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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)

08/05/2021 | 03:45pm EST
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 June 30, 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 June 30, 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.
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,
                                       25
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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.
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.
                                       26
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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.
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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 June 30,                 Six Months Ended June 30,
                                                   2021                2020(1)                2021                2020(1)

                                                                             (In thousands)
Reconciliation of net income (loss)
including noncontrolling interests to
Adjusted EBITDA
Net income (loss) including noncontrolling
interests                                    $       73,841          $  

16,034 $ 96,330 $ (9,337) Add: Financing costs, net of capitalized interest 2,615

292                   5,213                565

 Depreciation and accretion                           4,009              4,062                   8,009              7,976
Impairments                                               -                  -                     441                  -
Unrealized derivative instrument loss                     -             10,585                       -             72,569
Equity method interests Adjusted EBITDA              48,385             28,231                  88,296             51,917

Warrants valuation adjustment                             -                417                     442                  -

Other                                                   287                  -                     456                290
Less:
Gain on sale of assets                                  200                264                     276                 76
 Interest income                                          1                  2                       2                  9
Unrealized derivative instrument gain                31,006                  -                  14,477                  -
Income from equity method interests, net             28,466             15,712                  50,154             31,554
Warrants valuation adjustment                           222                  -                       -              1,460
Income tax benefit                                        -                  -                       -                696
Other                                                     -                  2                       -                  2
Adjusted EBITDA                              $       69,242          $  43,641          $      134,278          $  90,183

(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.

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Results of Operations
The following table presents the Company's results of operations for the periods
presented:
                                                Three Months Ended June 30,                 Six Months Ended June 30,
                                                  2021                2020(1)                2021                2020(1)

                                                                            (In thousands)
REVENUES:
Midstream services revenue - affiliate      $       32,467          $  31,616          $       63,996          $  72,383
Product sales - third parties                        3,126                  -                   5,743                  -
Total revenues                                      35,593             31,616                  69,739             72,383
COSTS AND EXPENSES:
Costs of product sales                               3,351                  -                   5,344                  -
Operations and maintenance                           7,340              9,508                  14,742             20,099
General and administrative                           3,475              2,988                   6,930              7,166
Depreciation and accretion                           4,009              4,062                   8,009              7,976
Impairments                                              -                  -                     441                  -
Taxes other than income                              3,812              3,347                   7,620              6,790
Total costs and expenses                            21,987             19,905                  43,086             42,031
OPERATING INCOME                                    13,606             11,711                  26,653             30,352
Unrealized derivative instrument gain
(loss)                                              31,006            (10,585)                 14,477            (72,569)
Interest income                                          1                  2                       2                  9
Income from equity method interests, net            28,466             15,712                  50,154             31,554
Warrants valuation adjustment                          222               (417)                   (442)             1,460
Other                                                3,155                (97)                 10,699               (274)
Total other income (loss)                           62,850              4,615                  74,890            (39,820)
Financing costs, net of capitalized
interest                                             2,615                292                   5,213                565
NET INCOME (LOSS) BEFORE INCOME TAXES               73,841             16,034                  96,330            (10,033)
Current income tax benefit                               -                  -                       -               (696)

NET INCOME (LOSS) INCLUDING NONCONTROLLING
INTERESTS                                           73,841             16,034                  96,330             (9,337)
Net income attributable to Preferred Unit
limited partners                                    24,004             18,764                  43,496             37,026
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS                                        49,837             (2,730)                 52,834            (46,363)
Net income (loss) attributable to Apache
limited partner                                     38,174             (1,779)                 40,991            (37,331)
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A
COMMON SHAREHOLDERS                         $       11,663          $    (951)         $       11,843          $  (9,032)
KEY PERFORMANCE METRICS:
Adjusted EBITDA(2)                          $       69,242          $  43,641          $      134,278          $  90,183
OPERATING DATA:
Average throughput volumes of natural gas
(MMcf/d)                                               447                434                     442                505


(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.
                                       29
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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 June 30,                 Six Months Ended June 30,
                                               2021                  2020                 2021                 2020

                                                                         (In thousands)
REVENUES:
Midstream services revenue - affiliate   $       32,467          $  31,616          $      63,996          $  72,383
Product sales - third parties                     3,126                  -                  5,743                  -
Total revenues                           $       35,593          $  31,616          $      69,739          $  72,383


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.
Three months ended June 30, 2021 as compared to three months ended June 30, 2020
Midstream services revenue from affiliate increased by $0.9 million to $32.5
million for the three months ended June 30, 2021, as compared to $31.6 million
for the three months ended June 30, 2020. The increase was primarily driven by
slightly higher throughput of natural gas volumes from Apache.
The $3.1 million in product sales revenues during the three months ended June
30, 2021 were generated from NGLs and condensates purchased and processed by
Altus from a third party and subsequently sold to non-affiliated customers. No
significant revenues from such sales occurred during the three months ended June
30, 2020.
Six months ended June 30, 2021 as compared to six months ended June 30, 2020
Midstream services revenue from affiliate decreased by $8.4 million to $64.0
million for the six months ended June 30, 2021, as compared to $72.4 million for
the six months ended June 30, 2020. The decrease was primarily driven by lower
throughput of natural gas volumes from Apache.
The $5.7 million in product sales revenues during the six months ended June 30,
2021 were generated from NGLs and condensates purchased and processed by Altus
from a third party and subsequently sold to non-affiliated customers. No
significant revenues from such sales occurred during the six months ended June
30, 2020.

                                       30
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Costs and Expenses
The following table summarizes the Company's costs and expenses for the periods
presented:
                                                        Three Months Ended June 30,                 Six Months Ended June 30,
                                                          2021                  2020                 2021                 2020

                                                                                    (In thousands)
Costs of product sales                              $        3,351         

$ - $ 5,344 $ - Operations and maintenance

                                   7,340              9,508                 14,742             20,099
General and administrative                                   3,475              2,988                  6,930              7,166
Depreciation and accretion                                   4,009              4,062                  8,009              7,976
Impairments                                                      -                  -                    441                  -
Taxes other than income                                      3,812              3,347                  7,620              6,790
Total costs and expenses                            $       21,987          $  19,905          $      43,086          $  42,031


Three months ended June 30, 2021 as compared to three months ended June 30, 2020
Costs of product sales
The $3.4 million in costs of product sales represent purchases of NGLs from a
third-party, which were used to support the product sales to third parties
discussed above.
Operations and maintenance
Operations and maintenance expenses decreased by approximately $2.2 million to
$7.3 million for the three months ended June 30, 2021, as compared to $9.5
million for the three months ended June 30, 2020. This decrease was 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 second
quarter of 2020. The transition resulted in decreases in various costs, the most
significant being contract labor, equipment rentals, chemical expenses, and an
overall decrease in Company labor from headcount reductions.
General and administrative
G&A expense increased by $0.5 million to $3.5 million for the three months ended
June 30, 2021, as compared to $3.0 million for the three months ended June 30,
2020, primarily driven 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 ad valorem taxes, which
increased by $0.4 million to $3.7 million for the three months ended June 30,
2021, as compared to $3.3 million for the three months ended June 30, 2020. The
$0.4 million increase reflects adjustments in estimated tax assessments related
to the completion of construction and capacity utilization of certain assets.
Six months ended June 30, 2021 as compared to six months ended June 30, 2020
Costs of product sales
The $5.3 million in costs of product sales represent purchases of NGLs from a
third-party, which were used to support the product sales to third parties
discussed above.
Operations and maintenance
Operations and maintenance expenses decreased by $5.4 million to $14.7 million
for the six months ended June 30, 2021, as compared to $20.1 million for the six
months ended June 30, 2020. This decrease was 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 half of 2020.
The transition resulted in
                                       31
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decreases in various costs, the most significant being contract labor, equipment
rentals, chemical expenses, and an overall decrease in Company labor from
headcount reductions. These savings were partially offset by higher power usage
costs.
General and administrative
G&A expense decreased by $0.3 million to $6.9 million for the six months ended
June 30, 2021, as compared to $7.2 million for the six months ended June 30,
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 ad valorem taxes, which
increased by $0.8 million to $7.4 million for the six months ended June 30,
2021, as compared to $6.6 million for the six months ended June 30, 2020. The
$0.8 million increase reflects adjustments in estimated tax assessments related
to the completion of construction and capacity utilization of certain assets.
                                       32
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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 June 30,                 Six Months Ended June 30,
                                                 2021                2020(1)                2021               2020(1)

                                                                           (In thousands)
Unrealized derivative instrument gain
(loss)                                     $       31,006          $ 

(10,585) $ 14,477 $ (72,569) Interest income

                                         1                  2                      2                  9
Income from equity method interests, net           28,466             15,712                 50,154             31,554
Warrants valuation adjustment                         222               (417)                  (442)             1,460
Other                                               3,155                (97)                10,699               (274)
Total other income (loss)                  $       62,850          $   4,615          $      74,890          $ (39,820)

Interest expense                           $        2,323          $   2,007          $       4,630          $   5,365
Amortization of deferred facility fees                292                292                    583                565
Capitalized interest                                    -             (2,007)                     -             (5,365)
Total Financing costs, net of capitalized
interest                                   $        2,615          $     

292 $ 5,213 $ 565



(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 gain (loss)
During the three and six months ended June 30, 2021, the Company recognized an
unrealized derivative instrument gain of $31.0 million and $14.5 million,
respectively, in relation to an embedded exchange option identified upon the
issuance and sale of Series A Cumulative Redeemable Preferred Units (the
Preferred Units). The unrealized loss related to this embedded feature was $10.6
million and $72.6 million for the three and six months ended June 30, 2020,
respectively. 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 and six months
ended June 30, 2021 was primarily impacted by expected future interest rates.
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 $12.8 million and $18.6 million
for the three and six months ended June 30, 2021, respectively, as compared to
the three and six months ended June 30, 2020. The increase was primarily due to
the Company's 26.7 percent share of net income from the Permian Highway Pipeline
which commenced service in January 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 underutilization
of contractual electricity volumes, the Company recognized an estimated credit
of approximately $2.5 million and $9.7 million for the three and six months
ended June 30, 2021, respectively. No credits were recorded for the three and
six months ended June 30, 2020.

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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. The
changes to gross interest expense for the periods presented was insignificant.
Key Performance Metric-EBITDA
Three months ended June 30, 2021 as compared to three months ended June 30, 2020
Net income before income taxes was $73.8 million for the three months ended June
30, 2021, an increase of $57.8 million from net income before income taxes of
$16.0 million for the three months ended June 30, 2020. The increase in net
income before income taxes was primarily driven by a $41.6 million decrease to
expense related to the fair value measurement of an embedded derivative at
June 30, 2021, a $12.8 million increase in income from the Equity Method
Interest Pipelines, a $4.0 million increase in total revenues, a $3.3 million
increase of other income primarily related to a power credit, and a $2.2 million
decrease in operations and maintenance expenses. The increases to net income
were offset by a $2.3 million increase in interest expense, and a $3.8 million
net increase of various other individually insignificant costs.
Adjusted EBITDA increased by $25.6 million for the three months ended June 30,
2021 compared to the prior year period. Adjusted EBITDA, which excludes the
impacts of depreciation, accretion, impairments, interest expense, and the
changes to the embedded derivative noted above, benefited from an incremental
$7.4 million increase related to excluding depreciation, interest and other
discrete items in the Company's proportionate share of EBITDA from its Equity
Method Interest Pipelines.
Six months ended June 30, 2021 as compared to six months ended June 30, 2020
Net income before income taxes was $96.3 million for the six months ended June
30, 2021, an increase of $106.4 million from net loss before income taxes of
$10.0 million for the six months ended June 30, 2020. The increase in net income
before income taxes was primarily driven by an $87.0 million decrease to expense
related to the fair value measurement of an embedded derivative at June 30,
2021, an $18.6 million increase in income from the Equity Method Interest
Pipelines, an $11.0 million increase of other income primarily related to a
power credit, and a $5.4 million decrease in operations and maintenance
expenses. The increases to net income were offset by a $5.3 million increase in
costs of product of sales, a $2.6 million decrease in total revenue, a $4.6
million increase in interest expense, and a $3.1 million net increase of various
other costs.
Adjusted EBITDA increased by $44.1 million for the six months ended June 30,
2021 compared to the prior year period. Adjusted EBITDA, which excludes the
impacts of depreciation, accretion, impairments, interest expense, and the
changes to the embedded derivative noted above, benefited from an incremental
$17.8 million increase related to excluding depreciation, interest and other
discrete items in the Company's proportionate share of EBITDA from its Equity
Method Interest Pipelines. This amount was further benefited by an insignificant
decrease, in the aggregate, of $1.9 million of various other costs of the
Company.
For additional information, see the section titled Altus Midstream Operational
Metrics-Adjusted EBITDA above.

                                       34
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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 six months ended June 30, 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 six months ended June 30, 2021 and 2020, capital spending for
midstream infrastructure assets totaled $2.4 million and $26.5 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 additional
third-party customers. As such, the Company expects remaining capital
requirements for its existing infrastructure assets during 2021 to be minimal.
Additionally, during the six months ended June 30, 2021 and 2020, the Company
made cash contributions totaling $24.2 million and $154.4 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 minimal capital contributions of between $5
million to $7 million for its equity interest in 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 and second quarters of 2021, the Company made payments of $24.4
million, per quarter, 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 August 3, 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 September 30, 2021, to stockholders of record as of the close of
business on August 27, 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.
                                       35
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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.

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 Six Months Ended
                                                                                      June 30,
                                                                            2021                    2020

                                                                                   (In thousands)
Sources of cash and cash equivalents:
Proceeds from revolving credit facility                               $       33,000          $       97,000
Proceeds from sale of assets                                                   1,669                   6,773
Capital distributions from equity method interests                            13,645                   4,211
Net cash provided by operating activities                                    101,055                  86,797
Total Sources of Cash and Cash Equivalents                                   149,369                 194,781
Uses of cash and cash equivalents:
Capital expenditures(1)                                                       (2,447)                (26,520)
Distributions paid to Preferred Unit limited partners                        (23,124)                      -
Distributions paid to Apache limited partner                                 (37,500)                      -
Dividends paid                                                               (11,239)                      -
Contributions to equity method interests                                     (24,155)               (154,386)
Finance lease payments                                                             -                 (11,789)
Deferred facility fees                                                             -                    (816)
Capitalized interest paid                                                          -                  (5,373)
Total Uses of Cash and Cash Equivalents                                      (98,465)               (198,884)
Increase (decrease) in cash and cash equivalents                      $     

50,904 $ (4,103)



(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:
                                             June 30, 2021       December 31, 2020

                                                         (In thousands)
Cash and cash equivalents                   $       75,092      $           24,188
Total debt                                         657,000                 624,000
Available committed borrowing capacity             141,000                 

176,000



Cash and cash equivalents
As of June 30, 2021 and December 31, 2020, the Company had $75.1 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.
                                       36
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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 June 30, 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 June 30, 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 June 30, 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
June 30, 2021.
                                       37
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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.
                                       38

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