $12.8 million and $47.0 million for the third quarterthree and nine months ended September 30, 2020, respectively, as compared to the three and nine months ended September 30, 2019. The increase was primarily 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 completed the acquisition of a 33 percentacquired its equity interest in Breviloba, LLC which ownsduring the Shin Oak NGL pipeline project (Shin Oak).third quarter of 2019.
Interest Income from equity method interests was positively impacted
Interest income decreased $0.6 million and $3.6 million for the three and nine months ended September 30, 2020, respectively, as compared to the three and nine months ended September 30, 2019, as a result of this acquisition, as well as from its proportionate share of net income generated by Gulf Coast Express Pipeline LLC,a decrease in which the Company has a 16 percent interest. Gulf Coast Express Pipeline LLC operates the Gulf Coast Express Pipeline Project (GCX) which ramped-up throughput volumes during the period, as the project moved toward full service at the end of September 2019. As of September 30, 2019, the Company had exercised four of its five Pipeline Options.





cash and cash equivalents.
Financing costs, net of capitalized interest
For the three and nine month periods ending September 30, 2019, financingFinancing costs incurred, net of capitalized interest, were $0.5 million and $1.5 million, respectively. These costs relateincludes increases in interest expense related to higher balances under the Company’s credit facility; however, substantially all of the interest which is not capitalized, on finance lease obligations and amortization of feesexpense on the revolvingCompany’s credit facility entered into by Altus Midstreamwas eligible to have interest capitalized in November 2018.all periods presented.
Provision for Income Taxes
Altus Midstream Company is subject to U.S. federal income tax and Texas Margin tax. At September 30, 2019, Altus Midstream Company had a net deferred tax asset of $68.6 million, primarily related to its net operating loss carryforward and its investment in Altus Midstream LP. Altus Midstream LP is a partnership for federal income tax purposes and passes through its taxable income to its partners. Thus, Altus Midstream LP does not record a federal income tax provision. Altus Midstream LP is subject to the Texas Margin tax and as such, records a state income tax provision. At September 30, 2019, Altus Midstream LP had a net deferred state income tax liability of $3.1 million.

On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a private offering that admitted additional limited partners with separate rights for the Preferred Unit holders. The Preferred Units are accounted for on the Company’s consolidated balance sheet as a redeemable noncontrolling interest classified as temporary equity. For financial statement reporting purposes, the Company applies a two-step approach to subsequent measurement of the Preferred Units. Under this approach, net income is first allocated to the Preferred Unit holders in accordance with the terms of the Amended LPA. An additional adjustment may be made to increase the carrying amount after the attribution of net income, as further described in Note 12 — Series A Cumulative Redeemable Preferred Units. Both the allocation of net income and any subsequent adjustment based upon accretion of the net transaction price (if applicable) reflect income that will be taxable to the Preferred Unit holders. Accordingly, Altus Midstream Company’s federal income tax provision reflects this income allocation as a reduction in the Company’s effective tax rate.
During the three and nine months ended September 30, 2019,2020, the Company’s effectiveCompany recognized a current income tax rate was primarily impacted by the net loss attributablebenefit of nil and $0.7 million, respectively, as compared to Apache limited partner, subsequent measurement of the Preferred Units as described above, and the impact of state income taxes. Duringnilfor the three and nine months ended September 30, 2018,2019. 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 nine months ended September 30, 2020, as compared to $0.5 million for the three and nine months ended September 30, 2019, respectively. The reduction to deferred income tax expense during three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 is the result of an increase in valuation allowance against the Company’s effective incomedeferred tax rate was primarily impacted by the release of the valuation allowance.assets.

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.

Key Performance Metrics
Three months ended September 30, 20192020 as compared to three months ended September 30, 20182019
The Company realized a net loss before income tax of $8.7 million and netNet income before income tax of $0.3taxes was $29.3 million for the three months ended September 30, 2019 and 2018, respectively. Adjusted EBITDA increased by $12.02020, an increase of $38.0 million from a net loss before income taxes of $8.7 million for the three months ended September 30, 2019. The increase in Adjusted EBITDA isnet income before income taxes was primarily due todriven by an $8.6increase of $6.2 million increase in midstream services revenuetotal revenues, $12.8 million of higher income from affiliate coupled with a $3.5equity method interests, $4.1 million decrease in operations and maintenance expenses and a $2.7 million increase in the Company’s proportionate share of EBITDA generated by its equity interests. These amounts were partially offset by a $2.0 million increase in taxes other than income and a $0.7 million increase in G&A expenses net of separation costs. Net loss before income taxes was detrimentally impacted byexpense, a $9.3 million decrease in impairment expense recorded in the third quarter of 2019, and a $6.2$7.7 million decrease in depreciation and accretion. These amounts were offset by a $2.1 million increase in various other individually insignificant costs of the Company.
Adjusted EBITDA increased by $35.1 million for the three months ended September 30, 2020 compared to the prior year period. Adjusted EBITDA, which excludes the impacts of depreciation, accretion, and impairment expense impacting net income above, benefited from an incremental $14.4 million increase related to excluding depreciation and interest in the Company’s proportionate share of EBITDA from its equity method interests. This amount was offset by a $0.4 million increase in various other individually insignificant costs of the Company.
Nine months ended September 30, 2020 as compared to nine months ended September 30, 2019
Net income before income taxes was $19.5 million for the nine months ended September 30, 2020, an increase of $28.0 million from a net loss before income taxes of $8.5 million for the nine months ended September 30, 2019. The increase in net income before income taxes was primarily driven by an increase of $21.2 million in total revenues, $47.0 million of higher income from equity method interests, a $14.4 million decrease in operations and maintenance expenses, a $9.3 million decrease in impairment expense, and a $3.8$16.5 million decrease in depreciation and accretion expense arising fromcompared to the prior year period. The increases to net income were offset by a $72.3 million increase to expense related to the fair value measurement of an embedded derivative at September 30, 2019.
Nine months ended September 30, 2019 as compared to nine months ended September 30, 20182020 and $8.1 million of various other costs of the Company.
Net loss before income taxes decreased by $6.3 million and Adjusted EBITDA increased by $34.4$109.1 million for the nine months ended September 30, 2019, primarily due2020 compared to a $41.9the prior year period. Adjusted EBITDA, which excludes the impacts of depreciation, accretion, impairments, and the changes to the embedded derivative, benefited from an incremental $32.0 million increase in midstream services revenue from affiliate coupled with a $2.8 million increaserelated to excluding depreciation and interest in the Company’s proportionate share of EBITDA generated byfrom its equity method interests. These amounts were partially offsetThis amount was was further benefited by a $4.7an insignificant decrease, in aggregate, of $2.6 million increase in operations and maintenance expenses, a $3.2 million increase in taxesof various other than income and a $2.5 million increase in G&A expenses netcosts of separation costs. Net loss before income taxes was detrimentally impacted by a $13.9 million increase in depreciation expense, a $9.3 million impairment expense recorded in the third quarter of 2019, and a $3.8 million increase to expense arising from the fair value measurement of an embedded derivative at September 30, 2019.Company.




Capital Resources and Liquidity
Altus Midstream Overview
The Company’s proportionate share of costs relating to the Pipeline Options still under construction will require significant capital expenditures in excess of current cash on hand and operational cash flow. As of September 30, 2019, our primary use of capital since inception has been for the initial construction of gathering and processing assets, as well as the exercise of fouracquisition of the five Pipeline OptionsEquity Method Interest Pipelines and associated subsequent construction costs. For the remainder of 2020, the Company’s primary use of capital will be for equity contributions associated with its proportionate share of costs as further described below. Priorrelating to the Business Combination, our primary source of liquidity was capital contributions from Apache. Permian Highway Pipeline, which is still under construction.
During the nine months ended September 30, 2019,2020, the Company’s primary sources of capitalcash were proceeds from the issuance of the Preferred Units, borrowings under the revolving credit facility, and cash generated from operations. While certain of the Pipeline Options are being constructed, ongoing sources of liquidity are expected to be cash generated from operations, which is anticipated to increase over time,distributions from equity method interests, and revolving credit facility borrowing capacity.
proceeds from sale of assets. Based on ourAltus’ current financial plan and related assumptions, we believe ourthe Company believes that cash from operations, anda reduced capital program for its midstream operationsinfrastructure, and distributions from equity method interests will begin to generate operating cash flows in excess of investmentcapital expenditures by year-end 2020. We anticipate using our cash position, revolving credit facility borrowingthe 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 reinvested operating cash flow2021 remain dynamic. Altus' results, including projections related to fund our near-term capital requirements.resources and liquidity, could be materially affected by the continuing COVID-19 pandemic.
Altus Midstream Capital Requirements
As part ofDuring the Business Combination, we obtained the right, but not the obligation, to exercise five Pipeline Options. In the third quarter of 2019, we exercised our fourth Pipeline Option to acquire an approximate 33 percent ownership interest in Shin Oak for approximately $442 million. The project, which is already in service, is expected to have ultimate capacity of approximately 550 MBbl/d and transports NGLs primarily from the Permian Basin to Mont Belvieu, Texas. Shin Oak is owned by Breviloba, LLC (Breviloba) and is operated by Enterprise Products Operating LLC (Enterprise).
As a result, atnine months ended September 30, 2020 and 2019, we heldcapital spending for midstream infrastructure assets totaled $29.5 million and $307.0 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 following interests in third-party operated pipelines:
A 33.0 percent interest in Shin Oak.
A 26.7 percent interest in the Permian Highway Pipeline Project (PHP). PHP is 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 CoastCompany expects remaining capital requirements for its existing infrastructure assets during 2020 and other markets. PHP is anticipated2021 to be in service in early 2021.primarily related to maintenance of these assets.
Additionally, during the nine months ended September 30, 2020 and 2019, the Company made cash contributions of $286.2 million and $1.0 billion, respectively, for certain of its Equity Method Interest Pipelines as described below:
A 16.0 percent interest in GCX, which delivers 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 EPIC Crude Oil Pipeline Project (EPIC). EPIC is currently under construction and is anticipated to be in service in Januarysecond quarter of 2020. Upon completion, theThe pipeline is anticipated to havehas initial capacity of 590approximately 600 MBbl/d and will transporttransports crude oil from Orla, Texas to the Port of Corpus Christi, Texas.
An approximate 26.7 percent interest in PHP, a long-haul pipeline that is expected to have approximately 2.1 Bcf/d of natural gas transportation capacity. The Company’s remaining outstanding Pipeline Option canpipeline 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 exercised at any time up until January 31, 2020. 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 GCXEPIC already in service, we anticipatethe Company anticipates that the Company’sits existing capital resources (discussed below) will be sufficient to fund the Company’s continuing obligations, primarily related to the remaining construction periods of PHP and EPIC.
With construction on all three planned cryogenic processing plants now complete, the Company’s future growth capital requirements in relation to its gathering and processing assets may be directed toward the addition of further cryogenic processing capacity over the next several years, commensurate with throughput increases from Alpine High production and potential third-party volumes.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 Nine Months Ended
September 30,
 For the Nine Months Ended
September 30,		 2020 2019
 2019 2018    
 (In thousands) (In thousands)
Sources of cash and cash equivalents:        
Redeemable noncontrolling interest - Preferred Unit limited partners, net $611,249
 $—
Redeemable noncontrolling interest — Preferred Unit limited partners, net $—
 $611,249
Proceeds from revolving credit facility 235,000
 —
 184,000
 235,000
Proceeds from sale of assets 7,629
 —
Capital distributions from equity method interests 14,235
 —
Net cash provided by operating activities 39,436
 —
 137,447
 39,436
 $885,685
 $—
 $343,311
 $885,685
Uses of cash and cash equivalents:        
Capital expenditures(1)
 $(307,010) $—
 $(29,540) $(307,010)
Equity method interests (1,008,037) —
Distributions paid to Preferred Unit limited partners (11,562) —
Contributions to and acquisition of equity method interests (286,227) (1,008,037)
Finance lease payments (17,187) —
 (11,789) (17,187)
Deferred facility fees (792) —
 (816) (792)
Capitalized interest paid (7,377) —
 (1,333,026) —
 (347,311) (1,333,026)
Decrease in cash and cash equivalents $(447,341) $—
 $(4,000) $(447,341)
(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:
 September 30, 2020 December 31, 2019
 September 30, 2019 December 31, 2018    
 (In thousands) (In thousands)
Cash and cash equivalents $2,594
 $449,935
 $1,983
 $5,983
Total debt 252,562
 —
 580,000
 405,767
Available committed borrowing capacity 415,000
 450,000
 220,000
 404,000
Cash and cash equivalents
AtAs of September 30, 20192020 and December 31, 2018, we2019, the Company had $2.6$2.0 million and $449.9$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 September 30, 2020 and December 31, 2019, the Company had debt outstanding debt of $252.6totaling $580.0 million and $405.8 million, respectively. At December 31, 2019, $9.8 million of which $17.6 million isdebt outstanding was related to a finance lease obligation.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 $650.0 million until the consolidated net income of Altus Midstream and its restricted subsidiaries, as adjusted pursuant to the agreement (EBITDA), for the immediately preceding fiscal quarter equals or exceeds $175.0 million on an annualized basis (such period, the Initial Period). Upon achieving such EBITDA, the Initial Period ends and aggregate commitments increase to $800.0 million. AllThe 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. After the Initial Period, 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 September 30, 2020 and December 31, 2019, total outstanding borrowings were $235.0$580.0 million and $396.0 million, respectively, and no letters of credit were outstanding under this facility. There were no outstanding borrowings or letters of credit as of December 31, 2018.


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 its 2018this amended credit facility is either a base rate, as defined, plus a margin, or the London Inter-bankInterbank Offered Rate (LIBOR), plus a margin. Altus Midstream also pays quarterly a facility fee at a rate per annum rate 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 September 30, 2019,2020, the base rate margin was 0.100.05 percent, the LIBOR margin was 1.101.05 percent, and the facility fee was 0.20 percent. AIn 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 one of the following financial ratios:
during the Initial Period, a debt-to-capital ratio of not greater than 30.0 percent at the end of any fiscal quarter, determined by reference to (i) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries to (ii) (A) the consolidated partners’ equity of Altus Midstream and its restricted subsidiaries plus (B) the consolidated indebtedness of Altus Midstream and its restricted subsidiaries; and
beginning with the quarter ending on the earlier of (i) March 31, 2020 or (ii) the last day of the fiscal quarter during which the Initial Period ends, 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 a specified period after a qualifying acquisition, 5.50:1.00. The Leverage Ratio as of September 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 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 this 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, it does allowthe 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 September 30, 2019.2020.
There is no assurance that the financial condition of banks with lending commitments to Altus Midstream will not deteriorate. WeAltus closely monitormonitors the ratings of the banks in ourthe 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 interests in the Pipeline OptionsEquity Method Interest Pipelines and repayment of outstanding principal on the revolving credit facility (discussed above).


At the Closing, the partners of Altus Midstream entered into the Amended LPA. The Amended LPA provides the terms of the Preferred Units, including the distribution rate, redemption rights, and rights to exchange the Preferred Units for shares of the Company’s Class A Common Stock, as well as rights of holders of the Preferred Units to approve certain partnership business, financial, and governance-related matters. The Preferred Units have a perpetual term, unless redeemed or exchanged as described below. Pursuant to the Amended LPA:
The Preferred Units entitle the holders thereof to receive quarterly distributions at a rate of 7 percent per annum, commencing with the quarter ended June 30, 2019. The rate increases to 10 percent per annum after the fifth anniversary of Closing and upon the occurrence of specified events. For any quarter ending on or prior to December 31, 2020, Altus Midstream may pay distributions in-kind.
The Preferred Units are redeemable at Altus Midstream’s option at any time in cash at a redemption price (the Redemption Price) equal to (a) the greater of (i) an 11.5 percent internal rate of return (increasing to 13.75 percent after the fifth anniversary of Closing), and (ii) a 1.3x multiple of invested capital plus (b) if applicable, the value of any accrued and unpaid distributions. The Preferred Units will be redeemable at the holder’s option upon a change of control or liquidation of Altus Midstream and certain other events, including certain asset dispositions. Subject to compliance with minimum ownership requirements and redemption restrictions of the Amended LPA, Apache’s election to cause its Common Units in Altus Midstream to be redeemed for shares of the Company’s Class A Common Stock or cash (as further discussed in Note 11 — Equity) would not be a change of control.
The Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders after the seventh anniversary of Closing or upon the occurrence of specified events. Each Preferred Unit will be exchangeable for a number of shares of Class A Common Stock equal to the Redemption Price divided by the volume-weighted average trading price of the Class A Common Stock on the NASDAQ Global Select Market for the 20 trading days immediately preceding the second trading day prior to the applicable exchange date, less a 6 percent discount.
Each outstanding Preferred Unit has a liquidation preference equal to the Redemption Price payable before any amounts are paid in respect of Altus Midstream's Common Units and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. 
Altus Midstream is restricted from declaring or making cash distributions on its Common Units until all required distributions on the Preferred Units have been paid. In addition, before the fifth anniversary of Closing, aggregate cash distributions on, and redemptions of, Common Units are limited to $650 million of cash from ordinary course of operations if permitted under Altus Midstream’s Amended Credit Agreement. Cash distributions on, and redemptions of, Common Units also are subject to satisfaction of leverage ratio requirements specified in the Amended LPA.
Distributions not paid in accordance with the terms of the Amended LPA attract an additional percentage per annum, cumulative to the distribution rates noted above. Altus Midstream’s ability to exercise or satisfy redemption options in cash or pay quarterly distributions is predicated upon Altus Midstream’s ability to generate sufficient cash from operations in addition to the availability of borrowing capacity under its existing revolving credit facility.
Since the Preferred Units could be exchanged for a number of shares of Class A Common Stock equal to 20 percent or more of the Company’s outstanding voting power, the Company has agreed to submit the potential issuance of such shares for approval of its stockholders (the Stockholder Approval) at its annual stockholder meeting in 2020. In connection with the Closing, Apache, the Company, and certain purchasers of Preferred Units entered into a voting agreement pursuant to which Apache has agreed to vote all shares of common stock of the Company over which Apache has beneficial ownership in favor of the Stockholder Approval. The Amended LPA provides that the Preferred Units will not be exchangeable into more than 19.5 percent of the outstanding voting power of the Company unless the Stockholder Approval is obtained.
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, 2018,2019, the Company has not entered into any transactions, agreements, or other contractual arrangements with unconsolidated entities that are reasonably likely to materially affect ourthe Company’s liquidity or capital resource positions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative DisclosureDisclosures About Market Risk
We areThe 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 ourthe Company’s midstream service agreements are fee-based, with no direct commodity price exposure to oil, natural gas, or NGLs.NGLs, and only an immaterial portion of the agreements are based on the underlying value of a commodity. However, we arethe 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 we receiveAltus 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 ourthe 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 September 30, 2020, Altus had $580.0 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 $1.5 million for the quarter ended September 30, 2020. Accordingly, the results of operations, cash flows, financial condition, and the ability to make cash distributions could be adversely affected by significant increases in interest rates. Altus currently has no 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
We areThe Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, Apache orand current and potential third-party customers. Any increase in the nonpayment and nonperformance by, or the insolvency or liquidation of, ourthe Company’s customers could adversely affect ourthe Company’s results of operations.

ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
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 ourthe Company’s disclosure controls and procedures as of September 30, 2019,2020, the end of the period covered by this report.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 procedures were effective, providing effective means to ensure that the information we arethe Company is required to disclose under applicable laws and regulations is recorded, processed, summarized, and reported within the time periods specified in the SEC’sCommission’s rules and forms and accumulated and communicated to ourthe Company’s management, including ourits principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
WeThe Company periodically reviewreviews the design and effectiveness of ourits disclosure controls, including compliance with various laws and regulations that apply to our operations. We makeThe Company makes modifications to improve the design and effectiveness of ourits disclosure controls, and may take other corrective action, if ourthe Company’s reviews identify deficiencies or weaknesses in ourits controls.
Changes in Internal Control Over Financial Reporting

There were no changes in ourthe Company’s internal controlcontrols over financial reporting during the quarter ended September 30, 2019,2020, that have materially affected, or are 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

We areThe Company is not aware of any pending or threatened legal proceedings against usit at the time of the filing of this Quarterly Report on Form 10-Q.10-Q that would have a material impact on its financial position, results of operations, or liquidity.

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 
ReferPlease refer to Part I, Item 1A — 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, Part II, Item 1A — Risk1A-Risk Factors of the Company’s Quarterly Report on Form 10-Q for the fiscal quarterquarterly period ended June 30, 2019March 31, 2020, and Part I, Item 3 — 3—Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q. Except as stated herein, there
The global economy and the energy industry have been no material changesdeeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. As of the date of this report, efforts to our risk factors since ourcontain COVID-19 have not succeeded in many regions, and the global pandemic remains ongoing. 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, and may continue to amplify, certain risks identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019 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 on Form 10-Q and is subject to change without notice, as the Company cannot predict all risks related to this rapidly evolving event.

ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION 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).
–
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).
–
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–
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).
–
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).
31.1*–
Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
–
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).
–
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.
–
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 September 30, 2019, 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.–The following financial statements from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 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.–Inline XBRL Taxonomy Schema Document.
101.CAL*–Inline XBRL Calculation Linkbase Document.–Inline XBRL Calculation Linkbase Document.
101.DEF*–Inline XBRL Definition Linkbase Document.–Inline XBRL Definition Linkbase Document.
101.LAB*–Inline XBRL Label Linkbase Document.–Inline XBRL Label Linkbase Document.
101.PRE*–Inline XBRL Presentation Linkbase Document.–Inline XBRL Presentation Linkbase Document.
104*–Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).–Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.
*** Schedules and exhibits to this Exhibit have been omitted pursuant to Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

SIGNATURES

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 hereunto duly authorized.
    
   ALTUS MIDSTREAM COMPANY
   
Dated:October 31, 2019November 5, 2020 /s/ Ben C. Rodgers
   Ben C. Rodgers
   Chief Financial Officer and Treasurer
   (Principal Financial Officer)
   
Dated:October 31, 2019November 5, 2020 /s/ Rebecca A. Hoyt    
   Rebecca A. Hoyt
   Senior Vice President, Chief Accounting Officer, and Controller
   (Principal Accounting Officer)


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