NOBLE MIDSTREAM PARTNERS LP
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is intended to provide a narrative about our business from
the perspective of our management. Our MD&A is presented in the following major
sections:
• Executive Overview and Operating Outlook ;
• Results of Operations ; and
• Liquidity and Capital Resources .
The preceding consolidated financial statements, including the notes thereto,
contain detailed information that should be read in conjunction with our MD&A.
See also Item 1A. Risk Factors and our disclosures in Item 3 of this report
under the heading: "Disclosure Regarding Forward-Looking Statements."
EXECUTIVE OVERVIEW AND OPERATING OUTLOOK
The following discussion highlights the current operating environment, as well
as significant operating and financial results for first quarter 2021. This
discussion should be read in conjunction with our Annual Report on Form 10-K for
the year ended December 31, 2020 , which includes disclosures regarding our
critical accounting policies as part of "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Following the completion of the acquisition of Noble by Chevron on October 5,
2020 , Chevron (1) indirectly, wholly owns and controls our General Partner , and
(2) indirectly holds approximately 62.6% of our Common Units.
Chevron Merger - NBLX
On March 4, 2021 , the Partnership and the General Partner entered into the NBLX
Merger Agreement with Chevron . Pursuant to the NBLX Merger Agreement, Chevron
will acquire all Common Units that Chevron and its affiliates do not already own
and holders of such Common Units will receive 0.1393 shares of Chevron common
stock for each Common Unit held. The Registration Statement registering shares
of Chevron common stock to effectuate such acquisition was declared effective by
the SEC on April 13, 2021 . The NBLX Merger is anticipated to close in mid-May
2021 . Upon completion of the NBLX Merger, the Common Units will cease to be
listed on the Nasdaq and will be subsequently deregistered under the Exchange
Act.
First Quarter 2021 Significant Results
The following discussion outlines significant results for first quarter 2021.
Significant Financial Results Include:
•Net Income Attributable to Limited Partners of $31.2 million , an increase of
209% as compared with first quarter 2020;
•Net Cash Provided by Operating Activities of $95.7 million , a decrease of 19%
as compared with first quarter 2020;
•Adjusted EBITDA (non-GAAP financial measure) of $108.6 million , a decrease of
5% as compared with first quarter 2020; and
•Distributable cash flow (non-GAAP financial measure) of $78.7 million , a
decrease of 16% as compared with first quarter 2020.
For additional information regarding our non-GAAP financial measures, see -
Adjusted EBITDA (Non-GAAP Financial Measure), Distributable Cash Flow
(Non-GAAP Financial Measure) and Reconciliation of Non-GAAP Financial
Measures , below.
Impact of COVID-19
In 2020, the COVID-19 pandemic and implementation of containment measures to
minimize impacts to populations led to the disruption of global manufacturing
supply chains, stagnation of crude oil and natural gas consumption, commodity
price volatility, interference with workforce continuity and the slowing of
global economic growth. These factors, among others, caused a number of
producers to reduce capital spending levels and shut-in production at certain
fields for a portion of 2020. These temporary shut-ins served to lower inventory
levels and thereby alleviate some of the crude oil storage constraints
experienced in the beginning of second quarter 2020; however, a number of
producers subsequently brought back online previously shut-in production and
have been resuming development activities.
While relaxing of certain containment measures resulted in increased demand and
commodity prices in the second half of 2020 and first quarter of 2021, demand
continues to be significantly lower than levels experienced prior to the
COVID-19 pandemic. If the supply and demand balance for crude oil and natural
gas worsens, our customers may be forced or elect to shut-in production and
delay or discontinue drilling plans, and as such we could experience a decline
in demand for our services. Furthermore, additional outbreaks, a return of more
stringent containment measures or further restrictions could negatively impact
demand for crude oil and natural gas and in turn negatively impact commodity
prices in the future.
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Table of Co ntents
Basin and Investment Updates
DJ Basin
In the Mustang IDP area we made our first well connections since second quarter
2020 and connected 15 affiliate wells to our gathering system. Additionally, we
delivered fresh water to 20 affiliate wells.
In the East Pony IDP area and in the Black Diamond dedication area, we connected
10 and 67 third party wells, respectively, to our gathering systems.
In the Greeley Crescent IDP area fracking activity continued, and we delivered
fresh water to 24 wells.
Regarding our investment in Saddlehorn, the expansion project to increase
pipeline capacity to 290 MBbl/d was completed during first quarter 2021.
Delaware Basin
In the Delaware Basin we connected 10 affiliate wells and 2 third party wells to
our gathering system.
RESULTS OF OPERATIONS
Results of operations were as follows:
Three Months Ended
March 31,
(thousands) 2021 2020
Revenues
Midstream Services - Affiliate $ 95,169 $ 113,784
Midstream Services - Third Party 22,964 27,898
Crude Oil Sales - Third Party 160,238 82,363
Total Revenues 278,371 224,045
Costs and Expenses
Cost of Crude Oil Sales 153,104 79,859
Direct Operating 25,988 26,850
Depreciation and Amortization 26,874 25,931
General and Administrative 9,027 5,486
Goodwill Impairment - 109,734
Other Operating (Income) Expense (15) 1,286
Total Operating Expenses 214,978 249,146
Operating Income (Loss) 63,393 (25,101)
Other Expense (Income)
Interest Expense, Net of Amount Capitalized 6,368 6,857
Investment Loss, Net 19,422 5,409
Total Other Expense, Net 25,790 12,266
Income (Loss) Before Income Taxes 37,603 (37,367)
Income Tax Expense 44 149
Net Income (Loss) 37,559 (37,516)
Less: Net Income (Loss) Attributable to Noncontrolling Interests 6,358 (47,619)
Net Income Attributable to Noble Midstream Partners LP Adjusted EBITDA(1) Attributable toNoble Midstream Partners LP
Distributable Cash Flow(1) ofNoble Midstream Partners LP
(1)Adjusted EBITDA and Distributable Cash Flow are not measures as determined by
GAAP and should not be considered an alternative to, or more meaningful than,
net income, net cash provided by operating activities or any other measure as
reported in accordance with GAAP. For additional information regarding our
non-GAAP financial measures, see - Adjusted EBITDA (Non-GAAP Financial
Measure), Distributable Cash Flow (Non-GAAP Financial Measure) and
Reconciliation of Non-GAAP Financial Measures , below.
16
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Table of Co ntents
Throughput and Crude Oil Sales Volumes
The amount of revenue we generate primarily depends on the volumes of crude oil,
natural gas and water for which we provide midstream services as well as the
crude oil volumes we sell to customers. Throughput and crude oil sales volumes
related to our Gathering Systems and Fresh Water Delivery reportable segments
were as follows:
Three Months Ended March 31,
2021 2020
DJ Basin
Crude Oil Sales Volumes (Bbl/d) 32,952 19,668
Crude Oil Gathering Volumes (Bbl/d) 150,959 183,106
Natural Gas Gathering Volumes (MMBtu/d) 482,813 499,204
Natural Gas Processing Volumes (MMBtu/d) 38,209 42,668
Produced Water Gathering Volumes (Bbl/d) 28,947 42,094
Fresh Water Delivery Volumes (Bbl/d) 127,060 226,937
Crude Oil Gathering Volumes (Bbl/d) 45,988 58,556
Natural Gas Gathering Volumes (MMBtu/d) 139,459 182,282
Produced Water Gathering Volumes (Bbl/d) 108,588 162,178
Total Gathering Systems
Crude Oil Sales Volumes (Bbl/d) 32,952 19,668
Crude Oil Gathering Volumes (Bbl/d) 196,947 241,662
Natural Gas Gathering Volumes (MMBtu/d) 622,272 681,486
Barrels of Oil Equivalent (Boe/d) (1) 284,633 335,492
Natural Gas Processing Volumes (MMBtu/d) 38,209 42,668
Produced Water Gathering Volumes (Bbl/d) 137,535 204,272
Total Fresh Water Delivery
Fresh Water Delivery Volumes (Bbl/d) 127,060 226,937
(1)Includes crude oil sales volumes that are transported on our gathering
systems and sold to third-party customers.
Revenues
Revenues from our Gathering System and Fresh Water Delivery reportable segments
were as follows:
(Decrease) Increase
(in thousands) 2021 2020 From Prior Year
Three Months Ended March 31 ,
Gathering and Processing - Affiliate $ 73,859 $ 89,298 (17) %
Gathering and Processing - Third Party 16,396 21,968 (25) %
Fresh Water Delivery - Affiliate 18,422 23,599 (22) %
Fresh Water Delivery - Third Party 2,875 4,174 (31) %
Crude Oil Sales - Third Party 160,238 82,363 95 %
Other - Affiliate 2,888 887 226 %
Other - Third Party 3,693 1,756 110 %
Total Revenues $ 278,371 $ 224,045 24 %
17-------------------------------------------------------------------------------- Table of Co ntents Revenues Trend Analysis Revenues increased during first quarter 2021 as compared with first quarter 2020. The changes in revenues by reportable segment were as follows: Gathering Systems Gathering Systems revenues increased by$60.8 million during first quarter 2021 as compared with first quarter 2020. Crude oil sales increased by$77.9 million due to increased activity associated with the fulfillment of our transportation commitments. The increase was partially offset by a decrease of$21.0 million in crude oil, natural gas and produced water gathering services revenues driven by decreased throughput on our gathering systems resulting from minimal affiliate and decreased third party well connects after first quarter 2020. Fresh Water Delivery Fresh Water Delivery revenues decreased by$6.5 million during first quarter 2021 as compared with first quarter 2020 due to minimal fresh water deliveries in theDJ Basin resulting from reduced well completion activity by our customers. Costs and Expenses Costs and expenses were as follows: Increase (Decrease) (in thousands) 2021 2020 from Prior Year Three Months EndedMarch 31 , Cost of Crude Oil Sales$ 153,104 $ 79,859 92 % Direct Operating 25,988 26,850 (3) % Depreciation and Amortization 26,874 25,931 4 % General and Administrative 9,027 5,486 65 % Goodwill Impairment - 109,734 N/M Other Operating (Income) Expense (15) 1,286 N/M Total Operating Expenses$ 214,978 $ 249,146 (14) % N/M Amount is not meaningful Costs and Expenses Trend Analysis Cost of Crude Oil Sales Cost of crude oil sales is recorded within our Gathering Systems reportable segment. Cost of crude oil sales increased during first quarter 2021 as compared with first quarter 2020. The increase was primarily attributable to increased purchases of crude oil to meet our crude oil transportation commitments. Direct Operating Direct operating expense decreased during first quarter 2021 as compared with first quarter 2020. The changes in direct operating expense by reportable segment were as follows: Gathering Systems Gathering Systems direct operating expense increased$1.2 million during first quarter 2021 as compared with first quarter 2020. The increase in direct operating expense is primarily attributable to an increase in transportation expenses and was partially offset by a decrease in repairs and maintenance work performed. Fresh Water Delivery Fresh Water Delivery direct operating expense decreased$2.2 million during first quarter 2021 as compared with first quarter 2020. The decrease is primarily due to the decreased use of third-party providers for water logistics services in theDJ Basin resulting from reduced well completion activity by our customers. Depreciation and Amortization Depreciation and amortization expense slightly increased during first quarter 2021 as compared with first quarter 2020. The increases in depreciation and amortization expenses by reportable segment were as follows: Gathering Systems Gathering Systems depreciation and amortization expense increased$0.9 million during first quarter 2021 as compared with first quarter 2020. The increase was due to assets placed in service afterMarch 31, 2020 and were primarily associated with the continued infrastructure development in the Mustang IDP area, Wells Ranch IDP area, the Black Diamond dedication area, and theDelaware Basin . Fresh Water Delivery Fresh Water Delivery depreciation and amortization expense remained consistent during first quarter 2021 as compared with first quarter 2020. Fresh Water Delivery depreciation and amortization expense has remained consistent, as our fresh water delivery infrastructure was substantially complete prior to 2020. General and Administrative Expense General and administrative expense is recorded within our Corporate reportable segment and increased during first quarter 2021 as compared with first quarter 2020. The increase was primarily attributable to 18 -------------------------------------------------------------------------------- Table of Co ntents transaction expenses associated with the NBLX Merger as well as the increase in the fixed annual fee payable under our omnibus agreement with Noble, which became effective March 1, 2021. See Item 1. Financial Statements - Note 3. Transactions with Affiliates. Goodwill Impairment During first quarter 2020, we fully impaired our goodwill. See Item 1. Financial Statements - Note 2. Basis of Presentation. Other Operating Expense Other operating expense during 2020 is primarily related to impairments and losses incurred associated with the sale of miscellaneous assets. Other Expense (Income) Trend Analysis Increase (Decrease) (in thousands) 2021 2020 From Prior Year Three Months EndedMarch 31 , Other Expense (Income) Interest Expense$ 6,505 $ 11,860 (45) % Capitalized Interest (137) (5,003) (97) % Interest Expense, Net 6,368 6,857 (7) % Investment Loss, Net 19,422 5,409 259 % Total Other Expense, Net$ 25,790 $ 12,266 110 % Interest Expense, Net Interest expense is recorded within our Corporate reportable segment. Interest expense represents interest incurred in connection with our revolving credit facility and term loan credit facilities. Our interest expense includes interest on outstanding balances on the facilities and commitment fees on the undrawn portion of our revolving credit facility as well as the non-cash amortization of origination fees. A portion of the interest expense is capitalized based upon our construction-in-progress activity as well as our investments in equity method investees engaged in construction activities during the year. See Item 1. Financial Statements - Note 4. Property, Plant and Equipment for our Construction-in-Progress balances as ofMarch 31, 2021 and December 31, 2020 and Item 1. Financial Statements - Note 6. Investments. Interest expense decreased$5.4 million during first quarter 2021 as compared with first quarter 2020. The decrease in interest expense is attributable to a decrease in our outstanding debt balance as well as lower interest rates. Capitalized interest decreased$4.9 million during first quarter 2021 as compared with first quarter 2020. The decrease is primarily attributable to capitalized interest associated with our capital contributions toDelaware Crossing , EPIC Y-Grade and EPIC Crude. As the aforementioned investments commenced planned, principal operations in the second quarter of 2020, we no longer capitalize interest associated with our capital contributions. Investment Loss, Net Investment loss is recorded within our Investments in Midstream Entities reportable segment and increased$14.0 million during first quarter 2021 as compared with first quarter 2020. Our investment loss, net is driven by increased losses from the EPIC Y-Grade and EPIC Crude investments. The losses are primarily attributable to increased expenses at the investment level. The losses were partially offset by increased earnings from our investment in Saddlehorn. Adjusted EBITDA (Non-GAAP Financial Measure) Adjusted EBITDA should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, our Adjusted EBITDA may not be comparable to similar measures of other companies in our industry. For a reconciliation of Adjusted EBITDA to its most comparable measures calculated and presented in accordance with GAAP, see - Reconciliation of Non-GAAP Financial Measures, below. We define "Adjusted EBITDA" as net income before income taxes, net interest expense, depreciation and amortization and certain other items that we do not view as indicative of our ongoing performance. Additionally, Adjusted EBITDA reflects the adjusted earnings impact of our equity method investments by adjusting our equity earnings or losses from our equity method investments to reflect our proportionate share of the EBITDA of such equity method investments. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: •our operating performance as compared with those of other companies in the midstream energy industry, without regard to financing methods, historical cost basis or capital structure; •the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; 19 -------------------------------------------------------------------------------- Table of Co ntents •our ability to incur and service debt and fund capital expenditures; and •the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP. Distributable Cash Flow (Non-GAAP Financial Measure) Distributable cash flow should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow excludes some, but not all, items that affect net income or net cash provided by operating activities, and these measures may vary from those of other companies. As a result, our distributable cash flow may not be comparable to similar measures of other companies in our industry. For a reconciliation of distributable cash flow to its most comparable measures calculated and presented in accordance with GAAP, see - Reconciliation of Non-GAAP Financial Measures, below. We define distributable cash flow as Adjusted EBITDA plus distributions received from our equity method investments less our proportionate share of Adjusted EBITDA from such equity method investments, estimated maintenance capital expenditures and cash interest paid. Distributable cash flow does not reflect changes in working capital balances. Our partnership agreement requires us to distribute all available cash on a quarterly basis, and distributable cash flow is one of the factors used by the Board of Directors of ourGeneral Partner to help determine the amount of cash that is available to our unitholders for a given period. Therefore, we believe distributable cash flow provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. Distributable cash flow should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP. Reconciliation of Non-GAAP Financial Measures The following tables present reconciliations of Adjusted EBITDA and distributable cash flow from net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated. 20 -------------------------------------------------------------------------------- Table of Co ntents Reconciliation of Net Income to Adjusted EBITDA and Distributable Cash Flow Three Months Ended March 31, (in thousands) 2021 2020 Reconciliation from Net Income Net Income$ 37,559 $ (37,516) Add: Depreciation and Amortization 26,874 25,931 Interest Expense, Net of Amount Capitalized 6,368 6,857 Proportionate Share of Equity Method Investment EBITDA 35,033 8,912 Adjustments Goodwill Impairment - 109,734 Other 2,814 846 Adjusted EBITDA 108,648 114,764 Less: Adjusted EBITDA Attributable to Noncontrolling Interests 11,742 7,553 Adjusted EBITDA Attributable to Noble Midstream Partners LP 96,906 107,211
Add:
Distributions from Equity Method Investments Attributable to 5,937 6,414Noble Midstream Partners LP Less: Proportionate Share of Equity Method Investment EBITDA 11,033 10 Attributable toNoble Midstream Partners LP Cash Interest Paid 6,127 11,549 Maintenance Capital Expenditures 6,950 8,346 Distributable Cash Flow ofNoble Midstream Partners LP
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA
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