AMID 2013.09.30 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
    S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from        to        
Commission File Number: 001-35257
 
 AMERICAN MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter)
Delaware
27-0855785
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
1614 15th Street, Suite 300
 
Denver, CO
80202
(Address of principal executive offices)
(Zip code)
(720) 457-6060
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
ý (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No
There were 4,706,893 common units representing limited partnership interests of American Midstream Partners, LP outstanding as of October 31, 2013. Our common units trade on the New York Stock Exchange under the ticker symbol “AMID.”


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 6.


Table of Contents

Glossary of Terms
As generally used in the energy industry and in this Quarterly Report on Form 10-Q (the “Quarterly Report”), the identified terms have the following meanings:
 
ASC        Accounting Standards Codification; trademark of the Financial Accounting Standards Board (FASB).

Bbl         Barrels: 42 U.S. gallons measured at 60 degrees Fahrenheit.

Bcf         One billion cubic feet.

Btu
British thermal unit; the approximate amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Condensate
Liquid hydrocarbons present in casinghead gas that condense within the gathering system and are removed prior to delivery to the gas plant. This product is generally sold on terms more closely tied to crude oil pricing.

/d        Per day.

EBITDA
Net income (loss) before net interest expense, income taxes, and depreciation and amortization. EBITDA is a non-GAAP measurement.

FERC         Federal Energy Regulatory Commission.

Fractionation    Process by which natural gas liquids are separated into individual components.

GAAP
General Accepted Accounting Principles: Accounting principles generally accepted in the United States of America.

Gal         Gallons.

MMBtu         One million British thermal units.

Mcf         One thousand cubic feet.

MMcf         One million cubic feet.

Mgal        One thousand gallons

NGL or NGLs
Natural gas liquid(s): The combination of ethane, propane, normal butane, isobutane and natural gasoline that, when removed from natural gas, become liquid under various levels of higher pressure and lower temperature.

Throughput
The volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period.

As used in this Quarterly Report, unless the context otherwise requires, “we,” “us,” “our,” the “Partnership” and similar terms refer to American Midstream Partners, LP, together with its consolidated subsidiaries.

3

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
 
September 30,
2013
 
December 31, 2012
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,076

 
$
576

Accounts receivable
4,992

 
1,958

Unbilled revenue
24,927

 
21,512

Risk management assets
1,050

 
969

Other current assets
4,573

 
3,226

Total current assets
36,618

 
28,241

Property, plant and equipment, net
280,516

 
223,819

Noncurrent assets held for sale, net
874

 

Other assets, net
6,202

 
4,636

Total assets
$
324,210

 
$
256,696

Liabilities, Equity and Partners’ Capital
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,595

 
$
5,527

Accrued gas purchases
17,307

 
17,034

Accrued expenses and other current liabilities
14,709

 
9,619

Current portion of long-term debt
157

 

Risk management liabilities
349

 

Total current liabilities
34,117

 
32,180

Risk management liabilities
122

 

Asset retirement obligations
34,440

 
8,319

Other liabilities
215

 
309

Long-term debt
121,035

 
128,285

Total liabilities
189,929

 
169,093

Commitments and contingencies (see Note 14)


 


Convertible preferred units
 
 
 
Series A convertible preferred units (5,204 thousand units issued and outstanding as of September 30, 2013)
92,912

 

Equity and partners’ capital
 
 
 
General partner interest (185 thousand units issued and outstanding as of September 30, 2013 and December 31, 2012)
12,106

 
548

Limited partner interest (4,705 and 9,165 thousand units issued and outstanding as of September 30, 2013 and December 31, 2012, respectively)
21,602

 
79,266

Accumulated other comprehensive income
261

 
351

Total partners’ capital
33,969

 
80,165

Noncontrolling interests
7,400

 
7,438

Total equity and partners' capital
41,369

 
87,603

Total liabilities, equity and partners' capital
$
324,210

 
$
256,696

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except for per unit amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
76,577

 
$
54,347

 
$
210,190

 
$
138,423

(Loss) gain on commodity derivatives, net
(499
)
 
(946
)
 
110

 
3,157

Total revenue
76,078

 
53,401

 
210,300

 
141,580

Operating expenses:
 
 
 
 
 
 
 
Purchases of natural gas, NGLs and condensate
57,973

 
41,365

 
162,671

 
100,075

Direct operating expenses
7,714

 
5,329

 
19,637

 
11,550

Selling, general and administrative expenses
3,969

 
3,246

 
11,982

 
10,101

Equity compensation expense
392

 
474

 
1,877

 
1,272

Depreciation and accretion expense
6,458

 
5,504

 
18,802

 
15,722

Total operating expenses
76,506

 
55,918

 
214,969

 
138,720

Gain on involuntary conversion of property, plant and equipment

 

 
343

 

Gain on sale of assets, net

 
4

 

 
121

Loss on impairment of property, plant and equipment

 

 
(15,232
)
 

Operating (loss) income
(428
)
 
(2,513
)
 
(19,558
)
 
2,981

Other expense:
 
 
 
 
 
 
 
Interest expense
(2,082
)
 
(1,501
)
 
(6,003
)
 
(3,083
)
Net loss from continuing operations
(2,510
)
 
(4,014
)
 
(25,561
)
 
(102
)
Discontinued operations
 
 
 
 
 
 
 
Income (loss) from operations of disposal groups
144

 
(12
)
 
(1,652
)
 
94

Net loss
(2,366
)
 
(4,026
)
 
(27,213
)
 
(8
)
Net income attributable to noncontrolling interests
190

 
249

 
533

 
249

Net loss attributable to the Partnership
$
(2,556
)
 
$
(4,275
)
 
$
(27,746
)
 
$
(257
)
 
 
 
 
 
 
 
 
General partner's interest in net loss
$
(46
)
 
$
(85
)
 
$
(544
)
 
$
(5
)
Limited partners' interest in net loss
$
(2,510
)
 
$
(4,190
)
 
$
(27,202
)
 
$
(252
)
 
 
 
 
 
 
 
 
Limited partners' net (loss) income per common unit (See Note 4 and Note 11):
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.82
)
 
$
(0.46
)
 
$
(5.54
)
 
$
(0.04
)
Income (loss) from discontinued operations
0.02

 

 
(0.19
)
 
0.01

Net loss
$
(0.80
)
 
$
(0.46
)
 
$
(5.73
)
 
$
(0.03
)
Weighted average number of common units outstanding:
 
 
 
 
Basic and diluted
6,663

 
9,108

 
8,334

 
9,103


The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Net loss
$
(2,366
)
 
$
(4,026
)
 
$
(27,213
)
 
$
(8
)
Unrealized (loss) gain on post retirement benefit plan assets and liabilities
(34
)
 
23

 
(90
)
 
40

Comprehensive (loss) income
(2,400
)
 
(4,003
)
 
(27,303
)
 
32

Less: Comprehensive income attributable to noncontrolling interests
190

 
249

 
533

 
249

Comprehensive loss attributable to Partnership
$
(2,590
)
 
$
(4,252
)
 
$
(27,836
)
 
$
(217
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Changes in Partners’ Capital
and Noncontrolling Interest
(Unaudited, in thousands)
 
 
 
Limited
Partner
Interest
 
General
Partner
Interest
 
Accumulated
Other
Comprehensive
Income
 
Total Partners' Capital
 
Noncontrolling Interest
Balances at December 31, 2011
 
$
99,890

 
$
1,091

 
$
415

 
$
101,396

 

Acquisition of noncontrolling interests
 

 

 

 

 
7,407

Net loss
 
(252
)
 
(5
)
 

 
(257
)
 
249

Unitholder contributions
 

 
13

 

 
13

 

Unitholder distributions
 
(11,809
)
 
(241
)
 

 
(12,050
)
 

Net distributions to noncontrolling interest owners
 

 

 

 

 
(249
)
LTIP vesting
 
364

 
(364
)
 

 

 

Tax netting repurchase
 
(88
)
 

 

 
(88
)
 

Unit based compensation
 
97

 
1,175

 

 
1,272

 

Other comprehensive income
 

 

 
40

 
40

 

Balances at September 30, 2012
 
$
88,202

 
$
1,669

 
$
455

 
$
90,326

 
7,407

 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2012
 
$
79,266

 
$
548

 
$
351

 
$
80,165

 
$
7,438

Net loss
 
(27,202
)
 
(544
)
 

 
(27,746
)
 
533

Unitholder contributions
 

 
12,500

 

 
12,500

 

Unitholder distributions
 
(16,332
)
 
(340
)
 

 
(16,672
)
 

Fair value of Series A Units in excess of net assets received
 
(15,300
)
 
(312
)
 

 
(15,612
)
 

Net distributions to noncontrolling interest owners
 

 

 

 

 
(571
)
LTIP vesting
 
1,570

 
(1,570
)
 

 

 

Tax netting repurchase
 
(400
)
 

 

 
(400
)
 

Unit based compensation
 

 
1,824

 

 
1,824

 

Other comprehensive loss
 

 

 
(90
)
 
(90
)
 

Balances at September 30, 2013
 
$
21,602

 
$
12,106

 
$
261

 
$
33,969

 
$
7,400

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net loss
$
(27,213
)
 
$
(8
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 

Depreciation and accretion expense
18,802

 
15,819

Amortization of deferred financing costs
975

 
493

Amortization of weather derivative premium
378

 

Unrealized loss (gain) on commodity derivatives
1,159

 
(1,733
)
Unit based compensation
1,824

 
1,272

OPEB plan net periodic benefit
(55
)
 
(61
)
Gain on involuntary conversion of property, plant and equipment
(343
)
 

Gain on sale of assets, net

 
(126
)
Loss on impairment of property, plant and equipment
15,232

 

Loss on impairment of noncurrent assets held for sale
1,807

 

Changes in operating assets and liabilities, net:
 

Accounts receivable
595

 
(558
)
Unbilled revenue
(1,970
)
 
6,677

Risk management assets
(1,147
)
 

Other current assets
702

 
1,285

Other assets, net
(67
)
 
(65
)
Accounts payable
(808
)
 
1,396

Accrued gas purchases
273

 
(5,833
)
Accrued expenses and other current liabilities
2,766

 
(1,879
)
Other liabilities
(94
)
 
(203
)
Net cash provided by operating activities
12,816

 
16,476

Cash flows from investing activities
 
 
 
Cost of acquisition, net of cash acquired

 
(51,377
)
Additions to property, plant and equipment
(16,767
)
 
(4,465
)
Proceeds from disposals of property, plant and equipment

 
126

Insurance proceeds from involuntary conversion of property, plant and equipment
482

 

Net cash used in investing activities
(16,285
)
 
(55,716
)
Cash flows from financing activities
 
 
 
Unit holder contributions
12,500

 
13

Unit holder distributions
(12,458
)
 
(12,050
)
Issuance of Series A convertible preferred units, net
14,393

 

Net distributions to noncontrolling interest owners
(571
)
 
(249
)
LTIP tax netting unit repurchase
(400
)
 
(88
)
Payments for deferred debt issuance costs
(1,509
)
 
(1,140
)
Payments on other debt
(2,231
)
 

Borrowings on other debt
1,495

 

Payments on long-term debt
(99,821
)
 
(42,310
)
Borrowings on long-term debt
92,571

 
94,690

Net cash provided by financing activities
3,969

 
38,866


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Net increase (decrease) in cash and cash equivalents
500

 
(374
)
Cash and cash equivalents
 
 
 
Beginning of period
576

 
871

End of period
$
1,076

 
$
497

Supplemental cash flow information
 
 
 
Interest payments
$
4,933

 
$
1,894

Supplemental non-cash information
 
 
 
(Decrease) increase in accrued property, plant and equipment
$
(6,169
)
 
$
808

Net assets contributed in exchange for the issuance of Series A convertible preferred units (see Note 3)
$
59,995

 
$

Fair value of Series A Units in excess of net assets received
$
15,612

 
$

Accrued and in-kind unitholder distribution for Series A Units
$
2,912

 
$

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Nature of business
American Midstream Partners, LP (the “Partnership”) was formed on August 20, 2009 as a Delaware limited partnership for the purpose of acquiring and operating certain natural gas pipeline and processing businesses. We provide natural gas gathering, treating, processing, fractionating, marketing and transportation services primarily in the Gulf Coast and Southeast regions of the United States through our ownership and operation of eleven gathering systems, four processing facilities, three interstate pipelines and five intrastate pipelines. We also own a 50% undivided, non-operating interest in a processing plant located in southern Louisiana. We hold our assets in a series of wholly owned limited liability companies as well as a limited partnership. Our capital accounts consist of general partner interests and limited partner interests.
Our interstate and intrastate natural gas pipeline assets transport natural gas through the FERC regulated natural gas pipelines in Louisiana, Mississippi, Alabama and Tennessee. Our interstate and intrastate pipelines include:
High Point Gas Transmission, LLC, which owns and operates approximately 400 miles of intrastate pipeline and is connected to 40 meters with 32 active producers and offers processing options at the Toca processing plant with delivery to Southern Natural Gas available downstream of the processing plant in Louisiana;
American Midstream (Midla), LLC, which owns and operates approximately 370 miles of interstate pipeline that runs from the Monroe gas field in northern Louisiana south through Mississippi to Baton Rouge, Louisiana; and
American Midstream (AlaTenn), LLC, which owns and operates approximately 295 miles of interstate pipeline that runs through the Tennessee River Valley from Selmer, Tennessee to Huntsville, Alabama and serves an eight-county area in Alabama, Mississippi and Tennessee.
ArcLight Transactions
On April 15, 2013, the Partnership, American Midstream GP, LLC, (our "General Partner") and AIM Midstream Holdings, LLC ("AIM"), an affiliate of American Infrastructure MLP Fund, entered into agreements (the "ArcLight Transactions") with High Point Infrastructure Partners, LLC ("HPIP"), an affiliate of ArcLight Capital Partners, LLC, pursuant to which HPIP (i) acquired 90% of our General Partner and all of our subordinated units from AIM and (ii) contributed certain midstream assets and $15.0 million in cash to us in exchange for 5,142,857 newly issued convertible preferred units (the “Series A Units”) issued by the Partnership. Of the $15.0 million cash consideration paid by HPIP, approximately $2.5 million was used to pay certain transaction expenses of HPIP, and the remaining approximately $12.5 million was used to repay borrowings outstanding under the Partnership's credit facility in connection with the Fourth Amendment to our credit agreement ("Fourth Amendment"). As a result of these transactions, which were also consummated on April 15, 2013, HPIP acquired both control of our General Partner and a majority of our outstanding limited partner interests. The midstream assets contributed by HPIP consist of approximately 700 miles of natural gas and liquids pipeline assets located in southeast Louisiana and the shallow water and deep shelf Gulf of Mexico (commonly referred to as the "High Point System"). The High Point System gathers natural gas from both onshore and offshore producing regions around southeast Louisiana. The onshore footprint is in Plaquemines and St. Bernard's Parishes, LA. The offshore footprint consists of the following federal Gulf of Mexico zones: Mississippi Canyon, Viosca Knoll, West Delta, Main Pass, South Pass and Breton Sound. Natural gas is collected at more than 75 receipt points that connect to hundreds of wells targeting various geological zones in water depths up to 1,000 feet, with an emphasis on oil and liquids-rich reservoirs. The High Point System is comprised of FERC-regulated transmission assets and non-jurisdictional assets, both of which accept natural gas from well production and interconnected pipeline systems. Natural gas is delivered to the Toca Gas Processing Plant, operated by Enterprise, where the products are processed and the residue gas sent to an unaffiliated interstate system owned by Kinder Morgan. See Note 3 "Acquisitions" for further information.

The Partnership believes that the consummation of the ArcLight Transactions will allow it to comply with the Consolidated Total Leverage to EBITDA ratio in the Fourth Amendment. However, while we were in compliance with financial covenants of the Fourth Amendment as of September 30, 2013, no assurances can be given that the Partnership's future results of operations will allow us to comply with financial covenants of the Fourth Amendment. If we are not able to generate sufficient cash flows from operations to comply with the financial covenants in the Fourth Amendment and we are not able to enter into an agreement to refinance or obtain covenant default waivers, then the outstanding balance under our credit facility could become due and payable upon acceleration by the lenders in our banking group and other agreements with cross-default provisions, if any, could become due. In addition, failure to comply with any of the covenants under our Fourth Amendment could adversely affect our ability to fund ongoing operations and growth capital requirements as well as our ability to pay distributions to our unitholders. See Note 18 "Liquidity" for further information.

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Equity Restructuring

Effective August 9, 2013, we executed an equity restructuring agreement ("Equity Restructuring") with our General Partner and HPIP. As part of the Equity Restructuring, the Partnership's 4,526,066 subordinated units and previous incentive distribution rights (the “former IDRs,” all of which were owned by our General Partner, which is controlled by HPIP) were combined into and restructured as a new class of incentive distribution rights (the “new IDRs”). Upon the issuance of the new IDRs, the subordinated units and former IDRs were canceled. The new IDRs are allocated 85.02% to HPIP and 14.98% to our General Partner. The new IDRs entitle the holders of our incentive distribution rights to receive 48% of any quarterly cash distributions from available cash after the Partnership's common unitholders have received the full minimum quarterly distribution ($0.4125 per unit) for each quarter plus any arrearages from prior quarters (of which there are currently none).

The Equity Restructuring Agreement also provided for the issuance of warrants to our General Partner to purchase up to 300,000 of our common units at an exercise price of $0.01 per common unit. These warrants are exercisable on the later of (i) 18 months from the equity restructuring completion date or (ii) the date that the volume weighted average trading price of our common units on the New York Stock Exchange exceeds $25.00 for 30 consecutive trading days. The warrants contain customary anti-dilution and other protections.

Following the announcement of the Equity Restructuring, AIM Midstream Holdings, LLC, or AIM filed an action in Delaware Chancery Court against HPIP, our General Partner and us seeking either rescission of the Equity Restructuring or, in the alternative, monetary damages. While we cannot predict the ultimate outcome of this litigation, we do not believe it will be material to our operations or financial results. As a result of the action filed by AIM, the warrants that were issued by the Partnership, in conjunction with the Equity Restructuring, to the General Partner for subsequent conveyance to AIM, the owner of the Class B interest of our General Partner, were canceled effective August 29, 2013. In addition, the $12.5 million escrowed in connection with our Equity Restructuring was not released to the Partnership. Accordingly, HPIP contributed $12.5 million in cash to the Partnership on September 30, 2013, in order to permit the Partnership to satisfy obligations under our credit agreement and was accounted for as a contribution from our General Partner.
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The year-end balance sheet data was derived from audited financial statements but does not include disclosures required by GAAP for annual periods. We have made reclassifications to amounts reported in prior period condensed consolidated financial statements to conform to our current year presentation. These reclassifications did not have an impact on net income for the period previously reported. The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of financial position as of September 30, 2013, and December 31, 2012, condensed consolidated statement of operations for the three and nine months ended September 30, 2013 and 2012, statement of comprehensive income for the three and nine months ended September 30, 2013 and 2012, statement of changes in partners’ capital and noncontrolling interest for the nine months ended September 30, 2013 and 2012, and statements of cash flows for the nine months ended September 30, 2013 and 2012.
Our financial results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2013. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in i) our Annual Report on Form 10-K for the year ended December 31, 2012 (“Annual Report”) filed on April 16, 2013 and ii) Exhibit 99.1 to the Current Report on Form 8-K that was filed with the Securities and Exchange Commission ("SEC") on October 1, 2013 which updated portions of our annual report.
Consolidation Policy
Our consolidated financial statements include our accounts and those of our subsidiaries in which we have a controlling interest. We hold a 50% undivided interest in the Burns Point gas processing facility in which we are responsible for our proportionate share of the costs and expenses of the facility. Our consolidated financial statements reflect our proportionate share of the revenues, expenses, assets and liabilities of this undivided interest. In July 2012, the Partnership acquired a 87.4% undivided interest in the Chatom Processing and Fractionation facility (the "Chatom System"). Our consolidated financial statements reflect the accounts of the Chatom System since acquisition, and the interests in the Chatom System held by non-affiliated working interest owners are reflected as noncontrolling interests in the Partnership's consolidated financial statements.
Use of Estimates

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When preparing financial statements in conformity with GAAP, management must make estimates and assumptions based on information available at the time. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities as of the date of the financial statements. Estimates and judgments are based on information available at the time such estimates and judgments are made. Adjustments made with respect to the use of these estimates and judgments often relate to information not previously available. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things i) estimating unbilled revenues, product purchases and operating and general and administrative costs, ii) developing fair value assumptions, including estimates of future cash flows and discount rates, iii) analyzing long-lived assets for possible impairment, iv) estimating the useful lives of assets and v) determining amounts to accrue for contingencies, guarantees and indemnifications. Actual results, therefore, could differ materially from estimated amounts.
2. Summary of Significant Accounting Policies

Transactions Between Entities Under Common Control
 
We may enter into transactions with our General Partner whereby we receive a contribution of midstream assets or subsidiaries in exchange for consideration from the Partnership. We account for the net assets received using the historical book value of the asset or subsidiary being contributed or transferred as these are transactions between entities under common control. Our historical financial statements may be revised to include the results attributable to the assets contributed from our General Partner as if we owned such assets for all periods presented by the Partnership since the change in control of our General Partner, effective April 15, 2013.

Convertible Preferred Units

We record the issuance of our Series A Preferred Units at fair value and separately classified these units on our balance sheet in between total liabilities and partners’ capital, frequently called “mezzanine equity” as the ability to exercise these units are outside of the Partnership’s control and contain no beneficial conversion features pursuant to Accounting Standards Codification 470-20, Debt with Conversion and Other Options. These units are classified as participating securities and are included in our calculation of net income (loss) per limited and general partner unit using the two-class method.

Recent Accounting Pronouncements

In January 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies that ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, applies to financial instruments or derivative transactions accounted for under ASC 815. The amendments require disclosures to present both gross and net amounts of derivative assets and liabilities that are subject to master netting arrangements with counterparties. We currently present our net derivative assets and liabilities on our statement of financial position. We have provided additional disclosures regarding the gross amounts of derivative assets and liabilities in Note 6 "Derivatives" in accordance with these new standards updates.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("AOCI"), which requires entities to present either in a single note or parenthetically on the face of the financial statements (i) the amount of significant items reclassified from each component of AOCI and (ii) the income statement line items affected by the reclassifications. We adopted this guidance during the first quarter of 2013; it did not have a material impact on our condensed consolidated financial statements as there are currently no items reclassified from AOCI.
3. Acquisitions
High Point System
Effective April 15, 2013, our General Partner contributed the High Point System, consisting of 100% of the limited liability company interests in High Point Gas Transmission, LLC and High Point Gas Gathering, LLC. The High Point System entities own midstream assets consisting of approximately 700 miles of natural gas and liquids pipeline assets located in southeast Louisiana, in the Plaquemines and St. Bernard's Parishes, and the shallow water and deep shelf Gulf of Mexico, including the Mississippi Canyon, Viosca Knoll, West Delta, Main Pass, South Pass and Breton Sound zones. Natural gas is collected at more than 75 receipt points that connect hundreds of wells with an emphasis on oil and liquids-rich reservoirs.

The High Point System, along with $15.0 million in cash, was contributed to us by HPIP in exchange for 5,142,857 Series A Units. Of the $15.0 million cash consideration paid by HPIP, approximately $2.5 million was used to pay certain transaction expenses of HPIP, and the remaining approximately $12.5 million was used to repay borrowings outstanding under the Partnership's credit

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facility in connection with the Fourth Amendment. The contribution of the High Point System occurred concurrently with HPIP's acquisition of 90% of our General Partner and all of our subordinated units, which resulted in HPIP gaining control of our General Partner and a majority of our outstanding limited partner interests.

The fair value of the Series A Units on April 15, 2013 was $17.50 per unit, or a total of $90.0 million, and was issued by the Partnership in exchange for net cash of approximately $12.5 million and net assets of $61.9 million contributed to the Partnership by our General Partner. The contribution of net assets of the High Point System was accounted for as a transaction between entities under common control whereby the High Point System was recorded at historical book value. As such, the value of the Series A Units in excess of the net assets contributed by our General Partner amounted to $15.6 million and was allocated pro-rata to our General Partner and existing limited partners' interest based on their ownership interests.

The contribution is being treated as a transaction between entities under common control, under which the net assets received are recorded at their historical book value as of date of transfer. The following table presents the carrying value of the identified assets received and liabilities assumed at the acquisition date (in thousands):
Cash and cash equivalents
$
1,935

Accounts receivable
3,629

Unbilled revenue
1,446

Other current assets
2,049

Property, plant and equipment, net
82,615

Other assets
1,000

Accounts payable
(11
)
Accrued expenses and other current liabilities
(4,077
)
Current portion of long-term debt
(893
)
Asset retirement obligation liability
(25,763
)
Total identifiable net assets
$
61,930


Subsequent to the contribution, for the three and nine months ended September 30, 2013, the High Point System contributed $10.7 million and $19.7 million, respectively, of revenue and $1.2 million and $2.7 million, respectively, of net income attributable to the Partnership's Transmission Segment, which are included in the condensed consolidated statement of operations.

Chatom Gathering, Processing and Fractionation Plant
Effective July 1, 2012, we acquired an 87.4% undivided interest in the Chatom System from affiliates of Quantum Resources Management, LLC. The acquisition fair value consideration of $51.4 million includes a credit associated with the cash flow the Chatom System generated between January 1, 2012 and the effective date of July 1, 2012. The consideration paid by the Partnership consisted of cash, which was funded by borrowings under our credit facility.

The Chatom System is located in Washington County, Alabama, approximately 15 miles from our Bazor Ridge processing plant in Wayne County, Mississippi, and consists of a 25 MMcf/d refrigeration processing plant, a 1,900 Bbl/d fractionation unit, a 160 long-ton per day sulfur recovery unit, and a 29 mile gas gathering system. We believe the fractionating services provide flexibility to the Partnership's product and service offerings.

The following table presents the fair value of consideration transferred to acquire the Chatom System and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the 12.6% noncontrolling interest in the Chatom System at the acquisition date (in thousands):

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Cash
 
 
$
51,377

Recognized amounts of identifiable assets acquired and liabilities assumed:
 
Unbilled revenue
 
 
$
4,535

Property, plant and equipment
58,279

Asset retirement cost
452

Accounts payable
 
 
(399
)
Accrued gas purchases
(3,631
)
Asset retirement obligations
(452
)
Noncontrolling interest
(7,407
)
Total identifiable net assets
$
51,377


The fair value of the property, plant and equipment and noncontrolling interests were estimated by applying a combination of the market and income approaches. These fair value measurements were based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. Primarily using the income approach, the fair value estimates were based on i) an assumed cost of capital of 9.25%, ii) an assumed terminal value based on the present value of estimated EBITDA, iii) an inflationary cost increase of 2.5%, iv) forward market prices as of July 2012 for natural gas and crude oil, v) a Federal tax rate of 35% and a state tax rate of 6.5%, and vi) an increase in processed and fractionated volumes in 2013, declining thereafter. Working capital was estimated using net realizable value. Accrued revenue was deemed to be fully collectible at July 1, 2012.

For the three and nine months ended September 30, 2013, our 87.4% undivided interest in the Chatom System contributed $14.6 million and $41.8 million, respectively, of revenue and $1.2 million and $3.6 million, respectively, of net income attributable to the Partnership, which are included in the condensed consolidated statement of operations.

For the three and nine months ended September 30, 2012, our 87.4% undivided interest in the Chatom System contributed $15.4 million of revenue and $2.1 million of net income attributable to the Partnership, which are included in the condensed consolidated statement of operations.

The following table presents unaudited pro forma consolidated information of the Partnership, adjusted for the acquisition of the Chatom System, as if the acquisition had occurred on January 1, 2011:
(unaudited, in thousands)
Nine months ended September 30, 2012
Revenue
$
174,179

Net income
$
1,422

Limited partners’ net income per unit
$
0.14


These amounts have been calculated after applying the Partnership's accounting policies and adjusting the results to reflect i) additional depreciation and amortization that would have been charged assuming fair value adjustments to property, plant and equipment, ii) recording pro forma interest expense on debt that would have been incurred to acquire the Chatom System as of January 1, 2011, iii) the elimination of transaction costs included in the historical financial statement of the Partnership which were directly related to the acquisition and iv) the elimination of the noncontrolling interest holders' proportionate share of earnings. The unaudited pro forma adjustments are based on available information and certain assumptions we believe are reasonable.
4. Discontinued Operations

We classify long-lived assets to be disposed of through sales that meet specific criteria as held for sale. We cease depreciating those assets effective on the date the asset is classified as held for sale. We record those assets at the lower of their carrying value or the estimated fair value less the cost to sell. Until the assets are disposed of, an estimate of the fair value is re-determined when related events or circumstances change.

During the second quarter of 2013, the board of directors of our General Partner approved a plan to sell certain non-strategic gathering and processing assets which meet specific criteria, qualifying them as held for sale. As of September 30, 2013, certain gathering and processing assets were written down by $1.8 million to the estimated fair value less cost to sell. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined

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by ASC 820. Primarily using the income approach, the fair value estimates are based on i) present value of estimated EBITDA, ii) an assumed discount rate of 10.0%, and iii) a decline in throughput volumes of 2.5% in 2013 and thereafter.

The net book value of the gathering and processing assets of $0.9 million is presented as Noncurrent assets held for sale, net on the condensed consolidated balance sheet. The following table presents the identifiable assets and liabilities of the assets classified as held for sale as of September 30, 2013 in the condensed consolidated balance sheet (in thousands):
Unbilled revenue
$
1,171

Property, plant and equipment, net
874

Accrued gas purchases
(987
)

As a result of the planned divestiture of these non-strategic midstream assets, we have accounted for these disposal groups as discontinued operations within our Gathering and Processing Segment. Accordingly, we reclassified and excluded the disposal groups' results of operations from our results of continuing operations and reported the disposal groups' results of operations as Income (loss) from operations of disposal groups in our accompanying condensed consolidated statement of operations for all periods presented. We did not, however, elect to present separately the operating, investing and financing cash flows related to the disposal groups in our accompanying condensed consolidated statement of cash flows as this activity was immaterial for all periods presented. The following table presents the revenue, expense and (loss) gain from operations of disposal groups associated with the assets classified as held for sale for the three and nine months ended September 30, 2013 and 2012 (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
3,760

 
$
2,923

 
$
11,319

 
$
8,515

Expense
3,616

 
2,935

 
11,164

 
8,421

Impairment

 

 
1,807

 

Income (loss) from operations of disposal groups
$
144

 
$
(12
)
 
$
(1,652
)
 
$
94

Limited partners' net income (loss) per unit from discontinued operations (basic and diluted)
$
0.02

 
$

 
$
(0.19
)
 
$
0.01

5. Concentration of Credit Risk and Trade Accounts Receivable
Our primary market areas are located in the United States along the Gulf Coast and in the Southeast. We have a concentration of trade receivable balances due from companies engaged in the production, trading, distribution and marketing of natural gas, NGL and condensate products. This concentration of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Generally, our customers’ historical financial and operating information is analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees. We maintain allowances for potentially uncollectible accounts receivable; however, for the nine months ended September 30, 2013 and 2012, no allowances on or write-offs of accounts receivable were recorded.
The following table summarizes the percentage of revenue earned from those customers that accounted for 10% or more of the Partnership's consolidated revenue in the consolidated statement of operations for the each of the periods presented below:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Customer A
27
%
 
23
%
 
29
%
 
29
%
Customer B
13
%
 
17
%
 
13
%
 
%
Customer C
13
%
 
11
%
 
12
%
 
12
%
Customer D
%
 
12
%
 
%
 
16
%
Other
47
%
 
37
%
 
46
%
 
43
%
Total
100
%
 
100
%
 
100
%
 
100
%
6. Derivatives

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Commodity Derivatives
To minimize the effect of commodity prices and maintain our cash flow and the economics of our development plans, we enter into commodity hedge contracts from time to time. The terms of the contracts depend on various factors, including management’s view of future commodity prices, acquisition economics on purchased assets and future financial commitments. This hedging program is designed to mitigate the effect of commodity price downturns while allowing us to participate in some commodity price upside. Management regularly monitors the commodity markets and financial commitments to determine if, when, and at what level commodity hedging is appropriate in accordance with policies that are established by the board of directors of our General Partner. Currently, the commodity derivatives are in the form of swaps, puts and collars. As of September 30, 2013, the aggregate notional volume of our commodity derivatives was 3.0 million gallons.
We enter into commodity contracts with multiple counterparties. We may be required to post collateral with our counterparties in connection with our derivative positions. As of September 30, 2013, we have not posted collateral with any counterparty. Our counterparties are not required to post collateral with us in connection with their derivative positions. Netting agreements are in place with our counterparties that permit us to offset our commodity derivative asset and liability positions.

Interest Rate Swap

We entered into an interest rate swap to manage the impact of the interest rate risk associated with our credit facility, effectively converting a portion of the cash flows related to our long-term variable rate debt into fixed rate cash flows. As of September 30, 2013, the notional amount of our interest rate swap was $100 million. The interest rate swap was entered into with a single counterparty and we were not required to post collateral.

Weather Derivative

In the second quarter of 2013, we entered into a weather derivative to mitigate the impact of potential unfavorable weather to our operations under which we could receive payments totaling up to $10 million in the event that a hurricane or hurricanes of certain strength pass through the area as identified in the derivative agreement. The weather derivative is being accounted for using the intrinsic value method, under which the fair value of the contract is zero and any amounts received are recognized as gains during the period received. The weather derivative was entered into with a single counterparty and we were not required to post collateral. We paid a premium of approximately $1.1 million which is recorded in Risk management assets on the condensed consolidated balance sheet and is being amortized to Direct operating expense on a straight-line basis over the 12 month term of the contract. As of September 30, 2013, the unamortized amount of the risk management asset was approximately $0.8 million.
As of September 30, 2013 and December 31, 2012, the value associated with our commodity derivatives, interest rate swap instrument and weather derivative were recorded in our condensed consolidated balance sheets, under the captions as follows (in thousands):
 
 
Gross Risk Management Assets
 
Gross Risk Management Liabilities
 
Net Risk Management Assets (Liabilities)
Balance Sheet Classification
 
September 30, 2013
 
December 31, 2012
 
September 30, 2013
 
December 31, 2012
 
September 30, 2013
 
December 31, 2012
Current
 
$
1,196

 
$
1,889

 
$
(146
)
 
$
(920
)
 
$
1,050

 
$
969

Noncurrent
 

 

 

 

 

 

Total assets
 
$
1,196

 
$
1,889

 
$
(146
)
 
$
(920
)
 
$
1,050

 
$
969

 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$

 
$

 
$
(349
)
 
$

 
$
(349
)
 
$

Noncurrent
 

 

 
(122
)
 

 
(122
)
 

Total liabilities
 
$

 
$

 
$
(471
)
 
$

 
$
(471
)
 
$

For the three and nine months ended September 30, 2013 and 2012, respectively, the realized and unrealized gains (losses) associated with our commodity derivatives, interest rate swap instrument and weather derivative were recorded in our condensed consolidated statements of operations, under the captions as follows (in thousands):

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Three months ended September 30,
 
Nine months ended September 30,
 
Gain (loss) on derivatives
 
Gain (loss) on derivatives
Statement of Operations Classification
Realized
 
Unrealized
 
Realized
 
Unrealized
2013
 
 
 
 
 
 
 
Gain (loss) on commodity derivatives, net
$
261

 
$
(760
)
 
$
797

 
$
(687
)
Interest expense
(101
)
 
(153
)
 
(101
)
 
(471
)
Direct operating expenses
(284
)
 

 
(378
)
 

Total
$
(124
)
 
$
(913
)
 
$
318

 
$
(1,158
)
2012
 
 
 
 
 
 
 
Gain (loss) on commodity derivatives, net
$
816

 
$
(1,762
)
 
$
1,425

 
$
1,732


7. Fair Value Measurement
The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:
Level 1 – Inputs represent unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and
Level 3 – Inputs are unobservable and considered significant to fair value measurement.
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy.
We believe the carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. Our cash and cash equivalents would be classified as Level 1 under the fair value hierarchy.
The recorded value of the amounts outstanding under the credit facility approximates its fair value, as interest rates are variable, based on prevailing market rates and the short-term nature of borrowings and repayments under the credit facility. Our existing revolving credit facility would be classified as Level 1 under the fair value hierarchy.
The fair value of all derivatives instruments is estimated using a market valuation methodology based upon forward commodity price curves, volatility curves as well as other relevant economic measures, if necessary. Discount factors may be utilized to extrapolate a forecast of future cash flows associated with long dated transactions or illiquid market points. The inputs are obtained from independent pricing services, and we have made no adjustments to the obtained prices.
We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivatives contracts held. We recognize transfers between levels at the end of the reporting period for which the transfer has occurred. We recognized transfers out of Level 3 into Level 2 as a result of changes in tenure and market points of certain contracts in the amount of $1.0 million for the year ended December 31, 2012. There were no such transfers for the three and nine months ended September 30, 2013 and 2012.
Fair Value of Financial Instruments
The following table sets forth by level within the fair value hierarchy, our commodity derivative instruments and interest rate swap, included as part of Risk management assets and Risk management liabilities within the balance sheet, that were measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 (in thousands):
 
Carrying
Amount
 
Estimated Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity derivative instruments, net
 
 
 
 
 
 
 
 
 
September 30, 2013
$
294

 
$

 
$
294

 
$

 
$
294

December 31, 2012
$
969

 
$

 
$
969

 
$

 
$
969

Interest rate swap
 
 
 
 
 
 
 
 
 
September 30, 2013
$
(472
)
 
$

 
$
(472
)
 
$

 
$
(472
)
December 31, 2012
$

 
$

 
$

 
$

 
$



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The premium paid to enter the weather derivative described in Note 6 "Derivatives", is included within Risk management assets on the balance sheet but is not included as part of the above table as it is recorded at amortized carrying cost, not fair value.
8. Property, Plant and Equipment
Property, plant and equipment, net, as of September 30, 2013 and December 31, 2012 were as follows (in thousands):
 
 
Useful Life
(in years)
 
September 30,
2013
 
December 31, 2012
Land
N/A
 
$
2,254

 
$
2,254

Construction in progress
N/A
 
3,308

 
5,053

Base gas
N/A
 
1,108

 

Buildings and improvements
4 to 40
 
1,664

 
1,432

Processing and treating plants
8 to 40
 
98,819

 
98,106

Pipelines
5 to 40
 
236,450

 
163,447

Compressors
4 to 20
 
11,278

 
8,957

Equipment
8 to 20
 
5,259

 
4,785

Computer software
5
 
2,566

 
1,950

Total property, plant and equipment
 
 
362,706

 
285,984

Accumulated depreciation
 
 
(82,190
)
 
(62,165
)
Property, plant and equipment, net
 
 
$
280,516

 
$
223,819

Of the gross property, plant and equipment balances at September 30, 2013 and December 31, 2012, $99.5 million and $26.1 million, respectively, were related to AlaTenn, Midla and HPGT, our FERC regulated interstate and intrastate assets.
Capitalized interest was less than $0.1 million for the three and nine months ended September 30, 2013.
Depreciation expense was $6.3 million and $18.5 million for the three and nine months ended September 30, 2013, respectively.
Asset Impairments
During the second quarter of 2013, management determined to change its commercial approach towards certain non-strategic gathering and processing assets. As a result, an asset impairment charge of $15.2 million was recorded in the three months ended June 30, 2013. These fair value measurements are based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. Primarily using the income approach, the fair value estimates are based on i) present value of estimated EBITDA, ii) an assumed discount rate of 10.0%, and iii) a decline in throughput volumes of 2.5% in 2013 and thereafter.
During the second quarter of 2013, the board of directors of our General Partner approved a plan to sell certain non-strategic gathering and processing assets which meet specific criteria, qualifying them as held for sale. As a result, certain gathering and processing assets were written down by $1.8 million to the estimated fair value less cost to sell. See Note 4 "Discontinued Operations".
Insurance proceeds
Involuntary conversions result from the loss of an asset because of some unforeseen event (e.g., destruction due to hurricanes). Some of these events are insurable, thus resulting in a property damage insurance recovery. Amounts we receive from insurance carriers are net of any deductibles related to the covered event. During the three and nine months ended September 30, 2013, we collected zero and $1.1 million, respectively, of nonrefundable cash proceeds from our insurance carrier. During the first quarter of 2013, $0.5 million of nonrefundable cash proceeds were recognized as an offset to property, plant and equipment write-downs of $0.1 million and presented as $0.4 million under the caption Gain (loss) on involuntary conversion of property, plant and equipment. During the second quarter of 2013, $0.6 million of nonrefundable cash proceeds were associated with business interruption insurance and recorded to Revenue in the condensed consolidated statement of operations.

9. Asset Retirement Obligations
We record a liability for the fair value of asset retirement obligations and conditional asset retirement obligations that we can reasonably estimate, on a discounted basis, in the period in which the liability is incurred. We collectively refer to asset retirement obligations and conditional asset retirement obligations as ARO.

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Certain assets related to our transmission segment have regulatory obligations to perform remediation and, in some instances, dismantlement and removal activities when the assets are abandoned. These asset retirement obligations include varying levels of activity including disconnecting inactive assets from active assets, cleaning and purging assets, and in some cases, completely removing the assets and returning the land to its original state. These assets have been in existence for many years and with regular maintenance will continue to be in service for many years to come. It is not possible to predict when demand for these transmission services will cease, and we do not believe that such demand will cease for the foreseeable future. A portion of our regulatory obligations is related to assets that we plan to take out of service.

The following table is a reconciliation of the asset retirement obligations (in thousands):
Asset retirement obligation at December 31, 2012
$
8,319

Obligations assumed
25,763

Accretion expense
358

Asset retirement obligation at September 30, 2013
$
34,440

We recorded accretion expense, which is included in Depreciation and accretion expense, of approximately $0.2 million and approximately $0.4 million in our consolidated statements of operations for each of the three and nine months ended September 30, 2013, respectively, and less than $0.1 million for the three and nine months ended September 30, 2012.
We are required to establish security against any potential secondary obligations relating to the abandonment of the certain transmission assets that may be imposed on the previous owner by applicable regulatory authorities. As such, we have a restricted cash account that is established, held, and maintained by a third party that amounts to $1.0 million and is presented in Other assets, net in our condensed consolidated balance sheet as of September 30, 2013.
10. Debt Obligations
Credit facility
As of December 31, 2012, the total leverage to EBITDA ratio (the "Consolidated Total Leverage Ratio"), one of the primary financial covenants that we were required to maintain under our credit facility, was limited to a maximum of 4.50 to 1.00. At December 31, 2012, our total indebtedness was approximately $130.9 million, which caused our total leverage to EBITDA ratio to be approximately 5.70 to 1.00. As a result, on December 26, 2012, the Partnership entered into the Third Amendment and Waiver to Credit Agreement, dated as of December 26, 2012 (the “Third Amendment”). The Third Amendment provided for a waiver of the Partnership's compliance with the Consolidated Total Leverage Ratio with respect to the quarter ended December 31, 2012 and for one month thereafter. The Third Amendment also required the Partnership to provide certain financial and operating information of the Partnership on a monthly basis for 2013 and for any month after 2013 in which the Consolidated Total Leverage Ratio of the Partnership is in excess of 4.00 to 1.00. The remaining material terms and conditions of the senior secured revolving credit facility, including pricing, maturity and covenants, remained unchanged by the Third Amendment.
On January 24, 2013, the Partnership entered into the second waiver to the credit facility that extended the waiver period with respect to the Consolidated Total Leverage Ratio to March 31, 2013 (and subsequently extended to April 16, 2013). Additional covenants during the waiver period included i) total outstanding borrowings under the credit facility shall not exceed $150.0 million; ii) restrictions on certain acquisitions; iii) an increase to the Eurodollar Rate by 0.50%; iv) additional fees of 0.125% of the principal amount on each of February 28, 2013 and March 31, 2013; and v) execution of a compliance certificate.
On April 15, 2013, we repaid approximately $12.5 million in outstanding borrowings under the credit agreement and entered into the Fourth Amendment in connection with the ArcLight Transaction. As a result, we had approximately $130 million of outstanding borrowings as of April 15, 2013 and approximately $45 million of available borrowing capacity.
On September 30, 2013, we received $12.5 million from HPIP which was used to repay outstanding borrowings under the credit agreement. Please see Note 11 "Partners' Capital" for more details.
We were in compliance with the Consolidated Total Leverage Ratio test, which was 4.48 under our credit facility as of September 30, 2013, in accordance with the leverage covenants as modified in the Fourth Amendment to the credit facility executed on April 15, 2013. As of September 30, 2013, we had approximately $123.7 million of outstanding borrowings and approximately $39.3 million of available borrowing capacity. For the nine months ended September 30, 2013 and 2012, the weighted average interest rate on borrowings under our credit facility was approximately 4.50% and 4.09%, respectively.
See Note 18 "Liquidity" for further updates to our liquidity and long-term debt.

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Table of Contents

Other debt
Other debt represents insurance premium financing in the original amounts of $3.3 million bearing interest at between 3.22% and 4.00% per annum, which is repayable in equal monthly installments of approximately $0.2 million through the fourth quarter of 2013.
Our outstanding borrowings at September 30, 2013 and December 31, 2012, respectively, were (in thousands):
 
 
September 30,
2013
 
December 31, 2012
Revolving loan facility
$
121,035

 
$
128,285

Other debt
157

 


121,192

 
128,285

Less: current portion
157

 


$
121,035

 
$
128,285

At September 30, 2013 and December 31, 2012, letters of credit outstanding under the credit facility totaled $2.6 million.
In connection with our credit facility and amendments thereto, we incurred $5.8 million in debt issuance costs that are being amortized on a straight-line basis over the term of the credit facility.
11. Partners’ Capital and Convertible Preferred Units
Our capital accounts are comprised of approximately 2% general partner interest and 98% limited partner interests. Our limited partners have limited rights of ownership as provided for under our partnership agreement and the right to participate in our distributions. Our General Partner manages our operations and participates in our distributions, including certain incentive distributions pursuant to the new IDRs that are non-voting limited partner interests held by our General Partner.
Equity Restructuring

Effective August 9, 2013, we executed an equity restructuring agreement ("Equity Restructuring") with our General Partner and HPIP. As part of the Equity Restructuring, the Partnership's 4,526,066 subordinated units and previous incentive distribution rights (the “former IDRs,” all of which were owned by our General Partner, which is controlled by HPIP) were combined into and restructured as a new class of incentive distribution rights (the “new IDRs”). Upon the issuance of the new IDRs, the subordinated units and former IDRs were cancelled. The new IDRs are allocated 85.02% to HPIP and 14.98% to our General Partner. The new IDRs entitle the holders of our incentive distribution rights to receive 48% of any quarterly cash distributions from available cash after the Partnership's common unitholders have received the full minimum quarterly distribution ($0.4125 per unit) for each quarter plus any arrearages from prior quarters (of which there are currently none).

The Equity Restructuring also provided for the issuance of warrants to our General Partner to purchase up to 300,000 of our common units at an exercise price of $0.01 per common unit. These warrants are exercisable on the later of (i) 18 months from the equity restructuring completion date and (ii) the date that the volume weighted average trading price of our common units on the New York Stock Exchange exceeds $25.00 for 30 consecutive trading days. The warrants contain customary anti-dilution and other protections.

Following the announcement of the Equity Restructuring, AIM Midstream Holdings, LLC, or AIM filed an action in Delaware Chancery Court against HPIP, our General Partner and us seeking either rescission of the Equity Restructuring or, in the alternative, monetary damages. While we cannot predict the ultimate outcome of this litigation, we do not believe it will be material to our operations or financial results. As a result of the action filed by AIM, the warrants that were issued by the Partnership, in conjunction with the Equity Restructuring, to the General Partner for subsequent conveyance to AIM, the owner of the Class B interest of our General Partner, were canceled effective August 29, 2013. In addition, the $12.5 million escrowed in connection with our Equity Restructuring was not released to the Partnership. Accordingly, HPIP contributed $12.5 million in cash to the Partnership on September 30, 2013, in order to permit the Partnership to satisfy obligations under our credit agreement and was accounted for as a contribution from our General Partner.
Series A Convertible Preferred Units
On April 15, 2013, the Partnership, our General Partner and AIM entered into the ArcLight Transactions with HPIP, pursuant to which HPIP (i) acquired 90% of our General Partner and all of our subordinated units from AIM Midstream Holdings and (ii)

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contributed certain midstream assets and $15.0 million in cash to us in exchange for 5,142,857 Series A Units issued by the Partnership. Of the $15.0 million cash consideration paid by HPIP, approximately $2.5 million was used to pay certain transaction expenses of HPIP, and the remaining approximately $12.5 million was used to repay borrowings outstanding under the Partnership's credit facility in connection with the Fourth Amendment. As a result of these transactions, which were also consummated on April 15, 2013, HPIP acquired both control of our General Partner and a majority of our outstanding limited partnership interests. On April 15, 2013, our General Partner entered into the Third Amended & Restated Agreement of Limited Partnership (the “Amended Partnership Agreement”) of the Partnership providing for the creation and designation of the rights, preferences, terms and conditions of the Series A Units.
The Series A Units receive distributions prior to distributions to Partnership common unitholders. Through October 1, 2014, the distributions to the Series A Unitholders are equal to $0.25 per unit and additional Series A Units in an amount equal to the cash portion of the distribution. Subsequent to that date, the distribution will be the greater of the distribution to be made to common unitholders or approximately $0.50 per unit. The Series A Units may be converted into common units on a one-to-one basis, subject to customary anti-dilutive adjustments, at the option of the unitholders on or any time after January 1, 2014.
Upon any liquidation and winding up of the Partnership or the sale of substantially all of the assets of the Partnership, the holders of Series A Units generally will be entitled to receive, in preference to the holders of any of the Partnership's other securities, an amount equal to the sum of $17.50 multiplied by the number of Series A Units owned by such holders, plus all accrued but unpaid distributions on such Series A Units.
Prior to the consummation of any recapitalization, reorganization, consolidation, merger, spin-off or other business combination in which the holders of common units are to receive securities, cash or other assets (a “Partnership Event”), we are obligated to make an irrevocable written offer, subject to consummation of the Partnership Event, to each holder of Series A Units to redeem all (but not less than all) of such holder's Series A Units for a price per Series A Unit payable in cash equal to the greater of:
the sum of $17.50 and all accrued and accumulated but unpaid distributions for each Series A Unit; or
an amount equal to the product of:
(i) the number of common units into which each Series A Unit is convertible; and
(ii) the sum of:
(A) the cash consideration per common unit to be paid to the holders of common units pursuant to the Partnership Event, plus
(B) the fair market value per common unit of the securities or other assets to be distributed to the holders of the common units pursuant to the Partnership Event.
Upon receipt of such a redemption offer from us, each holder of Series A Units may elect to receive such cash amount or a preferred security issued by the person surviving or resulting from such Partnership Event and containing provisions substantially equivalent to the provisions set forth in the Amended Partnership Agreement with respect to the Series A Units without material abridgement.
Except as provided in the Amended Partnership Agreement, the Series A Units have voting rights that are identical to the voting rights of the common units and will vote with the common units as a single class, with each Series A Unit entitled to one vote for each common unit into which such Series A Unit is convertible.
The fair value of the Series A Units on April 15, 2013 was $17.50 per unit, or a total of $90.0 million and was issued by the Partnership in exchange for cash of approximately $12.5 million and net assets of $61.9 million contributed to the Partnership by our General Partner. The contribution of net assets of the High Point System was accounted for as a transaction between entities under common control whereby the High Point System was recorded at historical book value. As such, the value of the Series A Units in excess of the net assets contributed by our General Partner amounted to $15.6 million and was allocated pro-rata to our General Partner and existing limited partners' interest based on their ownership interests. The fair value measurement was based on significant inputs not observable in the market and thus represent a Level 3 measurement as defined by ASC 820. Primarily using the income approach, the fair value estimate was based on i) present value of estimated future contracted distributions, ii) an assumed discount rate of 18.0%, and iii) an assumed distribution growth rate of 1.0% in 2014 and thereafter.
The fair value of the additional Series A Units in an amount equal to the cash portion of the distribution was $21.15 per unit, or a total distribution of $1.6 million for the three months ended September 30, 2013. Primarily using the market and income approach, the fair value estimate was based on i) present value of estimated future contracted distributions, ii) an option value of $3.18 per unit using a Black-Scholes model, iii) an assumed discount rate of 10.0%, and iv) an assumed distribution growth rate of 1.0% in 2014 and thereafter.
The numbers of units outstanding as of September 30, 2013 and December 31, 2012, respectively, were as follows (in thousands):

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September 30,
2013
 
December 31, 2012
Limited partner common units
4,705

 
4,639

Limited partner subordinated units

 
4,526

Series A Units
5,204

 

General partner units
185

 
185


Net Income (Loss) attributable to Limited and General Partner Units
Net income (loss) attributable to our General Partner and the limited partners (common and subordinated unit holders) is allocated in accordance with their respective ownership percentages, after giving effect to incentive distributions paid to our General Partner. Basic net income per limited partner unit is computed based on the weighted average number of units outstanding during the period. Diluted net income per limited partner unit is computed based on the weighted average number of units plus the effect of dilutive potential units outstanding during the period. Unvested share-based payment awards that contain non-forfeitable rights to distributions (whether paid or unpaid) are classified as participating securities and are included in our computation of diluted net income per limited partner unit. There was no dilutive effect of unit based awards for the three and nine months ended September 30, 2013 and 2012.
We compute earnings per unit using the two-class method. The two-class method requires that securities that meet the definition of a participating security be considered for inclusion in the computation of basic earnings per unit. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of our Partnership agreement, regardless of whether our General Partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether our General Partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.
The two-class method does not impact our overall net income or other financial results; however, in periods in which aggregate net income exceeds our aggregate distributions for such period, it will have the impact of reducing net income per limited partner unit. This result occurs as a larger portion of our aggregate earnings, as if distributed, is allocated to the incentive distribution rights of our General Partner, even though we make distributions on the basis of available cash and not earnings.
The following table is the calculation of net income (loss) per limited partner unit for the three and nine months ended September 30, 2013 and 2012, respectively (in thousands, with the exception of per unit amounts):

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Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Net (loss) income from continuing operations
$
(2,510
)
 
$
(4,014
)
 
$
(25,561
)
 
$
(102
)
Net income attributable to noncontrolling interests
190

 
249

 
533

 
249

Net loss from continuing operations attributable to the Partnership
$
(2,700
)
 
$
(4,263
)
 
$
(26,094
)
 
$
(351
)
Less:
 
 
 
 
 
 
 
Declared cash distributions on Series A Units
1,301

 

 
2,375

 

Declared PIK distributions on Series A Units
1,572

 

 
2,912

 

Fair value of Series A Units in excess of value of contributed High Point System

 

 
15,612

 

General partner's distribution
80

 
80

 
240

 
241

General partner's share in undistributed loss
(170
)
 
(166
)
 
(1,074
)
 
(248
)
Net loss from continuing operations available to limited partners
$
(5,483
)
 
$
(4,177
)
 
$
(46,159
)
 
$
(344
)
 
 
 
 
 
 
 
 
Net loss attributable to the Partnership
$
(2,556
)
 
$
(4,275
)
 
$
(27,746
)
 
$
(257
)
Less:
 
 
 
 
 
 
 
Declared cash distributions on Series A Units
1,301

 

 
2,375

 

Declared PIK distributions on Series A Units
1,572

 

 
2,912

 

Fair value of Series A Units in excess of value of contributed High Point System

 

 
15,612

 

General partner's distribution
80

 
80

 
240

 
241

General partner's share in undistributed loss
(167
)
 
(166
)
 
(1,102
)
 
(246
)
Net loss available to limited partners
$
(5,342
)
 
$
(4,189
)
 
$
(47,783
)
 
$
(252
)
 
 
 
 
 
 
 
 
Weighted average number of units used in computation of limited partners’ net (loss) income per unit (basic and diluted)
6,663

 
9,108

 
8,334

 
9,103

 
 
 
 
 
 
 
 
Limited partners’ net loss from continuing operations per unit (basic and diluted)
$
(0.82
)
 
$
(0.46
)
 
$
(5.54
)
 
$
(0.04
)
Limited partners’ net loss per unit (basic and diluted)
$
(0.80
)
 
$
(0.46
)
 
$
(5.73
)
 
$
(0.03
)
Distributions
We made distributions of $16.7 million and $12.1 million in the nine months ended September 30, 2013 and 2012, respectively. We made no distributions in respect of our General Partner’s incentive distribution rights during 2013 or 2012. We depend on our credit facility for future capital needs and may use it to fund a portion of cash distributions to unitholders, as necessary, depending on the level of our operating cashflow.
For the Series A Unit distributions as of September 30, 2013, we have accrued $1.3 million for the cash portion of the distribution and $1.6 million for the paid-in-kind Series A Units. The distributions will be made in the fourth quarter of 2013.
12. Long-Term Incentive Plan
Our General Partner manages our operations and activities and employs the personnel who provide support to our operations. On November 2, 2009, the board of directors of our General Partner adopted a long-term incentive plan (“LTIP”) for its employees, consultants and directors who perform services for it or its affiliates. On May 25, 2010, the board of directors of our General Partner adopted an amended and restated LTIP. On July 11, 2012, the board of directors of our General Partner adopted a second amended and restated LTIP that effectively increased available awards by 871,750 units. At September 30, 2013 and December 31, 2012, 846,203 and 920,193 units, respectively, were available for future grant under the LTIP, giving retroactive treatment to the reverse unit split in connection with our recapitalization described in our Annual Report.

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Ownership in the awards is subject to forfeiture until the vesting date. The LTIP is administered by the Compensation Committee of the board of directors of our General Partner. The board of directors of our General Partner, at its discretion, may elect to settle such vested phantom units with a number of units equivalent to the fair market value at the date of vesting in lieu of cash. Although, our General Partner has the option to settle in cash upon the vesting of phantom units, our General Partner does not currently intend to settle these awards in cash. Although other types of awards are contemplated under the LTIP, all currently outstanding awards are phantom units without distribution equivalent rights ("DERs"). Generally, grants issued under the LTIP vest in increments of 25% on each of the first four anniversary dates of the date of the grant and do not contain any other restrictive conditions related to vesting other than continued employment.
The following table summarizes our unit-based awards for each of the periods indicated, in units:
 
Three Months Ended
 
Nine months ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Outstanding at beginning of period
96,733

 
172,551

 
90,938

 
162,860

Granted
28,042

 

 
108,430

 
34,560

Forfeited
(893
)
 
(12,517
)
 
(13,320
)
 
(12,517
)
Vested
(24,482
)
 

 
(86,648
)
 
(24,869
)
Outstanding at end of period
99,400

 
160,034

 
99,400

 
160,034

Fair value per unit
$13.36 to $21.89
 
$14.70 to  $21.40
 
$13.36 to $21.89
 
$14.70 to  $21.40
The fair value of our phantom units, which are subject to equity classification, is based on the fair value of our units at the grant date. Compensation costs related to these awards, including amortization, for the three months ended September 30, 2013 and 2012 was $0.4 million and $0.5 million, respectively, and for the nine months ended September 30, 2013 and 2012 was $1.8 million and $1.3 million, respectively, which is classified as equity compensation expense in the condensed consolidated statements of operations and the non-cash portion in partners’ capital on the condensed consolidated balance sheets.
The total fair value of vested units at the time of vesting was $1.6 million and $0.5 million for the nine months ended September 30, 2013 and 2012, respectively.
The total compensation cost related to unvested awards not yet recognized at September 30, 2013 and 2012 was $1.1 million and $2.1 million, respectively, and the weighted average period over which this cost is expected to be recognized as of September 30, 2013 is approximately 1.6 years.
13. Post-Employment Benefits
We sponsor a contributory post-retirement plan that provides medical, dental and life insurance benefits for qualifying U.S. retired employees (referred to as the “OPEB Plan”).
The following table summarizes the components of net periodic benefit recognized in the condensed consolidated statements of operations (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Service cost
$
1

 
$
1

 
$
3

 
3

Interest cost
4

 
4

 
12

 
12

Expected return on plan assets
(17
)
 
(16
)
 
(51
)
 
(49
)
Amortization of net gain
(6
)
 
(9
)
 
(18
)
 
(27
)
Net periodic benefit
$
(18
)
 
$
(20
)
 
$
(54
)
 
$
(61
)
Future contributions to the Plans
We expect to make contributions to the OPEB Plan for the year ended December 31, 2013 of $0.1 million.
14. Commitments and Contingencies
Legal proceedings

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On September 5, 2013, HPIP, our General Partner and the Partnership were named as defendants in an action filed by AIM challenging the Equity Restructuring. AIM Midstream Holdings, LLC v. High Point Infrastructure Partners, LLC, American Midstream GP, LLC and American Midstream Partners, LP (Civil Action No. 8803-VCP) was filed in the Court of Chancery of the State of Delaware. Among claims against the other parties to the litigation, the action asserts a claim of tortuous interference with contract against the Partnership and seeks either rescission of the Equity Restructuring Agreement or, in the alternative, monetary damages. While we cannot predict the ultimate outcome of this litigation, we do not believe it will be material to our operations or financial results.
Environmental matters
We are subject to federal and state laws and regulations relating to the protection of the environment. Environmental risk is inherent to natural gas pipeline and processing operations, and we could, at times, be subject to environmental cleanup and enforcement actions. We attempt to manage this environmental risk through appropriate environmental policies and practices to minimize any impact our operations may have on the environment.
Commitments and contractual obligations
Future non-cancelable commitments related to certain contractual obligations as of September 30, 2013 are presented below (in thousands):
 
 
Payments Due by Period
 
Total
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
Operating leases and service contracts (a)
$
4,282

 
$
154

 
$
793

 
$
762

 
$
531

 
$
506

 
$
1,536

Asset retirement obligations
34,440

 

 

 

 
7,867

 

 
26,573

Total
$
38,722

 
$
154

 
$
793

 
$
762

 
$
8,398

 
$
506

 
$
28,109

(a) Operating leases and service contracts have been reduced by total minimum sublease rentals of $0.2 million due in the future under non-cancelable subleases.
Total expenses related to operating leases, asset retirement obligations, land site leases and right-of-way agreements were (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
Operating leases
$
357

 
$
254

 
$
841

 
$
692

Asset retirement obligation
191

 
10

 
358

 
23

 
$
548

 
$
264

 
$
1,199

 
$
715


15. Related-Party Transactions
Employees of our General Partner are assigned to work for us. Where directly attributable, the costs of all compensation, benefits expenses and employer expenses for these employees are charged directly by our General Partner to American Midstream, LLC, which, in turn, charges the appropriate subsidiary. Our General Partner does not record any profit or margin for the administrative and operational services charged to us. During the three and nine months ended September 30, 2013, administrative and operational services expenses of $3.3 million and $10.3 million, respectively, were charged to us by our General Partner. During the three and nine months ended September 30, 2012, administrative and operational services expenses of $3.1 million and $9.3 million, respectively, were charged to us by our General Partner. For the three and nine months ended September 30, 2013, our General Partner incurred approximately $0.2 million and $0.6 million, respectively, of costs associated with certain business development activities. If the business development activities result in a project that will be pursued and funded by the Partnership, we will reimburse our General Partner for the business development costs related to that project. For the three and nine months ended September 30, 2013, we incurred business development costs of approximately $0.9 million associated with projects led by an affiliate of our General Partner. We expect to be reimbursed by this affiliate of our General Partner for the business development costs related to those projects.
16. Reporting Segments
Our operations are located in the United States and are organized into two reporting segments: (1) Gathering and Processing and (2) Transmission.

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Gathering and Processing
Our Gathering and Processing Segment provides “wellhead-to-market” services, which include transporting raw natural gas from the wellhead through gathering systems, treating the raw natural gas, processing raw natural gas to separate the NGLs from the natural gas, performing fractionation and selling or delivering pipeline-quality natural gas and NGLs to various markets and pipeline systems, to producers of natural gas and oil.
Transmission
Our Transmission Segment transports and delivers natural gas from producing wells, receipt points or pipeline interconnects for shippers and other customers, including local distribution companies, or LDCs, utilities, and industrial and commercial and power generation customers.
These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Gross margin is a performance measure utilized by management to monitor the business of each segment.
The contribution of the High Point System, which occurred concurrently with HPIP's acquisition of 90% of our General Partner, is presented within our Transmission Segment. The following tables set forth our segment information for the three and nine months ended September 30, 2013 and 2012 (in thousands):
 
 
Three months ended September 30,
 
2013
 
2012
 
Gathering
and
Processing
 
Transmission
 
Total
 
Gathering
and
Processing
 
Transmission
 
Total
Revenue
$
48,873

 
$
27,704

 
$
76,577

 
$
41,637

 
$
12,710

 
$
54,347

Loss on commodity derivatives, net
(499
)
 

 
(499
)
 
(946
)
 

 
(946
)
Total revenue
48,374

 
27,704

 
76,078

 
40,691

 
12,710

 
53,401

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Purchases of natural gas, NGLs and condensate
38,162

 
19,811

 
57,973

 
32,105

 
9,260

 
41,365

Direct operating expenses
3,720

 
3,994

 
7,714

 
3,567

 
1,762

 
5,329

Selling, general and administrative expenses
 
 
 
 
3,969

 
 
 
 
 
3,246

Equity compensation expense
 
 
 
 
392

 
 
 
 
 
474

Depreciation and accretion expense
 
 
 
 
6,458

 
 
 
 
 
5,504

Total operating expenses
 
 
 
 
76,506

 
 
 
 
 
55,918

Gain on sale of assets, net
 
 
 
 

 
 
 
 
 
4

Operating loss
 
 
 
 
(428
)
 
 
 
 
 
(2,513
)
Interest and other expense
 
 
 
 
(2,082
)
 
 
 
 
 
(1,501
)
Net loss from continuing operations
 
 
 
 
(2,510
)
 
 
 
 
 
(4,014
)
Gain (loss) on discontinued operations (a)
 
 
 
 
144

 
 
 
 
 
(12
)
Net loss
 
 
 
 
(2,366
)
 
 
 
 
 
(4,026
)
Less: Net income attributable to noncontrolling interests
 
 
 
 
190

 
 
 
 
 
249

Net loss attributable to the Partnership
 
 
 
 
$
(2,556
)
 
 
 
 
 
$
(4,275
)
Segment gross margin (b)
$
10,688

 
$
7,864

 
$
18,552

 
$
10,310

 
$
2,668

 
$
12,978

 

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Nine months ended September 30,
 
2013
 
2012
 
Gathering
and
Processing
 
Transmission
 
Total
 
Gathering
and
Processing
 
Transmission
 
Total
Revenue
$
144,658

 
$
65,532

 
$
210,190

 
$
101,307

 
$
37,116

 
$
138,423

Gain on commodity derivatives, net
110

 

 
110

 
3,157

 

 
3,157

Total revenue
144,768

 
65,532

 
210,300

 
104,464

 
37,116

 
141,580

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Purchases of natural gas, NGLs and condensate
116,568

 
46,103

 
162,671

 
74,775

 
25,300

 
100,075

Direct operating expenses
10,694

 
8,943

 
19,637

 
7,531

 
4,019

 
11,550

Selling, general and administrative expenses
 
 
 
 
11,982

 
 
 
 
 
10,101

Equity compensation expense
 
 
 
 
1,877

 
 
 
 
 
1,272

Depreciation and accretion expense
 
 
 
 
18,802

 
 
 
 
 
15,722

Total operating expenses
 
 
 
 
214,969

 
 
 
 
 
138,720

Gain on involuntary conversion of property, plant and equipment
 
 
 
 
343

 
 
 
 
 

Gain on sale of assets, net
 
 
 
 

 
 
 
 
 
121

Loss on impairment of property, plant and equipment
 
 
 
 
(15,232
)
 
 
 
 
 

Operating (loss) income
 
 
 
 
(19,558
)
 
 
 
 
 
2,981

Interest and other expense
 
 
 
 
(6,003
)
 
 
 
 
 
(3,083
)
Net loss from continuing operations
 
 
 
 
(25,561
)
 
 
 
 
 
(102
)
(Loss) gain on discontinued operations (a)
 
 
 
 
(1,652
)
 
 
 
 
 
94

Net loss
 
 
 
 
(27,213
)
 
 
 
 
 
(8
)
Less: Net income attributable to noncontrolling interests
 
 
 
 
533

 
 
 
 
 
249

Net loss attributable to the Partnership
 
 
 
 
$