CNX MIDSTREAM PARTNERS LP You should read the following discussion of the financial condition and results of operations ofCNX Midstream Partners LP in conjunction with the historical and unaudited interim consolidated financial statements and notes to the consolidated financial statements. Among other things, those historical unaudited interim consolidated financial statements include more detailed information regarding the basis of presentation for the following information. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified under "forward-looking statements" below and those discussed in the section entitled "Risk Factors" in the Partnership's Annual Report on Form 10-K for the year endedDecember 31, 2019 , which we filed with theSEC onFebruary 10, 2020 , as updated in this Quarterly Report on Form 10-Q. In this Item 2, all references to "we," us," "our," the "Partnership," "CNXM," or similar terms refer toCNX Midstream Partners LP and its subsidiaries. Executive Overview We are a growth-oriented master limited partnership focused on the ownership, operation, development and acquisition of midstream energy infrastructure in theAppalachian Basin . We currently provide midstream services to our customers' production in theMarcellus Shale andUtica Shale inPennsylvania andWest Virginia under long-term, fixed-fee contracts. Our assets include natural gas gathering pipelines and compression and dehydration facilities, as well as condensate gathering, collection, separation and stabilization facilities. We are managed by our general partner,CNX Midstream GP LLC (our "general partner"), which is a wholly-owned subsidiary ofCNX Gathering LLC ("CNX Gathering"). CNX Gathering is a wholly owned subsidiary ofCNX Gas Company LLC ("CNX Gas "), which is a wholly-owned subsidiary of our Sponsor, CNX Resources Corporation (NYSE: CNX) ("CNX Resources"). In the current environment, the Partnership has been re-evaluating its current capital allocation opportunities and will remain flexible based on market conditions and availability of opportunities. We remain committed to growing value for our investors over the long term by allocating capital investment to high rate of return midstream projects, delivering cash distributions to our investors over the long term while remaining flexible based on market conditions and availability of opportunities. The markets for crude oil, natural gas and NGLs remain volatile, and prices may continue to fluctuate in response to, among other things: Geopolitical factors, such as events that may reduce or increase production from particular oil-producing regions and/or from members of theOrganization of Petroleum Exporting Countries ("OPEC"), and global events, such as the ongoing coronavirus COVID-19 ("COVID-19") outbreak. Since the beginning of 2020, NYMEX oil prices have moved downward due in part to concerns about COVID-19 and its impact on near-term worldwide oil demand and due to the increase in oil production by certain members ofOPEC . This oversupply of oil has caused historically low oil prices, which has compounded the impact of the domestic oversupply of NGLs as well as current export constraints and has driven NGL prices to historic lows. WhileOPEC agreed in April to cut production, downward pressure on prices has continued and could continue for the foreseeable future, particularly given concerns over available storage capacity for refined products such as crude, and refinery inputs including condensate, c5+ and butane. Continued strength in natural gas production, along with reduced heating demand for natural gas as a result of relatively mild winter temperatures throughout most ofthe United States , accounted for relatively higher inventory levels. Despite anApril 12 agreement by theOPEC and its allies to reduce global production by approximately 10%, the economic slowdown and stay-at-home orders has continued to decrease demand for natural gas.The U.S. Energy Information Administration's ("EIA") Short-Term Energy Outlook forApril 2020 forecasts are subject to heightened uncertainty because of the economic slowdown and significant changes in energy markets recently. In March of 2020, the Partnership was notified of temporary production curtailments by one of its third-party customers that will reduce the Partnership's future wet gas gathering revenues, of which the length and severity is still unknown. There was minimal impact on the current quarter. As ofApril 27, 2020 , we have not received any other notifications from our customers, however our Sponsor is still determining the impact to their wet gas production and the potential for future curtailments. 20 -------------------------------------------------------------------------------- Table of Contents COVID-19 Update While CNXM did not incur significant disruptions to our operations during the three months endedMarch 31, 2020 as a result of the COVID-19 pandemic, CNXM is unable to predict the impact that the COVID-19 pandemic will have on us, including our financial position, operating results, liquidity and ability to obtain financing in future reporting periods, due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental or other actions taken to combat the virus (which could include limitations on our operations or the operations of our customers and vendors), and the effect that the COVID-19 pandemic and the current oil price wars have on the demand for natural gas and natural gas liquids. The health of our Sponsor's employees, contractors and vendors, and our ability to meet staffing needs in our operations and certain critical functions cannot be predicted and is vital to our operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets as well as other unanticipated consequences remain unknown. In addition, CNXM cannot predict the impact that COVID-19 will have on our customers, vendors and contractors; however, any material effect on these parties could adversely impact CNXM. For instance, in the short term, CNXM is starting to see a reduction in overall service and materials costs, due to oversupply of those services and costs, since industrial production has waned. However, if service providers to our industry are forced into bankruptcy or otherwise consolidate due to weakening economic conditions, demand could outpace supply in the long-term and cause these costs to increase. The situation surrounding COVID-19 remains fluid, and CNXM is actively managing our response in collaboration with our contractors, customers, Sponsors employees and vendors and assessing potential impacts to our financial position and operating results, as well as any adverse developments that could impact our business. CNXM has also taken, and is continuing to take, proactive steps to manage any disruption in our business caused by COVID-19. For instance, even though our operations were not required to close, CNXM and our sponsor were early adopters in employing a work-from-home system, even before any government mandate on non-essential businesses was enacted. CNXM increased its technology platform, infrastructure and security to allow for a work-from-home environment ahead of the actual need, and therefore, once the hypothetical became a reality, we believe CNXM was ahead of many companies in this respect. CNXM has also deployed additional safety protocols at our field sites in order to keep our Sponsors employees and contractors safe and to keep our operations running without material disruption. For further information regarding the impact of COVID-19 see Risk factors in Item 1A of this Form 10-Q. First Quarter Financial Highlights The Partnership continued its solid financial performance during the three months endedMarch 31, 2020 with Distributable Cash Flow exceeding expansion capital by$21.2 million . Comparative results net to the Partnership, with the exception of operating cash flows, which is presented on a gross consolidated basis, were as follows: Three Months Ended March 31, (in millions) 2020 2019 Net income$ 45.2 $ 35.1 Net cash provided by operating activities$ 40.1 $ 49.9 Adjusted EBITDA (non-GAAP)$ 60.4 $ 54.4 Distributable cash flow (non-GAAP)$ 46.9 $ 43.0 Expansion Capital$ 25.7 $ 71.1 For a discussion of why the above non-GAAP metrics are viewed as important by management, and how the non-GAAP financial measures reconcile to their nearest comparable financial measures prepared in accordance with accounting principles generally accepted inthe United States ("GAAP"), see "Non-GAAP Financial Measures" below for additional information. Quarterly Cash Distribution OnApril 24, 2020 , the Board of Directors of the Partnership's general partner declared a cash distribution to the Partnership's unitholders with respect to the first quarter of 2020 of$0.0829 per common unit. The cash distribution will be paid onMay 15, 2020 to unitholders of record at the close of business onMay 7, 2020 . Factors Affecting the Comparability of Our Financial ResultsThe Partnership continues to monitor a number of factors that may cause actual results of operations and financial results to differ from our historical results or current expectations. These factors include: the impact of the COVID-19 pandemic and the related economic downturn, the historically low natural gas and natural gas liquid prices and ramifications of the crude oil price war betweenOPEC /Saudi Arabia andRussia that occurred in March which has also led to concerns over available storage capacity for refined products such as crude, and refinery inputs including condensate, c5+ and butane. These and other factors could affect the Partnership's operations, earnings and cash flow for any period and could cause such results to not be 21 -------------------------------------------------------------------------------- Table of Contents comparable to those of the same period in previous years. The results presented in this Form 10-Q are not necessarily indicative of future operating results. Results of Operations Three Months EndedMarch 31, 2020 Compared to the Three Months EndedMarch 31, 2019 Three Months Ended March 31, 2020 2019 Change ($) Change (%) (in thousands) Revenue Gathering revenue - related party$ 62,178 $ 53,776 $ 8,402 15.6 % Gathering revenue - third party 17,953 18,443 (490) (2.7) % Miscellaneous income 65 - 65 - % Total Revenue 80,196 72,219 7,977 11.0 % Expenses Operating expense - related party 3,828 5,548 (1,720) (31.0) % Operating expense - third party 8,596 5,974 2,622 43.9 % General and administrative expense - related party 2,857 3,967 (1,110) (28.0) % General and administrative expense - third party 2,765 1,536 1,229 80.0 % (Gain) loss on asset sales and abandonments (11) 7,229 (7,240) (100.2) % Depreciation expense 7,578 5,650 1,928 34.1 % Interest expense 8,793 7,339 1,454 19.8 % Total Expense 34,406 37,243 (2,837) (7.6) % Net Income$ 45,790 $ 34,976 $ 10,814 30.9 % Less: Net income (loss) attributable to noncontrolling interest 571 (131) 702 (535.9) % Net Income Attributable to General and Limited Partner Ownership Interest in CNX Midstream Partners LP$ 45,219 $ 35,107 $ 10,112 28.8 % Operating Statistics - Gathered Volumes for the Three Months EndedMarch 31, 2020 Anchor Additional TOTAL Dry Gas (BBtu/d) 1 1,037 65 1,102 Wet Gas (BBtu/d) 1 548 49 597 Other (BBtu/d) 2 299 - 299 Total Gathered Volumes 1,884 114 1,998 Operating Statistics - Gathered Volumes for the Three Months EndedMarch 31, 2019 Anchor Additional TOTAL Dry Gas (BBtu/d) 1 828 3 831 Wet Gas (BBtu/d) 1 629 71 700 Other (BBtu/d) 2 134 - 134 Total Gathered Volumes 1,591 74 1,665 1 (One billion British Thermal Units per day - BBtu/d) Classification as dry or wet is primarily based upon system area. In certain situations, we may elect to allow customers to access alternate delivery points within our system, which would be a negotiated change addressed on a case-by-case basis. 2 Includes third-party volumes we gather under high-pressure short-haul agreements (294 BBtu/d and 126 BBtu/d for the three months endedMarch 31, 2020 and 2019, respectively) as well as condensate handling. 22 -------------------------------------------------------------------------------- Table of Contents Revenue Our revenue typically increases or decreases as our customers' production on our dedicated acreage increases or decreases. Since we charge a higher fee for natural gas that is shipped through our wet system than through our dry system, our revenue can also be impacted by the relative mix of gathered volumes by area, which may vary dependent upon our customers' elections as to where to deliver their produced volumes, which may change dynamically depending on the most current commodity prices at the time of shipment. Total revenue increased 11.0% to approximately$80.2 million for the three months endedMarch 31, 2020 compared to approximately$72.2 million for the three months endedMarch 31, 2019 primarily due to an 11.0% increase in gathered volumes of dry gas and wet gas. Significantly contributing to the volume increase was a 32.6% increase in gathered volumes of dry gas in the current quarter compared to the prior year quarter. The increase was the result of continued significant well turn-in-line activity that occurred afterMarch 31, 2019 and continued into the first quarter of 2020. In addition, there was an increase of 165.0 BBtu/d in other volumes compared with the prior year quarter, due primarily to activity under short-haul gathering contracts. Volumes gathered under short-haul gathering contracts do not have as significant an impact on revenues as volumes gathered at our standard dry or wet gas rates. Operating Expense Operating expense primarily includes electrically-powered compression, direct labor, repairs and maintenance and compression expenses. Total operating expenses were approximately$12.4 million in the three months endedMarch 31, 2020 compared to approximately$11.5 million in the three months endedMarch 31, 2019 . Included in total operating expense was electrically-powered compression expense of$3.7 million for the three months endedMarch 31, 2020 compared to$3.3 million for the three months endedMarch 31, 2019 , which was reimbursed by our customers pursuant to our GGAs. Although dry gas and wet gas volumes gathered increased 11.0%, operating expenses only increased 6.1% after adjusting for the electrically-powered compression expense reimbursement in the current quarter compared to the prior year quarter. This was primarily due to continued adherence to cost control initiatives implemented by our operations team over the past few years. General and Administrative Expense General and administrative expense primarily includes direct charges for the management and operation of our assets. Total general and administrative expense was approximately$5.6 million for the three months endedMarch 31, 2020 compared to approximately$5.5 million for the three months endedMarch 31, 2019 . For the three months endedMarch 31, 2020 , the Partnership incurred transaction costs associated with the IDR Elimination Transaction during the current quarter (see Note 1-Description of Business, in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q). The increase was offset, in part by a decrease in personnel related costs as part of continuing cost reductions. (Gain) Loss on Asset Sales and Abandonments During the three months endedMarch 31, 2019 , due in part to changes in customer drilling plan timing and ongoing assessments of projects that generate the highest returns on invested capital, the Partnership abandoned the construction of a compressor station that was designed to support additional production within certain areas of the Anchor Systems. After evaluating the amount of project spending that could be repurposed to other ongoing projects, management determined that the loss on abandoning the project was$7.2 million . No such transactions occurred in the three months endedMarch 31, 2020 . Depreciation Expense Depreciation expense is recognized on gathering and other equipment on a straight-line basis, with useful lives ranging from 25 years to 40 years. Total depreciation expense was approximately$7.6 million in the three months endedMarch 31, 2020 compared to approximately$5.7 million in the three months endedMarch 31, 2019 . The increase was the result of additional assets placed into service over time. Interest Expense Interest expense is comprised of interest on our 6.5% Senior Notes due 2026 (the "Senior Notes") as well as on the outstanding balance of our revolving credit facility. Interest expense was approximately$8.8 million for the three months endedMarch 31, 2020 compared to approximately$7.3 million for the three months endedMarch 31, 2019 . The increase in interest expense was primarily due to an increase in borrowings on our revolving credit facility which was related to our long-term capital program that was completed in 2019. The increase was also related to a reduction in the amount of interest that was capitalized in the first quarter of 2020 and was partially offset by lower interest rates on our revolving credit facility. 23 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures EBITDA and Adjusted EBITDA We define EBITDA as net income (loss) before net interest expense, depreciation and amortization, and Adjusted EBITDA as EBITDA adjusted for gains or losses on asset sales and abandonments and other non-cash items which should not be included in the calculation of Distributable Cash Flow. EBITDA and Adjusted EBITDA are used as supplemental financial measures by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: •our operating performance as compared to those of other companies in the midstream energy industry, without regard to financing methods, historical cost basis or capital structure; •the ability of our assets to generate sufficient cash flow to make distributions to our partners; •our ability to incur and service debt and fund capital expenditures; and •the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of EBITDA and Adjusted EBITDA in this Quarterly Report on Form 10-Q provides information that is useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to EBITDA and Adjusted EBITDA are Net Income and Net Cash Provided by Operating Activities. EBITDA and Adjusted EBITDA should not be considered an alternative to Net Income, Net Cash Provided by Operating Activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but not all, items that affect Net Income or Net Cash Provided by Operating Activities, and these measures may vary from those of other companies. As a result, EBITDA and Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. Distributable Cash Flow We define Distributable Cash Flow as Adjusted EBITDA less net income attributable to noncontrolling interest, cash interest expense and maintenance capital expenditures, each net to the Partnership. Distributable Cash Flow does not reflect changes in working capital balances. Distributable Cash Flow is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess: •the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and •the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities. We believe that the presentation of Distributable Cash Flow in this Quarterly Report on Form 10-Q provides information that is useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Distributable Cash Flow are Net Income andNet Cash Provided by Operating Activities. Distributable Cash Flow should not be considered an alternative to Net Income, Net Cash Provided by Operating Activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable Cash Flow excludes some, but not all, items that affect Net Income or Net Cash Provided by Operating Activities, and these measures may vary from those of other companies. As a result, our Distributable Cash Flow may not be comparable to similarly titled measures that other companies may use. 24
--------------------------------------------------------------------------------
Table of Contents
The following table presents a reconciliation of the non-GAAP measures of
EBITDA, Adjusted EBITDA and Distributable Cash Flow to the most directly
comparable GAAP financial measures of Net Income and Net Cash Provided by
Operating Activities.
Three Months Ended
March 31,
(in thousands) 2020 2019
Net Income $ 45,790 $ 34,976
Depreciation expense 7,578 5,650
Interest expense 8,793 7,339
EBITDA 62,161 47,965
Non-cash unit-based compensation expense 504 612
(Gain) loss on asset sales and abandonments (11) 7,229
Adjusted EBITDA 62,654 55,806
Less:
Net income (loss) attributable to noncontrolling interest 571 (131) Depreciation expense attributable to noncontrolling interest 480 394 Other expenses attributable to noncontrolling interest 1,173 1,120
Adjusted EBITDA Attributable to General and Limited Partner
Ownership Interest in
$ 60,430 $ 54,423 Less: cash interest expense, net to the Partnership 7,905 6,604 Less: maintenance capital expenditures, net to the Partnership 5,673 4,835 Distributable Cash Flow
Net Cash Provided by Operating Activities$ 40,123 $ 49,913 Interest expense 8,793 7,339 (Gain) loss on asset sales and abandonments (11) 7,229 Other, including changes in working capital 13,749 (8,675) Adjusted EBITDA 62,654 55,806
Less:
Net income (loss) attributable to noncontrolling interest 571 (131) Depreciation expense attributable to noncontrolling interest 480 394 Other expenses attributable to noncontrolling interest 1,173 1,120
Adjusted EBITDA Attributable to General and Limited Partner
Ownership Interest in
$ 60,430 $ 54,423 Less: cash interest expense, net to the Partnership 7,905 6,604 Less: maintenance capital expenditures, net to the Partnership 5,673 4,835 Distributable Cash Flow$ 46,852 $ 42,984 Distributable Cash Flow is a non-GAAP measure that is net to the Partnership. The$3.9 million increase in Distributable Cash Flow in the three months endedMarch 31, 2020 compared to the 2019 period was primarily attributable to an increase in volumes gathered under our fixed-fee gathering agreement with our Sponsor due to significant well turn-in-line activity over the last 12 months, coupled with continued adherence to cost control measures implemented by our operations team over the past few years. 25 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Liquidity and Financing Arrangements We have historically satisfied our working capital requirements, funded capital expenditures, acquisitions and debt service obligations, and made cash distributions with cash generated from operations, borrowings under our revolving credit facility and issuance of debt and equity securities. If necessary, we may issue additional equity or debt securities to satisfy the expenditure requirements necessary to fund future growth. We believe that cash generated from these sources will continue to be sufficient to meet these needs in the future. Nevertheless, the ability of the Partnership to satisfy its working capital requirements, to service its debt obligations, to fund planned capital expenditures, or to pay dividends will depend upon future operating performance, which will be affected by prevailing economic conditions in the natural gas industry and other financial and business factors, including the current COVID 19 pandemic, some of which are beyond our control. We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to the significant decline in natural gas, NGLs and/or crude oil prices or uncertainty created by the COVID-19 pandemic, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be reduced. As ofMarch 31, 2020 , we were in compliance with all our debt covenants. After considering the current and potential effect of the significant decline in natural gas, NGLs and/or crude oil prices and uncertainty created by the COVID-19 pandemic on our operations, the Partnership currently expects to remain in compliance with its debt covenants. Cash Flows Net cash provided by or used in operating activities, investing activities and financing activities were as follows for the periods presented:
Three Months Ended
(in millions) 2020 2019 Change Net Cash Provided by Operating Activities$ 40.1 $ 49.9 $ (9.8) Net Cash Used in Investing Activities$ (32.7) $ (78.6) $ 45.9 Net Cash (Used in) Provided by Financing Activities$ (2.3) $ 24.7 $ (27.0) Net Cash Provided by Operating Activities decreased approximately$9.8 million for the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 . The Partnership's consolidated Adjusted EBITDA increased by$6.8 million in the current year period compared to the prior year period. The remainder of the change was primarily due to a reduction in accounts payable resulting from lower capital spend.Net Cash Used in Investing Activities decreased$45.9 million in the current quarter compared to the prior year quarter due primarily to the long-term capital program being completed during 2019 and the go-forward capital intensity of the Partnership being lower.Net Cash (Used in) Provided by Financing Activities in the current year period decreased compared to the prior year period due to a reduction in borrowings required to support lower levels of capital spending (investing activities). Also contributing to the decrease was the 15% growth in our distribution payments, which were$37.2 million in the current year compared to$27.3 million in the prior year. Indebtedness Revolving Credit Facility We are party to a$600.0 million secured revolving credit facility, as amended inApril 2019 (our "revolving credit facility"), that matures onApril 24, 2024 and includes the ability to issue letters of credit up to$100.0 million in the aggregate. The revolving credit facility has an accordion feature that allows, subject to certain terms and conditions, the Partnership to increase the available borrowings under the revolving credit facility by up to an additional$250.0 million . The available borrowing capacity under the revolving credit facility is limited by certain financial covenants pertaining to leverage and interest coverage ratios as defined in the revolving credit facility agreement. Borrowings under the amended revolving credit facility bear interest at our option at either: •the base rate, which is the highest of (i) the federal funds open rate plus 0.50%, (ii)PNC Bank, N.A.'s prime rate, or (iii) the one-month LIBOR rate plus 1.00%, in each case, plus a margin ranging from 0.50% to 1.50%; or •the LIBOR rate plus a margin ranging from 1.50% to 2.50%. 26 -------------------------------------------------------------------------------- Table of Contents We incurred interest expense of$2.5 million on our revolving credit facility (not including amortization of revolver fees) during the three months endedMarch 31, 2020 . AtMarch 31, 2020 , the outstanding balance on our revolving credit facility was$347.0 million , and we had the maximum remaining amount of revolving credit, or$253.0 million , available for borrowing. For additional information on our revolving credit facility, including details relating to the amendment that was completed inApril 2019 , see Note 6-Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q. Senior Notes due 2026 OnMarch 16, 2018 , the Partnership completed a private offering of$400.0 million in 6.5% senior notes due 2026 (the "Senior Notes"), and received net proceeds of approximately$394.0 million , after deducting the initial purchasers' discount. In connection with the issuance of the Senior Notes, the Partnership capitalized related offering expenses, which are recorded in our consolidated balance sheet as a reduction to the principal amount. Net proceeds from the Senior Notes offering were primarily used to fund the Shirley-Penns Acquisition and repay existing indebtedness under our revolving credit facility. The Senior Notes mature onMarch 15, 2026 and accrue interest at a rate of 6.5% per year, which is payable semi-annually, in arrears, onMarch 15 andSeptember 15 . We incurred interest expense of$6.5 million (not including amortization of capitalized bond issue costs) on the Senior Notes during the three months endedMarch 31, 2020 . For additional information regarding our Senior Notes, see Note 6-Long-Term Debt in the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this Form 10-Q. Capital Expenditures The midstream energy business is capital intensive and requires maintenance of existing gathering systems and other midstream assets and facilities, as well as the acquisition or construction and development of new gathering systems and other midstream assets and facilities. Our partnership agreement requires that we categorize our capital expenditures as either: •Maintenance capital expenditures, which are cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long-term, our operating capacity, operating income or revenue. Examples of maintenance capital expenditures are expenditures to repair, refurbish and replace pipelines, to maintain equipment reliability, integrity and safety and to comply with environmental laws and regulations. In addition, we designate a portion of our capital expenditures to connect new wells to maintain gathering throughput as maintenance capital to the extent such capital expenditures are necessary to maintain, over the long-term, our operating capacity, operating income or revenue; or •Expansion capital expenditures, which are cash expenditures to construct new midstream infrastructure and those expenditures incurred in order to extend the useful lives of our assets, reduce costs, increase revenues or increase system throughput or capacity from current levels, including well connections that increase existing system throughput. Examples of expansion capital expenditures include the construction, development or acquisition of additional gathering pipelines and compressor stations, in each case to the extent such capital expenditures are expected to expand our operating capacity, operating income or revenue. In the future, if we make acquisitions that increase system throughput or capacity, the associated capital expenditures may also be considered expansion capital expenditures.
Capital Expenditures for the Three Months Ended
Anchor Additional Total
Capital Investment
Maintenance capital $ 5,655 $ 346 $ 6,001
Expansion capital 25,653 1,005 26,658
Total Capital Investment $ 31,308 $ 1,351 $ 32,659
Capital Investment Net to the Partnership
Maintenance capital $ 5,655 $ 18 $ 5,673
Expansion capital 25,653 50 25,703
Total Capital Investment Net to the Partnership
We anticipate that we will continue to make expansion capital expenditures in
the future. Consequently, our ability to develop and maintain sources of funds
to meet our capital requirements is critical to our ability to meet our growth
objectives.
27
--------------------------------------------------------------------------------
Table of Contents
We expect that any significant future expansion capital expenditures will be
funded by borrowings under our revolving credit facility and/or the issuance of
debt and equity securities.
Cash Distribution
The amount of distributions paid under the Partnership's cash distribution
policy and the decision to make any distribution will be determined by our
general partner, taking into consideration the terms of the partnership
agreement. Under that agreement, the Partnership makes quarterly distributions
on its common units to the extent the Partnership has available cash after the
establishment of cash reserves. However, we do not have a legal or contractual
obligation to pay distributions quarterly or on any other basis at any rate.
On April 24, 2020 , the board of directors of our general partner declared a cash
distribution to our unitholders of $0.0829 per common unit with respect to three
months ended March 31, 2020 . The cash distribution will be paid on May 15, 2020
to unitholders of record as of the close of business on May 7, 2020 .
For additional information on our cash distribution policy, see Note 3-Cash
Distributions in the Notes to the Unaudited Consolidated Financial Statements in
Item 1 of this Form 10-Q.
Insurance Program
We share an insurance program with our Sponsor, and we reimburse our Sponsor for
the costs of the insurance program, which includes insurance policies with
insurers in amounts and with coverage and deductibles that we believe are
reasonable and prudent. We cannot, however, assure that this insurance will be
adequate to protect us from all material expenses related to potential future
claims for personal and property damage or that these levels of insurance will
be available in the future at economical prices.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations
or other relationships with unconsolidated entities or others that are
reasonably likely to have a material current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources which are not
disclosed in the notes to the unaudited consolidated financial statements of
this Quarterly Report on Form 10-Q.
Contractual Obligations
For a discussion of amounts outstanding under our Revolving Credit Facility and
Senior Notes, see Note 6-Long-Term Debt, in the Notes to the Unaudited
Consolidated Financial Statements in Item 1 of this Form 10-Q.
Critical Accounting Policies
For a description of the Partnership's accounting policies and any new
accounting policies or updates to existing accounting policies as a result of
new accounting pronouncements, see Note 2-Significant Accounting Policies, in
the Notes to the Unaudited Consolidated Financial Statements in Item 1 of this
Form 10-Q. The application of the Partnership's accounting policies may require
management to make judgments and estimates about the amounts reflected in the
Consolidated Financial Statements. If applicable, management uses historical
experience and all available information to make these estimates and judgments.
Different amounts could be reported using different assumptions and estimates.
As of March 31, 2020 , the Partnership did not have any accounting policies that
we deemed to be critical or that would require significant judgment.
Forward-Looking Statements
This report contains forward-looking statements. Statements that are predictive
in nature, that depend upon or refer to future events or conditions or that
include the words "believe," "expect," "anticipate," "intend," "estimate,"
"will" and other expressions that are predictions of or indicate future events
and trends and that do not relate to historical matters identify forward-looking
statements. Our forward-looking statements include statements about our business
strategy, our industry, our future profitability, our expected capital
expenditures and the impact of such expenditures on our performance, the costs
of being a publicly traded partnership and our capital programs.
A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. You are
cautioned not to place undue reliance on any forward-looking statements, as
these statements involve risks, uncertainties and other factors that could cause
our actual future outcomes to differ materially from those set forth in such
statements. You should also understand that it is not possible to predict or
identify all such factors and should not consider the following list to be a
28--------------------------------------------------------------------------------
Table of Contents complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include: •our ability to grow, or maintain, our current rate of cash distributions; •our reliance on our customers, including our Sponsor, CNX Resources Corporation; •the effects of changes in market prices of natural gas, NGLs and crude oil on our customers' drilling and development plans on our dedicated acreage and the volumes of natural gas and condensate that are produced on our dedicated acreage; •because of the natural decline in production from existing wells, our success, in part, depends on our ability to maintain or increase natural gas and condensate throughput volumes on our midstream systems, which depends on the level of development and completion activity on acreage dedicated to us; •changes in our customers' drilling and development plans in theMarcellus Shale andUtica Shale , and our customers' ability to meet such plans; •our ability to maintain or increase volumes of natural gas and condensate on our midstream systems; •the demand for natural gas and condensate gathering services, changes in general economic condition, and competitive conditions in our industry, including competition from the same and alternative energy sources; •actions taken by third-party operators, gatherers, processors and transporters; •our ability to successfully implement our business plan; •our ability to complete internal growth projects on time and on budget; •our ability to generate adequate returns on capital; •the price and availability of debt and equity financing; •the availability and price of oil, NGLs and natural gas to the consumer compared to the price of alternative and competing fuels; •the availability of storage capacity for refined products such as crude, and refinery inputs including condensate, c5+ and butane; •prolonged customer curtailments; •energy efficiency and technology trends; •operating hazards and other risks incidental to our midstream services; •natural disasters, weather-related delays, casualty losses and other matters beyond our control; •the impact of outbreaks of communicable diseases such as the novel highly transmissible and pathogenic coronavirus ("COVID-19") on business activity, the Partnership's operations and national and global economic conditions, generally; •interest rates; •labor relations; •defaults by our customers under our gathering agreements; •changes in availability and cost of capital; •changes in our tax status; •the effect of existing and future laws and government regulations; •the effects of future litigation; and •certain factors discussed elsewhere in this report. You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , as supplemented by our Quarterly Reports on Form 10-Q (including those set forth in Part II, Item IA below), which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law.
© Edgar Online, source
