KINETIK HOLDINGS INC. 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 endedDecember 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. OverviewAltus Midstream Company (the Company or Altus), through its ownership interest inAltus Midstream LP (Altus Midstream ), owns gas gathering, processing, and transmission assets in thePermian Basin ofWest Texas , anchored by midstream service agreements to serviceApache Corporation's (Apache) production from itsAlpine High resource play and surrounding areas (Alpine High ). Additionally, the Company owns equity interests in four intrastatePermian Basin pipelines (the Equity Method Interest Pipelines) that have access to various points along theTexas Gulf Coast . The Company's operations consist of one reportable segment. The Company has no independent operations or material assets outside its ownership interest inAltus Midstream , which is reported on a consolidated basis. As ofMarch 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 fromAlpine High and potential third-party customers. As ofMarch 31, 2021 , the Company owns the following Equity Method Interest Pipelines: •A 16 percent equity interest in theGulf Coast Express Pipeline Project (GCX), which is owned and operated byKinder Morgan Texas Pipeline, LLC (Kinder Morgan). GCX transports natural gas from the Waha area inWest Texas toAgua Dulce near theTexas 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 byEPIC Consolidated Operations, LLC . EPIC transports crude oil fromOrla, Texas inNorthern Reeves County to thePort 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 northernPecos County, Texas to theKaty, Texas area with connections toTexas Gulf Coast andMexico markets. PHP was placed in serviceJanuary 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 byBreviloba, LLC , and operated byEnterprise Products Operating LLC .Shin Oak transports NGLs from thePermian Basin toMont 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 toAlpine 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 -------------------------------------------------------------------------------- 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 endedDecember 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 ofAlpine 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 toAlpine 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 inthe 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 -------------------------------------------------------------------------------- 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 inthe 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 -------------------------------------------------------------------------------- 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
--------------------------------------------------------------------------------
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 -------------------------------------------------------------------------------- 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 fromAlpine 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 theAlpine 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 endedMarch 31, 2021 , as compared to$40.8 million for the three months endedMarch 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 endedMarch 31, 2021 , as compared to$0.1 million for the three months endedMarch 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 -------------------------------------------------------------------------------- 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 endedMarch 31, 2021 , as compared to$10.6 million for the three months endedMarch 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 endedMarch 31, 2021 , as compared to$4.2 million for the three months endedMarch 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 endedMarch 31, 2021 , as compared to$3.4 million for the three months endedMarch 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 --------------------------------------------------------------------------------
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
(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 endedMarch 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 endedMarch 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 endedMarch 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 endedMarch 31, 2021 , as compared to$15.8 million for the three months endedMarch 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 inJanuary 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 inTexas duringFebruary 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. InFebruary 2021 , in conjunction with increased power pricing due to theTexas 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 -------------------------------------------------------------------------------- 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 onAltus 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 endedMarch 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 endedMarch 31, 2021 , the Company recognized a current income tax benefit of nil as compared to$0.7 million for the three months endedMarch 31, 2020 . The Company recorded no deferred income tax expense during the three months endedMarch 31, 2021 , and for the three months endedMarch 31, 2020 . Key Performance Metric-EBITDA Net income before income taxes was$22.5 million for the three months endedMarch 31, 2021 , an increase of$48.6 million from a net loss before income taxes of$26.1 million for the three months endedMarch 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 atMarch 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 endedMarch 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 endedMarch 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 endedMarch 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 fromAlpine High and any third-party customers. As such, the Company expects remaining capital requirements for its existing infrastructure assets during 2021 to be minimal. 31 -------------------------------------------------------------------------------- Additionally, during the three months endedMarch 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 inShin 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. OnMay 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 onJune 30, 2021 , to stockholders of record as of the close of business onMay 28, 2021 . The Class A Common Stock dividend will be funded by a distribution fromAltus 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 OnJune 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 amongAltus Midstream , the Company, and the purchasers party thereto, dated as ofMay 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$625.0 million . The Preferred Units entitle the holders thereof to receive quarterly distributions at a rate of 7 percent per annum, commencing with the quarter endedJune 30, 2019 . The rate increases to 10 percent per annum after the fifth anniversary of Closing and upon the occurrence of specified events. For any quarter ending on or prior toDecember 31, 2020 ,Altus Midstream could elect to pay distributions in-kind and did so in respect of quarters ended on and before March 31, 2020. For further information on the Preferred Units, refer to Note 10-Series A Cumulative Redeemable Preferred Units in the Notes to Consolidated Financial Statements set forth in Part I, of this Quarterly Report on Form 10-Q. 32 -------------------------------------------------------------------------------- Sources and Uses of Cash The following table presents the sources and uses of the Company's cash and cash equivalents for the periods presented. For the Three Months Ended March 31, 2021 2020 (In thousands) Sources of cash and cash equivalents: Proceeds from revolving credit facility$ 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
(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 ofMarch 31, 2021 andDecember 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 -------------------------------------------------------------------------------- Total Debt and Available credit facilities InNovember 2018 ,Altus Midstream entered into a revolving credit facility for general corporate purposes that matures inNovember 2023 (subject toAltus 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 ofMarch 31, 2021 , there were$657.0 million of borrowings and a$2.0 million of letter of credit outstanding under this facility. As ofDecember 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. AtAltus 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) untilAltus 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 ofAltus Midstream and its restricted subsidiaries to (2) EBITDA (as defined in the Amended Credit Agreement) ofAltus Midstream and its restricted subsidiaries for the 12-month period ending immediately before the determination date. AtMarch 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 ofAltus 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 endedDecember 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 ofAltus Midstream LP's capital to$30 million per calendar year until either (i) the consolidated net income ofAltus 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 LeverageRatio 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 ofMarch 31, 2021 was less than 4.00:1.00. The terms ofAltus Midstream's Preferred Units also contain certain restrictions on distributions onAltus 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 toAltus 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 byAltus 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 ifAltus 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 ifAltus 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 ofMarch 31, 2021 . 34 -------------------------------------------------------------------------------- There is no assurance that the financial condition of banks with lending commitments toAltus 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 endedDecember 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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