RELATED PARTY | RELATED PARTY In the ordinary course of business, we have transactions with CONSOL (and certain of its subsidiaries), Noble Energy, and CONE Gathering which constitute related party transactions. During the nine months ended September 30, 2017, the Partnership sold property and equipment to CONSOL with a carrying value of $17.4 million for $14.0 million in cash proceeds. The resulting loss of $3.4 million was recorded as a loss on asset sales in the accompanying consolidated statement of operations, within the Additional Systems segment. In addition, CONE Gathering contributed assets with a carrying value of $5.0 million to the Partnership's Anchor Systems in the current year period. Sponsor-related charges within operating expense and general and administrative expense – related party consisted of the following: Three Months Ended Nine Months Ended (in thousands) 2017 2016 2017 2016 Operational services — CONSOL $ 4,255 $ 2,856 $ 10,442 $ 10,010 Electrical compression 2,069 4,353 10,599 12,621 Total Operating Expense — Related Party $ 6,324 $ 7,209 $ 21,041 $ 22,631 CONSOL $ 2,580 $ 2,462 $ 7,926 $ 6,031 Noble Energy 133 162 438 490 Total General and Administrative Expense — Related Party $ 2,713 $ 2,624 $ 8,364 $ 6,521 In addition to the aforementioned transactions, throughout the nine months ended September 30, 2017 and 2016, the Sponsors, through their ownership of CONE Gathering, regularly reimbursed the Partnership for capital expenditures, initially funded by the Partnership, in proportion to CONE Gathering's noncontrolling ownership interests in the Anchor, Growth and Additional Systems. We also distributed to the Sponsors amounts related to their noncontrolling ownership interest in the earnings of the Anchor, Growth and Additional Systems as well as proceeds from sales of any assets in which the Sponsors have ownership interests through their membership in CONE Gathering. This activity is recorded in the caption “Contributions from (distributions to) general partner and noncontrolling interest holders, net” in the consolidated statements of partners' capital and noncontrolling interest and of cash flows. Operational Services Agreement Concurrent with the closing of the IPO, we entered into an operational services agreement with CONSOL. On December 1, 2016, in connection with the consummation of our Sponsors' Exchange Agreement, pursuant to which CONSOL and Noble Energy separated their Marcellus Shale area of mutual interest into two separate operating areas (the “ Exchange Agreement”), the operational services agreement was amended and restated. Under the amended and restated operating agreement, CONSOL continues to provide certain operational services to us in support of our gathering pipelines and dehydration, treating and compressor stations and facilities, including routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and CONSOL may mutually agree upon from time to time. CONSOL prepares and submits for our approval a maintenance, operating and capital budget on an annual basis. CONSOL submits actual expenditures for reimbursement on a monthly basis, and we reimburse CONSOL for any direct third-party costs incurred by CONSOL in providing these services. Omnibus Agreement Concurrent with the closing of the IPO, we entered into an omnibus agreement with CONSOL, Noble Energy, CONE Gathering and our general partner that addresses the following matters: • our payment of an annually-determined administrative support fee, which will total $0.9 million for the year ending December 31, 2017, for the provision of certain services by CONSOL and its affiliates; • our payment of an annually-determined administrative support fee, which will total $0.7 million for the year ending December 31, 2017, for the provision of certain executive services by CONSOL and its affiliates; • our payment of an annually-determined administrative support fee, which will total $0.3 million for the year ending December 31, 2017, for the provision of certain executive services by Noble Energy and its affiliates; • our obligation to reimburse our Sponsors for all other direct or allocated costs and expenses incurred by our Sponsors in providing general and administrative services (which reimbursement is in addition to certain expenses of our general partner and its affiliates that are reimbursed under our partnership agreement); • our right of first offer to acquire (i) CONE Gathering’s retained interests in each of our Anchor Systems, Growth Systems and Additional Systems, (ii) CONE Gathering’s other ancillary midstream assets and (iii) any additional midstream assets that CONE Gathering develops; and • an indemnity from CONE Gathering for liabilities associated with the use, ownership or operation of our assets, including environmental liabilities, to the extent relating to the period of time prior to the closing of the IPO; and our obligation to indemnify CONE Gathering for events and conditions associated with the use, ownership or operation of our assets that occur after the closing of the IPO, including environmental liabilities. So long as CONE Gathering controls our general partner, the omnibus agreement will remain in full force and effect. If CONE Gathering ceases to control our general partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms. Gathering Agreements Upon consummation of the Exchange Agreement, we entered into new fixed-fee gathering agreements with each of CNX Gas Company LLC, a wholly owned subsidiary of CONSOL ( “ CNX Gas”), and Noble Energy that replaced the gathering agreements that had been in place since the IPO. In addition to incorporating changes related to the termination of CONSOL and Noble Energy's upstream joint venture and Joint Development Agreement, the new gathering agreements were designed to provide more clarity on each of CONSOL and Noble Energy's acreage dedications to the Partnership and related releases and to allow each of CONSOL and Noble Energy to independently advance their own development programs. The new gathering agreements were also designed to simplify the decision making process relating to the Partnership's ability to gather third party gas. Our gathering agreement with Noble Energy was assigned to HG Energy upon consummation of the Noble Energy Asset Sale. The terms of the agreement remain unchanged following the assignment, except as it relates to HG Energy's inability to, without the Partnership's consent, release dedicated acreage in connection with a transfer of such acreage free of the dedication to us, and exercise other initial shipper rights provided under the gathering agreement. HG Energy is currently not a related party of the Partnership; accordingly, the focus of the following disclosure is on current and historical related party transactions, which do not include transactions with HG Energy. Under the gathering agreements with CNX Gas and Noble Energy (from whom we generated related party revenues through June 28, 2017) , we receive a fee based on the type and scope of the midstream services we provide, summarized as follows: • For the services we provide with respect to natural gas from the Marcellus Shale formation that does not require downstream processing, or dry gas, we receive a fee of $0.42 per MMBtu. • For the services we provide with respect to the natural gas from the Marcellus Shale formation that requires downstream processing, or wet gas, we receive: • a fee of $0.289 per MMBtu in the Moundsville area (Marshall County, West Virginia); • a fee of $0.289 per MMBtu in the Pittsburgh International Airport area; and • a fee of $0.578 per MMBtu for all other areas in the dedication area. • For the services we provide with respect to natural gas from the Utica Shale formation, we receive a weighted average rate of $ 0.28 per MMBtu. • For the condensate services we provide, we receive a fee of $5.25 per barrel ( “ Bbl”) in the Majorsville area and $2.627 per Bbl in the Moundsville area. Each of the foregoing fees will escalate annually by 2.5% on January 1, beginning on January 1, 2018. Notwithstanding the foregoing, from time to time, CNX Gas may request rate reductions under certain circumstances, which are reviewed by the board of directors of our general partner, with oversight, as our board of directors deems necessary, by our conflicts committee. No rate reduction arrangements are currently active. We gather, compress, dehydrate and deliver all of CNX Gas' dedicated natural gas in the Marcellus Shale on a first-priority basis and gather, inject, stabilize and store all of CNX Gas' dedicated condensate on a first-priority basis, with the exception that until December 1, 2018, CNX Gas will receive first-priority service in our Majorsville system with respect to a certain volume of production (revised bi-annually) and any excess production will receive second-priority service. We receive quarterly updates from CNX Gas on their drilling and development operations, which include detailed descriptions of the drilling plans, production details and well locations for the following 24 months and a three to ten year plan that includes more general development plans. In addition, we regularly meet with CNX Gas to discuss our plans to timely construct the necessary facilities to be able to provide midstream services to them on our dedicated acreage. In the event that we do not perform our obligations under a gathering agreement, CNX Gas will be entitled to certain rights and procedural remedies thereunder, including the temporary and/or permanent release from dedication discussed below and indemnification from us. In addition to the natural gas and condensate that is produced from the dedicated acreage, CNX Gas may elect to dedicate to us non-Marcellus Shale properties located in the dedication area in which it has an interest. If it elects to dedicate any such property, then it will propose a fee for the associated midstream services we would provide. So long as the proposed fee generates a rate of return consistent with its existing gathering agreement on both incremental capital and operating expense associated with any expenditures necessary to gather gas from such property, any midstream services that we agree to provide will be on a second priority basis; second only to the first priority basis afforded to CNX Gas on its dedicated production. Throughput that we currently gather from Utica Shale wells operated by CNX Gas is also addressed in its gathering agreement with us. While our gathering agreement with CNX Gas, as an initial shipper under our gas gathering agreement, runs with the land and, subject to the exceptions described therein, is binding upon the transferee of any of our dedicated acreage, the gathering agreement with CNX Gas provides that it may divest 25,000 net acres of its dedicated acreage (plus or minus the net of acreage acquired or divested within the dedicated area since our IPO) free of the dedication to us (the “Acreage Bucket”). The amount of net acreage that may be divested by CNX Gas free of the dedication will be increased by the amount, if any, of the net acreage acquired (or deemed to be acquired) by CNX Gas within the geographic boundaries of the dedication area that will become automatically dedicated to us. For purposes of determining if acreage can be released free and clear of the dedications under our gathering agreement with CNX Gas, the actual net acreage divested or acquired may be adjusted upwards or downwards based on the geographic location of such net acreage, the timing of the respective divestiture or acquisition and certain other conditions set forth in the agreement. During the nine month period ended September 30, 2017, CNX Gas completed several land transactions, involving both developed and undeveloped acreage located primarily in the Anchor and Additional Systems, that impacted our acreage dedication. At November 2, 2017, CNX Gas has approximately 10,000 acres in its Acreage Bucket. The Noble Energy gathering agreement also provided for an Acreage Bucket, as described above. However, this right was unique to Noble Energy, as an initial shipper under its gathering agreement, and was not transferred to HG Energy upon assignment of the gathering agreement. In connection with the Noble Energy Asset Sale, Noble Energy provided notice to the Partnership of its release of approximately 37,000 undeveloped acres, which were primarily within the Growth and Additional Systems and approximated the amount of the Acreage Bucket attributed to Noble Energy at the time of sale. After the Noble Energy Asset Sale, Noble Energy can no longer release acres from dedication. The Partnership is in the process of confirming the dedication status of the acres that were released. There are no restrictions under our gathering agreements on the ability of CNX Gas to transfer acreage in the right of first offer ( “ ROFO”) area, and any such transfer of acreage in the ROFO area will not be subject to our right of first offer. For additional information on the ROFO area, see Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations–How We Evaluate Our Operations–Throughput Volumes. Upon completion of its initial term in 2034, each of our gathering agreements will continue in effect from year to year until such time as the agreement is terminated by either us or the other party to such agreement on or before 180 days prior written notice. |