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Dynamic quotes 
OFFON

ALTUS MIDSTREAM COMPANY

(ALTM)
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ALTUS MIDSTREAM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/10/2021 | 02:09pm EDT
The following discussion and analysis should be read together with the Company's
consolidated financial statements and accompanying notes included under Part I,
Item 1, "Consolidated Financial Statements" of this Quarterly Report on Form
10-Q, as well as the Company's consolidated financial statements, accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2020 (Form 10-K). Capitalized terms used but
not defined herein shall have the meaning ascribed to such terms in the Form
10-K.
Overview
Altus Midstream Company (the Company or Altus), through its ownership interest
in Altus Midstream LP (Altus Midstream), owns gas gathering, processing, and
transmission assets in the Permian Basin of West Texas, anchored by midstream
service agreements to service Apache Corporation's (Apache) production from its
Alpine High resource play and surrounding areas (Alpine High). Additionally, the
Company owns equity interests in four intrastate Permian Basin pipelines (the
Equity Method Interest Pipelines) that have access to various points along the
Texas Gulf Coast. The Company's operations consist of one reportable segment.
The Company has no independent operations or material assets outside its
ownership interest in Altus Midstream, which is reported on a consolidated
basis. As of March 31, 2021, Altus Midstream's assets included approximately 182
miles of in-service natural gas gathering pipelines, approximately 46 miles of
residue gas pipelines with four market connections, and approximately 38 miles
of NGL pipelines. Three cryogenic processing trains, each with nameplate
capacity of 200 MMcf/d, were placed into service during 2019. Other assets
include an NGL truck loading terminal with six Lease Automatic Custody Transfer
units and eight NGL bullet tanks with 90,000 gallon capacity per tank. The
Company's existing gathering, processing, and transmission infrastructure is
expected to provide capacity levels capable of fulfilling its midstream
contracts to service Apache's production from Alpine High and potential
third-party customers.
As of March 31, 2021, the Company owns the following Equity Method Interest
Pipelines:
•A 16 percent equity interest in the Gulf Coast Express Pipeline Project (GCX),
which is owned and operated by Kinder Morgan Texas Pipeline, LLC (Kinder
Morgan). GCX transports natural gas from the Waha area in West Texas to Agua
Dulce near the Texas Gulf Coast. GCX was placed in service during 2019, with the
total capacity of 2.0 Bcf/d fully subscribed under long-term contracts.
•A 15 percent equity interest in the EPIC crude oil pipeline (EPIC), which is
operated by EPIC Consolidated Operations, LLC. EPIC transports crude oil from
Orla, Texas in Northern Reeves County to the Port of Corpus Christi, Texas. EPIC
was placed in service early 2020, with initial throughput capacity of
approximately 600 MBbl/d.
•An approximate 26.7 percent equity interest in the Permian Highway Pipeline
(PHP), which is also owned and operated by Kinder Morgan. PHP transports natural
gas from the Waha area in northern Pecos County, Texas to the Katy, Texas area
with connections to Texas Gulf Coast and Mexico markets. PHP was placed in
service January 2021, with the total capacity of 2.1 Bcf/d fully subscribed
under long-term contracts.
•A 33 percent equity interest in the Shin Oak NGL Pipeline (Shin Oak), which is
owned by Breviloba, LLC, and operated by Enterprise Products Operating LLC. Shin
Oak transports NGLs from the Permian Basin to Mont Belvieu, Texas. Shin Oak was
placed in service during 2019, with total capacity of up to 550 MBbl/d.
The global economy and the energy industry have been deeply impacted by the
effects of the coronavirus disease 2019 (COVID-19) pandemic and related
governmental actions. Uncertainty in the oil markets and the negative demand
implications of the COVID-19 pandemic continue to impact oil supply and demand.
Altus management continues to monitor natural gas throughput volumes from Apache
and capacity utilization of the Equity Method Interest Pipelines. The Company
remains focused on increasing third-party processing opportunities in addition
to Alpine High; however, the current market situation has slowed the pace of
this activity. Altus has no upcoming debt maturities, and the term of its
revolving credit facility extends through November of 2023.
                                       23
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The Company is projected to remain cash flow positive for the remainder of 2021
following the start-up of PHP in January of 2021, with minimal expected future
capital requirements. As such, the Company believes it has sufficient operating
cash flows and liquidity to fund its future capital expenditures and its
quarterly dividend program.
The current crisis, however, is still evolving and may become more severe and
complex. The ultimate impact and the extent to which the COVID-19 pandemic will
continue to affect the Company's business, results of operation, and financial
condition is difficult to predict and depends on numerous evolving factors
outside Altus' control, including the duration and scope of the pandemic, new
and continuing government, social, business, and other actions taken in response
to the pandemic, any additional waves of the virus, the availability and
ultimate efficacy of the vaccines on new variants of the virus, and the effect
of the pandemic on short- and long-term general economic conditions. As a
result, the COVID-19 pandemic may still materially and adversely affect Altus'
results in a manner that is either not currently known or that the Company does
not currently consider to be a significant risk to its business. For additional
information about the business risks relating to the COVID-19 pandemic, please
refer to Part I, Item 1A-Risk Factors of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2020.
Altus Midstream Operational Metrics
The Company uses a variety of financial and operational metrics to assess the
performance of its operations and growth compared to expected plan estimates.
These metrics include:
•Throughput volumes and associated revenues;
•Costs and expenses; and
•Adjusted EBITDA (as defined below).
Throughput Volumes and Associated Revenues
The Company's operating results are driven primarily by the volume of natural
gas gathered, processed, compressed, and/or transmitted. For the periods
presented, substantially all revenues were generated through fee-based
agreements with Apache, a related party. The volumes of natural gas that Altus
gathers or processes in future periods will depend on the production level of
Apache's assets in areas Altus services and any additional third-party service
contracts. The Company's assets were initially constructed to serve Apache's
anticipated development of Alpine High and its surrounding areas. As such, the
amount and pace of upstream development activity by Apache will directly impact
Altus' aggregate gathering and processing volumes because the production rate of
natural gas wells declines over time.
The Company remains focused on increasing third-party processing opportunities
in addition to Alpine High, and other producers are developing oil and gas plays
in surrounding areas that may provide Altus opportunities to enter into
third-party processing and gathering agreements. Producers' willingness to
engage in new drilling is determined by a number of factors, all of which are
affected by the COVID-19 pandemic, the most important of which are the
prevailing and projected prices of oil, natural gas, and NGLs, the cost to drill
and operate a well, the availability and cost of capital, and environmental and
government regulations. Company management believes that its midstream assets
are positioned in one of the most active regions for oil and gas exploration and
development activities in the United States, and the Company is actively
pursuing new supplies of natural gas and processing arrangements with third
parties to increase throughput volumes in its systems.
Costs and Expenses
Costs of product sales
Costs of product sales represent purchases of NGLs from a third party, which the
Company then owns, controls and processes, prior to ultimate sale to customers.
These costs are directly associated with the volume and amount of third-party
contracts entered into and could fluctuate depending on market conditions and
product prices.
Operations and maintenance
Operations and maintenance expenses primarily comprise those costs that are
directly associated with the operations of the Company's assets. The most
significant of these costs are associated with direct labor and supervision,
power, repair and maintenance expenses, and equipment rentals. Fluctuations in
commodity prices impact operating cost elements both directly and indirectly.
For example, commodity prices directly impact costs such as power and fuel,
which are expenses that increase (or decrease) in line with changes in commodity
prices. Commodity prices also affect industry activity and demand, thus
indirectly impacting the cost of items such as labor and equipment rentals.
                                       24
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Depreciation and accretion
Depreciation on the capitalized costs incurred to acquire and develop the
Company's midstream assets is computed based on estimated useful lives and
estimated salvage values. Also included within this expense is the accretion
associated with estimated asset retirement obligations (ARO). Depreciation and
accretion expense would be expected to increase during future periods in-line
with additional infrastructure costs incurred; however, any future asset sales
or long-lived asset impairments would decrease expected depreciation expense to
commensurate levels.
General and administrative
General and administrative (G&A) expense represents indirect costs and overhead
expenditures incurred by the Company associated with managing the midstream
assets. These expenses primarily comprise fixed fees set forth in the
Construction, Operations and Maintenance Agreement (COMA) entered into with
Apache. Refer to   Note 2-Transactions with Affiliates   in the Notes to
Consolidated Financial Statements set forth in Part I of this Quarterly Report
on Form 10-Q for further information.
Taxes other than income
Taxes other than income are primarily related to ad valorem taxes on the
Company's midstream assets.
Adjusted EBITDA
The Company defines Adjusted EBITDA as net income (loss) including
noncontrolling interests before financing costs (net of capitalized interest),
interest income, income taxes, depreciation, and accretion and adjusts such
items, as applicable, from income from the Equity Method Interest Pipelines.
Altus also excludes (when applicable) impairments, unrealized gains or losses on
derivative instruments, and other items affecting comparability of results to
peers. Company management believes Adjusted EBITDA is useful for evaluating
operating performance and comparing results of operations from period-to-period
and against peers without regard to financing or capital structure. Adjusted
EBITDA should not be considered as an alternative to, or more meaningful than,
net income (loss) including noncontrolling interests or any other measure
determined in accordance with accounting principles generally accepted in the
United States (GAAP) or as an indicator of the Company's operating performance
or liquidity. Certain items excluded from Adjusted EBITDA are significant
components in understanding and assessing Altus' financial performance, such as
cost of capital and tax structure, as well as the historic costs of depreciable
assets, none of which are components of Adjusted EBITDA. The presentation of
Adjusted EBITDA should not be construed as an inference that the Company's
results will be unaffected by unusual or non-recurring items. Additionally, the
Company's computation of Adjusted EBITDA may not be comparable to other
similarly titled measures of other companies.
Adjusted EBITDA is not defined in GAAP
The GAAP measure used by the Company that is most directly comparable to
Adjusted EBITDA is net income (loss) including noncontrolling interests.
Adjusted EBITDA should not be considered as an alternative to the GAAP measure
of net income (loss) including noncontrolling interests or any other measure of
financial performance presented in accordance with GAAP. Adjusted EBITDA has
important limitations as an analytical tool because it excludes some, but not
all, items that affect net income (loss) including noncontrolling interests.
Adjusted EBITDA should not be considered in isolation or as a substitute for
analysis of the Company's results as reported under GAAP. The Company's
definition of Adjusted EBITDA may not be comparable to similarly titled measures
of other companies in the industry, thereby diminishing its utility.
Reconciliation of non-GAAP financial measure
Company management compensates for the limitations of Adjusted EBITDA as an
analytical tool by reviewing the comparable GAAP measure, understanding the
differences between Adjusted EBITDA as compared to net income (loss) including
noncontrolling interests, and incorporating this knowledge into its
decision-making processes. Management believes that investors benefit from
having access to the same financial measure that the Company uses in evaluating
operating results.

                                       25
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The following table presents a reconciliation of the GAAP financial measure of
net income (loss) including noncontrolling interests to the non-GAAP financial
measure of Adjusted EBITDA.
                                                                      Three Months Ended March 31,
                                                                        2021                 2020(1)

Reconciliation of net income (loss) including noncontrolling interests to Adjusted EBITDA Net income (loss) including noncontrolling interests

              $       22,489          $  (25,371)
Add:
Financing costs, net of capitalized interest                               2,598                 273

 Depreciation and accretion                                                4,000               3,914
Impairments                                                                  441                   -
Unrealized derivative instrument loss                                     16,529              61,984
Equity method interests Adjusted EBITDA                                   39,911              23,686

Warrants valuation adjustment                                                664              (1,877)
Loss on sale of assets                                                         -                 188
Other                                                                        169                 290
Less:
Gain on sale of assets                                                        76                   -
 Interest income                                                               1                   7
Income from equity method interests, net                                  21,688              15,842
Income tax benefit                                                             -                 696

Adjusted EBITDA                                                   $       65,036          $   46,542

(1)This period presented has been revised to reflect the Company's fair value change of its underlying warrants. Refer to Note 1-Summary of Significant Accounting Policies , see the section titled Revision of Previously Issued Consolidated Financial Statements for Immaterial Adjustment for further information.

                                       26
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Results of Operations
The following table presents the Company's results of operations for the periods
presented:
                                                                      Three Months Ended March 31,
                                                                        2021                 2020(1)

                                                                             (In thousands)
REVENUES:
Midstream services revenue - affiliate                           $        31,529          $   40,767
Product sales - third parties                                              2,617                 102
Total revenues                                                            34,146              40,869
COSTS AND EXPENSES:
Costs of product sales                                                     1,993                  91
Operations and maintenance                                                 7,402              10,591
General and administrative                                                 3,455               4,178
Depreciation and accretion                                                 4,000               3,914
Impairments                                                                  441                   -
Taxes other than income                                                    3,808               3,443
Total costs and expenses                                                  21,099              22,217
OPERATING INCOME                                                          13,047              18,652
Unrealized derivative instrument loss                                    (16,529)            (61,984)
Interest income                                                                1                   7
Income from equity method interests, net                                  21,688              15,842
Warrants valuation adjustment                                               (664)              1,877
Other                                                                      7,544                (188)
Total other income (loss)                                                 12,040             (44,446)
Financing costs, net of capitalized interest                               2,598                 273
NET INCOME (LOSS) BEFORE INCOME TAXES                                     22,489             (26,067)
Current income tax benefit                                                     -                (696)

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS                      22,489             (25,371)
Net income attributable to Preferred Unit limited partners                19,492              18,262
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS                      2,997             (43,633)
Net income (loss) attributable to Apache limited partner                   2,817             (35,552)

NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON SHAREHOLDERS $

 180          $   (8,081)
KEY PERFORMANCE METRICS:
Adjusted EBITDA(2)                                               $        65,036          $   46,542
OPERATING DATA:
Average throughput volumes of natural gas
(MMcf/d)                                                                     436                 577


(1)This period presented has been revised to reflect the Company's fair value
change of its underlying warrants. Refer to   Note 1-Summary of Significant
Accounting Policies  , see the section titled Revision of Previously Issued
Consolidated Financial Statements for Immaterial Adjustment for further
information.
(2)Adjusted EBITDA is not defined by GAAP and should not be considered an
alternative to, or more meaningful than, net income (loss), operating income
(loss), net cash provided by (used in) operating activities or any other
measures prepared under GAAP. For the definition and reconciliation of Adjusted
EBITDA to its most directly comparable GAAP measure, see the section titled
Altus Midstream Operational Metrics-Adjusted EBITDA above.
                                       27
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Since the Company commenced operations in the second quarter of 2017, its most
significant customer has been Apache. Altus Midstream is pursuing similar
long-term commercial service contracts with third-parties that could be
accommodated by existing capacity. Altus' midstream service agreements with
Apache contain no minimum volume commitments and as such, future results of
operations may be materially impacted by Apache's production volumes from Alpine
High and Altus' ability to contract third-party business. Refer to Part I,
Item 1A-Risk Factors of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2020, and Part I,   Item 3-Quantitative and Qualitative
Disclosures About Market Risk   of this Quarterly Report on Form 10-Q, for
further discussion.
Revenues
The following table summarizes the Company's revenues for the periods presented:
                                                 Three Months Ended March 31,
                                                      2021                    2020

                                                        (In thousands)
REVENUES:
Midstream services revenue - affiliate    $        31,529                  $ 40,767
Product sales - third parties                       2,617                       102
Total revenues                            $        34,146                  $ 40,869


Midstream services revenue was primarily generated from fee-based midstream
services provided under the terms of separate commercial midstream service
agreements with Apache for the gas gathering, processing, and transmission of
volumes from the dedicated area in the Alpine High field. Altus receives a
per-unit fee based on the quantity of natural gas and natural gas liquid volumes
that flow through its systems. During the periods presented, Altus did not own
or take title to the affiliate volumes that were processed through its systems.
For more details, please refer to   Note     3    -Revenue Recognition   in the
Notes to Consolidated Financial Statements set forth in Part I of this Quarterly
Report on Form 10-Q for further information.
Midstream services revenue from affiliate decreased by $9.3 million to $31.5
million for the three months ended March 31, 2021, as compared to $40.8 million
for the three months ended March 31, 2020. The decrease was primarily driven by
lower throughput of natural gas volumes from Apache.
Product sales revenues increased by $2.5 million to $2.6 million for the three
months ended March 31, 2021, as compared to $0.1 million for the three months
ended March 31, 2020. Starting in March of 2020 product sales revenues were
generated from NGLs and condensates purchased and processed by Altus from a
third party and subsequently sold to non-affiliated customers.

                                       28
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Costs and Expenses
The following table summarizes the Company's costs and expenses for the periods
presented:
                                    Three Months Ended March 31,
                                         2021                    2020

                                           (In thousands)
Costs of product sales       $         1,993                  $     91
Operations and maintenance             7,402                    10,591
General and administrative             3,455                     4,178
Depreciation and accretion             4,000                     3,914
Impairments                              441                         -
Taxes other than income                3,808                     3,443
Total costs and expenses     $        21,099                  $ 22,217


Costs of product sales
The $1.9 million increase in costs of product sales represent purchases of NGLs
from a third-party starting in the first quarter of 2020, which were used to
support the product sales to third parties discussed above.
Operations and maintenance
Operations and maintenance expenses decreased by approximately $3.2 million to
$7.4 million for the three months ended March 31, 2021, as compared to $10.6
million for the three months ended March 31, 2020, primarily driven by increased
operational efficiency as a result of transitioning from mechanical
refrigeration units to the Company's centralized Diamond cryogenic complex. Work
related to this transition was still being completed in the first quarter of
2020. The transition resulted in decreases in employee-related costs, contract
labor, lower chemical expenses, and lower equipment rentals. These savings are
coupled with an overall decrease in Company labor from headcount reductions,
partially offset by higher electricity power usage and repair and maintenance
expenses.
General and administrative
G&A expense decreased by $0.7 million to $3.5 million for the three months ended
March 31, 2021, as compared to $4.2 million for the three months ended March 31,
2020, primarily driven by lower professional fees, offset by higher fees paid
under the COMA, which escalate on an annual basis per the terms of the
agreement. Refer to   Note     2    -Transactions with Affiliates   in the Notes
to Consolidated Financial Statements set forth in Part I of this Quarterly
Report on Form 10-Q for further information.
Taxes other than income
The increase in taxes other than income was driven by changes related to ad
valorem taxes, which increased by $0.3 million to $3.7 million for the three
months ended March 31, 2021, as compared to $3.4 million for the three months
ended March 31, 2020. The $0.3 million increase reflects adjustments in
estimated tax assessments related to the completion of construction and capacity
utilization of certain assets.
                                       29
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Other Income (Loss) and Financing Costs, Net of Capitalized Interest The components of other income, other loss and financing costs, net of capitalized interest are presented below:

                                                                     Three Months Ended March 31,
                                                                       2021                 2020(1)

                                                                            (In thousands)
Unrealized derivative instrument loss                           $       (16,529)         $  (61,984)
Interest income                                                               1                   7
Income from equity method interests, net                                 21,688              15,842
Warrants valuation adjustment                                              (664)              1,877
Other                                                                     7,544                (188)
Total other income (loss)                                       $        12,040          $  (44,446)

Interest expense                                                $         2,306          $    3,358
Amortization of deferred facility fees                                      292                 273
Capitalized interest                                                          -              (3,358)
Total Financing costs, net of capitalized interest              $         

2,598 $ 273



(1)This period presented has been revised to reflect the Company's fair value
change of its underlying warrants. Refer to   Note 1-Summary of Significant
Accounting Policies  , see the section titled Revision of Previously Issued
Consolidated Financial Statements for Immaterial Adjustment for further
information.
Unrealized derivative instrument loss
During the three months ended March 31, 2021, the Company recognized an
unrealized derivative instrument loss of $16.5 million in relation to an
embedded exchange option identified upon the issuance and sale of Series A
Cumulative Redeemable Preferred Units (the Preferred Units) in the second
quarter of 2019. The unrealized loss related to this embedded feature was $62.0
million for the three months ended March 31, 2020. The associated derivative
liability is recorded on the consolidated balance sheet at fair value. The fair
value of the embedded derivative is determined (using an income approach) by a
range of factors, including expected future interest rates using the
Black-Karasinski model, interest rate volatility, the Company's imputed interest
rate, the expected timing of periodic cash distributions, the estimated timing
for the potential exercise of the exchange option, and anticipated dividend
yields of the Preferred Units. The value of the derivative during the three
months ended March 31, 2021 was primarily impacted by an increase in expected
future interest rates and by the decrease in the expected timing to exercise the
exchange option feature. Refer to   Note 13-Fair Value Measurements   within
Part I, Item 1-Financial Statements of this Quarterly Report on Form 10-Q for
further discussion.
Income from equity method interests, net
Income from equity method interests increased $5.9 million to $21.7 million for
the three months ended March 31, 2021, as compared to $15.8 million for the
three months ended March 31, 2020. The increase was primarily due to the
Company's 26.7 percent share of net income from the Permian Highway Pipeline
being placed into service in January 2021, and was partially offset by an
overall decrease in income from Equity Method Interest Pipelines, as a result of
a significant winter freeze event in Texas during February 2021.
Other Income
In 2020, the Company entered into a contract with a provider to supply the
Company with electrical power. If the Company does not utilize all of its fixed
purchase volumes under this contract, then it will receive a credit based on a
market rate for the related underutilization. In February 2021, in conjunction
with increased power pricing due to the Texas freeze event and under usage of
contractual electricity volumes, the Company earned an estimated credit of
approximately $7.2 million. No such credit was earned in the first quarter of
2020.
                                       30
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Financing costs, net of capitalized interest
Financing costs incurred, net of capitalized interest, includes increases in
interest expense not eligible to have interest capitalized related to balances
drawn on Altus Midstream's credit facility throughout the current quarter.
Decreases to gross interest expense were primarily driven by decreases to the
variable interest rate on the credit facility. For the three months ended March
31, 2020, all of the interest expense on the credit facility was eligible to
have interest capitalized.
Provisions for income taxes
During the three months ended March 31, 2021, the Company recognized a current
income tax benefit of nil as compared to $0.7 million for the three months ended
March 31, 2020.
The Company recorded no deferred income tax expense during the three months
ended March 31, 2021, and for the three months ended March 31, 2020.
Key Performance Metric-EBITDA
Net income before income taxes was $22.5 million for the three months ended
March 31, 2021, an increase of $48.6 million from a net loss before income taxes
of $26.1 million for the three months ended March 31, 2020. The increase in net
income before income taxes was primarily driven by a $45.5 million decrease to
expense related to the fair value measurement of an embedded derivative at
March 31, 2021, a $7.7 million increase of other income primarily related to a
power credit, a $5.9 million increase in income from the Equity Method Interest
Pipelines, and a $3.2 million decrease in operations and maintenance expenses.
The increases to net income were offset by a $6.7 million decrease in total
revenue, a $2.3 million increase in interest expense, and a $4.6 million
increase of various other costs.
Adjusted EBITDA increased by $18.5 million for the three months ended March 31,
2021 compared to the prior year period. Adjusted EBITDA, which excludes the
impacts of depreciation, accretion, impairments, and the changes to the embedded
derivative noted above, benefited from an incremental $10.4 million increase
related to excluding depreciation and interest in the Company's proportionate
share of EBITDA from its Equity Method Interest Pipelines.
For additional information, see the section titled Altus Midstream Operational
Metrics-Adjusted EBITDA above.
Capital Resources and Liquidity
The Company's primary use of capital since inception has been for the initial
construction of gathering and processing assets, as well as the acquisition of
the Equity Method Interest Pipelines and associated subsequent construction
costs. For 2021, the Company's primary capital spending requirements are
anticipated to be related to equity contributions associated with its
proportionate share of remaining construction, commissioning, and maintenance
costs relating to the Equity Method Interest Pipelines, and the Company's
payment of a quarterly cash dividend on its Class A common stock as may be
declared by its Board of Directors.
During the three months ended March 31, 2021, the Company's primary sources of
cash were distributions from the Equity Method Interest Pipelines, borrowings
under the revolving credit facility, and cash generated from operations. Based
on Altus' current financial plan and related assumptions, the Company believes
that cash from operations, a reduced capital program for its midstream
infrastructure, and distributions from the Equity Method Interest Pipelines will
generate cash flows in excess of capital expenditures and the amount required to
fund the Company's planned quarterly dividend during 2021.
Given recent crude oil price volatility and uncertain economic activity
resulting from the COVID-19 pandemic and related governmental actions, the
Company continues to monitor expected natural gas throughput volumes from Apache
and capacity utilization of the Equity Method Interest Pipelines. Projections
for 2021 remain dynamic. Altus' results, including projections related to
capital resources and liquidity, could be materially affected by the continuing
COVID-19 pandemic.
Altus Midstream Capital Requirements
During the three months ended March 31, 2021 and 2020, capital spending for
midstream infrastructure assets totaled $1.3 million and $19.1 million,
respectively. Management believes its existing gathering, processing, and
transmission infrastructure capacity is capable of fulfilling its midstream
contracts to service Apache's production from Alpine High and any third-party
customers. As such, the Company expects remaining capital requirements for its
existing infrastructure assets during 2021 to be minimal.
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Additionally, during the three months ended March 31, 2021 and 2020, the Company
made cash contributions totaling $20.5 million and $82.8 million, respectively,
to the Equity Method Interest Pipelines, which includes the following equity
interest ownership stakes:
•a 16.0 percent interest in GCX;
•a 15.0 percent interest in EPIC;
•an approximate 26.7 percent interest in PHP; and
•a 33.0 percent interest in Shin Oak.
The Company estimates it will incur approximately $10 million of additional
capital contributions during the remainder of 2021 for its equity interest
associated with construction on these joint venture pipelines. The Company
anticipates its existing capital resources will be sufficient to fund the
Company's future capital expenditures for the Equity Method Interest Pipelines
and the Company' existing infrastructure assets. For further information on the
Equity Method Interest Pipelines, refer to   Note 8-Equity Method Interests 

in

the Notes to Consolidated Financial Statements set forth in Part I of this
Quarterly Report on Form 10-Q.
Altus Midstream Class A Common Stock Dividend and Common Units Distributions
In the first quarter of 2021, the Company paid $24.4 million related to its
quarterly dividend program. For more information please refer to   Note
2-Transactions with Affiliates   and   Note 9-Equity   in the Notes to
Consolidated Financial Statements set forth in Part I, of this Quarterly Report
on Form 10-Q.
On May 4, 2021, the Company's Board of Directors declared a cash dividend of
$1.50 per share on the Company's Class A Common Stock, totaling $5.6 million, to
be paid on June 30, 2021, to stockholders of record as of the close of business
on May 28, 2021. The Class A Common Stock dividend will be funded by a
distribution from Altus Midstream to its common unitholders of $1.50 per Common
Unit, totaling $24.4 million, of which $5.6 million is payable to the Company
and the balance is payable to Apache.
Series A Cumulative Redeemable Preferred Units
On June 12, 2019, Altus Midstream issued and sold the Preferred Units in a
private offering exempt from the registration requirements of the Securities Act
of 1933, as amended (the Closing). The Closing occurred pursuant to a Preferred
Unit Purchase Agreement among Altus Midstream, the Company, and the purchasers
party thereto, dated as of May 8, 2019. A total of 625,000 Preferred Units were
sold at a price of $1,000 per Preferred Unit, for an aggregate issue price of
$625.0 million.
The Preferred Units entitle the holders thereof to receive quarterly
distributions at a rate of 7 percent per annum, commencing with the quarter
ended June 30, 2019. The rate increases to 10 percent per annum after the fifth
anniversary of Closing and upon the occurrence of specified events. For any
quarter ending on or prior to December 31, 2020, Altus Midstream could elect to
pay distributions in-kind and did so in respect of quarters ended on and before
March 31, 2020. For further information on the Preferred Units, refer to   Note
10-Series A Cumulative Redeemable Preferred Units   in the Notes to Consolidated
Financial Statements set forth in Part I, of this Quarterly Report on Form 10-Q.

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Sources and Uses of Cash
The following table presents the sources and uses of the Company's cash and cash
equivalents for the periods presented.
                                                                             For the Three Months Ended
                                                                                      March 31,
                                                                            2021                    2020

                                                                                   (In thousands)
Sources of cash and cash equivalents:
Proceeds from revolving credit facility                               $       33,000          $       72,000
Proceeds from sale of assets                                                   1,090                   6,096
Capital distributions from equity method interests                             7,540                   1,552
Net cash provided by operating activities                                     43,272                  51,538
Total Sources of Cash and Cash Equivalents                                    84,902                 131,186
Uses of cash and cash equivalents:
Capital expenditures(1)                                                       (1,330)                (19,096)
Distributions paid to Preferred Unit limited partners                        (11,562)                      -
Distributions paid to Apache limited partner                                 (18,750)                      -
Dividends paid                                                                (5,620)                      -
Contributions to equity method interests                                     (20,522)                (82,827)
Finance lease payments                                                             -                 (11,789)
Deferred facility fees                                                             -                    (816)
Capitalized interest paid                                                          -                  (3,340)
Total Uses of Cash and Cash Equivalents                                      (57,784)               (117,868)
Increase in cash and cash equivalents                                 $     

27,118 $ 13,318



(1)The table presents capital expenditures on a cash basis; therefore, the
amounts may differ from those discussed elsewhere in this document, which
include accruals.
Liquidity
The following table presents a summary of the Company's key financial indicators
at the dates presented:
                                             March 31, 2021       December 31, 2020

                                                         (In thousands)
Cash and cash equivalents                   $        51,306      $           24,188
Total debt                                          657,000                 624,000
Available committed borrowing capacity              141,000                 

176,000



Cash and cash equivalents
As of March 31, 2021 and December 31, 2020, the Company had $51.3 million and
$24.2 million, respectively, in cash and cash equivalents. The majority of the
cash is invested in highly liquid, investment-grade instruments with maturities
of three months or less at the time of purchase.


                                       33
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Total Debt and Available credit facilities
In November 2018, Altus Midstream entered into a revolving credit facility for
general corporate purposes that matures in November 2023 (subject to Altus
Midstream's two, one-year extension options). The agreement for this revolving
credit facility, as amended (the Amended Credit Agreement), provides aggregate
commitments from a syndicate of banks of $800.0 million. The aggregate
commitments include a letter of credit subfacility of up to $100.0 million and a
swingline loan subfacility of up to $100.0 million. Altus Midstream may increase
commitments up to an aggregate $1.5 billion by adding new lenders or obtaining
the consent of any increasing existing lenders. As of March 31, 2021, there were
$657.0 million of borrowings and a $2.0 million of letter of credit outstanding
under this facility. As of December 31, 2020, there were $624.0 million of
borrowings and no letters of credit were outstanding under this facility.
Altus Midstream's revolving credit facility is unsecured and is not guaranteed
by the Company, Apache, APA Corporation or any of their respective subsidiaries.
At Altus Midstream's option, the interest rate per annum for borrowings under
this amended credit facility is either a base rate, as defined, plus a margin,
or the London Interbank Offered Rate (LIBOR), plus a margin. Altus Midstream
also pays quarterly a facility fee at a rate per annum on total commitments. The
margins and the facility fee vary based upon (i) the Leverage Ratio (as defined
below) until Altus Midstream has a senior long-term debt rating and (ii) such
senior long-term debt rating once it exists. The Leverage Ratio is the ratio of
(1) the consolidated indebtedness of Altus Midstream and its restricted
subsidiaries to (2) EBITDA (as defined in the Amended Credit Agreement) of Altus
Midstream and its restricted subsidiaries for the 12-month period ending
immediately before the determination date. At March 31, 2021, the base rate
margin was 0.05 percent, the LIBOR margin was 1.05 percent, and the facility fee
was 0.20 percent. In addition a commission is payable quarterly to the lenders
on the face amount of each outstanding letter of credit at a per annum rate
equal to the LIBOR margin then in effect. Customary letter of credit fronting
fees and other charges are payable to issuing banks.
The Amended Credit Agreement contains restrictive covenants that may limit the
ability of Altus Midstream and its restricted subsidiaries to, among other
things, incur additional indebtedness or guaranty indebtedness, sell assets,
make investments in unrestricted subsidiaries, enter into mergers, make certain
payments and distributions, incur liens on certain property securing
indebtedness, and engage in certain other transactions without the prior consent
of the lenders.
Altus Midstream also is subject to a financial covenant under the Amended Credit
Agreement, which requires it to maintain a Leverage Ratio not exceeding
5.00:1.00 at the end of any fiscal quarter, starting with the quarter ended
December 31, 2019, except that during the period of up to one year following a
qualified acquisition, the Leverage Ratio cannot exceed 5.50:1.00 at the end of
any fiscal quarter. Unless the Leverage Ratio is less than or equal to
4.00:1.00, the Amended Credit Agreement limits distributions in respect of Altus
Midstream LP's capital to $30 million per calendar year until either (i) the
consolidated net income of Altus Midstream LP and its restricted subsidiaries,
as adjusted pursuant to the Amended Credit Agreement, for three consecutive
calendar months equals or exceeds $350.0 million on an annualized basis or (ii)
Altus Midstream LP has a specified senior long-term debt rating; in addition,
before the occurrence of one of those two events, the Leverage Ratio must be
less than or equal to 5.00:1.00. In no event can any distribution be made that
would, after giving effect to it on a pro forma basis, result in a Leverage
Ratio greater than (i) 5.00:1.00 or (ii) for a specified period after a
qualifying acquisition, 5.50:1.00. The Leverage Ratio as of March 31, 2021 was
less than 4.00:1.00.
The terms of Altus Midstream's Preferred Units also contain certain restrictions
on distributions on Altus Midstream LP's Common Units, including the Common
Units held by the Company, and any other units that rank junior to the Preferred
Units with respect to distributions or distributions upon liquidation. Refer to
  Note 10-Series A Cumulative Redeemable Preferred Units   in the Notes to
Consolidated Financial Statements set forth in Part I of this Quarterly Report
on Form 10-Q for further information. In addition, the amount of any cash
distributions to Altus Midstream LP by any entity in which it has an interest
accounted for by the equity method is subject to such entity's compliance with
the terms of any debt or other agreements by which it may be bound, which in
turn may impact the amount of funds available for distribution by Altus
Midstream LP to its partners.
There are no clauses in the Amended Credit Agreement that permit the lenders to
accelerate payments or refuse to lend based on unspecified material adverse
changes. The Amended Credit Agreement has no drawdown restrictions or prepayment
obligations in the event of a decline in credit ratings. However, the agreement
allows the lenders to accelerate payment maturity and terminate lending and
issuance commitments for nonpayment and other breaches, and if Altus Midstream
or any of its restricted subsidiaries defaults on other indebtedness in excess
of the stated threshold, is insolvent, or has any unpaid, non-appealable
judgment against it for payment of money in excess of the stated threshold.
Lenders may also accelerate payment maturity and terminate lending and issuance
commitments if Altus Midstream undergoes a specified change in control or has
specified pension plan liabilities in excess of the stated threshold. Altus
Midstream was in compliance with the terms of the Amended Credit Agreement as of
March 31, 2021.
                                       34
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There is no assurance that the financial condition of banks with lending
commitments to Altus Midstream will not deteriorate. Altus closely monitors the
ratings of the banks in the Company's bank group. Having a large bank group
allows the Company to mitigate the potential impact of any bank's failure to
honor its lending commitment.
Off-Balance Sheet Arrangements
Other than the arrangements described in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2020, the Company has not entered
into any transactions, agreements, or other contractual arrangements with
unconsolidated entities that are reasonably likely to materially affect the
Company's liquidity or capital resource positions.
                                       35

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