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OFFON

NOBLE MIDSTREAM PARTNERS LP

(NBLX)
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NOBLE MIDSTREAM PARTNERS LP : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/04/2021 | 10:05am EDT
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                      

$ 31,201 $ 10,103


Adjusted EBITDA(1) Attributable to Noble Midstream Partners LP              

$ 96,906 $ 107,211


Distributable Cash Flow(1) of Noble Midstream Partners LP                   

$ 78,733 $ 93,720



(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

Delaware Basin


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  %



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  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 the DJ 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 Ended March 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 the DJ 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 after March 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
the Delaware 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
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  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 Ended March 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 of March 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 to Delaware
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
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  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 our General 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
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  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                  6,414
Noble Midstream Partners LP
Less:
Proportionate Share of Equity Method Investment EBITDA                              11,033                     10
Attributable to Noble Midstream Partners LP
Cash Interest Paid                                                                   6,127                 11,549
Maintenance Capital Expenditures                                                     6,950                  8,346
Distributable Cash Flow of Noble Midstream Partners LP                      

$ 78,733 $ 93,720

Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA

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