Related Party Transactions | 14. RELATED PARTY TRANSACTIONS Sanchez-Related Agreements We are controlled by our general partner. The sole member of our general partner is Manager, which has no officers. The sole manager and member of Manager is SP Capital Holdings, LLC, which has no officers. The co-managers of SP Capital Holdings, LLC are Antonio R. Sanchez, III, a member of and Chairman of the Board; Eduardo A. Sanchez, a member of the Board; Patricio D. Sanchez, a member of the Board and the President and Chief Operating Officer of our general partner; and their father, Antonio R. Sanchez, Jr. SP Capital Holdings, LLC is owned by Antonio R. Sanchez, III, Eduardo A. Sanchez , and Patricio D. Sanchez, along with their sister, Ana Lee Sanchez Jacobs, and Antonio R. Sanchez, Jr. In May 2014, we entered into the Services Agreement with Manager pursuant to which Manager provides services that we require to operate our business, including overhead, technical, administrative, marketing, accounting, operational, information systems, financial, compliance, insurance, and acquisition, disposition and financing services. In connection with providing services under the Services Agreement, Manager receives compensation consisting of: (i) a quarterly fee equal to 0.375% of the value of our properties other than our assets located in the Mid-Continent region, (ii) reimbursement for all allocated overhead costs as well as any direct third-party costs incurred and (iii) for each asset acquisition, asset disposition and financing, a fee not to exceed 2% of the value of such transaction. Each of these fees, not including the reimbursement of costs, is paid in cash unless Manager elects for such fee to be paid in our equity. The Services Agreement has a ten-year term and will be automatically renewed for an additional ten years unless both Manager and the Partnership provide notice of termination to the other with at least 180 days’ notice. During the years ended December 31, 2018 and 2017, we incurred costs of approximately $8.6 million and $8.8 million, respectively, to Manager under the Services Agreement. Manager utilizes SOG to provide the services under the Services Agreement. SOG, headquartered in Houston, Texas, is a private full-service oil and natural gas company engaged in the exploration and development of oil and natural gas primarily in the South Texas and onshore Gulf Coast areas on behalf of its affiliates. The Chairman of the Board, Antonio R. Sanchez, III, the President and Chief Operating Officer of our general partner as well as one of our directors, Patricio D. Sanchez, one of our directors, Eduardo A. Sanchez, along with their immediate family members Ana Lee Sanchez Jacobs and Antonio R. Sanchez, Jr., collectively, either directly or indirectly, own a majority of the equity interests of SOG. In addition, Antonio R. Sanchez, III and Patricio D. Sanchez are Co-Presidents of SOG; Antonio R. Sanchez, Jr. is the Chief Executive Officer and sole director of SOG; Ana Lee Sanchez Jacobs is an Executive Vice President of SOG; and Gerald F. Willinger is an Executive Vice President of SOG. Sanchez-Related Transactions We have entered into several transactions with Sanchez Energy since January 1, 2017. In conjunction with the acquisition of Western Catarina Midstream, we entered into a 15-year gas gathering agreement with Sanchez Energy, pursuant to which Sanchez Energy agreed to tender all of its crude oil, natural gas and other hydrocarbon-based product volumes on approximately 35,000 dedicated acres in the Western Catarina area of the Eagle Ford Shale in Texas for processing and transportation through Western Catarina Midstream, with the potential to tender additional volumes outside of the dedicated acreage (the “Gathering Agreement”). During the first five years of the term of the Gathering Agreement, Sanchez Energy is required to meet a minimum quarterly volume delivery commitment of 10,200 Bbls per day of oil and condensate and 142,000 Mcf per day of natural gas, subject to certain adjustments. Sanchez Energy is required to pay gathering and processing fees of $0.96 per Bbl for crude oil and condensate and $0.74 per Mcf for natural gas that are tendered through Western Catarina Midstream, in each case, subject to an annual escalation for a positive increase in the consumer price index. For the years ended December 31, 2018 and 2017, Sanchez Energy paid us approximately $57.9 million and $52.8 million, respectively, pursuant to the terms of the gathering and processing agreement. On June 30, 2017, the Gathering Agreement was amended to add an incremental infrastructure fee to be paid by SN Catarina based on water that is delivered through the gathering system through March 31, 2018. Following March 31, 2018, we have agreed with Sanchez Energy to continue the incremental infrastructure fee on a month-to-month basis. As part of the Carnero Gathering Transaction, we are required to pay Sanchez Energy an earnout based on natural gas received above a threshold volume and tariff at Carnero Gathering’s delivery points from Sanchez Energy and other producers. For the years ended December 31, 2018 and 2017, we did not make any earnout payments to Sanchez Energy. However, we had a payable of $0.1 million to Sanchez Energy at year end December 31, 2017 related to the earnout. In November 2016, we completed the Carnero Processing Transaction pursuant to which we acquired from Sanchez Energy a 50% interest in Carnero Processing, a joint venture that is 50% owned and operated by Targa, for aggregate cash consideration of approximately $55.5 million and the assumption of remaining capital contribution commitments to Carnero Processing, estimated at approximately $24.5 million as of the date of acquisition. Also in November 2016, the Partnership consummated a Purchase and Sale Agreement with SN Cotulla Assets, LLC and SN Palmetto, LLC, each a wholly-owned subsidiary of Sanchez Energy , to purchase working interests in 23 producing Eagle Ford Shale wellbores located in Dimmit and Zavala counties in South Texas as well as escalating working interests in an additional 11 producing wellbores in the Palmetto Field in Gonzales, Texas for approximately $24.2 million. In September 2017, we entered into the Seco Pipeline Transportation Agreement. For the years ended December 31, 2018 and 2017, SN Catarina paid us approximately $7.2 million and $0.9 million, respectively, pursuant to the terms of that agreement. In May 2018, the Carnero JV, which is operated by Targa, received a dedication from Sanchez Energy and its working interest partners of over 315,000 Comanche acres in the Western Eagle Ford pursuant to a new long-term firm gas gathering and processing agreement. The agreement with Sanchez Energy, which was approved by all of the unaffiliated Comanche working interest partners, establishes commercial terms for the gathering of gas on the Carnero Gathering Line and processing at the Raptor Gas Processing Facility and Silver Oak II. Prior to execution of the agreement, Comanche volumes were gathered and processed on an interruptible basis, with the processing capabilities of the joint ventures limited by the capacity of the Raptor Gas Processing Facility. As of December 31, 2018 and 2017, the Partnership had a net receivable from related parties of approximately $6.7 million, and $13.1 million, respectively, which are included in “Accounts receivable – related entities” in the consolidated balance sheets. As of December 31, 2018 and 2017, the Partnership also had a net payable to related parties of approximately $5.6 million, and $10.4 million, respectively. The net receivable/payable as of December 31, 2018 consist primarily of revenues receivable from oil and natural gas production and transportation, offset by costs associated with that production and transportation and ad valorem. Sanchez Energy is an independent exploration and production company focused on the acquisition and development of U.S. onshore unconventional oil and natural gas resources, with a current focus on the horizontal development of significant resource potential from the Eagle Ford Shale in South Texas where it has assembled approximately 473,000 gross leasehold acres (271,000 net acres). The Chairman of the Board, Antonio R. Sanchez, III, is Sanchez Energy’s Chief Executive Officer and a member of its board of directors. A member of the Board, Eduardo A. Sanchez, is the former President of Sanchez Energy. The President and Chief Operating Officer of our general partner, Patricio D. Sanchez, who is also a member of the Board, is an Executive Vice President of Sanchez Energy. Antonio R. Sanchez, Jr., the father of Antonio R. Sanchez, III, Eduardo A. Sanchez, and Patricio D. Sanchez, is the Executive Chairman of the board of directors of Sanchez Energy. Antonio R. Sanchez, Jr., Antonio R. Sanchez, III, Eduardo A. Sanchez and Patricio D. Sanchez beneficially own 6.5%, 3.2%, 1.2% and 1.3%, respectively , of Sanchez Energy’s shares outstanding as of February 26, 2019. As of March 7, 2019, Sanchez Energy indirectly, through one of its wholly owned subsidiaries, beneficially owns approximately 13.0% of the outstanding common units of SNMP. The employees of SOG, including Kirsten A, Hink, our Chief Accounting Officer, provide services to both us and Sanchez Energy. |