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 October 1, 2030. Under the processing agreement, MRD Operating has agreed to deliver a minimum volume of gas for processing through the term of the agreement measured on a cumulative basis based on specified daily minimum volume thresholds. The daily minimum volume threshold was initially 115,000 MMBtu/d and increased to 345,000 MMBtu/d effective October 1, 2015. On July 1, 2016, MRD Operating’s daily minimum volume threshold increases 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 daily minimum volume threshold 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 daily minimum volume thresholds will return to 345,000 MMBtu/d until June 1, 2030, after which it 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 daily minimum volume threshold are considered firm reserved gas and are charged the firm fixed-commitment fee, and any volumes delivered in excess of such threshold are considered interruptible volumes and are charged the interruptible-service fixed fee. Pursuant to the processing agreement, MRD Operating must 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 (or credited with respect to plant interruptions) 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 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. Additionally, the gas processing agreement requires MRD Operating to reimburse a portion of the Partnership’s electricity expenses for electric compression at the processing plants. 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 in excess of 161,000 MMBtu/d (on an average basis) for the three months ended September 30, 2015 and 345,000 MMBtu/d (on an average basis) for the three months ended December 31, 2015. The Partnership recognized all of the June 2015 deficiency payment into revenue during the year ended December 31, 2015 as fee credits for processed volumes or upon expiration of unused processing fee credits as of December 31, 2015 in accordance with the amended agreement. 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 Partnership’s gathering pipeline to the Partnership’s processing plants (or delivery to DCP Midstream as described below). MRD Operating pays fees for gathering services provided by the Partnership, 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 based on 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 based on 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 equals MRD Operating’s then applicable daily minimum volume threshold under the processing agreement (excluding any optional increases by MRD Operating). Accordingly, the specified minimum gathering volume commitment will not be less than 115,000 MMBtu/d nor more than 460,000 MMBtu/d. Beginning December 1, 2019 through the end of the gathering agreement term, all volumes will be subject to a usage fee, subject to the deficiency fee and minimum volume commitment described above, and no firm capacity reservation payment will apply. 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 Partners, LP for a specified usage fee. Gathering volumes delivered to such facilities are not subject to a deficiency fee or a minimum volume commitment but apply 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. MRD Operating pays a usage fee for all volumes transported under the gas transportation agreement. On February 3, 2016, the agreement was amended to provide a monthly fee for priority firm service for the first 100,000 MMBtu/d of residue gas delivered for transportation by MRD Operating for a ten year period beginning January 1, 2016. The gas transportation agreement includes a plant tailgate dedication pursuant to which all of MRD Operating’s residue gas produced from the Partnership’s processing plants are 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 commenced on October 1, 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 pays a usage fee for all volumes transported under the NGL transportation agreement. The NGL transportation agreement includes a plant tailgate dedication pursuant to which all of MRD Operating’s NGLs produced from the Partnership’s processing plants are delivered for transportation on the Partnership’s NGL pipeline. The NGL transportation agreement is subject to the terms of a tariff filed with FERC. 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 assets. The Partnership is obligated to reimburse PennTex Management for the cost of any seconded employees, including wages and benefits, on a monthly basis. 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 , 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, was 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 September 2015, the month in which the Mt. Olive plant commenced commercial operations, the administrative fee was $83,333 per month; and (iii) for each month during the remainder of 2015, the administrative fee was $166,667 . For each month during the first six months of the 2016 fiscal year, the administrative fee will be $250,000 and for each month during the last six months of the 2016 fiscal year, the administrative fee will be $333,333 . With respect to the 2017 fiscal year and each subsequent year through the end of the term of the services and secondment agreement, PennTex Development and the general partner will negotiate in good faith and mutually agree on an annual administrative fee for the upcoming year, which will be payable in equal monthly installments. If they are unable to agree on the amount of such administrative fee on or prior to December 1 of the preceding year, then such administrative fee will equal the administrative fee for the preceding year (or, with respect to the 2017 fiscal year, $4.0 million ) as increased by a percentage equal to the change in the producer price index over the previous 12 months. 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. UOP Russell Gas Plant Sale and Installation Agreement The Partnership previously entered into a gas plant sale and installation agreement with UOP Russell LLC for the construction and installation of the Mt. Olive plant and related facilities, which were completed in September 2015. As of December 31, 2015 the Partnership had accrued for payments of $3.4 million under this agreement, which were subsequently paid in full, and the Partnership has no additional commitments under such agreement. 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. Management 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 December 31, 2015 , there were no threatened or pending legal matters that would have a material impact on the Partnership’s results of operations, financial position or cash flows. |