Commitments and Contingencies | Commitments and Contingencies Contractual Commitments Gas Processing Agreement The Partnership is a party to a 15 -year gas processing agreement with MRD Operating to provide natural gas processing services at the Partnership’s processing plants. The initial term of the processing agreement commenced on June 1, 2015 and will end on the fifteenth anniversary of the contract effectiveness date for the Mt. Olive plant, which is anticipated to be October 1, 2015. Under the processing agreement, MRD Operating has agreed to deliver a daily minimum volume of gas for processing through the term of the agreement, which is initially 115,000 MMBtu/d. On the contract effectiveness date for the Mt. Olive plant, MRD Operating’s minimum volume commitment will increase to 345,000 MMBtu/d. On July 1, 2016, MRD Operating’s minimum volume commitment will further increase to 460,000 MMBtu/d through June 30, 2026. During the first five years of this ten-year period, MRD Operating may from time to time, upon nine months’ notice, increase the minimum volume commitment in increments of 57,500 MMBtu/d up to an aggregate additional 230,000 MMBtu/d, subject to available capacity. On July 1, 2026, MRD Operating’s minimum volume commitment will return to 345,000 MMBtu/d until the fifteenth anniversary of the in-service date of the Lincoln Parish plant, after which the minimum volume commitment will decrease to 115,000 MMBtu/d through the remainder of the initial term of the processing agreement. Any volumes of gas delivered up to the then-applicable minimum volume commitment will be considered firm reserved gas and be charged the firm fixed-commitment fee, and any volumes delivered in excess of such minimum volume commitment will be considered interruptible volumes and be charged the interruptible-service fixed fee. Pursuant to the processing agreement, MRD Operating will pay a deficiency payment based on the firm-commitment fixed fee with respect to a particular quarterly period if the cumulative minimum volume commitment as of the end of such period exceeds the sum of (i) the cumulative volumes processed under the processing agreement as of the end of such period plus (ii) volumes corresponding to deficiency payments incurred prior to such period. MRD Operating may utilize these deficiency payments as a credit for fees owed to the Partnership only to the extent it has delivered the total minimum volume commitment under the processing agreement within the initial 15 -year term of the agreement. Additionally, all volumes delivered by MRD Operating in excess of the minimum volume commitment in a quarterly period will apply against and reduce, on a one-for-one basis, the cumulative minimum volume commitment used to calculate deficiency payments for future quarterly periods. Deficiency payments are recorded as deferred revenue since MRD Operating may utilize these deficiency payments as credit for fees owed if it has delivered the total minimum volume commitment under the processing agreement within the initial 15 -year term of the agreement. The Partnership will recognize deficiency payments into revenue once all contingencies or potential performance obligations associated with the related volumes have either (i) been satisfied through the processing of future excess volumes of natural gas, or (ii) expired (or lapsed) through the passage of time pursuant to the terms of the processing agreement. On August 5, 2015, the parties amended the processing agreement to provide that MRD Operating may use the $0.5 million deficiency payment incurred with respect to the initial quarterly period, which began on June 1, 2015 and ended June 30, 2015, as a credit against processing fees owed to PennTex Operating for corresponding volumes of gas processed during the third and fourth quarters of 2015 in excess of a specified threshold for each quarter. The specified threshold for the third quarter is 161,000 MMBtu per day (on an average basis) and the specified threshold for the fourth quarter is the then-applicable minimum volume commitment. Additionally, pursuant to the amendment, if MRD Operating does not use the June 2015 deficiency payment to offset processing fees in the third or fourth quarters of 2015, the June 2015 deficiency payment will expire at the end of the fourth quarter of 2015 and may not be used as a credit for any future processing fees owed by MRD Operating. Any portion of the June 2015 deficiency payment that is so credited during the third or fourth quarters will be recognized as revenue during such period, and any unused portion of the June 2015 deficiency payment will be recognized as revenue during the fourth quarter of 2015. Gas Gathering Agreement The Partnership is party to a gathering agreement with MRD Operating that commenced on December 20, 2014 and will remain in effect until June 1, 2030. The gathering agreement provides for the gathering of MRD Operating’s processable natural gas for delivery through the PennTex Gathering Pipeline to the Partnership’s processing plants and for MRD Operating’s payment of fees, including a firm capacity reservation payment and a usage fee component that is subject to a minimum volume commitment. For the period from June 1, 2015 through November 30, 2019, (i) the firm capacity reservation payment is payable for a daily capacity of 460,000 MMBtu/d (subject to certain credits relating to the availability of gathering capacity), calculated monthly, and (ii) the usage fee is payable for volumes delivered into the gathering system, subject to a deficiency fee based on a specified minimum volume commitment that is calculated and paid on an annual basis. The specified minimum gathering volume commitment upon which the deficiency fee calculation is based will be equal to MRD Operating’s then applicable daily minimum volume commitment under the processing agreement (excluding the amount of any optional increase in such minimum processing volume commitment). Accordingly, the amount of such specified minimum gathering volume commitment will not be less than 115,000 MMBtu/d, nor more than 460,000 MMBtu/d. For the period from December 1, 2019 through the end of the gathering agreement term, no firm capacity reservation payment will be payable, and there will be a usage fee component, subject to the deficiency fee and specified minimum volume commitment described above. In addition, the gathering agreement provides for the delivery of MRD Operating’s rich natural gas, on an interruptible basis, to facilities operated by DCP Midstream for a specified usage fee. Gathering volumes delivered to the DCP Midstream facilities are not subject to a deficiency fee or a minimum volume commitment but will be applied against the volume delivery requirements for purposes of the minimum volume commitment under the gathering agreement. Gas Transportation Agreement The Partnership is party to a 15 -year natural gas transportation agreement with MRD Operating that commenced on June 1, 2015. The gas transportation agreement provides for the transportation of residue gas through the Partnership’s residue gas pipeline from the outlet of the Partnership’s processing plants to delivery points at interconnections with third-party natural gas transportation pipelines providing access to Gulf Coast markets. MRD Operating will pay a usage fee for all volumes transported under the gas transportation agreement. While the gas transportation agreement does not provide for a minimum volume commitment, it does include a plant tailgate dedication pursuant to which all of MRD Operating’s residue gas produced from the Partnership’s processing plants will be delivered for transportation on the Partnership’s residue gas pipeline. Transportation Service Agreement The Partnership is party to a 15 -year NGL transportation services agreement with MRD Operating that commences when the Partnership’s NGL pipeline is placed in service, which is expected to occur in October 2015. The NGL transportation agreement provides for the transportation of NGLs through the Partnership’s NGL pipeline from the outlet of the Partnership’s processing plants to a delivery point connecting to DCP Midstream’s Black Lake pipeline in Ada, Louisiana. MRD Operating will pay a usage fee for all volumes transported under the NGL transportation agreement. While the NGL transportation agreement does not provide for a minimum volume commitment, it does include a plant tailgate dedication pursuant to which all of MRD Operating’s NGLs produced from the Partnership’s processing plants will be delivered for transportation on the Partnership’s NGL pipeline. The NGL transportation agreement is subject to the terms of tariff, which the Partnership intends to file with FERC, and which will become effective prior to the in-service date of the Partnership’s NGL pipeline. Services and Secondment Agreement In connection with the closing of the Offering, the Partnership entered into a 10 -year services and secondment agreement with the general partner, PennTex Development and PennTex Midstream Management Company, LLC (“PennTex Management”) pursuant to which PennTex Management seconds certain employees to the general partner to provide operational and maintenance services with respect to the Partnership’s initial assets. The Partnership is obligated to reimburse PennTex Management for the cost of any seconded employees, including wages and benefits. If a seconded employee does not devote 100% of his or her time to providing services to the general partner, the general partner will reimburse PennTex Management for only a prorated portion of such employee’s overall wages and benefits, based on the percentage of the employee’s time spent working for the general partner. PennTex Management bills the general partner monthly in arrears for services provided during the prior month, and payment is due within 15 days of the general partner’s receipt of the invoice. Additionally, the Partnership pays an administrative fee to PennTex Development for the provision of various management and administrative services for the Partnership’s benefit, including executive services of employees of the general partner and its affiliates who devote less than 50% of their business time to the business and affairs, financial and administrative services (including treasury and accounting), information technology, legal services, health, safety and environmental services, human resources services, business development services, investor relations and government relations, tax matters and insurance administration. The administrative fee is paid monthly and, for the year ended December 31, 2015, is calculated as follows: (i) for the period from June 9, 2015 to and including June 30, 2015, the administrative fee was $2,778 per day; (ii) for each month following June 30, 2015 and including the month in which the Mt. Olive plant commences commercial operations, expected to be September 2015, the administrative fee will be $83,333 per month; and (iii) for each month during 2015 after the month in which the Mt. Olive plant commences commercial operations, the administrative fee will be $166,667 . The Partnership is also required to reimburse PennTex Development and its affiliates for all other direct or allocated costs and expenses incurred by them on the Partnership’s behalf under the services and secondment agreement, which is in addition to reimbursement of the general partner and its affiliates for certain costs and expenses incurred on the Partnership’s behalf for managing and controlling the Partnership’s business and operations as required by the partnership agreement. Mt. Olive Gas Plant Sale and Installation Agreement The Partnership is party to a Gas Plant Sale and Installation Agreement with UOP Russell LLC (“UOP”) for the construction and installation of the Mt. Olive plant and related facilities. The agreement is for an amount of $89.0 million , subject to certain early completion incentive payments, and is payable on a schedule based on reaching specific milestones. UOP began mobilization at the construction site in February 2015, at which time the Partnership became liable for the full amount of the contract, subject to and payable upon the later of the UOP meeting certain milestones or specified payment dates. As of June 30, 2015 , $71.0 million has been paid to UOP under this agreement. As of June 30, 2015 , the Partnership has $2.0 million of accrued payables to UOP for the Mt. Olive plant. The title to the Mt. Olive plant will transfer to the Partnership from UOP upon the earlier of (a) the equipment being complete, ready for operation for its intended purpose and commissioned, or (b) January 1, 2016. Guarantees or Other Support The Partnership entered into one or more letters of credit to certain vendors in relation to the construction of the electric infrastructure necessary for supplying power to the processing plants. These letters of credit are backed by the Partnership’s revolving credit facility as collateral support. Legal Proceedings The Partnership may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. The Partnership regularly analyzes current information and, as necessary, will provide accruals for probable liabilities on the eventual disposition of these matters. In the opinion of management, as of June 30, 2015 , there are no pending legal matters that would have a material impact on the results of operations, financial position or cash flows. |