BASIS OF PRESENTATION | 12 Months Ended |
Dec. 31, 2013 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
BASIS OF PRESENTATION | ' |
BASIS OF PRESENTATION |
The consolidated and combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). |
In preparing financial statements in accordance with GAAP, management makes informed judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. Management evaluates its estimates and related assumptions regularly, utilizing historical experience and other methods considered reasonable under the particular circumstances. Changes in facts and circumstances or additional information may result in revised estimates and actual results may differ from these estimates. Effects on the business, financial condition and results of operations resulting from revisions to estimates are recognized when the facts that give rise to the revision become known. The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated and combined financial statements. The consolidated and combined financial statements include the accounts of the Partnership and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. |
The accompanying combined financial statements have been prepared in accordance with Regulation S-X, Article 3, General Instructions as to Financial Statements and Staff Accounting Bulletin ("SAB") Topic 1-B, Allocations of Expenses and Related Disclosures in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. Certain expenses incurred by SEV are only indirectly attributable to Marlin Midstream. As a result, certain assumptions and estimates are made in order to allocate a reasonable share of such expenses to the Partnership, so that the accompanying combined financial statements reflect substantially all costs of doing business. The allocations and related estimates and assumptions are described more fully in Note 11-"Transactions with Affiliates", which the Partnership believes are reasonable. |
SEV has allocated various corporate overhead expenses to the Partnership based on percentage of departmental usage, wages or headcount. These allocations are not necessarily indicative of the cost that the Partnership would have incurred had it operated as an independent stand-alone entity. As such, the consolidated and combined financial statements do not fully reflect what the Partnership's financial position, results of operations and cash flows would have been had the Partnership operated as a stand-alone company during the periods presented. |
At the closing of the IPO, the Partnership entered into an omnibus agreement with NuDevco and its affiliates which addresses the management and administrative services to be provided by NuDevco to the Partnership and the corresponding fees and expense reimbursements to be paid to NuDevco in connection therewith. Under the omnibus agreement, the Partnership pays an annual fee, initially in the amount of $0.6 million, for executive management services and is allocated general and administrative and operating expenses that are directly attributable to the Partnership. |
Prior to the IPO, Marlin Midstream relied upon SEV and its affiliates as a participant in SEV's credit facility. As a result, historical combined financial information is not necessarily indicative of what the Partnership's results of operations, financial position and cash flows will be in the future. |
Cash and Cash Equivalents |
Cash and cash equivalents consist of all unrestricted demand deposits and funds invested in highly liquid instruments with original maturities of three months or less. The Partnership periodically assesses the financial condition of the institutions where these funds are held and believes that its credit risk is minimal. |
Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated and combined statements of cash flows. The Partnership does not maintain an allowance for doubtful accounts. The Partnership elects to use the direct write-off method based on its collection history. For the years ended December 31, 2013 and 2012, no accounts receivable were written off. |
Inventory |
Inventory consists of NGLs and chemicals in bulk storage and is valued at the lower of weighted average cost or market. NGL inventories are used for sales contract requirements. Chemical inventories are expensed as transferred from bulk storage into production and are recorded in operation and maintenance in the consolidated and combined statements of operations. |
Deferred Financing Costs |
Costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense using the effective interest method over the life of the related debt. |
Property, Plant and Equipment |
Property, plant and equipment are stated at cost. Depreciation on property, plant and equipment is recorded on a straight-line basis for groups of property having similar economic characteristics over the estimated useful lives (primarily 5 to 40 years). Uncertainties that may impact these estimates include, but are not limited to, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions and supply and demand in the area. When assets are placed into service, management makes estimates with respect to useful lives. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts. |
When items of property, plant and equipment are sold or otherwise disposed of, gains or losses are reported in the consolidated and combined statements of operations. |
The Partnership capitalizes all construction-related direct labor and material costs, as well as indirect construction costs. Indirect construction costs include general engineering, insurance, taxes and the cost of funds used during construction. Capitalized interest is calculated by multiplying the Partnership’s monthly weighted average interest rate on outstanding debt by the amount of qualifying costs. Capitalized interest cannot exceed monthly gross interest expense. After major construction projects are completed, the associated capitalized costs including interest are depreciated over the estimated useful life of the related asset. During the years ended December 31, 2013 and 2012, respectively, the Partnership recorded $0.2 million and $0.2 million of capitalized interest, respectively. |
Costs, including complete asset replacements and enhancements or upgrades that increase the original efficiency, productivity or capacity of property, plant and equipment, are also capitalized. In addition, certain of the Partnership’s plant assets require periodic and scheduled maintenance, such as overhauls. The cost of these scheduled maintenance projects are capitalized and depreciated on a straight-line basis until the next planned maintenance, which generally occurs every 5 years. |
Costs for planned integrity management projects are expensed in the period incurred. These types of costs include in-line inspection services, contractor repair services, materials and supplies, equipment rentals and labor costs. The costs of repairs, minor replacements and maintenance projects, which do not increase the original efficiency, productivity or capacity of property, plant and equipment, are expensed as incurred. |
Impairment of Long-lived Assets |
The Partnership evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when the sum of the estimated, undiscounted future cash flows from the use of the asset and its eventual disposition is less than the carrying amount of the asset. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence. If the carrying amount of the long-lived asset is not recoverable based on the estimated future undiscounted cash flows, an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the long-lived asset. With respect to natural gas processing plants and pipelines and NGL pipelines, management considers the volume of third-party reserves behind the asset and future NGL and natural gas prices to estimate cash flows. The amount of additional reserves developed by future drilling activity depends, in part, on expected natural gas prices. Projections of reserves, drilling activity, and future commodity prices are inherently subjective and contingent upon a number of variable factors, many of which are difficult to forecast. Any significant variance in any of these assumptions or factors could materially affect future cash flows, which could result in the impairment of an asset group. |
For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if impairment is required. Until the assets are disposed of, an estimate of the fair value is determined when related events occur or circumstances change. There were no asset impairments for the years ended December 31, 2013 and 2012. |
Segment Reporting |
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, established standards for entities to report information about the operating segments and geographic areas in which they operate. The Partnership operates two segments, gathering and processing and crude oil logistics, and all of its operations are located in the United States. Our crude oil logistics segment had no material assets or operations as of or prior to December 31, 2012. |
Revenues and Cost of Revenues |
The Partnership’s revenues are derived primarily from natural gas processing and fees earned from its gathering and processing operations. Revenues are recognized by the Partnership using the following criteria: (1) persuasive evidence of an exchange arrangement exists, (2) delivery has occurred or services have been rendered, (3) the buyer’s price is fixed or determinable and collection is reasonably assured. Utilizing these criteria, revenues are recognized when the commodity is delivered or services are rendered. Similarly, cost of revenues is recognized when the commodity is purchased or delivered. |
The Partnership’s fee-based contracts provide for a fixed fee arrangement for one or more of the following midstream services: natural gas gathering, compression, dehydration, treating, processing and hydrocarbon dew-point control and transportation services to producers, third- party pipeline companies and marketers. Under these arrangements, the Partnership is paid a fixed fee based on the volume of the natural gas the Partnership gathers and processes, and recognizes revenues for its services in the month such services are performed. Substantially all of these fee-based agreements contain minimum volume commitments and annual inflation adjustments. |
Historically, under commercial agreements that did not require us to deliver NGLs to the customer in kind, we provided NGL transportation services to the customer whereby we purchased the NGLs from the customer at an index price, less fractionation and transportation fees, and simultaneously sold the NGLs to third parties at the same index price, less fractionation fees. The revenue generated by these activities was offset by a corresponding cost of revenues that was recorded when we compensated the customer for its share of the NGLs. |
Producers’ wells and other third-party gathering systems are connected to the Partnership’s gathering systems for delivery of natural gas to the Partnership’s processing and treating plants, where the natural gas is processed to extract NGLs and condensate or treated in order to satisfy downstream natural gas pipeline specifications. Under percentage of liquids (“POL”) arrangements, the Partnership retained a percentage of the liquids processed. Both the Partnership and producer depended on the volume of the commodity and its value and each party received a percentage of the commodity revenues. Revenues were directly correlated to the commodity’s market value. POL contracts also include fee-based revenues for gathering and other midstream services. Under both fixed fee and POL arrangements, the counterparties’ share of NGLs, if not delivered as a commodity, was recorded as cost of revenues. |
Under its keep-whole contracts, the Partnership was required to gather or purchase raw natural gas at current market rates. The volume of gas gathered or purchased was based on the measured volume at an agreed upon location (generally at the wellhead). The volume of gas redelivered or sold at the tailgate of the Partnership’s processing facility would be lower than the volume purchased at the wellhead primarily due to NGLs extracted through processing. The Partnership would make up or “keep the producer whole” for the condensate and NGL volumes through the delivery of or payment for a thermally equivalent volume of residue gas. The cost of these natural gas volumes was recorded as a cost of natural gas, NGLs and condensate revenue-affiliates. The keep-whole contract conveyed an economic benefit to the Partnership when the combined value of the individual NGLs was greater in the form of liquids than as a component of the natural gas stream; however, the Partnership was adversely impacted when the value of the NGLs is lower as liquids than as a component of the natural gas stream. Certain contracts also included fee-based revenues for gathering and other midstream services. Cost of revenues were derived primarily from the purchase of natural gas, NGLs and condensates. There were no material costs categorized as cost of revenue directly identified with gathering, processing and other revenue. |
Natural Gas Imbalances |
The consolidated and combined balance sheets include natural gas imbalance receivables and payables caused by the difference in natural gas delivered to the Partnership’s customers and the natural gas contractually owed to the customers. Most natural gas imbalances are settled monthly in cash and calculated according to the terms of their contracts. Changes in gas imbalances are reported net of the cost of product in the consolidated and combined statements of operations. As of December 31, 2013 and 2012, the Partnership recorded an imbalance receivable of $0.1 million and $0.2 million, respectively, which is recorded in accounts receivable in the consolidated and combined balance sheets. |
Hedging and Derivatives |
From time to time, the Partnership entered into derivative transactions to mitigate its exposure to price fluctuations in NGLs. The Partnership recognized all derivative instruments as either assets or liabilities in the combined balance sheet at their respective fair value. For derivatives designated in hedging relationships, changes in the fair value were recognized in accumulated other comprehensive income, to the extent the derivative was effective at offsetting the changes in cash flows being hedged, until the hedged item affected earnings. As of the date of our IPO on July 31, 2013, we settled our outstanding interest rate swap and have discontinued our hedging and derivatives program. |
Interest Rate Swaps |
The Partnership utilizes derivative instruments to manage its exposure to interest rate risk. In January 2011, the Partnership entered into an interest rate swap for this purpose (“2011 Swap”). The 2011 Swap did not meet the criteria necessary to qualify for cash flow hedge accounting and was recorded at fair value at each reporting period with changes in fair value recognized currently in earnings. The 2011 Swap was settled in full on December 17, 2012. On December 17, 2012, the Partnership entered into a new interest rate swap (“2012 Swap”) to manage its exposure to interest rate risk. The 2012 Swap did not meet the criteria necessary to qualify for cash flow hedge accounting and is recorded at fair value at each reporting period with changes in fair value recognized currently in earnings. Gains and losses on interest rate swaps are recorded in gain (loss) on interest rate swap in the combined statements of operations. |
Fair Value |
FASB ASC 820, Fair Value Measurement, established a single authoritative definition of fair value when accounting rules require the use of fair value, set out a framework for measuring fair value and required additional disclosures about fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: |
•Level 1-Quoted prices in active markets for identical assets or liabilities. |
•Level 2-Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities). |
•Level 3-Significant unobservable inputs (including the Partnership’s own assumptions in determining fair value). |
When the Partnership is required to measure fair value, and there is not a market-observable price for the asset or liability or a market- observable price for a similar asset or liability, the Partnership utilizes the cost, income, or market valuation approach depending on the quality of information available to support management’s assumptions. |
The carrying amount of long-term debt reported on the consolidated and combined balance sheets approximates fair value, because of the variable rate nature of the Partnership’s long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities reported on the consolidated and combined balance sheets approximate fair value due to the short-term nature of these items. The fair value of the Partnership’s accounts receivable with affiliates and accounts payable with affiliates cannot be determined due to the related party nature of these items. Derivative instruments are measured at fair value at each reporting period. |
Asset Retirements Obligations |
FASB ASC 410, Asset Retirement and Environmental Obligations, requires the Partnership to evaluate whether any future asset retirement obligations exist as of December 31, 2013 and 2012, and whether the expected retirement date of the related costs of retirement can be estimated. The Partnership has concluded that its natural gas gathering system assets, which include pipelines and treating facilities, have an indeterminate life because they are owned and will operate for an indeterminate future period when properly maintained. A liability for these asset retirement obligations will be recorded only if and when a future retirement obligation with a determinable life is identified. The Partnership did not record any asset retirement obligations as of December 31, 2013 and 2012 because the Partnership has no current intention of discontinuing use of any significant assets. |
Environmental Expenditures |
The operations of the Partnership are subject to various federal, state and local laws and regulations relating to the protection of the environment. Although the Partnership believes that it is in compliance with applicable environmental regulations, the risk of costs and liabilities are inherent in pipeline ownership and operation, and there can be no assurances that significant costs and liabilities will not be incurred by the Partnership. |
Environmental expenditures related to operations that generate current or future revenues are expensed or capitalized, as appropriate. Liabilities are recorded when the necessity for environmental remediation or other potential environmental liabilities become probable and the costs can be reasonably estimated. Management is not aware of any contingent liabilities that currently exist with respect to environmental matters. |
Income Taxes |
The Partnership is not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Therefore, income taxes are not levied at the entity level, but rather on the individual partners of the Partnership. Accordingly, the accompanying consolidated and combined financial statements do not include a provision for federal and state income taxes. The Partnership is subject to the Revised Texas Franchise Tax (“Texas Margin Tax”). The Texas Margin Tax is computed on modified gross margin and was not significant for the years ended December 31, 2013, 2012 and 2011, and is recorded as Texas margin tax expense in the consolidated and combined statements of operations. The Partnership does not do business in any other state where a similar tax is applied. As of December 31, 2013, the Partnership had no liability reported for unrecognized tax benefits. |
Net Income Per Unit |
The Partnership has omitted net income per unit for all historical periods prior to the IPO at July 31, 2013 because the Partnership operated under a sole member equity structure, which is different than the capital structure resulting from the consummation of the IPO and, as a result, the per unit data for periods prior to the IPO would not be meaningful to investors. |
The net income per unit figures on the consolidated Statement of Operations is based on the net income of the Partnership after the closing of the IPO on July 31, 2013 through December 31, 2013, since this is the amount of net income that is attributable to the newly issued Partnership units. |
Commitments and Contingencies |
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of environmental remediation costs from third parties that are probable of realization are separately recorded as assets, and are not offset against the related environmental liability. |
Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of expected future expenditures for environment remediation obligations are not discounted to their present value. |
Transactions with Affiliates |
From time to time, the Partnership enters into transactions with SEV related affiliates that have a common owner with the Partnership in order to reduce risk, create strategic alliances and supply or receive goods and services to these SEV related affiliates. As such, the accompanying consolidated and combined financial statements include costs that have been incurred by SEV on behalf of the Partnership. These amounts incurred by SEV are then billed or allocated to the Partnership and are classified on the consolidated and combined statements of operations as either direct operation and maintenance-affiliates or as general and administrative-affiliates. |
At our IPO, the Partnership entered into an omnibus agreement with the general partner and its affiliates that addresses (i) the management and administrative services to be provided by NuDevco to the Partnership and the corresponding fees and expense reimbursements to be paid to NuDevco in connection therewith, (ii) the indemnification obligations between NuDevco and the Partnership for environmental and other liabilities and the operation of assets and (iii) the Partnership's right of first offer on certain of NuDevco Midstream Development's midstream energy assets. For additional information relating to transactions with our affiliates, please see Note 11, "Transactions with Affiliates," to our Consolidated Financial Statements included in this Form 10-K. |
Use of Estimates and Assumptions |
The preparation of the Partnership’s consolidated and combined financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements and the reported amounts of revenues and expenses during the reporting period. Certain prior year amounts have been reclassified to conform to the current year presentation. Actual results could materially differ from those estimates. Significant items subject to such estimates by the Partnership’s management include provisions for uncollectible receivables, valuation of long-lived assets and related estimated useful lives, valuation of derivatives, valuation of equity-based compensation, and reserves for contingencies. |
Accounting for Awards under the Long-term Incentive Plan |
The Long-term Incentive Plan ("LTIP") provides for the grant of unit options, unit appreciation awards, restricted units, phantom units, distribution equivalent rights, unit awards, profits interest units, and other unit-based awards. On August 1, 2013, phantom units, with distribution equivalent rights, of 292,000 units were awarded to certain employees of NuDevco Midstream Development and its affiliates who provide direct or indirect services to the Partnership pursuant to affiliate agreements, and 20,000 units were awarded to certain board members of the Partnership’s general partner. All of the phantom unit awards granted to-date are considered non-employee equity based awards and are required to be remeasured at fair market value at each reporting period and amortized to compensation expense on a straight-line basis over the vesting period of the phantom units with a corresponding increase in a liability. Management intends to settle the awards by allowing the recipient to choose between issuing the net amount of common units due, less common units equivalent to pay withholding taxes, due upon vesting with the Partnership paying the amount of withholding taxes due in cash or issuing the gross amount of common units due with the recipient paying the withholding taxes. The phantom unit awards were awarded to individuals who are not deemed to be employees of the Partnership. |
Distribution equivalent rights are accrued for each phantom unit award as the Partnership declares cash distributions and are recorded as a decrease in partners’ capital with a corresponding liability in accordance with the vesting period of the underlying phantom unit, which will be settled in cash when the underlying phantom units vest. |
Recent Accounting Pronouncements |
In February 2013 the FASB issued Accounting Standards Update (“ASU”) No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date (“ASU 2013-04”), regarding accounting for obligations resulting from joint and several liability arrangements. ASU 2013-04 is effective for interim and annual periods beginning January 1, 2014. Early adoption is permitted with retrospective application. The Partnership adopted this standard upon issuance and has applied the requirements to its 2013 and 2012 combined and consolidated financial statements. |
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 retains the existing offsetting requirements and enhances the disclosure requirements to allow investors to better compare financial statements prepared under GAAP with those prepared under International Financial Reporting Standards (“IFRS”). On January 31, 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). ASU 2013-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements and securities lending transactions. Both standards are effective for interim and annual periods beginning January 1, 2013 and should be applied retrospectively. For the years ended December 31, 2013 and 2012, the Partnership had no offsetting in the financial statements. |
In February 2013, the FASB issued Accounting Standards Update ASU No. 2013-02, Reporting Amounts Reclassified Out of Accumulated Comprehensive Income (“ASU 2013-02”), related to the reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or in the related notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The guidance is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2012. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. As such, the Partnership can delay the adoption of certain accounting standards until these standards would otherwise apply to private companies. The Partnership has elected to delay such adoption of new or revised accounting standards, and as a result, the Partnership will not adopt ASU 2013-02 until interim periods in 2014 as required by nonpublic entities. |