Related Party Transaction | RELATED PARTY TRANSACTIONS In the ordinary course of business, we engage in related party transactions with CNX Resources (and certain of its subsidiaries) and CNX Gathering, which include the fees we charge and revenues we receive under a fixed fee gathering agreement (including electrically-powered compression CNX Resources reimburses to us) and our reimbursement of certain expenses to CNX Resources under several agreements, discussed below. In addition, we may waive or modify certain terms under these arrangements in the ordinary course of business, including the provisions of the fixed fee gathering agreement, when we determine it is in the best interests of the Partnership to do so. Any such transactions are reviewed by the Board of Directors, with oversight, as our Board of Directors deems necessary, by our conflicts committee. We also engaged in related party transactions with Noble Energy during the year ended December 31, 2017, which primarily included the fees we charged and revenues we received under our fixed fee gathering agreement with Noble Energy. Related party revenues and related party expenses are presented as separate captions within our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016. During the year ended December 31, 2018, the Partnership closed on the Shirley-Penns Acquisition and on the CNX and HG Energy Transactions. See Note 1–Description of Business for additional information. During the year ended December 31, 2017, the Partnership sold property and equipment to CNX Resources 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, CNX Gathering contributed assets with a carrying value of $5.0 million to the Partnership’s Anchor Systems during 2017. Operating expense–related party and general and administrative expense–related party were derived from CNX Resources in the year ended December 31, 2018 and from CNX Resources and Noble Energy in the years ended December 31, 2017 and 2016 and consisted of the following: For the Years Ended December 31, (in thousands) 2018 2017 2016 Operational services–CNX Resources $ 12,739 $ 13,166 $ 12,875 Electrical compression 7,075 12,347 16,896 Total Operating Expense — Related Party $ 19,814 $ 25,513 $ 29,771 CNX Resources $ 13,867 $ 10,167 $ 9,796 Noble Energy — 583 650 Total General and Administrative Expense — Related Party $ 13,867 $ 10,750 $ 10,446 All related party receivables were due from CNX Resources at December 31, 2018 and 2017. Related party payables consisted of the following at December 31: (in thousands) 2018 2017 CNX: Expense reimbursements $ 1,143 $ 780 Capital expenditures reimbursements 182 83 General and administrative services 3,655 1,458 Due to CNX total $ 4,980 $ 2,321 Noble Energy: General and administrative services — 55 Due to Noble Energy total $ — $ 55 Total Accounts Payable — Related Party $ 4,980 $ 2,376 In addition to the aforementioned transactions, throughout the years ended December 31, 2018, 2017 and 2016, CNX Resources and Noble Energy, through their ownership of CNX Gathering in the applicable periods, also regularly reimbursed the Partnership for capital expenditures, initially funded by the Partnership, in proportion to CNX Gathering’s noncontrolling ownership interests in the Anchor, Growth and Additional Systems. We also distributed to CNX Resources and Noble Energy amounts related to their noncontrolling ownership interest, in the applicable periods, in the earnings of the Anchor, Growth and Additional Systems as well as proceeds from sales of any assets in which CNX Resources and Noble Energy had ownership interests through their membership in CNX Gathering. This activity is recorded in the caption “Distributions to general partner and noncontrolling interest holders, net” in the consolidated statements of partners’ capital and noncontrolling interest and of cash flows. Omnibus Agreement On September 30, 2014, the date of the closing of the initial public offering of our common units (our “IPO”), we entered into an omnibus agreement with CNX Resources, Noble Energy, CNX Gathering and our general partner that addresses the following matters: • our payment of an annually-determined administrative support fee (approximately $1.9 million for the year ended December 31, 2018) for the provision of certain services by CNX Resources and its affiliates, including executive costs; • our obligation to reimburse CNX Resources and Noble Energy for all other direct or allocated costs and expenses incurred by CNX Resources and Noble Energy (through the date of the Noble Energy Asset Sale) 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) CNX Gathering’s retained interests in each of our Anchor Systems, Growth Systems and Additional Systems, (ii) CNX Gathering’s other ancillary midstream assets and (iii) any additional midstream assets that CNX Gathering develops; and • an indemnity from CNX 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 CNX 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. The omnibus agreement will remain in full force and effect throughout the period in which CNX Gathering controls our general partner. If CNX 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. Operational Services Agreement Upon closing of our IPO, we entered into an operational services agreement with CNX Resources. On December 1, 2016, in connection with a transaction under which CNX Resources and Noble Energy separated their Marcellus Shale area of mutual interest into two separate operating areas, the operational services agreement was amended and restated. Under the amended and restated operational services agreement, CNX Resources 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 CNX Resources may mutually agree upon from time to time. CNX Resources prepares and submits for our approval a maintenance, operating and capital budget on an annual basis. CNX Resources submits actual expenditures for reimbursement on a monthly basis, and we reimburse CNX Resources for any direct third-party costs incurred by CNX Resources in providing these services. The amended and restated operational services agreement has an initial term ending September 30, 2034 and will continue in full force and effect unless terminated by either party at the end of the initial term or any time thereafter by giving not less than six months’ prior notice to the other party of such termination. CNX Resources may terminate the operational services agreement if (1) we become insolvent, declare bankruptcy or take any action in furtherance of, or indicating our consent to, approval of, or acquiescence in, a similar proceeding or (2) upon not less than 180 days notice. We may immediately terminate the agreement (1) if CNX Resources becomes insolvent, declares bankruptcy or takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, a similar proceeding, (2) upon a finding of CNX Resources’ willful misconduct or gross negligence that has had a material adverse effect on any of our gathering pipelines and dehydration, treating and compressor stations and facilities or our business or (3) CNX Resources is in material breach of the operational services agreement and fails to cure such default within 45 days. Under the amended and restated operational services agreement, CNX Resources will indemnify us from any claims, losses or liabilities incurred by us, including third-party claims, arising from CNX Resources’ performance of the agreement to the extent caused by CNX Resources’ gross negligence or willful misconduct. We will indemnify CNX Resources from any claims, losses or liabilities incurred by CNX Resources, including any third-party claims, arising from CNX Resources’ performance of the agreement, except to the extent such claims, losses or liabilities are caused by CNX Resources’ gross negligence or willful misconduct. Our Gathering Agreements 2018 Gathering Agreements and Amendments On January 3, 2018, we entered into the Second Amended and Restated Gas Gathering Agreement (“GGA”), which is a 20 -year, fixed-fee gathering agreement with CNX Gas that amended and restated the previous gathering agreement with CNX Gas in its entirety. The amendment did not change the fees for services we provide in the Marcellus Shale for existing wells that were covered under the prior agreement (discussed below); however, the new gas gathering agreement with CNX Gas also dedicated additional acres in the Utica Shale in and around the McQuay and Wadestown areas and introduced the following gas gathering and compression rates for the year ended December 31, 2018: • Gas Gathering: ◦ McQuay area Utica Shale - a fee of $0.225 per MMBtu; and ◦ Wadestown Marcellus Shale and Utica Shale - a fee of $0.35 per MMBtu. • Compression: ◦ For areas not benefitting from system expansion pursuant to the Second Amended and Restated GGA, compression services are included in the base fees; and ◦ In the McQuay and Wadestown areas, for wells turned in line beginning January 1, 2018 and beyond, we will receive additional fees of $0.065 per MMBtu for Tier 1 pressure services (maximum receipt point of pressure of 600 psi) and $0.130 per MMBtu for Tier 2 pressure services (maximum receipt point of pressure of 300 psi). The Second Amended and Restated GGA also committed CNX Gas to drill and complete the following numbers of wells in the McQuay area within Anchor Systems in the periods indicated, provided that if 125 wells have been drilled and completed in the Marcellus Shale, then the remainder of such planned wells must be drilled in the Utica Shale. To the extent the requisite number of wells are not drilled and completed by CNX Gas in a given period, we will be entitled to a deficiency payment per shortfall well as set out in the parenthetical below: • January 1, 2018 to December 31, 2018 - 30 wells (deficiency payment of $3.5 million per well) • January 1, 2019 to April 30, 2020 - 40 wells (deficiency payment of $3.5 million per well) • May 1, 2020 to April 30, 2021 - 40 wells (deficiency payment of $2.0 million per well) • May 1, 2021 to April 30, 2022 - 30 wells (deficiency payment of $2.0 million per well) In the event that CNX Gas drills wells and completes a number of wells in excess of the number of wells required to be drilled and completed in such period, (i) the number of excess wells drilled and completed during such period will be applied to the minimum well requirement in the succeeding period or (ii) to the extent CNX Gas was required to make deficiency payments for shortfalls in the preceding period, CNX Gas may elect to cause the Partnership to pay a refund in an amount equal to (x) the number of excess wells drilled and completed during the period, multiplied by (y) the deficiency payment paid per well during the period in which the shortfall occurred. CNX Gas satisfied its minimum well obligation for the year ended December 31, 2018. On March 16, 2018, in connection with the Shirley-Penns Acquisition, we amended the Second Amended and Restated GGA to add an MVC on volumes associated with the Shirley-Penns System through December 31, 2031. The MVC commits CNX Gas to pay the Partnership the wet gas fee under the GGA for all natural gas we gather up to a specified amount per day through December 31, 2031. We expect to recognize minimum revenues throughout the term of the MVC as follows: (in millions) Minimum Revenue Year ending December 31, 2019 $ 21.4 Year ending December 31, 2020 34.7 Year ending December 31, 2021 40.8 Year ending December 31, 2022 47.8 Year ending December 31, 2023 42.9 Remainder of term 213.7 Total revenue to be recognized under Shirley-Penns contract through December 31, 2031 $ 401.3 For all natural gas the Partnership gathers in excess of the MVC, the Partnership received a fee of $0.35 per MMBtu throughout the year ended December 31, 2018, which will escalate by 2.5% annually beginning on January 1, 2019. On May 2, 2018, we completed the CNX Transactions, pursuant to which we amended the Second Amended and Restated GGA. The amended agreement commits CNX Gas to drill and complete an additional 40 wells in the Majorsville/Mamont area within the Anchor Systems through 2023. To the extent the requisite number of wells are not drilled and completed by CNX Gas in a given period, we will be entitled to a deficiency payment per shortfall well as set out in the parenthetical below: • July 1, 2018 to December 31, 2020 - 15 wells (deficiency payment of $2.8 million per well) • January 1, 2021 - December 31, 2023 - 25 wells (deficiency payment of $2.8 million per well) Gathering Agreements Prior to 2018 On December 1, 2016, we entered into a new fixed-fee gathering agreement with CNX Gas that replaced the gathering agreement that had been in place since our IPO. Under our gathering agreement with CNX Gas, during the year ended December 31, 2018, we received a fee based on the type and scope of the midstream services we provided, summarized as follows: • With respect to natural gas from the Marcellus Shale formation that did not require downstream processing, or dry gas, we received a fee of $0.431 per MMBtu. • With respect to the natural gas that required downstream processing, or wet gas, we received: ◦ a fee of $0.296 per MMBtu in the Pittsburgh International Airport area; and ◦ a fee of $0.593 per MMBtu for all other areas in the dedication area. • With respect to natural gas from the Utica Shale formation, we received a weighted average rate of $0.15 per MMBtu. • Our fees for condensate services were $5.38 per Bbl in the Majorsville area and in the Shirley-Penns area. Each of the foregoing fees escalates by 2.5% annually, through and including the final calendar year of the initial term. Commencing on January 1, 2035, and on each January 1 thereafter, each of the applicable fees will be adjusted pursuant to the percentage change in CPI-U, but such fees will never escalate or decrease by more than 3% . For additional information related to our gas gathering agreements with CNX Gas and HG Energy, and amendments thereto, see Part I. Item 1. Business—“Our Gathering Agreements with CNX Gas and HG Energy” and Item 1A. Risk Factors—Risks Related to Our Business—“Our gathering agreements with our customers provide for the release of dedicated acreage or fee credits in certain situations.” Upon completion of its 20 -year term in 2037, our gathering agreement with CNX Gas will continue in effect from year to year until such time as the agreement is terminated by either us or CNX Gas on or before 180 days prior written notice. Registration Rights Agreement On January 3, 2018, in connection with the closing of the General Partner Transaction, the Partnership entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Noble Energy relating to the registered resale of common units that Noble Energy acquired in connection with the IPO and upon conversion of subordinated units representing limited partner interests in the Partnership (collectively, the “Registrable Securities”). Pursuant to the Registration Rights Agreement, the Partnership filed a registration statement for the registered resale of the Registrable Securities. Under the terms of the Registration Rights Agreement, Noble Energy executed an underwritten public offering of 7,475,000 of its common units in the Partnership on June 29, 2018. On September 26, 2018, Noble Energy executed private securities sales agreements with multiple buyers for the remaining 14,217,198 Retained Units, representing all of its remaining ownership of the Partnership. See Note 1–Description of Business for additional information. |