| Summary of Significant Accounting Policies and Basis of Presentation | Summary of Significant Accounting Policies and Basis of Presentation Basis of Presentation The accompanying consolidated financial statements of the Partnership include the accounts of Oasis Midstream Partners LP and its subsidiaries. All intercompany transactions have been eliminated in consolidation. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Delaware Predecessor. Effective November 1, 2019, Oasis Petroleum agreed to assign to the Partnership certain crude oil gathering and produced and flowback water gathering and disposal assets in the Permian Basin (the “2019 Delaware Acquisition”). Prior to the 2019 Delaware Acquisition, Oasis Petroleum’s midstream services in the Permian Basin were performed by Oasis Midstream Services LLC (“OMS”), a wholly-owned subsidiary of Oasis Petroleum. Midstream services performed by OMS in the Permian Basin prior to the effective date of the 2019 Delaware Acquisition are in reference to the “Delaware Predecessor.” The 2019 Delaware Acquisition was accounted for as a transfer of net assets between entities under common control. The Partnership recorded the net assets acquired at historic carrying value and recast its financial statements to include such net assets from the date of common control. The Partnership recast its consolidated financial statements for the year ended December 31, 2018, and prior to the effective date of November 1, 2019 for the year ended December 31, 2019. For those periods requiring recast, the consolidated financial statements for periods prior to the effective date were prepared from Oasis Petroleum’s historical cost-basis accounts and may not necessarily be indicative of the actual results had the Partnership owned the assets during the reported period. See Note 4 — Acquisitions. Use of Estimates Preparation of the Partnership’s consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment. Consolidation The Partnership’s consolidated financial statements include its accounts and the accounts of the DevCos, each of which is controlled by OMP GP LLC (the “General Partner”). All intercompany balances and transactions have been eliminated upon consolidation. Non-controlling interests. Non-controlling interests represent Oasis Petroleum’s retained ownership interests in Bobcat DevCo and Beartooth DevCo of 64.7% and 30%, respectively, as of December 31, 2020. Variable interest entity. The Partnership determined that Bobcat DevCo is a variable interest entity (“VIE”), since OMS’s equity at risk was established with non-substantive voting rights. As the Partnership has the authority to direct the activities that most significantly affect the economic performance of Bobcat DevCo, the Partnership is considered the primary beneficiary and consolidates Bobcat DevCo in its financial statements under the VIE consolidation model. The Partnership determined that Bighorn DevCo, Beartooth DevCo and Panther DevCo are not VIEs and consolidates these entities in its financial statements under the voting interest consolidation model. Significant Accounting Policies Cash and cash equivalents. The Partnership classifies all unrestricted cash on hand and investments with original maturity dates less than 90 days as cash equivalents. Accounts receivable. Accounts receivable are carried at cost on a gross basis, with no discounting, which approximates fair value due to their short-term maturities. The Partnership’s accounts receivable consist mainly of receivables from affiliated and non-affiliated customers for performance of midstream services. Payments are generally received 30 days after receipt of invoice. On January 1, 2020, the Partnership adopted Accounting Standards Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects estimated credit losses expected over the life of an exposure and requires consideration of historical data, current market conditions and reasonable and supportable forecasts to develop credit loss estimates. In accordance with ASU 2016-13, the Partnership uses the expected credit loss methodology to measure impairment of financial instruments, including accounts receivable, which may result in earlier recognition of credit losses than under previous GAAP. ASU 2016-13 does not apply to receivables between entities under common control. The adoption of ASU 2016-13 did not have a material impact on the Partnership’s financial position, cash flows or results of operations. Transactions with affiliates. Transactions between Oasis Petroleum, its affiliates and the Partnership have been identified in the consolidated financial statements as transactions with affiliates. See Note 5 — Transactions with Affiliates. Property, plant and equipment. Property, plant and equipment consists primarily of pipelines, natural gas processing plants, produced and flowback water facilities and compressor stations. Property, plant and equipment is stated at the lower of historical cost less accumulated depreciation, or fair value, if impaired. The Partnership capitalizes a portion of its interest expense incurred on its outstanding debt. The amount capitalized is determined by multiplying the capitalization rate by the average amount of eligible accumulated capital expenditures and is limited to actual interest costs incurred during the period. The accumulated capital expenditures included in the capitalized interest calculation begin when the first costs are incurred and end when the asset is either placed into service or written off. The Partnership capitalized $0.3 million, $0.9 million and $4.9 million of interest costs for the years ended December 31, 2020, 2019 and 2018, respectively. These amounts are amortized over the useful life of the related assets once the assets are placed in-service. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts. Uncertainties that may impact these estimates include, among others, 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. Depreciation is computed over the asset’s estimated useful life using the straight line method based on estimated useful lives and asset salvage values. The weighted average life of the Partnership’s long-lived assets is generally 30 years. When long-lived assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is recognized as gain or loss. Impairment of long-lived assets. The Partnership routinely evaluates the ability to recover the carrying amount of long-lived assets and determines whether such long-lived assets have been impaired. Impairment exists when the carrying amount of an asset exceeds estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment analysis requires management to apply judgment in identifying impairment indicators and estimating future cash flows. Impairment indicators include, but are not limited to, sustained decreases in commodity prices, a decline in customer well results and lower throughput forecasts, changes in customer development plans and/or increases in construction or operating costs. When alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, estimates of future undiscounted cash flows consider 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, the impairment loss is measured as the excess of the asset’s carrying amount over its estimated fair value, such that the asset’s carrying amount is adjusted to its estimated fair value with an offsetting charge to impairment expense. Fair value represents the estimated price between market participants to sell an asset in the principal or most advantageous market for the asset, based on assumptions a market participant would make. When warranted, management assesses the fair value of long-lived assets using commonly accepted techniques and may use more than one source in making such assessments. The factors used to determine fair value are subject to management’s judgment and expertise and include, but are not limited to, internally developed discounted cash flow analysis. Significant changes, such as changes in contract rates or terms, the condition of an asset or management’s intent to utilize the asset, generally require management to reassess the cash flows related to long-lived assets. A reduction of the carrying value of fixed assets would represent a Level 3 fair value measurement. If actual results are not consistent with assumptions and estimates, or assumptions and estimates change due to new information, the Partnership may be exposed to additional impairment charges. Ultimately, a prolonged period of lower commodity prices may adversely affect the estimate of future operating results through lower throughput volumes on the Partnership’s assets, which could result in future impairment charges due to the potential impact on operations and cash flows. Asset retirement obligations (“ARO”). The Partnership records the fair value of a liability for a legal obligation to retire an asset in the period in which the liability is incurred, with the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. For produced and flowback water disposal wells, this is the period in which the well is drilled or acquired. The ARO represents the estimated amount the Partnership will incur to plug, abandon and remediate the produced and flowback water properties at the end of their useful lives, in accordance with applicable state laws. The liability is accreted to its present value each period and the capitalized costs are depreciated using the straight-line method. The accretion expense is recorded as a component of depreciation and amortization in the Consolidated Statements of Operations. Some assets, including certain pipelines and the Partnership’s natural gas processing plants, have contractual or regulatory obligations to perform remediation and, in some instances, dismantlement and removal activities when the assets are abandoned. The Partnership is not able to reasonably estimate the fair value of the ARO for these assets because the settlement dates are indeterminable given the expected continued use of the assets with proper maintenance. The Partnership will record an ARO for these assets in the periods in which the settlement dates become reasonably determinable. The Partnership determines the ARO, which represents a non-financial liability which is measured at fair value on a non-recurring basis, by calculating the present value of estimated cash flows related to the liability. Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes adequate restoration. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. These assumptions represent Level 3 inputs. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related asset. Deferred financing costs. The Partnership capitalizes directly attributable costs incurred in connection with obtaining debt financing. These costs are amortized over the term of the related financing using the straight-line method, which approximates the interest method. The amortization expense is recorded as a component of interest expense in the Consolidated Statements of Operations. The deferred financing costs related to the Partnership’s revolving credit facility are included in other assets on the Consolidated Balance Sheets. Equity-based compensation. The Partnership has granted restricted unit awards under the Oasis Midstream Partners LP 2017 Long Term Incentive Plan (“LTIP”). The Partnership accounts for restricted units granted to certain independent directors of the General Partner as equity-classified awards in accordance with GAAP, as the Partnership intends to settle these awards in common units. Forfeitures associated with awards granted under the LTIP are accounted for when they occur. Income taxes. The Partnership is not a taxable entity for United States federal income tax purposes or for the majority of states that impose an income tax. Generally, each partner is separately taxed on its share of taxable income. Due to its operations in the Permian Basin, the Partnership is subject to the Texas margin tax, which is considered an income tax under GAAP. Revenue recognition. In the first quarter of 2018, the Partnership adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers and a series of related accounting standards updates incorporated into GAAP as Accounting Standards Codification Topic 606 (“ASC 606”) using the modified retrospective method. The Partnership applies ASC 606 to all new contracts entered into after January 1, 2018. ASC 606 includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Partnership expects to be entitled in exchange for those goods or services. Disclosures in accordance with the requirements of ASC 606 have been provided in Note 3. The unit of account in ASC 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided over a period of time. ASC 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied. The Partnership generates revenues primarily by charging fees for (i) crude oil gathering, terminaling and transportation, (ii) natural gas gathering, gas lift supply, compression and processing, (iii) produced and flowback water gathering and disposal and (iv) freshwater distribution. The Partnership categorizes revenues as service revenues or product sales in its Consolidated Statements of Operations. For revenues generated under fee-based arrangements, the Partnership records the fees attributable to such arrangements as service revenues in its Consolidated Statements of Operations. Under fee-based arrangements, the Partnership does not take ownership of the volumes it handles for its customers and receives fees for midstream services it provides. Revenues are recognized based upon the transaction price at month-end under the right to invoice practical expedient. For revenues generated under purchase arrangements, the Partnership takes ownership of the product prior to sale and is the principal in the transaction. Revenues and expenses are generally recognized on a gross basis. Common control transactions. The Partnership accounts for assets acquired from Oasis Petroleum and its wholly-owned subsidiaries as common control transactions whereby the net assets acquired are recorded at historical carrying value at the date of transfer. Consideration transferred in excess of the carrying value of the net assets acquired is recorded to equity as a deemed distribution. Common control transactions involving the transfer of a business or the transfer of net assets result in a change in reporting entity and require prior periods to be retrospectively adjusted. To the extent such transactions require prior periods to be retrospectively adjusted, historical net equity amounts prior to the transaction date are reflected in predecessor equity. Business combinations (excluding common control transactions). The Partnership accounts for business combinations under the acquisition method of accounting. An income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired, liabilities assumed, and non-controlling interest, if any, in a business combination. Fair value is determined on the acquisition date. Acquisition-related costs are expensed as incurred in connection with each business combination. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and not later than one year from the acquisition date, the Partnership will record any material adjustments to the initial estimate based on new information obtained about facts and circumstances that existed as of the acquisition date. The Partnership makes various assumptions in estimating the fair values of assets acquired and liabilities assumed. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. The income valuation method represents the present value of future cash flows over the life of the asset using discrete financial forecasts. Such discrete financial forecasts rely on estimates and assumptions made by management. The most significant assumptions relate to management’s estimates of throughput volumes, future operating and development costs, long-term growth rates and a market-based weighted average cost of capital. The market valuation method uses prices paid for a reasonably similar asset by other purchasers in the market, with adjustments relating to any differences between the assets. The cost valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition reduced for depreciation of the asset. Any excess of the acquisition price over the estimated fair value of net assets acquired is recorded as goodwill. Any excess of the estimated fair value of net assets acquired over the acquisition price is recorded in current earnings as a gain on bargain purchase. In the first quarter of 2019, the Partnership adopted Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 was adopted on a prospective basis. The adoption of ASU 2017-01 did not result in a material impact to the Partnership’s financial position, cash flows, results of operations or financial statement disclosures. Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”), which established a right-of-use (“ROU”) model that requires a lessee to recognize an operating lease asset and lease liability on the balance sheet, with the exception of short-term leases. Accounting Standards Codification 842, Leases (“ASC 842”), was subsequently amended by ASU No. 2018-01, Land easement practical expedient for transition to Topic 842 (“ASU 2018-01”); ASU No. 2018-10, Codification Improvements to Topic 842; and ASU No. 2018-11, Targeted Improvements . The Partnership adopted the new standard as of January 1, 2019, using the required modified retrospective approach and elected the option to recognize a cumulative effect adjustment of initially applying the guidance to the opening balance of retained earnings in the period of adoption. Prior period amounts were not adjusted. The Partnership elected the package of practical expedients under the transition guidance within the new standard, including the practical expedient to not reassess under the new standard any prior conclusions about lease identification, lease classification and initial direct costs; the use-of hindsight practical expedient; the practical expedient to not reassess the prior accounting treatment for existing or expired land easements; and the practical expedient pertaining to combining lease and non-lease components for all asset classes. In addition, the Partnership elected not to apply the recognition requirements of ASC 842 to short-term leases, and as such, recognition of lease payments for short-term leases are recognized in net income on a straight line basis. See Note 10 — Leases for the adoption impact and disclosures required by ASC 842. Concentrations of Market and Credit Risk The Partnership has limited direct exposure to risks associated with fluctuating commodity prices due to the nature of its business and its long-term, fixed-fee contractual arrangements with its customers. However, to the extent that the future contractual arrangements with customers, including Oasis Petroleum or third parties, do not provide for fixed-fee structures, the Partnership may become subject to commodity price risk. In addition, in response to a prolonged low commodity price environment, the Partnership’s customers could seek to amend existing contractual arrangements to reduce the volumetric fees the Partnership charges. As a substantial majority of the Partnership’s revenues are derived from Oasis Petroleum, the Partnership is indirectly subject to risks associated with fluctuating commodity prices to the extent that lower commodity prices adversely affect Oasis Petroleum’s production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows. See Note 5 — Transactions with Affiliates. COVID-19 The Partnership considered the impact of the ongoing COVID-19 pandemic on the assumptions and estimates used by management in the consolidated financial statements. During the year ended December 31, 2020, the Partnership recognized material asset impairment charges following the identification of impairment indicators at March 31, 2020. Management’s estimates and assumptions were based on historical data and consideration of future market conditions. Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional impacts from COVID-19, actual results may differ from the estimates and assumptions used, or conditions may change, which could materially affect amounts reported in the consolidated financial statements in the near term. See Note 7 — Property, Plant and Equipment. Recent Accounting Pronouncements Reference Rate Reform In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP guidance to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Partnership is currently evaluating its contracts and the optional expedients provided by ASU 2020-04 and the impact the new standard will have on its consolidated financial statements and related disclosures. |
