10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2015
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.)
 
 
1400 16th Street, Suite 310
 
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. (Check one):
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨ (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 30,425,829 common units, 8,930,336 Series A Units and 1,325,225 Series B Units of American Midstream Partners, LP outstanding as of November 6, 2015. Our common units trade on the New York Stock Exchange under the ticker symbol “AMID.”



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

2

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:

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

Bcf         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.

FERC         Federal Energy Regulatory Commission.

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

GAAP
Accounting principles generally accepted in the United States of America.

Gal         Gallons.

MMBtu         Million British thermal units.

Mcf         Thousand cubic feet.

MMcf         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.

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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,
2015
 
December 31,
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$

 
$
499

Accounts receivable
4,966

 
4,924

Unbilled revenue
16,065

 
24,619

Risk management assets
1,177

 
688

Other current assets
7,136

 
15,554

Current deferred tax assets
3,326

 
3,086

Total current assets
32,670

 
49,370

Property, plant and equipment, net
638,939

 
582,182

Goodwill
134,853

 
142,236

Intangible assets, net
102,052

 
106,306

Investment in unconsolidated affiliates
82,571

 
22,252

Other assets, net
14,401

 
14,298

Total assets
$
1,005,486

 
$
916,644

Liabilities and Partners’ Capital
 
 
 
Current liabilities
 
 
 
Accounts payable
$
3,754

 
$
20,326

Accrued gas purchases
7,881

 
14,326

Accrued expenses and other current liabilities
17,364

 
25,800

Current portion of long-term debt

 
2,908

Risk management liabilities

 
215

Total current liabilities
28,999

 
63,575

Asset retirement obligations
35,254

 
34,645

Other liabilities
299

 
126

Long-term debt
508,650

 
372,950

Deferred tax liabilities
9,075

 
8,199

Total liabilities
582,277

 
479,495

Commitments and contingencies (See Note 17)
 
 
 
Convertible preferred units
 
 
 
Series A convertible preferred units (8,930 thousand and 5,745 thousand units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)
165,332

 
107,965

Equity and partners' capital
 
 
 
General Partner Interests (536 thousand and 392 thousand units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)
(105,869
)
 
(2,450
)
Limited Partner Interests (30,269 thousand and 22,670 thousand units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)
325,867

 
294,695

Series B convertible units (1,325 thousand and 1,255 thousand units issued and outstanding as of September 30, 2015 and December 31, 2014, respectively)
33,377

 
32,220

Accumulated other comprehensive income (loss)
(22
)
 
2

Total partners’ capital
253,353

 
324,467


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Noncontrolling interests
4,524

 
4,717

Total equity and partners' capital
257,877

 
329,184

Total liabilities, equity and partners' capital
$
1,005,486

 
$
916,644

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

5

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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except for per unit amounts)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
54,825

 
$
69,699

 
$
186,485

 
$
227,940

Gain (loss) on commodity derivatives, net
816

 
606

 
1,274

 
283

Total revenue
55,641

 
70,305

 
187,759

 
228,223

Operating expenses:
 
 
 
 
 
 
 
Purchases of natural gas, NGLs and condensate
24,431

 
46,690

 
86,742

 
155,729

Direct operating expenses
15,328

 
11,884

 
43,162

 
31,889

Selling, general and administrative expenses
7,639

 
5,875

 
20,145

 
17,105

Equity compensation expense
574

 
337

 
2,822

 
1,132

Depreciation, amortization and accretion expense
9,160

 
5,706

 
28,099

 
19,350

Total operating expenses
57,132

 
70,492

 
180,970

 
225,205

Gain (loss) on sale of assets, net
(32
)
 
(103
)
 
(3,010
)
 
(124
)
Operating income (loss)
(1,523
)
 
(290
)
 
3,779

 
2,894

Other income (expense):
 
 
 
 
 
 
 
     Interest expense
(3,553
)
 
(1,430
)
 
(9,719
)
 
(5,013
)
Other income (expense)

 
(672
)
 

 
(672
)
Earnings in unconsolidated affiliates
1,094

 
117

 
1,265

 
117

Net income (loss) before income tax (expense) benefit
(3,982
)
 
(2,275
)
 
(4,675
)
 
(2,674
)
Income tax (expense) benefit
(592
)
 
(122
)
 
(1,065
)
 
(260
)
Net income (loss) from continuing operations
(4,574
)
 
(2,397
)
 
(5,740
)
 
(2,934
)
Income (loss) from discontinued operations, net of tax
(53
)
 
(26
)
 
(79
)
 
(582
)
Net income (loss)
(4,627
)
 
(2,423
)
 
(5,819
)
 
(3,516
)
Net income (loss) attributable to noncontrolling interests
34

 
33

 
80

 
207

Net income (loss) attributable to the Partnership
$
(4,661
)
 
$
(2,456
)
 
$
(5,899
)
 
$
(3,723
)
 
 
 
 
 
 
 
 
General Partner's Interest in net income (loss)
$
(60
)
 
$
(32
)
 
$
(76
)
 
$
(48
)
Limited Partners' Interest in net income (loss)
$
(4,601
)
 
$
(2,424
)
 
$
(5,823
)
 
$
(3,675
)
 
 
 
 
 
 
 
 
Distribution declared per common unit (a)
$
0.4725

 
$
0.4625

 
$
1.4175

 
$
1.3775

Limited partners' net income (loss) per common unit (See Note 4 and Note 14):
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.48
)
 
$
(0.58
)
 
$
(1.02
)
 
$
(1.52
)
Income (loss) from discontinued operations

 

 

 
(0.05
)
Net income (loss)
$
(0.48
)
 
$
(0.58
)
 
$
(1.02
)
 
$
(1.57
)
Weighted average number of common units outstanding:
 
 
 
 
Basic and diluted
23,987

 
13,204

 
23,154

 
11,409


(a) Distributions declared and paid during the three and nine months ended September 30, 2015 and 2014 related to prior periods' earnings.

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

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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(4,627
)
 
$
(2,423
)
 
$
(5,819
)
 
$
(3,516
)
Unrealized gain (loss) on postretirement benefit plan assets and liabilities
10

 
7

 
(24
)
 
53

Comprehensive income (loss)
(4,617
)
 
(2,416
)
 
(5,843
)
 
(3,463
)
Less: Comprehensive income (loss) attributable to noncontrolling interests
34

 
33

 
80

 
207

Comprehensive income (loss) attributable to the Partnership
$
(4,651
)
 
$
(2,449
)
 
$
(5,923
)
 
$
(3,670
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

7

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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Changes in Partners’ Capital
and Noncontrolling Interest
(Unaudited, in thousands)
 
 
General
Partner
Interest
 
Limited
Partner
Interest
 
Series B Convertible Units
 
Accumulated
Other
Comprehensive
Income
 
Total Partners' Capital
 
Noncontrolling Interest
Balances at December 31, 2013
$
2,696

 
$
71,039

 
$

 
$
104

 
$
73,839

 
$
4,628

Net income (loss)
(48
)
 
(3,675
)
 

 

 
(3,723
)
 
207

Issuance of common units to public, net of offering costs

 
204,335

 

 

 
204,335

 

Issuance of Series B units

 

 
31,671

 

 
31,671

 

Unitholder contributions
2,964

 

 

 

 
2,964

 

Unitholder distributions
(1,857
)
 
(27,968
)
 

 

 
(29,825
)
 

Issuance and exercise of warrant
(7,164
)
 
7,164

 

 

 

 

Net distributions to noncontrolling interests

 

 

 

 

 
(273
)
Acquisitions of noncontrolling interests

 
21

 

 

 
21

 
(29
)
LTIP vesting
(696
)
 
901

 

 

 
205

 

Tax withholding repurchase

 
(253
)
 

 

 
(253
)
 

Equity compensation expense
999

 

 

 

 
999

 

Other comprehensive loss

 

 

 
53

 
53

 

Balances at September 30, 2014
$
(3,106
)
 
$
251,564

 
$
31,671

 
$
157

 
$
280,286

 
$
4,533

 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2014
$
(2,450
)
 
$
294,695

 
$
32,220

 
$
2

 
$
324,467

 
$
4,717

Net income (loss)
(76
)
 
(5,823
)
 

 

 
(5,899
)
 
80

Issuance of common units, net of offering costs

 
80,971

 

 

 
80,971

 

Issuance of Series B units

 

 
1,157

 

 
1,157

 

Unitholder contributions
1,973

 

 

 

 
1,973

 

Unitholder distributions
(4,890
)
 
(45,800
)
 

 

 
(50,690
)
 

Unitholder distributions for Delta House
(100,649
)
 

 

 

 
(100,649
)
 

Net distributions to noncontrolling interests

 

 

 

 

 
(101
)
Acquisition of noncontrolling interest

 
(20
)
 

 

 
(20
)
 
(172
)
LTIP vesting
(2,404
)
 
2,599

 

 

 
195

 

Tax withholding repurchase

 
(755
)
 

 

 
(755
)
 

Equity compensation expense
2,627

 

 

 

 
2,627

 

Other comprehensive income

 

 

 
(24
)
 
(24
)
 

Balances at September 30, 2015
$
(105,869
)
 
$
325,867

 
$
33,377

 
$
(22
)
 
$
253,353

 
$
4,524

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

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American Midstream Partners, LP and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Nine months ended September 30,
 
2015
 
2014
Cash flows from operating activities

 

Net income (loss)
$
(5,819
)
 
$
(3,516
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

Depreciation, amortization and accretion expense
28,099

 
19,350

Amortization of deferred financing costs
1,029

 
1,894

Amortization of weather derivative premium
694

 
794

Unrealized (gain) loss on commodity derivatives, net
(523
)
 
(592
)
Non-cash compensation expense
2,891

 
1,200

Postretirement expense (benefit)
55

 
(35
)
(Gain) loss on sale of assets, net
3,160

 
209

Loss on impairment of noncurrent assets held for sale

 
673

Deferred tax expense (benefit)
876

 
(58
)
Changes in operating assets and liabilities, net of effects of assets acquired and liabilities assumed:
 

Accounts receivable
(42
)
 
(599
)
Unbilled revenue
8,554

 
1,913

Risk management assets and liabilities
(875
)
 
(965
)
Other current assets
1,996

 
2,858

Other assets, net
21

 
(608
)
Accounts payable
(3,847
)
 
624

Accrued gas purchases
(6,445
)
 
(2,734
)
Accrued expenses and other current liabilities
1,652

 
(1,446
)
Asset retirement obligations

 
(690
)
Other liabilities
155

 
(32
)
Net cash provided by operating activities
31,631

 
18,240

Cash flows from investing activities

 

Cost of acquisitions, net of cash acquired and settlements
7,383

 
(110,909
)
Additions to property, plant and equipment
(111,864
)
 
(41,257
)
Proceeds from disposals of property, plant and equipment
4,797

 
6,323

Investment in unconsolidated affiliates
(64,406
)
 
(12,000
)
Return of capital from unconsolidated affiliates
5,303

 
983

Restricted cash
6,475

 

Net cash used in investing activities
(152,312
)
 
(156,860
)
Cash flows from financing activities

 

Proceeds from issuance of common units to public, net of offering costs
80,983

 
204,335

Unitholder contributions
1,905

 
2,896

Unitholder distributions
(36,935
)
 
(19,549
)
Issuance of Series A Units
45,000

 

Issuance of Series B Units

 
30,000

Unitholder distributions for Delta House
(100,649
)
 

Acquisition of noncontrolling interests
(74
)
 
(8
)
Net distributions to noncontrolling interests
(101
)
 
(273
)
LTIP tax netting unit repurchase
(755
)
 
(253
)

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Payment of deferred financing costs
(1,984
)
 
(3,380
)
Payments on other debt
(2,908
)
 
(2,217
)
Borrowings on other debt

 
170

Payments on long-term debt
(152,000
)
 
(212,670
)
Borrowings on long-term debt
287,700

 
139,635

Net cash provided by financing activities
120,182

 
138,686

Net increase (decrease) in cash and cash equivalents
(499
)
 
66

Cash and cash equivalents

 

Beginning of period
499

 
393

End of period
$

 
$
459

Supplemental cash flow information

 

Interest payments, net
$
7,606

 
$
4,064

Supplemental non-cash information

 

Increase (decrease) in accrued property, plant and equipment
$
(24,666
)
 
$
17,746

Accrued paid in-kind unitholder distributions for Series A Units
12,598

 
9,925

In-kind unitholder distributions for Series B Units
1,157

 
1,671

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

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American Midstream Partners, LP and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation

General

American Midstream Partners, LP (the "Partnership", "we", "us", or "our"), was formed on August 20, 2009 as a Delaware limited partnership for the purpose of operating, developing and acquiring a diversified portfolio of midstream energy assets. The Partnership's general partner, American Midstream GP, LLC (the "General Partner"), is 95% owned by High Point Infrastructure Partners, LLC ("HPIP") and 5% owned by AIM Midstream Holdings, LLC. We hold our assets primarily in a number of wholly owned limited liability companies, two limited partnerships and a corporation. Our capital accounts consist of notional general partner units and limited partner interests.

Nature of Business

We are engaged in the business of gathering, treating, processing, and transporting natural gas, fractionating NGLs, transporting oil and storing specialty chemical products through our ownership and operation of twelve gathering systems, five processing facilities, three fractionation facilities, three marine terminal sites, three interstate pipelines, five intrastate pipelines and one oil pipeline. We also own a 66.7% non-operated interest in Main Pass Oil Gathering, LP ("MPOG"), a crude oil gathering and processing system, a 50% undivided, non-operated interest in the Burns Point Plant, a natural gas processing plant, a 46% non-operated interest in Mesquite, an off-spec condensate fractionation project, and a 12.9% non-operated interest in the Delta House floating production system and related pipeline infrastructure ("Delta House"). Our primary assets, which are strategically located in Alabama, Georgia, Louisiana, Mississippi, North Dakota, Tennessee, Texas and the Gulf of Mexico, provide critical infrastructure that links producers of natural gas, NGLs, condensate and specialty chemicals to numerous intermediate and end-use markets. We currently operate more than 3,000 miles of pipelines that gather and transport over 1 Bcf/d of natural gas and operate approximately 1.8 million barrels of storage capacity across three marine terminal sites.

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("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 consolidated audited financial statements but does not include disclosures required by GAAP for annual periods. The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the respective interim periods.

Our financial results for the three and nine months ended September 30, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 (“Annual Report”) filed with the Securities and Exchange Commission (the "SEC") on March 10, 2015.

Consolidation Policy

The accompanying condensed consolidated financial statements include the accounts of American Midstream Partners, LP, and its controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in the preparation of the accompanying condensed consolidated financial statements. As of September 30, 2015, we held a 50% undivided interest in the Burns Point natural gas processing plant in which we are responsible for our proportionate share of the costs and expenses of the facility. Our condensed consolidated financial statements reflect our proportionate share of the revenues, expenses, assets and liabilities of this undivided interest. We also hold a 92.2% undivided interest in the Chatom Processing and Fractionation facility (the "Chatom System"). Our condensed consolidated financial statements reflect the accounts of the Chatom System and the interests in the Chatom System held by non-affiliated working interest owners that are reflected as noncontrolling interests in the Partnership's condensed consolidated financial statements.

Investment in Unconsolidated Affiliates


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Equity investments in which the Partnership exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method and are reported in Investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.

The Partnership believes the equity method is an appropriate means for it to recognize increases or decreases measured by GAAP in the economic resources underlying the investments. Regular evaluation of these investments is appropriate to evaluate any potential need for impairment. The Partnership uses evidence of a loss in value to identify if an investment has declined in value, other than a temporary decline.

The Partnership accounts for its 66.7% non-operated interest in MPOG, its 46.0% non-operated interest in Mesquite and its 12.9% non-operated interest in Delta House under the equity method.

Use of Estimates

When preparing condensed consolidated 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 assumptions are based on information available at the time such estimates and assumptions are made. Adjustments made with respect to the use of these estimates and assumptions often relate to information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. Estimates and assumptions are used in, among other things i) estimating unbilled revenues, product purchases and operating and general and administrative costs, ii) developing fair value estimates, including assumptions for future cash flows and discount rates, iii) analyzing long-lived assets, goodwill and intangible 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. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14 was subsequently issued and deferred the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. We are currently evaluating the method of adoption and impact this standard will have on our condensed consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis. This guidance amends the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Partnership is currently evaluating the potential impact this standard will have on its condensed consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, including interim periods therein, and is applied retrospectively. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-15 was subsequently issued to address the absence of authoritative guidance for debt issuance costs related to line-of-credit arrangements and states that the Securities and Exchange Commission ("SEC") staff will not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. Given the Partnership's debt issuance costs relate to its revolving credit facility, the Partnership is not required to alter its current accounting for such costs.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40), which assists entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sales or license of software. The amendment will be effective prospectively for reporting periods beginning on or after December 15, 2015, and early adoption is permitted. The Partnership is currently assessing the ASU and does not believe there will be a significant impact on the Partnership's consolidated financial statements.


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In April 2015, the FASB issued ASU No. 2015-06, Earnings Per Share (Topic 260).  This guidance clarifies the process for updating historical earnings per unit disclosures when a drop-down transaction occurs between entities under common control.  Pursuant to the amendment, the previously reported earnings per unit measure presented in the historical financial statements would not change as a result of the drop-down transaction.  ASU 2015-06 is effective for annual reporting periods beginning after December 15, 2015, and for interim periods within those fiscal years.  Early adoption is permitted.  The Partnership has evaluated this guidance and determined it is consistent with our policy and historical presentation of earnings per unit.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). This amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been issued. The Partnership is currently evaluating the potential impact this standard will have on its condensed consolidated financial statements and related disclosures.

3. Acquisitions and Divestitures

Delta House Acquisition

On September 18, 2015, the Partnership acquired a 26.3% interest in Pinto Offshore Holdings, LLC ("Pinto") (the "Delta House Acquisition"), an entity that owns a non-operated interest in (i) approximately 49% of the limited liability company interests of Delta House FPS LLC and (ii) approximately 49% of the limited liability company interests of Delta House Oil and Gas Lateral LLC, which respectively own the Delta House floating production system and related pipeline infrastructure ("Delta House").  Delta House is a floating production system platform with associated oil and gas export pipelines, located in the Mississippi Canyon region of the deepwater Gulf of Mexico.

We acquired our 26.3% non-operated interest in Pinto in exchange for $162.0 million in cash, funded by the proceeds of a public offering of 7.5 million of the Partnership's common units representing Limited Partner interests, or common units, and with borrowings under the Partnership's Amended Credit Agreement, as defined in Note 13. As a result, we own a minority interest in Pinto, which in turn causes us to own a 12.9% minority interest in Delta House. Pursuant to the Pinto LLC Agreement, we have no management control or authority over the day-to-day operations.  Our minority interest in Pinto is accounted for as an equity method investment in the condensed consolidated financial statements.

Because our interest in Delta House was previously owned by an affiliate of our General Partner, we have accounted for our initial investment at our affiliate's preliminary carry-over basis resulting in $61.4 million which is recorded in Investments in unconsolidated affiliates in our condensed consolidated balance sheets and as an investing activity within the related condensed consolidated statement of cash flows. The amount by which the total consideration exceeded the carry-over basis was $100.6 million and is recorded as a distribution within the condensed consolidated statements of changes in partners’ capital and noncontrolling interest and a financing activity in the condensed consolidated statement of cash flows.

For the three and nine months ended September 30, 2015, the Partnership recorded $0.7 million in earnings from Delta House. The Partnership also received cash distributions of $3.7 million for the three and nine months ended September 30, 2015. The excess of the cash distributions received over the earnings recorded from Delta House is classified as a return of capital within cash flows from investing activities in our condensed consolidated statement of cash flows.

Costar Acquisition

On October 14, 2014, the Partnership acquired 100% of the membership interests of Costar Midstream, L.L.C. ("Costar") from Energy Spectrum Partners VI LP and Costar Midstream Energy, LLC, in exchange for $258.0 million in cash and 6.9 million of the Partnership's common units representing Limited Partner interests, or common units (the "Costar Acquisition"). Costar is an onshore gathering and processing company with its primary gathering, processing, fractionation, and off-spec condensate treating and stabilization assets in East Texas and the Permian basin, with a significant crude oil gathering system project under development in the Bakken oil play.

The Costar Acquisition was accounted for using the acquisition method of accounting and as a result, the aggregate purchase price was allocated to the assets acquired, liabilities assumed and a noncontrolling interest in a Costar subsidiary based on their respective fair values as of the acquisition date. The excess of the aggregate purchase price over the fair values of the assets acquired, liabilities assumed and the noncontrolling interest was classified as goodwill, which is attributable to future prospective customer agreements expected to be obtained as a result of the acquisition. The operating systems acquired have been included in the Partnership’s Gathering and Processing segment from the acquisition date.

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During the first quarter of 2015, we reached an agreement on certain working capital matters with the Costar sellers, resulting in a decrease to goodwill of $0.2 million.

In the second quarter of 2015, we reached an agreement with the Costar sellers regarding certain capital expenditures that we have incurred, or will incur, that were not known at the time of closing, which resulted in a decrease to goodwill and cash consideration transferred of $7.2 million.

The following table summarizes the fair value of consideration transferred to acquire Costar and the allocation of that amount to the assets acquired, liabilities assumed and the noncontrolling interest based upon their respective fair values as of the acquisition date (in thousands).

Fair value of consideration transferred:
 
Cash
$
258,001

Limited partner common units
147,296

Total fair value of consideration
$
405,297

Fair Value of assets acquired, liabilities assumed and noncontrolling interest:
 
Working capital
$
8,152

Property, plant and equipment:
 
Processing plants
$
48,357

Pipelines
128,799

Land
1,244

Buildings
682

Equipment
9,827

Construction in progress
16,146

Total property, plant and equipment
205,055

Investment in unconsolidated affiliate
11,884

Intangible assets:
 
Customer relationships
53,400

Dedicated acreage
32,000

Goodwill
95,025

Noncontrolling interest
(219
)
 
$
405,297


The fair value of the common units of $147.3 million differs from the amount determined using the market price of such units on the date of the acquisition as a result of restrictions which require the sellers to hold the units for specified periods of time. The fair value of Limited Partner common units issued in the transaction was determined using an option pricing model and the following key assumptions: i) the closing unit market price on the day of the acquisition, ii) the contractual holding periods, iii) historical unit price volatility for the Partnership and its peers, and iv) a risk-free rate of return.

The fair value of property, plant and equipment was determined using both the cost and market approaches which required significant Level 3 inputs. Key assumptions included i) estimated replacement costs for individual assets or asset groups, ii) estimated remaining useful lives for the acquired assets, and iii) recent market transactions for similar assets. The fair value of intangible assets was determined using the income approach which also required significant Level 3 inputs. Key assumptions included i) estimated throughput volumes, ii) forward market prices for natural gas and NGLs as of the acquisition date, iii) estimated future operating and development cash flows, and iv) discount rates ranging from 11.0% to 16.0%.

The intangible assets acquired relate to existing customer relationships that Costar had at the time of the acquisition, as well as agreements with two producers under which Costar agreed to construct and operate gathering and processing facilities in exchange for the producers’ agreements to dedicate certain acreage and related production to those facilities. Working capital includes $11.2 million of accounts receivable, all of which were subsequently collected.


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For the three and nine months ended September 30, 2015, Costar contributed revenue of $15.5 million and $61.1 million, respectively, and net loss of $1.8 million and net income of less than $0.1 million, respectively, attributable to the Partnership's Gathering and Processing segment.

Lavaca Acquisition

On January 31, 2014, the Partnership acquired approximately 120 miles of high- and low-pressure pipelines and associated facilities located in the Eagle Ford shale in Gonzales and Lavaca Counties, Texas from Penn Virginia Corporation (NYSE: PVA) ("PVA") for $104.4 million in cash (the "Lavaca Acquisition"). The Lavaca Acquisition was financed with proceeds from the Partnership's January 2014 equity offering and from the issuance of Series B Units to our General Partner.

The Lavaca Acquisition was accounted for using the acquisition method of accounting and, as a result, the purchase price was allocated to the assets acquired upon their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of the assets acquired was classified as goodwill.

The following table summarizes the final allocation of the purchase price to the assets acquired based upon their respective fair values as of the acquisition date (in thousands):

Property, plant and equipment:
 
Land
$
2

Pipelines
58,737

Equipment
753

Total property, plant and equipment
59,492

Intangible assets
21,350

Goodwill
23,567

Total cash consideration
$
104,409


The fair value of property, plant and equipment was determined using the cost approach which required significant Level 3 inputs. Key assumptions included i) estimated replacement costs for individual assets or asset groups and ii) estimated remaining useful lives for the acquired assets. The fair value of intangible assets was determined using the income approach which also required significant Level 3 inputs. Key assumptions included i) estimated throughput volumes, ii) future operating and development cash flows, and iii) a discount rate of 10.5%.

The intangible assets acquired relate to a gas gathering agreement under which PVA has dedicated certain acreage and related production to the acquired facilities.

For the three and nine months ended September 30, 2015, Lavaca contributed revenue of $5.7 million and $17.6 million, respectively, and net income of $2.3 million and $6.7 million, respectively, attributable to the Partnership's Gathering and Processing segment. For the three and nine months ended September 30, 2014, Lavaca contributed revenue of $4.5 million and $10.6 million, respectively, and net income of $2.3 million and $4.5 million, respectively, attributable to the Partnership's Gathering and Processing segment.

Other Acquisitions

Investment in Unconsolidated Affiliates

On August 11, 2014, the Partnership acquired a 66.7% non-operated interest in MPOG, an offshore oil gathering system, for a net purchase price of $12.0 million, which was financed with borrowings under the Partnership's credit facility. Although the Partnership owns a majority interest in MPOG, the ownership structure requires unanimous approval of all owners on decisions impacting the operation of the assets and any changes in ownership structure. Therefore, the Partnership's voting rights are not proportional to its obligation to absorb losses or receive returns. The Partnership accounts for its 66.7% interest using the equity method.

For the three and nine months ended September 30, 2015, the Partnership recorded $0.4 million and $0.6 million, respectively, in earnings from MPOG. For the three and nine months ended September 30, 2014, the Partnership recorded $0.1 million in earnings from MPOG. The Partnership received cash distributions of $1.3 million and $2.8 million for the three and nine months ended September 30, 2015, respectively. The Partnership received cash distributions of $1.1 million and $1.1 million for the three and

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nine months ended September 30, 2014, respectively. The excess of the cash distributions received over the earnings recorded from MPOG is classified as a return of capital within the investing section of our consolidated statement of cash flows.

Williams Pipeline Acquisition

In the first quarter of 2014, the Partnership acquired natural gas pipeline facilities that are contiguous to and connect with our High Point System in our Transmission segment located in offshore Louisiana from Transcontinental Gas Pipe Line Company, LLC, a subsidiary of Williams Partners, LP. for $6.5 million in cash. The acquisition was subject to FERC approval of the seller's application to abandon by sale to us the pipeline facilities and to permit the facilities to serve a gathering function, exempt from FERC's jurisdiction. The FERC granted approval of the application during the first quarter of 2014, and the purchase and sale agreement closed on March 14, 2014. The purchase price was allocated to pipelines using the income approach which required certain Level 3 inputs.

Divestitures

On September 14, 2015, the Partnership disposed of certain terminal assets in Salisbury, Maryland, that were previously held for sale, with a book value approximating the sales proceeds of $0.9 million, resulting in a non-cash loss on disposal of less than $0.1 million. Of the proceeds received, the Partnership distributed $0.4 million to our General Partner in accordance with the original Agreement and Plan of Merger.

On June 1, 2015, the Partnership disposed of certain non-strategic off-shore transmission assets in Louisiana with a net book value of $3.0 million for nominal proceeds, resulting in a non-cash loss on disposal of $3.0 million.

On March 31, 2014, the Partnership completed the sale of certain gathering and processing assets in Madison County, Texas. We received $6.1 million in cash proceeds related to the sale, which approximated its net book value.

4. Discontinued Operations

The Partnership classified the terminal asset in Salisbury, Maryland as held for sale prior to its sale in the third quarter of 2015.
Historically, we have classified these assets as discontinued operations within our condensed consolidated statement of operations. Accordingly, we reclassified the disposal group's results of operations from our results of continuing operations to Income (loss) from discontinued operations, net of tax in our accompanying condensed consolidated statement of operations for all periods presented. We elected not to separately present 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 gain (loss) from operations of disposal groups associated with the assets classified as held for sale for the three and nine months ended September 30, 2015 and 2014 (in thousands, except per unit amounts):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$

 
$
13

 
$
74

 
$
461

Expenses
(77
)
 
(55
)
 
(193
)
 
(599
)
Loss on impairment of property, plant and equipment

 

 

 
(673
)
Loss on sale of assets
(65
)
 

 
(65
)
 
(87
)
Income tax benefit
89

 
16

 
105

 
316

Income (loss) from operations of disposal groups, net of tax
$
(53
)
 
$
(26
)
 
$
(79
)
 
$
(582
)
Limited partners' net income (loss) per unit from discontinued operations (basic and diluted)
$

 
$

 
$

 
$
(0.05
)

5. Concentration of Credit Risk and Trade Accounts Receivable

Our primary assets, which are strategically located in Alabama, Georgia, Louisiana, Mississippi, North Dakota, Tennessee, Texas and the Gulf of Mexico, provide critical infrastructure that links customers of crude oil, natural gas, NGLs, condensate and specialty chemicals to numerous intermediate and end-use markets.  As a result of recent acquisitions and geographic diversification, we have reduced the concentration of trade receivable balances due from these customer groups, and reduced the concentration which may affect our overall credit risk. We maintain allowances for potentially uncollectible accounts receivable; however, for the three

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and nine months ended September 30, 2015 and 2014, no allowances on or significant write-offs of accounts receivable were recorded.

During the three months ended September 30, 2015, one customer accounted for 12% of the Partnership's consolidated revenue, compared to 24% for the three months ended September 30, 2014. During the nine months ended September 30, 2015, no individual customer accounted for 10% or more of the Partnership's consolidated revenue.


6. Other Current Assets

Other current assets consist of the following (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Prepaid insurance
$
1,002

 
$
4,162

Restricted cash

 
6,475

Other prepaid amounts
2,095

 
758

Other current assets
4,039

 
4,159

 
$
7,136

 
$
15,554


Restricted cash of $6.5 million as of December 31, 2014 consisted of a cash-backed letter of credit related to Costar operations that the Partnership was contractually obligated to maintain after the Costar Acquisition. The Partnership was released from this obligation in January 2015. Other current assets primarily consist of natural gas imbalances and amounts due from related parties.

7. Derivatives

Commodity Derivatives

To minimize the effect of commodity price changes 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, economics on purchased assets and future financial commitments. This hedging program is designed to mitigate the effect of commodity price declines 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, our commodity derivatives are in the form of swaps. As of September 30, 2015, the aggregate notional volume of our commodity derivatives was 2.2 million gallons of NGLs, natural gasoline, and crude oil equivalent.

We enter into commodity contracts with multiple counterparties, and in some cases, may be required to post collateral with our counterparties in connection with our derivative positions. As of September 30, 2015, we were not required to post collateral with any counterparty. The counterparties are not required to post collateral with us in connection with their derivative positions. Netting agreements are in place that permit us to offset our commodity derivative asset and liability positions with our counterparties.

We did not designate any of our commodity derivatives as hedges for accounting purposes. As a result, our commodity derivatives are accounted for at fair value in our condensed consolidated balance sheets with changes in fair value recognized currently in earnings.

Interest Rate Swap

To manage the impact of the interest rate risk associated with our credit facility, we enter into interest rate swaps from time to time, effectively converting a portion of the cash flows related to our long-term variable rate debt into fixed rate cash flows. The notional amount of our interest rate swap that expired on August 1, 2015, was $100.0 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 2015, 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 $10.0 million in the event that a hurricane or hurricanes of certain

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strength pass through the area as identified in the derivative agreement. The weather derivatives are accounted for using the intrinsic value method, under which the fair value of the contract was zero and any amounts received are recognized as gains during the period received. The weather derivatives were entered into with a single counterparty, and we were not required to post collateral.

We paid premiums of $0.9 million in 2015, which are recorded as current Risk management assets on our condensed consolidated balance sheet and are being amortized to Direct operating expenses on a straight-line basis over the term of the contract of one year. Unamortized amounts associated with the weather derivatives were approximately $0.6 million as of September 30, 2015.
As of September 30, 2015 and December 31, 2014, the value associated with our commodity derivatives, interest rate swap, 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,
2015
 
December 31, 2014
 
September 30,
2015
 
December 31, 2014
 
September 30,
2015
 
December 31, 2014
Current
 
$
1,177

 
$
688

 
$

 
$

 
$
1,177

 
$
688

Noncurrent
 

 

 

 

 

 

Total assets
 
$
1,177

 
$
688

 
$

 
$

 
$
1,177

 
$
688

 
 
 
 
 
 
 
 
 
 
 
 
 
Current
 
$

 
$

 
$

 
$
(215
)
 
$

 
$
(215
)
Noncurrent
 

 

 

 

 

 

Total liabilities
 
$

 
$

 
$

 
$
(215
)
 
$

 
$
(215
)

For the three and nine months ended September 30, 2015 and 2014, 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):
 
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
2015
 
 
 
 
 
 
 
Gain (loss) on commodity derivatives, net
$
575

 
$
241

 
$
966

 
$
308

Interest expense
(36
)
 
69

 
(240
)
 
215

Direct operating expenses
(219
)
 

 
(694
)
 

Total
$
320

 
$
310

 
$
32

 
$
523

2014
 
 
 
 
 
 
 
Gain (loss) on commodity derivatives, net
$
(9
)
 
$
615

 
$
(191
)
 
$
474

Interest expense
(109
)
 
91

 
(322
)
 
118

Direct operating expenses
(241
)
 

 
(794
)
 

Total
$
(359
)
 
$
706

 
$
(1,307
)
 
$
592


8. Fair Value Measurement

We believe the carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term maturity of these instruments.

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.

The fair value of our commodity and interest rate derivatives instruments are 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.


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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 will recognize transfers between levels at the end of the reporting period in which the transfer occurred. There were no such transfers for the nine months ended September 30, 2015 and 2014.

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 our condensed consolidated balance sheets, that were measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 (in thousands):
 
Carrying
Amount
 
Estimated Fair Value of the Assets (Liabilities)
 
Level 1
 
Level 2
 
Level 3
 
Total
Commodity derivative instruments, net
 
 
 
 
 
 
 
 
 
September 30, 2015
$
594

 
$

 
$
594

 
$

 
$
594

December 31, 2014
286

 

 
286

 

 
286

Interest rate swap
 
 
 
 
 
 
 
 
 
September 30, 2015
$

 
$

 
$

 
$

 
$

December 31, 2014
(215
)
 

 
(215
)
 

 
(215
)

The unamortized portion of the premium paid to enter the weather derivative described in Note 7 "Derivatives" is included within Risk management assets on our condensed consolidated balance sheet but is not included as part of the above table as it is recorded at amortized carrying cost, not fair value.

9. Property, Plant and Equipment, Net

Property, plant and equipment, net, as of September 30, 2015 and December 31, 2014 were as follows (in thousands):
 
Useful Life
(in years)
 
September 30,
2015
 
December 31,
2014
Land
N/A
 
$
5,282

 
$
5,282

Construction in progress
N/A
 
101,193

 
77,550

Base gas
N/A
 
1,108

 
1,108

Buildings and improvements
4 to 40
 
9,807

 
6,855

Processing and treating plants
8 to 40
 
81,597

 
80,837

Pipelines
3 to 40
 
488,492

 
451,341

Compressors
4 to 20
 
31,081

 
24,548

Dock
20 to 40
 
8,105

 
8,072

Tanks, truck rack and piping
20 to 40
 
32,826

 
30,079

Equipment
8 to 20
 
9,685

 
8,855

Computer software
5
 
7,107

 
3,490

Total property, plant and equipment
 
 
776,283

 
698,017

Accumulated depreciation
 
 
(137,344
)
 
(115,835
)
Property, plant and equipment, net
 
 
$
638,939

 
$
582,182


Of the gross property, plant and equipment balances at September 30, 2015 and December 31, 2014, $109.0 million and $101.9 million, respectively, were related to AlaTenn, Midla and HPGT, our FERC regulated interstate and intrastate assets.

Capitalized interest was $0.9 million and $0.3 million for the three months ended September 30, 2015 and 2014, respectively, and $1.6 million and $0.4 million for the nine months ended September 30, 2015 and 2014, respectively.

Depreciation expense was $7.9 million and $4.6 million for the three months ended September 30, 2015 and 2014, respectively, and $23.3 million and $15.7 million for the nine months ended September 30, 2015 and 2014, respectively.

10. Goodwill and Intangible Assets, Net


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The carrying value of goodwill as of September 30, 2015 and December 31, 2014, was $134.9 million and $142.2 million, respectively. See Note 3 "Acquisitions and Divestitures" for discussion regarding the change in goodwill from December 31, 2014 to September 30, 2015. Goodwill as of September 30, 2015 consisted of $118.6 million and $16.3 million related to our Gathering and Processing and Terminal segments, respectively. Goodwill as of December 31, 2014 consisted of $125.9 million and $16.3 million related to our Gathering and Processing and Terminal segments, respectively.

The goodwill associated with our Gathering and Processing segment relates to the Costar and Lavaca Acquisitions and primarily represent strategic developmental locations to grow the business within the segment. The goodwill associated with our Terminal segment was contributed to the Partnership as part of the Partnerships' acquisition of Blackwater Midstream Holdings LLC ("Blackwater") and other related subsidiaries from an affiliate of HPIP (the "Blackwater Acquisition"). Goodwill was recorded as a result of the excess of the investment by an affiliate of HPIP in Blackwater over the fair market value of the identifiable net assets and customer contracts acquired.

Intangible assets, net, consists of customer contracts, relationships and dedicated acreage agreements identified as part of the Costar Acquisition, Lavaca Acquisition and Blackwater Acquisition. These intangible assets have definite lives and are subject to amortization on a straight-line basis over their economic lives, currently ranging from 5 months to thirty years. Intangible assets, net, consist of the following (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Gross carrying amount:
 
 
 
    Customer contracts
$
12,101

 
$
12,101

    Customer relationships
53,400

 
53,400

    Dedicated acreage
53,350

 
53,350

 
$
118,851

 
$
118,851

Accumulated amortization:
 
 
 
    Customer contracts
$
(12,101
)
 
$
(11,110
)
    Customer relationships
(2,435
)
 
(553
)
    Dedicated acreage
(2,263
)
 
(882
)
 
$
(16,799
)
 
$
(12,545
)
Net carrying amount:
 
 
 
    Customer contracts
$

 
$
991

    Customer relationships
50,965

 
52,847

    Dedicated acreage
51,087

 
52,468

 
$
102,052

 
$
106,306


Amortization expense on our intangible assets totaled $1.2 million and $0.9 million for the three months ended September 30, 2015 and 2014, respectively, and $4.3 million and $3.0 million for the nine months ended September 30, 2015 and 2014, respectively.

11. Investment in unconsolidated affiliates

The Partnership accounts for its 66.7% non-operated interest in MPOG, a crude oil gathering and processing system, its 46.0% non-operated interest in Mesquite, an off-spec condensate fractionation project, and its 12.9% non-operated interest in Delta House, a floating production system platform with associated oil and gas export pipelines, under the equity method.

The following table presents the activity in the Partnership's equity investments as of September 30, 2015 and December 31, 2014 (in thousands):


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MPOG
 
Mesquite
 
Delta House
 
Total
Balances at December 31, 2013
$

 
$

 
$

 
$

 
Initial investment
12,000

 
11,884

 

 
23,884

 
Earnings in unconsolidated affiliates
348

 

 

 
348

 
Distributions
(1,980
)
 

 

 
(1,980
)
Balances at December 31, 2014
$
10,368

 
$
11,884

 
$

 
$
22,252

 
Initial investment

 

 
61,351

 
61,351

 
Earnings in unconsolidated affiliates
571

 

 
694

 
1,265

 
Contributions

 
4,271

 

 
4,271

 
Distributions
(2,820
)
 

 
(3,748
)
 
(6,568
)
Balances at September 30, 2015
$
8,119

 
$
16,155

 
$
58,297

 
$
82,571


The following tables present the summarized combined financial information for the Partnership's equity investments (amounts represent 100% of investee financial information):

Balance Sheets:
September 30, 2015
 
December 31, 2014
Current assets
$
117,796

 
$
2,196

Non-current assets
929,836

 
62,635

Current liabilities
105,985

 
398

Non-current liabilities
361,662

 
22,307


 
Three months ended September 30,
 
Nine months ended September 30,
Income Statements:
2015
 
2014
 
2015
 
2014
Total revenue
$
9,201

 
$
1,737

 
$
13,610

 
$
1,737

Operating expense
1,274

 
632

 
3,011

 
632

Net income
5,975

 
185

 
6,216

 
185



12. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were as follows (in thousands):
 
 
September 30,
 
December 31,
 
 
2015
 
2014
Accrued capital expenditures
 
$
5,325

 
$
17,134

Accrued expenses
 
6,399

 
6,380

Gas imbalances payable
 
634

 
1,069

Accrued property taxes
 
2,302

 
656

Other
 
2,704

 
561

 
 
$
17,364

 
$
25,800


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13. Debt Obligations

Our outstanding borrowings under the credit facility were (in thousands):
 
September 30,
2015
 
December 31,
2014
Revolving credit facility
$
508,650

 
$
372,950

Other debt

 
2,908

Total debt
508,650

 
375,858

Less: current portion

 
2,908

Long-term debt
$
508,650

 
$
372,950


On September 18, 2015, the Partnership entered into the First Amendment and Incremental Commitment Agreement (the "First Amendment") to the Partnership's Amended and Restated Credit Agreement dated as of September 5, 2014 (as amended by the First Amendment, the "Amended Credit Agreement"), which provides for maximum borrowings equal to $750.0 million, with the ability to further increase the borrowing capacity to $900.0 million subject to lender approval. We can elect to have loans under our Amended Credit Agreement bear interest either at a Eurodollar-based rate, plus a margin ranging from 2.00% to 3.25% depending on our total leverage ratio then in effect, or a base rate which is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate”, or (c) the Eurodollar Rate plus 1.00% plus a margin ranging from 1.00% to 2.25% depending on the total leverage ratio then in effect. We also pay a commitment fee of 0.50% per annum on the undrawn portion of the revolving loan under the Amended Credit Agreement.

Our obligations under the Amended Credit Agreement are secured by a lien on substantially all of our assets. Advances made under the Amended Credit Agreement are guaranteed on a senior unsecured basis by certain of our subsidiaries (the “Guarantors”). These guarantees are full and unconditional and joint and several among the Guarantors. The terms of the Amended Credit Agreement include covenants that restrict our ability to make cash distributions and acquisitions in some circumstances. The remaining principal balance of loans and any accrued and unpaid interest will be due and payable in full on the maturity date, which is September 5, 2019.

The Amended Credit Agreement contains certain financial covenants, including the requirement that our indebtedness not exceed 4.75 times adjusted consolidated EBITDA for the prior twelve month period adjusted in accordance with the Amended Credit Agreement (except for the current and subsequent two quarters after the consummation of a permitted acquisition, at which time the covenant is increased to 5.25 times adjusted consolidated EBITDA) and a minimum interest coverage ratio test that requires our adjusted consolidated EBITDA to exceed consolidated interest charges by not less than 2.50 times. The financial covenants in our Amended Credit Agreement may limit the amount available to us for borrowing to less than $750.0 million. In addition to the financial covenants described above, the Amended Credit Agreement also contains customary representations and warranties (including those relating to organization and authorization, compliance with laws, absence of defaults, material agreements and litigation) and customary events of default (including those relating to monetary defaults, covenant defaults, cross defaults and bankruptcy events).

For the nine months ended September 30, 2015 and 2014, the weighted average interest rate on borrowings under the Amended Credit Agreement was approximately 3.50% and 4.38%, respectively.

As of September 30, 2015, our consolidated total leverage was 4.44 and our interest coverage ratio was 10.18, which were in compliance with the consolidated total leverage ratio and interest coverage ratio tests in accordance with the financial covenants required in the Amended Credit Agreement. At September 30, 2015 and December 31, 2014, letters of credit outstanding under the Amended Credit Agreement were $1.4 million and $1.6 million, respectively.

Other debt

Other debt represents insurance premium financing in the original amount of $3.3 million bearing interest at 3.95% per annum, which was repayable in equal monthly installments of approximately $0.4 million through the third quarter of 2015.

14. Partners’ Capital and Convertible Preferred Units


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Our capital accounts are comprised of approximately 1.3% notional general partner interests and 98.7% 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 incentive distribution rights that are non-voting limited partner rights held by our General Partner.

Our General Partner holds and participates in the distribution on Series B Units with such distributions being made in cash or with paid-in-kind Series B Units at the election of the Partnership. The holders of Series B Units are entitled to vote along with the holders of Limited Partner common units and such units will automatically convert to Limited Partner common units on January 31, 2016.

HPIP holds and participates on the distributions of Series A-1 Units with such distributions being made in paid-in-kind Series A-1 Units, cash or a combination thereof, at the election of the board of directors of our General Partner through the distribution for the earlier of (a) the quarter ended March 31, 2016 or (b) the time in which the Series A-1 Units are converted into common units. The Series A-1 Units are entitled to vote along with Limited Partner common unitholders and such units are currently convertible to Limited Partner common units.

Series A-2 Units

On March 30, 2015 and June 30, 2015, we entered into two Series A-2 Convertible Preferred Unit Purchase Agreements with Magnolia Infrastructure Partners, LLC (an affiliate of HPIP) pursuant to which the Partnership issued, in separate private placements, newly-designated Series A-2 Units (the “Series A-2 Units”) representing limited partnership interests in the Partnership. As a result, the Partnership issued a total of 2,571,430 Series A-2 Units for approximately $45.0 million in aggregate proceeds during the nine months ended September 30, 2015. The Series A-2 Units will participate in distributions of the Partnership along with common units in a manner identical to the existing Series A-1 Units (together with the Series A-2 Units, the "Series A Units"), with such distributions being made in cash or with paid-in-kind Series A Units at the election of the board of directors of our General Partner. The board of directors of our General Partner to date has elected to pay Series A distributions using paid-in-kind Series A Units.

On July 27, 2015, we entered into the Fifth Amendment (the “Fifth Amendment”) to our partnership agreement. The Fifth Amendment grants us the right (the “Call Right”) to require the holders of the Series A-2 Units (the “Series A-2 Holders”) to sell, assign and transfer all or a portion of the then outstanding Series A-2 Units to us for a purchase price of $17.50 per Series A-2 Unit (subject to appropriate adjustment for any equity distribution, subdivision or combination of equity interests in the Partnership). We may exercise the Call Right at any time after January 1, 2016, in connection with our or our affiliate’s acquisition of assets or equity from ArcLightEnergy Partners Fund V, L.P., or one of its affiliates, for a purchase price in excess of $100 million. We may not exercise the Call Right with respect to any Series A-2 Units that a Series A-2 Holder has elected to convert into common units on or prior to the date we have provided notice of our intent to exercise the Call Right, and may not exercise the Call Right if doing so would result in a default under any of our or our affiliates’ financing agreements or obligations.

As a result of the equity offering that closed on September 15, 2015, discussed below, the conversion price of the Series A Units was adjusted to $15.94 in accordance with the terms of the Partnership agreement so that the holders of those units would maintain their ownership interest on an as-converted basis.

Equity Offerings

On September 10, 2015, the Partnership and certain of its affiliates entered into an underwriting agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative for the underwriters named therein, providing for the issuance and sale by the Partnership of 7,500,000 common units representing Limited Partner interests in the Partnership at a price to the public of $11.31 per common unit. The offering closed on September 15, 2015 and the Partnership used the net proceeds of $81.0 million to fund a portion of the Delta House acquisition.

On October 8, 2015, we completed the issuance of an additional 151,937 Limited Partner common units at a price of $11.31 per unit pursuant to the partial exercise of the overallotment option granted in connection with the public offering of 7,500,000 Limited Partner common units that closed on September 15, 2015 for net proceeds of $1.7 million.

On January 29, 2014, the Partnership and certain of its affiliates entered into an underwriting agreement with Barclays Capital Inc. and UBS Securities LLC, providing for the issuance and sale by the Partnership, and the purchase of 3,400,000 Limited Partner common units representing Limited Partner interests in the Partnership at a price to the public of $26.75 per common unit. The Partnership used the net proceeds of $86.9 million to fund a portion of the Lavaca Acquisition.


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Issuance and Exercise of Warrant

Effective February 5, 2014, we issued to AIM Midstream Holdings, LLC a warrant to purchase up to 300,000 Limited Partner common units of the Partnership at an exercise price of $0.01 per common unit (the “Warrant”). The Warrant was exercised on February 21, 2014, resulting in the issuance of approximately 300,000 Limited Partner common units. The value of the Warrant of $7.2 million was determined based on the close price of $23.89 of the Limited Partner common units on the exercise date.

Equity Outstanding

The number of units outstanding as of September 30, 2015 and December 31, 2014, respectively, were as follows (in thousands):
 
September 30,
2015
 
December 31,
2014
Series A convertible preferred units
8,930

 
5,745

Series B convertible units
1,325

 
1,255

Limited Partner common units
30,269

 
22,670

General Partner units
536

 
392


Distributions

We made cash distributions as follows (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Series A convertible preferred units
$

 
$

 
$

 
$
2,658

Limited Partner common units
10,755

 
5,154

 
32,221

 
15,203

General Partner units
522

 
75

 
840

 
223

General Partners' incentive distribution rights
1,293

 
528

 
3,874

 
1,465

 
$
12,570

 
$
5,757

 
$
36,935

 
$
19,549


The Partnership executed a fourth amendment to its partnership agreement (the "Fourth Amendment"), which became effective March 30, 2015, related to its outstanding Series A Units. As a result of the Fourth Amendment, distributions on Series A Units being made with paid-in-kind Series A Units, cash or a combination thereof, at the discretion of the board of directors of our General Partner, which began with the distribution for the three months ended June 30, 2015 and will continue through the distribution for the earlier of (a) the quarter ended March 31, 2016 or (b) the time in which the Series A-1 Units are converted into common units. At September 30, 2015, we had accrued $5.0 million for the paid-in-kind Series A Units. The distributions will be made in the fourth quarter of 2015.

Net Income (Loss) attributable to Limited Partner Common Units

Net income (loss) is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages, after giving effect to contractual distributions on Series A Units, declared distributions on the Series B Units, common units representing Limited Partner interests and to the General Partner units, including incentive distribution rights. Unvested unit-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 basic and diluted net income per limited partner unit. Basic and diluted net income (loss) per limited partner unit is calculated by dividing limited partners’ interest in net income (loss) by the weighted average number of outstanding Limited Partner common units during the period. We determined basic and diluted net income (loss) per limited partner unit as follows, (in thousands, except per unit amounts):

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Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss) from continuing operations
$
(4,574
)
 
$
(2,397
)
 
$
(5,740
)
 
$
(2,934
)
Less: Net income (loss) attributable to noncontrolling interests
34

 
33

 
80

 
207

Net income (loss) from continuing operations attributable to the Partnership
(4,608
)
 
(2,430
)
 
(5,820
)
 
(3,141
)
Less:
 
 
 
 
 
 
 
Contractual distributions on Series A Units
4,991

 
4,165

 
12,598

 
11,263

Declared distributions on Series B Units
324

 
619

 
1,157

 
1,671

General partner's distribution
1,815

 
603

 
4,714

 
1,688

General partner's share in undistributed loss
(294
)
 
(169
)
 
(737
)
 
(430
)
Net income (loss) from continuing operations available to limited partners
(11,444
)
 
(7,648
)
 
(23,552
)
 
(17,333
)
Net income (loss) from discontinued operations available to limited partners
(53
)
 
(26
)
 
(79
)
 
(574
)
Net income (loss) available to limited partners
$
(11,497
)
 
$
(7,674
)
 
$
(23,631
)
 
$
(17,907
)
 
 
 
 
 
 
 
 
Weighted average number of units used in computation of limited partners’ net (loss) income per unit (basic and diluted)
23,987

 
13,204

 
23,154

 
11,409

 
 
 
 
 
 
 
 
Limited partners' net loss per common unit
 
 
 
 
 
 
 
Basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.48
)
 
$
(0.58
)
 
$
(1.02
)
 
$
(1.52
)
Loss from discontinued operations

 

 

 
(0.05
)
Net loss
$
(0.48
)
 
$
(0.58
)
 
$
(1.02
)
 
$
(1.57
)

15. Long-Term Incentive Plan

Our General Partner manages our operations and activities and employs personnel who support our operations. The board of directors of our General Partner issues awards under its long-term incentive plan (“LTIP”) for its employees, consultants and directors who perform services for us or our affiliates. At September 30, 2015 and December 31, 2014, 398,510 and 688,976 units, respectively, were available for future grant under the LTIP.

LTIP awards are subject to forfeiture until the applicable vesting date. The LTIP is administered by the board of directors of our General Partner which, 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 has not historically settled 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.

Generally, grants issued under the LTIP vest in increments of 25% on each grant date anniversary and do not contain any vesting conditions other than continued employment requirements.

The following table summarizes changes in our unit-based awards during the nine months ended September 30, 2015 indicated, in units:

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Nine months ended September 30, 2015
 
 
Units
 
Weighted-Average Exercise Price
Outstanding at beginning of period
 
201,132

 
$
19.85

Granted
 
341,640

 
15.77

Forfeited
 
(9,722
)
 
16.91

Vested
 
(140,257
)
 
18.67

Outstanding at end of period
 
392,793

 
$
16.80


The fair value of our phantom units, which are subject to equity classification, is based on the fair value of our limited partner units at the grant date. Compensation costs related to these awards, including amortization, for the three months ended September 30, 2015 and 2014 were $0.6 million and $0.3 million, respectively, and for the nine months ended September 30, 2015 and 2014 were $2.8 million and $1.1 million, respectively, which are classified as Equity compensation expense in our condensed consolidated statements of operations and in partners’ capital on our condensed consolidated balance sheets.

The total fair value of vested units at the time of vesting was $2.5 million and $1.2 million for the nine months ended September 30, 2015 and 2014, respectively.

Equity compensation expense related to unvested awards not yet recognized at September 30, 2015 and 2014 was $5.5 million and $3.4 million, respectively, and the weighted average period over which this cost is expected to be recognized as of September 30, 2015 is approximately 3.0 years .

16. Income Taxes

The Partnership is not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. However, the State of Texas imposes a margin tax upon the Partnership that is assessed annually against the taxable margin apportioned to Texas. In general, taxes on our net income are borne by our unitholders through their allocation of taxable income or loss. However, one of our subsidiaries, American Midstream Blackwater, LLC, owns a corporate consolidated tax return group which is a separate taxable entity for U.S. federal income tax and state income tax purposes. The provision for income taxes is attributable to the activities of the taxable corporate consolidated tax return group and taxable margin apportioned to Texas.
On October 2, 2014, the Partnership received a “Notice of Beginning of Administrative Proceeding” (the “NBAP”) relating to the Internal Revenue Service (the “IRS”) commencing an audit of the Partnership’s 2012 Form 1065 federal tax return. Under IRS regulations, the Partnership was required to communicate the NBAP to all limited partners who hold less than 1% of its outstanding units ("Non-Notice Partners") within 75 days of receipt of the NBAP. The Partnership filed a Current Report on Form 8-K with the SEC on November 19, 2014, furnishing a copy of the NBAP to its Non-Notice Partners.
On June 19, 2015, the Partnership received a No Adjustments Letter (the "No Adjustments Letter") relating to the IRS audit of Partnership’s 2012 Form 1065 federal tax return. There were no adjustments proposed by the IRS for the Partnership’s 2012 Form 1065 federal tax return. The Partnership filed a Current Report on Form 8-K with the SEC on June 24, 2015, furnishing a copy of the No Adjustments Letter to its Non-Notice Partners.

Income tax expense for the three and nine months ended September 30, 2015 was $0.6 million and $1.1 million, respectively, resulting in an effective tax rate of 14.9% and 22.8%, respectively. For the three and nine months ended September 30, 2014, income tax expense was $0.1 million and $0.3 million, respectively, resulting in an effective tax rate of 5.4% and 9.7%, respectively.

The effective tax rates for the three and nine months ended September 30, 2015 and September 30, 2014, differ from the statutory rate primarily due to the portion of the Partnership's income and loss that is not subject to U. S. federal income taxes, as well as transactions between the Partnership and its taxable subsidiary that generate tax deductions for the taxable subsidiary, which are eliminated in the consolidation of Net income (loss) before income tax (expense) benefit.

17. Commitments and Contingencies

Legal proceedings

We are not currently party to any pending litigation or governmental proceedings, other than ordinary routine litigation incidental to our business. While the ultimate impact of any proceedings cannot be predicted with certainty, our management believes that

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the resolution of any of our pending proceedings will not have a material adverse effect on our financial condition or results of operations.

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 pipelines, NGL and crude pipelines and operations, as well as terminal 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.
Regulatory matters

On December 11, 2014, American Midstream (Midla), LLC ("Midla"), a subsidiary of the Partnership, filed a Stipulation and Agreement (the "Midla Agreement") which resolved all of the outstanding issues between Midla and its customers regarding its interstate pipeline that traverses Louisiana and Mississippi owned and operated by Midla. The parties involved reached agreement in order to provide continued service to Midla’s customers while addressing safety concerns with the existing pipeline.

On April 16, 2015, the FERC approved the Midla Agreement between Midla and its customers allowing Midla to retire the existing 1920s vintage pipeline and replace the existing natural gas service with a new pipeline from Winnsboro, Louisiana to Natchez, Mississippi (the “Midla-Natchez Line”) to serve existing residential, commercial, and industrial customers. Under the Midla Agreement, customers not served by the new Midla-Natchez Line will be connected to other interstate or intrastate pipelines, other gas distribution systems, or offered conversion to propane service. On June 29, 2015, the Partnership filed with the FERC for authorization to construct the Midla-Natchez pipeline. Subject to FERC approval, construction is expected to commence in the first half of 2016 with service beginning in late 2016. Under the Midla Agreement, Midla will execute long-term agreements to recover its investment in the Midla-Natchez Line.

18. 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 the Partnership, 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, 2015, administrative and operational services expenses of $14.6 million and $28.8 million, respectively, were charged to us by our General Partner. During the three and nine months ended September 30, 2014, administrative and operational services expenses of $5.5 million and $15.2 million, respectively, were charged to us by our General Partner. For the three and nine months ended September 30, 2015, our General Partner incurred approximately $1.0 million and $0.1 million, respectively, of net costs primarily associated with certain business development activities. For the three and nine months ended September 30, 2014, our General Partner incurred net costs primarily associated with certain business development activities in amounts equal to approximately $0.3 million and $1.3 million, respectively.

For the three and six months ended June 30, 2015, the Partnership and an affiliate of HPIP entered into arrangements under which the affiliate reimbursed the Partnership for right-of-ways purchased on the affiliate's behalf for approximately $1.1 million and $3.9 million, respectively. During the three months ended September 30, 2015, the Partnership purchased certain equipment from an affiliate for $0.3 million.

During the second quarter of 2014, the Partnership and an affiliate of its General Partner entered into a Management Service Fee arrangement under which the affiliate pays a monthly fee to reimburse the Partnership for administrative expenses incurred on the affiliates' behalf. During the three and nine months ended September 30, 2015, the Partnership recognized $0.3 million and $1.2 million, in management fee income, respectively, and $0.2 million and $0.3 million during the three and nine months ended September 30, 2014, respectively, that has been recorded as a reduction to Selling, general and administrative expenses.

In connection with the equity offering on September 10, 2015, certain affiliates and officers of our General Partner agreed to purchase an aggregate of 739,441 common units for approximately $8.4 million. The underwriters did not receive any underwriting discounts or commissions on the common units purchased by these affiliates and officers.


19. Reporting Segments


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Our operations are located in the United States and are organized into three reporting segments: i) Gathering and Processing, ii) Transmission and iii) Terminals.

Gathering and Processing

Our Gathering and Processing segment provides “wellhead-to-market” services to producers of natural gas and oil, 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, fractionating NGLs, and selling or delivering pipeline-quality natural gas and NGLs to various markets and pipeline systems.

Transmission

Our Transmission segment transports and delivers natural gas from producing wells, receipt points or pipeline interconnects for shippers and other customers, which include local distribution companies, utilities and industrial, commercial and power generation customers.

Terminals

Our Terminals segment provides above-ground storage services at our marine terminals that support various commercial customers, including commodity brokers, refiners and chemical manufacturers to store a range of products, including petroleum products, distillates, chemicals and agricultural products.

These segments are monitored separately by management for performance and are consistent with the Partnership's 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 the performance measure utilized by management to monitor the business of each segment.

The following tables set forth our segment information for the three and nine months ended September 30, 2015 and 2014 (in thousands):

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Three months ended September 30, 2015
 
Gathering
and
Processing
 
Transmission
 
Terminals
 
Total
Revenue
$
40,103

 
$
9,977

 
$
4,745

 
$
54,825

Gain (loss) on commodity derivatives, net
816

 

 

 
816

Total revenue
40,919

 
9,977

 
4,745

 
55,641

Operating expenses:
 
 
 
 
 
 
 
Purchases of natural gas, NGL's and condensate
22,055

 
2,376

 

 
24,431

Direct operating expenses
10,119

 
3,595

 
1,614

 
15,328

Selling, general and administrative expenses
 
 
 
 
 
 
7,639

Equity compensation expense
 
 
 
 
 
 
574

Depreciation, amortization and accretion expense
 
 
 
 
 
 
9,160

Total operating expenses
 
 
 
 
 
 
57,132

Gain (loss) on sale of assets, net
 
 
 
 
 
 
(32
)
Interest expense
 
 
 
 
 
 
(3,553
)
Earnings in unconsolidated affiliates
 
 
 
 
 
 
1,094

Income tax (expense) benefit
 
 
 
 
 
 
(592
)
Income (loss) from discontinued operations, net of tax
 
 
 
 
 
 
(53
)
Net income (loss)
 
 
 
 
 
 
(4,627
)
Less: Net income (loss) attributable to noncontrolling interests
 
 
 
 
 
 
34

Net income (loss) attributable to the Partnership
 
 
 
 
 
 
$
(4,661
)
 
 
 
 
 
 
 
 
Segment gross margin (a)
$
18,422

 
$
7,581

 
$
3,131

 
$
29,134



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Three months ended September 30, 2014
 
Gathering
and
Processing
 
Transmission
 
Terminals
 
Total
Revenue
$
45,569

 
$
20,328

 
$
3,802

 
$
69,699

Gain (loss) on commodity derivatives, net
606

 

 

 
606

Total revenue
46,175

 
20,328

 
3,802

 
70,305

Operating expenses: