OASIS MIDSTREAM PARTNERS LP The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 ("2020 Annual Report"), as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition or provide forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," "continue" and other similar expressions are used to identify forward-looking statements. Forward-looking statements can be affected by the assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements discussed below and detailed under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Actual results may vary materially. Although forward-looking statements reflect our good faith beliefs at the time they are made, you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. In addition, our forward-looking statements address the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the novel coronavirus 2019 ("COVID-19") pandemic and the related impacts on our businesses, operations, earnings and results. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include but are not limited to: •crude oil and natural gas realized prices; •developments in the global economy as well as the public health crisis related to the COVID-19 virus and resulting demand and supply for crude oil and natural gas; •uncertainty regarding the worldwide response to COVID-19, including the impact of new virus strains, the administration of vaccines and the risks associated with restrictions on various commercial and economic activities; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for crude oil and natural gas; •uncertainty regarding the future actions of foreign oil producers and the related impacts such actions have on the balance between the supply of and demand for crude oil and natural gas and therefore the demand for midstream services; •uncertainty regarding the timing, pace and extent of an economic recovery in theU.S. and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for the midstream services we provide and the commercial opportunities available to us; •an inability ofOasis Petroleum Inc. ("Oasis Petroleum") or our other customers to meet their operational and development plans on a timely basis or at all; •the execution of our business strategies; •the demand for and price of crude oil and natural gas, on an absolute basis and in comparison to the price of alternative and competing fuels; •the fees we charge, and the margins we realize, from our midstream services; •the cost of achieving organic growth in current and new markets; •our ability to make acquisitions of other midstream infrastructure assets or other assets that complement or diversify our operations; •our ability to make acquisitions of other assets on economically acceptable terms fromOasis Petroleum ; •our recently announced merger with Crestwood Equity Partners LP ("Crestwood"), including risks that the proposed transaction may not be consummated or the benefits contemplated therefrom may not be realized, the ability to obtain requisite regulatory and unitholder approval and the satisfaction of the other conditions to the consummation of the proposed transaction, the ability of Crestwood to successfully integrateOasis Midstream Partners LP's (the "Partnership") operations and employees and realize anticipated synergies and cost savings and 17 -------------------------------------------------------------------------------- Table of Contents the potential impact of the announcement or consummation of the proposed transaction on relationships, including with employees, suppliers, customers, competitors and credit rating agencies; •our inability to perform our obligations under our contracts, whether due to non-performance by third parties, including our customers or other counterparties, market constraints, third-party constraints, legal constraints (including governmental orders or guidance), or other factors; •the lack of asset and geographic diversification; •the suspension, reduction or termination of our commercial agreements withOasis Petroleum ; •labor relations and government regulations; •competition and actions taken by third party producers, operators, processors and transporters; •outcomes of litigation and regulatory investigations, proceedings or inquiries; •the demand for, and the costs of developing and conducting, our midstream infrastructure services; •interruptions in service and fluctuations in tariff provisions of third party connecting pipelines; •general economic conditions; •inflation rates; •the price and availability of equity and debt financing; •operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; •potential effects arising from cyber threats, terrorist attacks and any consequential or other hostilities; •interruption of our operations due to social, civil or political events or unrest; •changes in environmental, safety and other laws and regulations; •execution of our environmental, social and governance ("ESG") initiatives; •the effects of accounting pronouncements issued periodically during the periods covered by forward-looking statements; •changes in our tax status; •uncertainty regarding our future operating results; and •certain factors discussed elsewhere in this Quarterly Report on Form 10-Q, in our 2020 Annual Report and in our otherSEC filings. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by securities law. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Some of the key factors which could cause actual results to vary from our expectations include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in projecting future throughput volumes, cash flow and access to capital, the timing of development expenditures and the other risks described under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Overview We are a leading gathering and processing master limited partnership formed by our sponsor,Oasis Petroleum (Nasdaq:OAS ), to own, develop, operate and acquire a diversified portfolio of midstream assets inNorth America . We provide natural gas services (gathering, compression, processing and gas lift supply), crude oil services (gathering, terminaling and transportation) and water services (gathering and disposal of produced and flowback water and freshwater distribution) to our customers. We conduct our business through our wholly-owned subsidiaries:Bighorn DevCo LLC ("Bighorn DevCo"),Bobcat DevCo LLC ("Bobcat DevCo"),Beartooth DevCo LLC ("Beartooth DevCo") andPanther DevCo LLC ("Panther DevCo" and collectively with Bighorn DevCo, Bobcat DevCo and Beartooth DevCo, the "DevCos"). 18 -------------------------------------------------------------------------------- Table of Contents Our assets are located in the heart of the oil-rich Williston and Permian Basins. In theWilliston Basin , our assets are integral to the crude oil and natural gas operations ofOasis Petroleum and are also strategically positioned to capture volumes from third party producers. In thePermian Basin , we provide crude oil gathering and produced and flowback water gathering and disposal services to third party producers. The substantial majority of our revenues are generated through long-term, fixed-fee contracts withOasis Petroleum for crude oil, natural gas and water-related midstream services. We are also party to a long-term transportation services agreement regulated by theFederal Energy Regulatory Commission (the "FERC") governing the transportation of crude oil via pipeline from theWild Basin area to Johnson's Corner. Our fixed-fee contracts minimize our direct exposure to commodity prices, and the amount of revenue we generate primarily depends on the volume of crude oil, natural gas and water for which we provide midstream services. We have increased our customer diversification by providing midstream services to third parties, but we are largely dependent onOasis Petroleum as our most significant customer. We expect to grow acquisitively through accretive, dropdown acquisitions, as well as organically asOasis Petroleum develops its acreage. We also expect to grow by increasing services provided to third party producers and by acquiring midstream assets from third parties. Recent Developments Acquisition of Remaining Interests in Bobcat DevCo and Beartooth DevCo OnMarch 30, 2021 , we acquiredOasis Petroleum's remaining interests in Bobcat DevCo and Beartooth DevCo. Pursuant to the Contribution and Simplification Agreement (the "Contribution and Simplification Agreement"), dated as ofMarch 22, 2021 , among other things, (a)Oasis Petroleum contributed to the Partnership its remaining limited liability company interests in Bobcat DevCo and Beartooth DevCo of 64.7% and 30.0%, respectively, in exchange for total consideration of$512.5 million composed of (x) a cash distribution of$231.5 million , sourced from the net proceeds of the offering of the Senior Notes (defined below) and (y) 12,949,644 common units representing limited partner interests in the Partnership, (b) the Partnership incentive distribution rights (the "IDRs") were cancelled and converted into 1,850,356 common units representing limited partner interests in the Partnership (the "IDR Elimination" and such common units, the "IDR Conversion Common Units"), and (c) the IDR Conversion Common Units were distributed on a pro-rata basis byOMP GP LLC (the "General Partner") to the holders of its Class A Units and ClassB Units , such that following such distribution,Oasis Petroleum , through its wholly-owned subsidiaryOMS Holdings LLC ("OMS Holdings "), is the sole member of the General Partner (the foregoing clauses (a), (b) and (c), the "Simplification Transaction"). The Contribution and Simplification Agreement also implemented, among other things, a right of first refusal in favor of the Partnership with respect to the midstream opportunities in the Painted Woods and City of Williston operating areas ofOasis Petroleum and the amendment and restatement of the (x) agreement of limited partnership of the Partnership and (y) limited liability company agreement of the General Partner to reflect the Simplification Transaction. The effective date of the Simplification Transaction wasJanuary 1, 2021 , and the closing date wasMarch 30, 2021 . Following the Simplification Transaction,Oasis Petroleum no longer owns any of the limited liability company interests of Bobcat DevCo or Beartooth DevCo. IDR Elimination In connection with the Simplification Transaction, all of our IDRs were cancelled and exchanged for 1,850,356 common units in accordance with the terms of the Contribution and Simplification Agreement. Additionally, the owners of the General Partner,OMS Holdings and holders of ClassB Units in the General Partner received the common units issued in exchange for the IDR Elimination pursuant to the Contribution and Simplification Agreement. Subordinated Unit Conversion OnMarch 19, 2021 , the first business day following the payment of our distribution for the fourth quarter of 2020, the subordination period under our partnership agreement terminated in accordance with the terms thereof, and our 13,750,000 subordinated units representing limited partner interests, all of which were held byOMS Holdings , automatically converted into common units on a one-to-one basis. Change in Board Chair OnApril 13, 2021 ,Daniel E. Brown was elected to serve on the board of directors of the General Partner. OnApril 29, 2021 ,Mr. Brown was elected by the board of directors of the General Partner to serve as Board Chair.Mr. Brown replacedDouglas E. Brooks , who was elected by the board of directors of the General Partner onJanuary 29, 2021 to serve as Board Chair on an interim basis. 19 -------------------------------------------------------------------------------- Table of Contents FERC Regulatory Matters OnMay 14, 2021 , theFERC issued a revised oil pricing index factor that used the Producer Price Index for Finished Goods plus an index level of 0.78%, resulting in a negative percent change for the index yearJuly 1, 2021 throughJune 30, 2022 , meaning that the ceiling level for certain of an oil pipelines' rates may decrease and, if the actual transportation rate would be above such ceiling level, the rate also must decrease to be equal to or less than the applicable ceiling. Bighorn DevCo's Johnson's Corner pipeline has not adjusted its rates in several years and its applicable rates remain below theFERC's adjusted ceiling level. Bighorn DevCo could increase its rates in future index years to equal the new ceiling level. Requests for rehearing of theDecember 2020 Order Establishing Index Level were filed with theFERC , and those requests remain pending, with rehearing granted for purposes of extending the time theFERC has to review these requests. TheFERC's final application of its indexing rate methodology for the next five-year term of index rates may impact our revenues associated with any transportation services we may provide pursuant to rates adjusted by theFERC oil pipeline index. Permian Basin Midstream Assets OnJune 29, 2021 ,Oasis Petroleum completed the sale of its remaining upstream assets in thePermian Basin to a third party buyer. We retained our midstream assets in thePermian Basin through our ownership of Panther DevCo and provide all of our midstream services in thePermian Basin to third party producers. Our commercial agreements withOasis Petroleum in thePermian Basin were assigned to the buyer with no material changes to the contractual terms. We have successfully commenced crude oil and water services to the new operator, and we expect to benefit from incremental activity and increased diversification of our customer base. Redemption of Common Units fromOasis Petroleum OnJune 29, 2021 , we completed an underwritten public offering of 3,623,188 common units representing limited partnership interests at a price to the public of$24.00 per common unit (the "Equity Offering") and received net proceeds of$87.0 million after deducting underwriting discounts and commissions. We used the proceeds from the Equity Offering to redeem 3,623,188 common units held byOasis Petroleum for$87.0 million . Following such redemption,Oasis Petroleum owns approximately 70% of our outstanding common units. City of Williston and Painted Woods Project Dedications OnAugust 3, 2021 ,Oasis Petroleum approved an acreage dedication to the Partnership in the City of Williston project area pursuant to which we will provide midstream services toOasis Petroleum for crude oil gathering, natural gas gathering and compression, and produced and flowback water gathering and disposal. We expect to commence services pursuant to the acreage dedication in the second half of 2022. In addition,Oasis Petroleum approved an acreage dedication to the Partnership in the Painted Woods project area pursuant to which we will provide midstream services toOasis Petroleum for crude oil gathering, natural gas gathering and compression, and produced and flowback water gathering and disposal. Crude Oil Gathering and Storage Agreement OnOctober 5, 2021 ,OMP Operating LLC ("OMP Operating") entered into a Crude Oil Gathering and Storage Agreement withOasis Petroleum North America LLC ("OPNA") andOasis Petroleum Marketing LLC ("OPM"), both indirect wholly-owned subsidiaries ofOasis Petroleum Inc. , pursuant to which (i) OPNA and OPM agreed to deliver into OMP Operating's crude oil gathering system all of the crude oil produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from a dedicated area in the City of Williston area, and (ii) OMP Operating will perform certain gathering and storage services for the crude oil delivered. The City of Williston Crude Oil Gathering and Storage Agreement provides for an initial term of 15 years. OnOctober 25, 2021 , OMP Operating entered into an Amended and Restated Crude Oil Gathering and Storage Agreement with OPNA and OPM (the "A&R Crude Oil Gathering and Storage Agreement"), which amends and restates the Crude Oil Gathering and Storage Agreement. Pursuant to the A&R Crude Oil Gathering and Storage Agreement, (i) OPNA and OPM agreed to deliver into OMP's crude oil gathering system all of the crude oil produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from a dedicated area in the City of Williston and Painted Woods areas, and (ii) OMP will perform certain gathering and storage services for the crude oil delivered. The A&R Crude Oil Gathering and Storage Agreement provides for an initial term of 15 years. Produced and Flowback Water Gathering and Disposal Agreement OnOctober 5, 2021 , OMP Operating entered into a Produced and Flowback Water Gathering and Disposal Agreement with OPNA, pursuant to which OPNA dedicated the City of Williston area to the Partnership for produced and flowback water gathering and disposal services. The Produced Water Gathering and Disposal Agreement provides for an initial term of 15 years. OnOctober 25, 2021 , OMP Operating entered into an Amended and Restated Produced and Flowback Water Gathering and Disposal Agreement (the "A&R Produced and Flowback Water Gathering and Disposal Agreement") with OPNA, which 20 -------------------------------------------------------------------------------- Table of Contents amends and restates the Produced and Flowback Water Gathering and Disposal Agreement. Pursuant to the A&R Produced and Flowback Water Gathering and Disposal Agreement, OPNA dedicated the City of Williston and Painted Woods areas to the Partnership for produced and flowback water gathering and disposal services. The A&R Produced and Flowback Water Gathering and Disposal Agreement provides for an initial term of 15 years. Gas Gathering, Compression and Processing Agreement OnOctober 25, 2021 , OMP entered into a Gas Gathering, Compression, and Processing with OPNA and OPM (the "Gas Gathering Agreement") pursuant to which (i) OPNA and OPM agreed to deliver into the Partnership's natural gas gathering system all of the natural gas produced that is owned or controlled by OPNA or OPM (subject to certain limited exceptions) from dedicated areas in the City of Williston and Painted Woods areas and (ii) OMP, or its designee, will perform certain gathering, compression, and processing services. The Gas Gathering Agreement provides for an initial term of 15 years. Proposed Merger with Crestwood Equity Partners LP OnOctober 25, 2021 , the Partnership and the General Partner entered into an Agreement and Plan of Merger (the "Merger Agreement"), with Crestwood,Project Falcon Merger Sub LLC , aDelaware limited liability company and direct wholly-owned subsidiary of Crestwood ("Merger Sub"),Project Phantom Merger Sub LLC , aDelaware limited liability company and direct wholly-owned subsidiary of Crestwood ("GP Merger Sub"), and, solely for the purposes of Section 2.1(a)(i) of the Merger Agreement,Crestwood Equity GP LLC , aDelaware limited liability company and the general partner of Crestwood ("Crestwood GP"). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Partnership (the "LP Merger"), with the Partnership surviving the LP Merger as a subsidiary of Crestwood, and GP Merger Sub will merge with and into the General Partner (the "GP Merger" and, together with the LP Merger, the "Mergers"), with the General Partner surviving the GP Merger as a wholly-owned subsidiary of Crestwood. OnOctober 25, 2021 , the board of directors of Crestwood GP, and the board of directors of the General Partner ("GP Board"), unanimously approved the Merger Agreement.The Conflicts Committee of the GP Board provided Special Approval (as defined in the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as ofMarch 30, 2021 ), and in connection with such Special Approval received a fairness opinion fromJefferies LLC . At the effective time of the Mergers (the "Effective Time"): (i) 6,520,944 common units representing limited partner interests in the Partnership ("Partnership Common Units") issued and outstanding immediately prior to the Effective Time and owned byOMS Holdings (such Partnership Common Units, the "Sponsor Cash Units"), will be converted into and will thereafter represent the right to receive$150.0 million in cash in the aggregate and each other Partnership Common Unit issued and outstanding immediately prior to the Effective Time owned byOasis Petroleum or its subsidiaries (other than the Partnership) (together with the Sponsor Cash Units, the "Sponsor Units") will be converted into and will thereafter represent the right to receive 0.7680 common units representing limited partner interests in Crestwood ("Crestwood Common Units"); (ii) each Partnership Common Unit issued and outstanding immediately prior to the Effective Time (other than the Sponsor Units) will be converted into and will thereafter represent the right to receive 0.8700 (the "Public Holder Exchange Ratio") Crestwood Common Units and (iii) all of the limited liability company interests of the General Partner issued and outstanding as of immediately prior to the Effective Time will be converted into and will thereafter represent the right to receive$10.0 million in cash. Upon completion of the Mergers,Oasis Petroleum is expected to own approximately 22% of the Crestwood Common Units. The Mergers are expected to close in the first quarter of 2022 and are subject to customary closing conditions, including regulatory approvals. Contemporaneously with the execution of the Merger Agreement, the Partnership, Crestwood,Oasis Petroleum , theGeneral Partner and OMS Holdings entered into a support agreement (the "Support Agreement") regarding the Partnership Common Units owned byOasis Petroleum andOMS Holdings (or their affiliates). Pursuant to the Support Agreement,Oasis Petroleum andOMS Holdings have agreed to, among other things (and as applicable), following effectiveness of a registration statement of Crestwood on Form S-4 in connection with the issuance of Crestwood Common Units in the LP Merger, execute and deliver, or cause an affiliate to execute and deliver, a written consent covering all of their Partnership Common Units, approving the Merger Agreement and the transactions contemplated thereby. The Support Agreement and the Merger Agreement may be terminated in the event the written consent is not delivered. Market Conditions and COVID-19 COVID-19 remains a global health crisis and there continues to be considerable uncertainty regarding the extent to which COVID-19 and its variants will continue to spread. Public health and governmental authorities have commenced programs to administer vaccines and certain restrictions imposed to contain the spread of COVID-19 have been lifted. InSeptember 2021 ,President Biden announced a COVID-19 action plan that would have theOccupational Safety and Health Administration develop an Emergency Temporary Standard which may include new obligations for employers with one hundred or more employees with respect to vaccinations, testing and paid time off. We monitor mandates related to COVID-19 at both the 21 -------------------------------------------------------------------------------- Table of Contents federal and state levels on an ongoing basis and continue to assess the potential impacts of those mandates. Despite improvements in global economic activity levels and higher energy demand compared to 2020, the impacts of COVID-19 continue to be unpredictable, including the impacts of new virus strains, the risk of renewed restrictions and the uncertainty of successful administration of effective treatments and vaccines. We are unable to reasonably estimate the period of time that related conditions could exist or the extent to which they could impact our business, results of operations, financial condition or cash flows. In response to the current economic environment and impacts of COVID-19, we have adjusted our business to expected lower levels of activity and operate in a sustainable and cost-efficient manner. We are focused on the safety of our employees, contractors, and communities where we work as we continue to operate during the COVID-19 pandemic. We have deployed additional safety protocols and training procedures, including enhanced daily cleaning in common spaces, use of face coverings, restricting use of conference rooms and group gatherings and adherence to social distancing requirements. We continue to monitor public health data and guidance, engage with peer companies, and participate with industry associations to ensure alignment with guidance for employee health and safety. 22 -------------------------------------------------------------------------------- Table of Contents Recent Highlights: •Declared the quarterly cash distribution of$0.56 per unit for the third quarter of 2021 . •Net income was$37.6 million and net cash from operating activities was$62.1 million . •Adjusted EBITDA was$58.2 million and Distributable Cash Flow was$42.9 million . The following table summarizes the throughput volumes, operating income (loss), depreciation, amortization and impairment and capital expenditures of each of our DevCos for the periods presented. The amounts shown in the table below are presented on a gross basis. QTD YTD Q3 2021 Q2 2021 Q3 2021 Q3 2020 (In thousands, except throughput volumes) Bighorn DevCo Crude oil volumes (MBpd) 31.6 25.6 28.3 33.8 Natural gas volumes (MMscfpd) 192.4 191.5 196.5 203.6 Operating income$ 16,066 $ 15,273 $ 48,206 $ 26,987 Depreciation, amortization and impairment 2,583 2,610 7,697 30,534 Capital expenditures 6,358 474 6,952 6,297 Bobcat DevCo Crude oil volumes (MBpd) 21.9 17.9 19.8 26.9 Natural gas volumes (MMscfpd) 234.5 232.8 238.4 242.5 Water volumes (MBpd) 45.7 41.5 43.4 52.8 Operating income$ 24,575 $ 22,513 $ 70,625 $ 50,698 Depreciation, amortization and impairment 4,189 4,222 12,410 29,657 Capital expenditures 5,532 8,982 15,000 10,356 Beartooth DevCo Water volumes (MBpd) 74.4 84.9 76.9 85.0 Operating income (loss)$ 6,485 $ 8,314 $ 21,889 $ (11,323) Depreciation, amortization and impairment 2,329 2,342 6,945 40,180 Capital expenditures(1) 2,323 32 1,992 (756) Panther DevCo Fluid volumes (MBpd) 57.3 39.1 44.7 49.7 Operating income (loss)$ 2,607 $ 1,406 $ 5,164 $ (28,037) Depreciation, amortization and impairment 248 236 687 34,231 Capital expenditures 1,869 3,733 5,542 6,193Oasis Midstream Partners LP DevCo operating income$ 49,733 $ 47,506 $ 145,884 $ 38,325 Public company expenses 1,055 1,122 3,767 2,924 Operating income 48,678 46,384 142,117 35,401 Depreciation, amortization and impairment 9,357 9,418 27,761 134,602 Equity-based compensation expenses 144 16 647 201 Capitalized interest - - - 322 Maintenance capital expenditures 4,673 2,109 7,084 2,934 Expansion capital expenditures(2) 11,409 11,112 253,912 19,156 Total capital expenditures 16,082 13,221 260,996 22,412 ___________________
(1) Negative amount reflects differences between the estimated capital expenditures accrued in a reporting period and actual capital expenditures recognized in a subsequent reporting period.
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(2) The nine months ended September 30, 2021 includes $231.5 million related to
the cash distribution to Oasis Petroleum associated with the Simplification
Transaction composed of the following: (i) $229.0 million cash component of the
purchase price, (ii) upward adjustment to the purchase price of $10.1 million
related to the expanded project dedication to the Partnership in South Nesson,
and (iii) downward adjustment to the purchase price of $7.6 million related to
activity between the effective date of January 1, 2021 and the close date of
March 30, 2021 .
Results of Operations
Revenues
We categorize our revenues as either service revenues or product sales to the
respective line items described below:
•Midstream services - Oasis Petroleum . We record service revenues for fee-based
arrangements with Oasis Petroleum for midstream services, including: (i) natural
gas gathering, compression, processing, gas lift supply and natural gas liquid
("NGL") storage services; (ii) crude oil gathering, terminaling and
transportation services; and (iii) produced and flowback water gathering and
disposal services.
•Midstream services - third parties. We record service revenues for fee-based
arrangements with third parties for crude oil and produced and flowback water
services provided to non-affiliated customers.
•Product sales - Oasis Petroleum . We record product sales to Oasis Petroleum for
the sale of crude oil and residue gas and NGLs to certain subsidiaries of Oasis
Petroleum , which we generate from purchase agreements with third parties. We
also record product sales to Oasis Petroleum for the supply and distribution of
freshwater to Oasis Petroleum .
•Product sales - third parties. We record product sales to third parties for the
supply and distribution of freshwater to non-affiliated customers.
The following table summarizes our revenues for the periods presented:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 Change 2021 2020 Change
(In thousands)
Revenues
Midstream services - Oasis
Petroleum $ 65,859 $ 65,064 $ 795 $ 198,087 $ 206,340 $ (8,253)
Midstream services - third
parties 5,496 1,188 4,308 7,583 11,041 (3,458)
Product sales - Oasis
Petroleum 33,769 28,992 4,777 95,042 39,841 55,201
Product sales - third
parties 251 12 239 291 23 268
Total revenues $ 105,375 $ 95,256 $ 10,119 $ 301,003 $ 257,245 $ 43,758
Three months ended September 30, 2021 as compared to three months ended June 30,
2021
Total revenues. Total midstream revenues increased $10.1 million to $105.4
million during the three months ended September 30, 2021 as compared to the
three months ended June 30, 2021 . This increase was driven by a $5.1 million
increase in service revenues and a $5.0 million increase in product sales.
Service revenues. The $5.1 million increase in service revenues was driven by a
$4.3 million increase in revenues from third parties and a $0.8 million increase
in revenues from Oasis Petroleum . The $4.3 million increase in revenues from
third parties was primarily driven by Oasis Petroleum selling its Permian Basin
acreage position to a third party producer in the second quarter of 2021. As a
result, there was a $2.9 million increase in third party revenues for produced
and flowback water services and a $1.4 million increase in third party revenues
for crude oil services. The $0.8 million increase in revenues from Oasis
Petroleum was driven by a $1.8 million increase in natural gas revenues due to
higher throughput volumes, partially offset by a $1.1 million decrease in
produced and flowback water revenues.
Product sales. The $5.0 million increase in product sales was driven by a $6.4
million increase in natural gas product sales to Oasis Petroleum due to an
increase in residue gas and NGL prices, partially offset by a $1.6 million
decrease in freshwater product sales due to a decrease in freshwater deliveries
to Oasis Petroleum for well completions.
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Nine months ended September 30, 2021 as compared to nine months ended September
30, 2020
Total revenues. Total midstream revenues increased $43.8 million to $301.0
million during the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020 . This increase was driven by a $55.5 million
increase in product sales, partially offset by $11.7 million decrease in service
revenues.
Service revenues. The $11.7 million decrease in service revenues was driven by
an $8.3 million decrease in revenues from Oasis Petroleum and a $3.5 million
decrease in revenues from third parties. The $8.3 million decrease in revenues
from Oasis Petroleum was driven by an $8.5 million decrease in produced and
flowback water revenues and a $4.3 million decrease in crude oil revenues,
partially offset by a $4.5 million increase in natural gas revenues. The $3.5
million decrease in revenues from third parties was driven by a $4.4 million
decrease in third party revenues for natural gas services, partially offset by a
$1.5 million increase in third party revenues for crude oil services.
Product sales. The $55.5 million increase in product sales was driven by a $57.0
million increase in natural gas product sales to Oasis Petroleum driven by an
increase in residue gas and NGL prices and an increase in volumes gathered and
processed that were purchased from third party producers. This was partially
offset by a $1.7 million decrease in freshwater product sales due to a decrease
in freshwater deliveries to Oasis Petroleum for well completions.
Operating expenses and other expenses
The following table summarizes our operating expenses and other expenses for the
periods presented:
Three Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 June 30, 2021 Change 2021 2020 Change
(In thousands)
Operating expenses
Costs of product sales $ 26,065 $ 19,152
14,679 12,220 2,459 40,006 44,030 (4,024)
Depreciation and amortization 9,357 9,416 (59) 27,759 31,161 (3,402)
Impairment - 2 (2) 2 103,441 (103,439)
General and administrative 6,596 8,082 (1,486) 23,128 26,607 (3,479)
Total operating expenses 56,697 48,872 7,825 158,886 221,844 (62,958)
Operating income 48,678 46,384 2,294 142,117 35,401 106,716
Other income (expense)
Interest expense, net of capitalized
interest (11,081) (11,230) 149 (26,372) (38,196) 11,824
Other income (expense) 23 - 23 (45) (150) 105
Total other expenses (11,058) (11,230) 172 (26,417) (38,346) 11,929
Net income (loss) 37,620 35,154 2,466 115,700 (2,945) 118,645
Less: Net income attributable to
non-controlling interests - - - 17,025 29,319 (12,294)
Net income (loss) attributable to
Oasis Midstream Partners LP 37,620 35,154 2,466 98,675 (32,264) 130,939
Less: Net income attributable to
General Partner - - - - 3,062 (3,062)
Net income (loss) attributable to
limited partners $ 37,620 $ 35,154 Three months endedSeptember 30, 2021 as compared to three months endedJune 30, 2021 Costs of product sales. Costs of product sales increased$6.9 million to$26.1 million for the three months endedSeptember 30, 2021 as compared to the three months endedJune 30, 2021 . The increase was driven by a$7.2 million increase in natural gas costs of product sales due primarily to an increase in residue gas and NGL prices, offset by a$0.5 million decrease in freshwater costs of product sales due primarily to lower activity. Operating and maintenance. Operating and maintenance expenses increased$2.5 million to$14.7 million for the three months endedSeptember 30, 2021 as compared to the three months endedJune 30, 2021 . The increase was driven by a$1.5 million 25 -------------------------------------------------------------------------------- Table of Contents increase in produced and flowback water operating and maintenance expenses, coupled with a$0.9 million increase in crude oil and natural gas operating and maintenance expenses. General and administrative ("G&A") expenses. G&A expenses decreased$1.5 million to$6.6 million for the three months endedSeptember 30, 2021 as compared to the three months endedJune 30, 2021 . The decrease was primarily a result of a reduction in allocated charges fromOasis Petroleum for G&A services due to cost savings. Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, decreased$0.1 million to$11.1 million for the three months endedSeptember 30, 2021 as compared to the three months endedJune 30, 2021 . The decrease was due primarily to a reduction in interest expense associated with fewer outstanding borrowings under the Revolving Credit Facility (defined below) quarter over quarter. Nine months endedSeptember 30, 2021 as compared to nine months endedSeptember 30, 2020 Costs of product sales. Cost of product sales increased$51.4 million to$68.0 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase was primarily driven by a$53.2 million increase in natural gas costs of product sales primarily due to an increase in residue gas and NGL prices and an increase in volumes purchased from third party producers. This increase was partially offset by a$1.8 million decrease in freshwater costs of product sales due to lower activity. Operating and maintenance. Operating and maintenance expenses decreased$4.0 million to$40.0 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was driven by a$2.6 million decrease in natural gas operating and maintenance expenses and a$1.7 million decrease in produced and flowback water operating and maintenance expenses. Impairment. We recorded an impairment loss of$101.8 million for the nine months endedSeptember 30, 2020 to adjust the carrying value of our property, plant and equipment to fair value due to lower forecasted throughput volumes. Depreciation and amortization. Depreciation and amortization expenses decreased$3.4 million to$27.8 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was driven by a reduction in the carrying value of assets following impairment charges taken in 2020. G&A expenses. G&A expenses decreased$3.5 million to$23.1 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was primarily a result of a reduction in allocated charges fromOasis Petroleum for G&A services due to cost savings. Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, decreased$11.8 million to$26.4 million for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease was primarily due to a specified default interest charge of$28.0 million recorded during the nine months endedSeptember 30, 2020 which was subsequently waived in the fourth quarter of 2020. This decrease was partially offset by an increase in interest expense of$18.1 million related to the Senior Notes (defined below) issued in the first quarter of 2021. Liquidity and Capital Resources Our primary sources of liquidity during the period covered by this report have been from cash flows generated from operations, borrowings under the Revolving Credit Facility (defined below), the issuance of the Senior Notes (defined below) and our underwritten public offering of common units. We believe cash generated from these sources will be sufficient to meet our short-term working capital needs, long-term capital expenditure requirements and quarterly cash distributions. We expect to fund future expansion capital expenditures and acquisitions primarily through a combination of borrowings under the Revolving Credit Facility and, if necessary, the issuance of additional equity or debt securities. Our primary uses of cash have been for capital expenditures to develop our midstream infrastructure, dropdown acquisitions fromOasis Petroleum , distributions to our unitholders, the redemption of common units fromOasis Petroleum , interest payments associated with our long-term debt and payments associated with cash requirements for working capital. We expect our future cash requirements relating to working capital, maintenance capital expenditures and quarterly cash distributions to our unitholders will be funded from cash flows internally generated from our operations. Revolving credit facility. AtSeptember 30, 2021 , we had$450.0 million of commitments under a revolving credit facility among OMP Operating, as borrower,Wells Fargo Bank, N.A. , as administrative agent and the lenders party thereto (as amended, the "Revolving Credit Facility"). The Revolving Credit Facility is available to fund working capital and to finance acquisitions and other capital expenditures. The Revolving Credit Facility does not mature until at leastSeptember 30, 2024 . AtSeptember 30, 2021 , we had$210.0 million of borrowings outstanding under the Revolving Credit Facility and$5.5 million of outstanding letters of credit, resulting in an unused borrowing capacity of$234.5 million . For the nine months ended 26
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Table of ContentsSeptember 30, 2021 and 2020, the weighted average interest rate incurred on borrowings under the Revolving Credit Facility was 2.4% and 2.6%, respectively. OnMarch 22, 2021 , we entered into the Fourth Amendment to the Revolving Credit Facility. See "Item 1. - Financial Statements (Unaudited) - Note 7 - Long-Term Debt" for more information. Senior unsecured notes. OnMarch 30, 2021 , we issued$450.0 million of 8.00% senior unsecured notes dueApril 1, 2029 (the "Senior Notes"). The Senior Notes were issued at par and resulted in net proceeds of$442.1 million . We used the net proceeds from the Senior Notes to: (i) make a distribution toOasis Petroleum of$231.5 million in connection with the Simplification Transaction, (ii) repay$204.0 million of outstanding principal borrowings and$0.5 million of accrued interest under the Revolving Credit Facility and (iii) pay approximately$6.1 million in fees and other expenses. See "Item 1. - Financial Statements (Unaudited) - Note 7 - Long-Term Debt" for more information. Equity offering and redemption of common units. OnJune 29, 2021 , we completed the Equity Offering and received net proceeds of$87.0 million after deducting underwriting discounts and commissions. We used the net proceeds from the Equity Offering to redeem 3,623,188 common units held byOasis Petroleum for$87.0 million . Following the redemption of common units,Oasis Petroleum owns approximately 70% of our outstanding common units. See "Item 1. - Financial Statements (Unaudited) - Note 10 - Partnership Equity and Distributions" for more information. Cash flows Our cash flows for the nine months endedSeptember 30, 2021 and 2020 are presented below:
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