ENABLE MIDSTREAM PARTNERS, LP The following discussion and analysis should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and the related notes included herein and our audited Consolidated Financial Statements for the year endedDecember 31, 2020 , included in our Annual Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control, including risks resulting from the ongoing COVID-19 pandemic and its economic effects. Our actual results could differ materially from those discussed in these forward-looking statements. Please read "Forward-Looking Statements." In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
Overview
Enable Midstream Partners, LP owns, operates and develops midstream energy infrastructure assets strategically located to serve our customers. We are traded on the NYSE under the symbol "ENBL." Our general partner is owned byCenterPoint Energy and OGE Energy. In this report, the terms "Partnership" and "Registrant" as well as the terms "our," "we," "us" and "its," are sometimes used as abbreviated references toEnable Midstream Partners, LP together with its consolidated subsidiaries. Our assets and operations are organized into two reportable segments: (i) gathering and processing and (ii) transportation and storage. Our gathering and processing segment primarily provides natural gas and crude oil gathering and natural gas processing services to our producer customers and crude oil, condensate and produced water gathering services to our producer and refiner customers. Our transportation and storage segment provides interstate and intrastate natural gas pipeline transportation and storage services primarily to our producer, power plant, LDC and industrial end-user customers. Our natural gas gathering and processing assets are primarily located inOklahoma ,Texas ,Arkansas andLouisiana and serve natural gas production in theAnadarko ,Arkoma and Ark-La-Tex Basins. Our crude oil gathering assets are located inOklahoma andNorth Dakota and serve crude oil production in theAnadarko and Williston Basins. Our natural gas transportation and storage assets consist primarily of an interstate pipeline system extending from westernOklahoma and the TexasPanhandle toLouisiana , an interstate pipeline system extending fromLouisiana toIllinois , an intrastate pipeline system inOklahoma and our investment in SESH, an interstate pipeline extending fromLouisiana toAlabama . We expect our business to continue to be affected by the key trends included in our Annual Report, as well as the recent developments discussed herein, including the impacts of the COVID-19 pandemic. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results. Our primary business objective is to increase the cash available for distribution to our unitholders over time while maintaining our financial flexibility. Our business strategies for achieving this objective include capitalizing on organic growth opportunities associated with our strategically located assets, growing through accretive acquisitions, maintaining strong customer relationships to attract new volumes and expand beyond our existing asset footprint and business lines, and continuing to minimize direct commodity price exposure through fee-based contracts. As part of these efforts, we continuously engage in discussions with new and existing customers regarding potential projects to develop new midstream assets to support their needs as well as discussions with potential counterparties regarding opportunities to purchase or invest in complementary assets in new operating areas or midstream business lines. These growth, acquisition and development efforts often involve assets which, if acquired or constructed, could have a material effect on our financial condition and results of operations.
Liquidity and Capital Resources
The Partnership's principal liquidity requirements are to finance its operations, fund capital expenditures and acquisitions, make cash distributions and satisfy any indebtedness obligations. We expect that our liquidity and capital resource needs will be met by our sources of liquidity, which as ofSeptember 30, 2021 , included cash on hand, operating cash flow, proceeds from commercial paper issuances, borrowings under our revolving credit facility, debt issuances and the issuance of equity. For more information on our commercial paper program, our revolving credit agreement, our other outstanding debt agreements and preferred equity, please see Note 6 "Partners' Equity" and Note 9 "Debt" in the Notes to the Unaudited Condensed Consolidated Financial Statements under Item 1. "Financial Statements."
Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control. Likewise, our ability to issue commercial paper, equity and debt and our ability to obtain credit facilities on favorable
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terms may be impacted by a variety of market factors as well as fluctuations in
our results of operations. For more information on conditions impacting our
liquidity and capital resources, see "Results of Operations-Trends and
Uncertainties Affecting Results of Operations." For further discussion of risks
related to our liquidity and capital resources, see Item 1A. "Risk Factors" in
our Annual Report.
Working Capital
Working capital is the difference in our current assets and our current
liabilities. Working capital is an indication of liquidity and potential need
for short-term funding. The change in our working capital requirements are
driven generally by changes in accounts receivable, accounts payable, commodity
prices, credit extended to, and the timing of collections from, customers, the
level and timing of spending for maintenance and expansion activity, and the
timing of debt maturities. As of September 30, 2021 , we had a working capital
deficit of $763 million . The deficit is primarily due to the classification of
$800 million of the 2019 Term Loan Agreement as Current portion of long-term
debt as of September 30, 2021 as well as $50 million of commercial paper
outstanding as of September 30, 2021 . We utilize our commercial paper program
and Revolving Credit Facility to manage the timing of cash flows and fund
short-term working capital deficits.
Cash Flows
The following tables reflect cash flows for the applicable periods.
Nine
Months Ended
2021 2020
(In millions)
Net cash provided by operating activities $ 678 $ 543
Net cash used in investing activities (198) (120)
Net cash used in financing activities (447) (409)
Operating Activities
The increase of $135 million , or 25%, in net cash provided by operating
activities for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020 was primarily driven by an increase in net
income of $383 million and an increase of $22 million in the timing of cash
receipts and disbursements and changes in other working capital assets and
liabilities, partially offset by a decrease in adjustments for non-cash items of
$270 million .
Investing Activities
The increase of $78 million , or 65%, in net cash used in investing activities
for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020 was primarily due to higher capital expenditures of $52
million , a decrease in return of investment in equity method affiliate of $9
million and a decrease in proceeds from sale of assets of $16 million .
Financing Activities
Net cash used in financing activities increased$38 million , or 9%, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . Our primary financing activities consist of the following: Nine Months EndedSeptember 30, 2021 2020 (In millions) Increase (decrease) in short-term debt $
(200)
Repayment of EOIT Senior Notes - (250)
Repurchase of 2029 Senior Notes and 2044 Senior Notes - (17)
Distributions (245) (320)
Cash paid for employee equity-based compensation (2) (1)
37-------------------------------------------------------------------------------- Table of Contents Distributions OnOctober 26, 2021 , the Board of Directors declared a quarterly cash distribution of$0.16525 per common unit on all of the Partnership's outstanding common units for the period endedSeptember 30, 2021 . The distributions will be paidNovember 17, 2021 to unitholders of record as of the close of business onNovember 8, 2021 . Additionally, the Board of Directors declared a quarterly cash distribution of$0.5403 on the Partnership's outstanding Series A Preferred Units. The distributions will be paidNovember 12, 2021 to unitholders of record as of the close of business onOctober 26, 2021 .
Trends Affecting Liquidity and Capital Resources
Borrowing Capacity
Our Revolving Credit Facility and our 2019 Term Loan Agreement each contain a financial covenant limiting our ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization as of the last day of each fiscal quarter of less than or equal to 5.00 to 1.00. As ofSeptember 30, 2021 , our available borrowing capacity under our Revolving Credit Facility was approximately$1.5 billion due to this financial covenant, prior to invoking any amounts related to Qualified Project EBITDA Adjustments (as defined in the Revolving Credit Facility). We believe that we will have sufficient cash flow and borrowing capacity to fully fund our business.
Results of Operations
Trends and Uncertainties Affecting Results of Operations
Energy Transfer Merger
OnFebruary 16, 2021 , we entered into a definitive Merger Agreement with Energy Transfer, pursuant to which, among other things, all outstanding common units of the Partnership will be acquired by Energy Transfer in an all-equity transaction, including the assumption of debt and other liabilities, subject to the conditions of the Merger Agreement. Under the terms of the Merger Agreement, our common unitholders will receive 0.8595 of one common unit representing limited partner interests in Energy Transfer for each common unit of the Partnership. In addition, each issued and outstanding Series A Preferred Unit of the Partnership will be exchanged for 0.0265 of an Energy Transfer Series G preferred unit, and Energy Transfer will make a$10 million cash payment to the owners of the Partnership's general partner for the limited liability company interests in Enable GP. The transaction was approved by the boards of directors of the general partners of both partnerships, and the Conflicts Committee of our Board of Directors, and the holders of a majority of our common units. The transaction remains subject to regulatory approvals and other customary closing conditions. Pursuant to a consent statement/prospectus datedApril 8, 2021 , which was included as part of a Registration Statement on Form S-4, as amended (File No. 333-254477), initially filed by Energy Transfer onMarch 19, 2021 (the "Energy Transfer Registration Statement"), the Partnership solicited written consents from its common unitholders to approve the Merger Agreement and, on a non-binding, advisory basis, the compensation that will or may become payable to the Partnership's named executive officers in connection with the transactions contemplated by the Merger Agreement. Pursuant to previously disclosed support agreements,CenterPoint Energy and OGE Energy, who collectively own approximately 79.2% of the Partnership's common units, delivered written consents approving the Merger Agreement and, on a non-binding, advisory basis, the transaction-related compensation proposal. OnMay 12, 2021 , the Partnership and Energy Transfer each received a request for additional information and documentary material (the "Second Request") from theFTC in connection with theFTC's review of the transactions contemplated by the Merger Agreement under the HSR Act. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after the Partnership and Energy Transfer have certified substantial compliance with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by theFTC . The Merger is anticipated to close in the fourth quarter of 2021. We cannot provide any assurance that the combination will be completed on the terms or timeline currently contemplated, or at all. The above includes a summary of the material terms of the Merger, which is qualified in its entirety by reference to the Energy Transfer Registration Statement. 38 -------------------------------------------------------------------------------- Table of Contents COVID-19 Pandemic Throughout the COVID-19 pandemic, our gathering and processing and our transportation and storage assets have continued to operate as critical infrastructure necessary to support the supply of natural gas, NGLs and crude oil. In compliance withCenter for Disease Control guidance, we implemented strategies to protect the health and safety of our workers, including virtual symptom screening, social distancing, wearing masks, limiting non-essential travel, and, where possible, utilizing remote working. InApril 2021 , we began returning additional employees to the workplace who had been working remotely. We will continue to monitor for the resurgence of COVID-19 in our workplaces and in the communities where our employees are located and adjust our strategies accordingly. Commodity Price Environment Our business is impacted by commodity prices, which have continued to experience significant volatility. Commodity prices impact the drilling and production of natural gas and crude oil in the areas served by our systems, and the volumes on our systems are impacted by the amount of drilling and production in the areas we serve. Both our gathering and processing segment and our transportation and storage segment can be affected by drilling and production. For more information regarding the impact of commodity prices, drilling and production on the volumes on our systems as well as our exposure to commodity prices under our processing arrangements, see Item 1A. "Risk Factors-Risks Related to Our Business" in our Annual Report. We have attempted to mitigate the impact of commodity prices on our business by entering into hedges, focusing on contracting fee-based business and converting existing commodity-based contracts to fee-based contracts. For additional information regarding our commodity price risk, see Item 7A. "Quantitative and Qualitative Disclosures About Market Risk-Commodity Price Risk" in our Annual Report. During the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 , our revenues and gross margin increased. These increases resulted, in part, from the impact of theFebruary 2021 Winter Storm Uri on our financial results for the first quarter of 2021. The winter storm temporarily increased the price of natural gas, which increased our proceeds from product sales. The winter storm also temporarily increased the demand for natural gas for heating, which resulted in imbalance penalties for customers on our gathering and processing and transportation and storage systems for customers who failed to balance actual receipts and deliveries at nominated and confirmed levels. The results of our most recent nine month period may not be indicative of our future results because of the temporary effects of the winter storm and the continuing uncertainty surrounding future levels of production and prices of natural gas and crude oil. For more information on our results, see "-Financial Results" below. Recent Developments Dakota Access Pipeline OnJuly 6, 2020 , the federal district court for theDistrict of Columbia (the "District Court") issued an order vacating an easement, that was issued by the Corps and which allowed Dakota Access Pipeline to cross theMissouri River , pending the completion of an environmental impact statement (EIS) for the pipeline. OnMay 21, 2021 , the District Court denied the request for an injunction that would have shut down the pipeline during the pendency of the environmental review. OnJune 22, 2021 , the District Court dismissed without prejudice all outstanding claims in the matter. OnSeptember 20, 2021 , Dakota Access Pipeline filed a petition for writ of certiorari asking theU.S. Supreme Court to review whether an EIS was required. The EIS is anticipated to be completed inMarch 2022 . Following the completion of the EIS, the Corps will make a new decision about whether to grant the pipeline an easement to cross theMissouri River , unless the writ of certiorari for review by theU.S. Supreme Court is granted and the appeal of the order to conduct the EIS is successful. We are unable to predict the outcome of the appeal, the EIS or the new easement decision. In addition, either the EIS or the new easement decision may subsequently be subject to challenge in court. Substantially all of the crude oil gathered by ourWilliston Basin crude oil systems is delivered indirectly for transport to Dakota Access Pipeline. A shutdown of Dakota Access Pipeline could occur if the Corps does not grant an easement following the completion of the environmental impact statement. Although the crude oil gathered by ourWilliston Basin crude oil systems may also be delivered for transport to other pipelines, such as BakkenLink Pipeline and Enbridge North Dakota Pipeline, a shutdown of the Dakota Access Pipeline, or any other significant pipeline providing transportation services from theWilliston Basin , would likely result in the shut-in of wells connected to ourWilliston Basin crude oil systems if our customer is unable to obtain sufficient capacity on those pipelines at an effective cost. We are unable to predict whether any such pipeline will be shut down, the duration of any such shutdown, or the extent of the resulting impact on the operations of ourWilliston Basin crude oil and produced water gathering systems. 39 -------------------------------------------------------------------------------- Table of Contents Five Nations Reservations OnJuly 9, 2020 , theU.S. Supreme Court ruled in McGirt v. Oklahoma ("McGirt") that theMuscogee (Creek) Nation reservation inEastern Oklahoma has not been disestablished. Prior to the court's ruling, the prevailing view was that theMuscogee (Creek) Nation ,Chickasaw Nation ,Cherokee Nation , Choctaw Nation and Seminole Nation reservations withinOklahoma had been disestablished prior to statehood in 1907. Although the court's ruling indicates that it is limited to criminal law as applied within theMuscogee (Creek) Nation reservation, the ruling has significant potential implications for civil law within theMuscogee (Creek) Nation reservation, as well as other reservations inOklahoma that may similarly be found to not have been disestablished. State district courts inOklahoma , applying the analysis in theU.S. Supreme Court's ruling regarding theMuscogee (Creek) Nation , have ruled that theCherokee , Chickasaw,Seminole andChoctaw reservations likewise have not been disestablished. OnOctober 1, 2020 , theEPA granted approval to theState of Oklahoma under Section 10211(a) of the Safe, Accountable, Efficient Transportation Equity Act of 2005 (the "SAFETE Act") to administer all of the State's existingEPA -approved regulatory programs to Indian Country within the State, subject to certain exceptions, effectively extending the State's authority for existingEPA -approved regulatory programs to all lands within the State to which the State applied such programs prior to theU.S. Supreme Court's ruling in McGirt. For more information, see the "Five Nations Reservations" disclosure in our Annual Report. Separately, in 2021, theU.S. Department of the Interior ("DOI") subsequently used the ruling in McGirt to find thatOklahoma could not keep jurisdiction over surface coal mining in theMuscogee (Creek) Nation's lands. TheState of Oklahoma has petitioned theU.S. Supreme Court to overturn this determination and find that McGirt either is limited to federal criminal matters or was incorrectly decided. Several other suits have been filed in state and federal courts regarding the appropriate scope of McGirt, including a stayed proceeding before theOklahoma Supreme Court regarding theOklahoma Corporation Commission's authority to issue drilling permits on the Muscogee (Creek) reservations. At this time, we cannot predict how these issues may ultimately be resolved.
Suspension of Leases and Permits on Federal Lands
OnJanuary 20, 2021 , the Acting Secretary of theU.S. Department of the Interior issued an order that, among other things, imposed a temporary suspension on the issuance of fossil fuel authorizations, including leases and permits on federal lands. Although the order says it does not limit existing operations under valid leases, onJanuary 27, 2021 ,President Biden signed an executive order suspending new oil and gas leasing on federal lands, pending completion of a review of the federal government's oil and gas permitting and leasing practices. OnJune 15, 2021 , theU.S. District Court for the Western District of Louisiana issued a preliminary injunction blocking the Biden administration from continuing to enforce its moratorium on new oil and gas leases and permits on federal lands. The Biden administration appealed the ruling onAugust 16, 2021 to theU.S. Court of Appeals for the Fifth Circuit . The same day, a dozen energy industry trade groups lead by theAmerican Petroleum Institute filed an additional lawsuitU.S. District Court for the Western District of Louisiana challenging the moratorium. Less than 2% of acreage dedicated to the Partnership falls on federal lands, with most of our federal land acreage dedications located in theWilliston Basin .
Regulatory Compliance
PHMSA is expected to issue several rules in 2021 or 2022, including but not limited to: The Pipeline Safety: Safety of Gas Transmission Pipelines, Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and Other Related Amendments Rule and the Safety of Gas Gathering Pipelines rule. Other agencies, such as theEPA , are also expected to issue new regulations that may impact our operations. While we cannot predict the outcome of pending or future legislative or regulatory initiatives, we anticipate that pipeline safety and environmental requirements will continue to become more stringent over time. As a result, we may incur significant additional costs to comply with the pending regulations, and any other future laws and regulations, which could have a material impact on our costs of and revenues from operations.
FERC Update
OnFebruary 18, 2021 ,FERC issued a renewed Notice of Inquiry (NOI) seeking input on potential revisions to its current policy statement on the certification of new natural gas transmission facilities. The NOI supplements a 2018 NOI issued byFERC on the same topic. Comments on the NOI were due onMay 26, 2021 . We are unable to predict what, if any, changes may be proposed as a result of the NOI that would affect our transportation and storage segment or when such proposals, if any, might become effective. 40 -------------------------------------------------------------------------------- Table of Contents Financial Results The following tables summarize the key components of our results of operations. Enable Gathering and Transportation Midstream Three Months Ended September 30, 2021 Processing and Storage Eliminations Partners, LP (In millions)
Product sales $ 625 $ 157$ (159) $ 623 Service revenues 214 122 (3) 333 Total Revenues 839 279 (162) 956
Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
571 154 (160) 565
Gross margin (1) 268 125 (2) 391
Operation and maintenance, General and administrative 77 43 (1) 119
Depreciation and amortization 74 30 - 104
Taxes other than income tax 10 6 - 16
Operating income $ 107 $ 46 $ (1) $ 152
Enable
Gathering and Transportation Midstream
Three Months Ended September 30, 2020 Processing and Storage Eliminations Partners, LP
(In millions)Product sales $ 271 $ 79 $ (70) $ 280 Service revenues 192 126 (2) 316 Total Revenues 463 205 (72) 596
Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
244 78 (72) 250
Gross margin (1) 219 127 - 346
Operation and maintenance, General and administrative 77 47 - 124
Depreciation and amortization 75 30 - 105
Taxes other than income tax 10 7 - 17
Operating income $ 57 $ 43 $ - $ 100
Enable
Gathering and Transportation Midstream
Nine Months Ended September 30, 2021 Processing and Storage Eliminations Partners, LP
(In millions)
Product sales $ 1,514 $ 624 $ (428) $ 1,710
Service revenues 622 390 (9) 1,003
Total Revenues 2,136 1,014 (437) 2,713Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
1,406 539 (435) 1,510
Gross margin (1) 730 475 (2) 1,203
Operation and maintenance, General and administrative 229 129 (2) 356
Depreciation and amortization 222 91 - 313
Taxes other than income tax 32 20 - 52
Operating income $ 247 $ 235 $ - $ 482
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Enable
Gathering and Transportation Midstream
Nine Months Ended September 30, 2020 Processing and Storage Eliminations Partners, LP
(In millions)Product sales $ 739 $ 213$ (188) $ 764 Service revenues 592 409 (6) 995 Total Revenues 1,331 622 (194) 1,759
Cost of natural gas and natural gas liquids (excluding depreciation and amortization shown separately)
631 215 (193) 653
Gross margin (1) 700 407 (1) 1,106
Operation and maintenance, General and administrative 250 137 (1) 386
Depreciation and amortization 223 91 - 314
Impairments of property, plant and equipment and
goodwill 28 - - 28
Taxes other than income tax 32 20 - 52
Operating income $ 167 $ 159 $ - $ 326
_____________________
(1)Gross margin is a non-GAAP measure and is reconciled to its most directly
comparable financial measure calculated and presented below under the caption
"Reconciliations of Non-GAAP Financial Measures".
Nine Months Ended
Three Months Ended September 30, September 30,
2021 2020 2021 2020
Operating Data:
Natural gas gathered volumes-TBtu 402 374 1,169 1,164
Natural gas gathered volumes-TBtu/d 4.37 4.07 4.28 4.25
Natural gas processed volumes-TBtu (1) 208 190 593 597
Natural gas processed volumes-TBtu/d (1) 2.26 2.06 2.17 2.18
NGLs produced-MBbl/d (1)(2) 141.46 133.11 135.41 122.29
NGLs sold-MBbl/d (2)(3) 143.32 138.55 137.02 127.66
Condensate sold-MBbl/d 5.80 5.58 6.44 6.50
Crude oil and condensate gathered volumes-MBbl/d 97.7 138.02 107.30 121.38
Transported volumes-TBtu 491 440 1,539 1,532
Transported volumes-TBtu/d 5.33 4.78 5.62 5.58
Interstate firm contracted capacity-Bcf/d 5.62 5.73 5.96 6.00
Intrastate average deliveries-TBtu/d 1.69 1.74 1.64 1.83
_____________________
(1)Includes volumes under third-party processing arrangements.
(2)Excludes condensate.
(3)NGLs sold includes volumes of NGLs withdrawn from inventory or purchased for
system balancing purposes.
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Nine Months Ended
Three Months Ended September 30, September 30,
2021 2020 2021 2020
Anadarko
Gathered volumes-TBtu/d 2.18 1.94 2.10 2.04
Natural gas processed volumes-TBtu/d (1) 1.98 1.76 1.89 1.85
NGLs produced-MBbl/d (1)(2) 127.71 120.80 122.91 109.29
Crude oil and condensate gathered volumes-MBbl/d 70.36 104.93 76.99 93.65
Gathered volumes-TBtu/d 0.40 0.41 0.40 0.42 Natural gas processed volumes-TBtu/d (1) 0.07 0.08 0.07 0.08 NGLs produced-MBbl/d (1)(2) 4.76 3.94 4.25 3.96
Gathered volumes-TBtu/d 1.79 1.72 1.78 1.79 Natural gas processed volumes-TBtu/d 0.21 0.22 0.21 0.25 NGLs produced-MBbl/d (2) 8.99 8.37 8.25 9.04
Crude oil gathered volumes-MBbl/d 27.35 33.09 30.31 27.73
_____________________
(1)Includes volumes under third-party processing arrangements. (2)Excludes condensate.
Gathering and Processing
Three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 . Our gathering and processing segment reported operating income of$107 million for the three months endedSeptember 30, 2021 compared to operating income of$57 million for the three months endedSeptember 30, 2020 . The difference of$50 million in operating income between periods was primarily due to a$49 million increase in gross margin and a$1 million decrease in depreciation and amortization. Our gathering and processing segment revenues increased$376 million . The increase was primarily due to the following: Product Sales: •revenues from NGL sales increased$296 million primarily due to an increase in the average realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane and higher processed volumes, •revenues from natural gas sales increased$70 million due to higher average sales prices and •changes in the fair value of natural gas, condensate and NGL derivatives increased$7 million . These increases were partially offset by: •higher realized losses on natural gas, condensate and NGL derivatives of$19 million . Service Revenues: •processing service revenues increased$21 million due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by lower processed volumes under fee-based arrangements and •natural gas gathering revenues increased$6 million due to higher volumes gathered in theAnadarko Basin , partially offset by lower average rates on certain contracts. These increases were partially offset by crude oil, condensate and produced water gathering revenue, which decreased$5 million primarily due to a decrease in gathered crude oil and condensate volumes from lower producer activity. 43 -------------------------------------------------------------------------------- Table of Contents Our gathering and processing segment gross margin increased$49 million . The increase was primarily due to the following: •revenues from NGL sales, less the cost of NGLs increased$42 million primarily due to an increase in the average realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane and higher processed volumes, •processing service fees increased$21 million due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by lower processed volumes under fee-based arrangements, •changes in the fair value of natural gas, condensate and NGL derivatives increased$7 million and •natural gas gathering fees increased$6 million due to higher volumes gathered in theAnadarko Basin , partially offset by lower average rates on certain contracts. These increases were partially offset by: •higher realized losses on natural gas, condensate and NGL derivatives of$19 million , •crude oil, condensate and produced water gathering revenues decreased$5 million primarily due to a decrease in gathered crude oil and condensate volumes from lower producer activity and •revenues from natural gas sales, less the cost of natural gas decreased approximately$3 million due to higher natural gas purchase costs. Our gathering and processing segment operation and maintenance and general and administrative expenses remained flat. The primary activity resulted in a$4 million decrease in payroll-related costs as a result of lower headcount and a$1 million decrease due to insurance proceeds, partially offset by remediation costs associated with ourWilliston Basin operations. These decreases were offset by a$5 million increase in professional services primarily due to transaction costs related to the pending merger with Energy Transfer.
Our gathering and processing segment depreciation and amortization decreased
Nine months endedSeptember 30, 2021 compared to nine months endedSeptember 30, 2020 . Our gathering and processing segment reported operating income of$247 million for the nine months endedSeptember 30, 2021 compared to operating income of$167 million for the nine months endedSeptember 30, 2020 . The difference of$80 million in operating income between periods was primarily due to a$30 million increase in gross margin,$28 million of property, plant and equipment and goodwill impairments recognized in 2020 with no comparable item in 2021, and a$21 million decrease in operation and maintenance and general and administrative expenses. Our gathering and processing segment revenues increased$805 million . The increase was primarily due to the following: Product Sales: •revenues from NGL sales increased$672 million primarily due to an increase in the average realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane and •revenues from natural gas sales increased$170 million due to higher average sales prices, partially offset by lower sales volumes. These increases were partially offset by: •higher realized losses on natural gas, condensate and NGL derivatives of$49 million and •changes in the fair value of natural gas, condensate and NGL derivatives decreased$18 million . Service Revenues: Processing service revenues increased$33 million due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by lower processed volumes under fee-based arrangements and a decrease in the recognition of certain annual minimum processing fees. This increase was partially offset by: •natural gas gathering revenues, which decreased$3 million due to lower average rates on certain contracts and volume curtailments and production freeze-offs related to Winter Storm Uri, partially offset by higher assessed producer imbalance penalties and 44 -------------------------------------------------------------------------------- Table of Contents •crude oil, condensate and produced water gathering revenue remained flat, due to an increase in gathered crude oil volumes in theWilliston Basin , offset by a decrease in gathered crude oil and condensate volumes in theAnadarko Basin primarily due to lower producer activity. Our gathering and processing segment gross margin increased$30 million . The increase was primarily due to the following: •revenues from NGL sales, less the cost of NGLs increased$98 million primarily due to an increase in the average realized sales price from higher average market prices for NGL products combined with higher recoveries of ethane and •processing service fees increased$33 million due to higher consideration received from percent-of-proceeds, percent-of-liquids and keep-whole processing arrangements due to higher average market prices, partially offset by lower processed volumes under fee-based arrangements and a decrease in the recognition of certain annual minimum processing fees. These increases were partially offset by: •higher realized losses on natural gas, condensate and NGL derivatives of$49 million , •revenues from natural gas sales, less the cost of natural gas decreased approximately$31 million due to higher natural gas purchase costs, inclusive of purchase costs related to Winter Storm Uri, •changes in the fair value of natural gas, condensate and NGL derivatives decreased$18 million , •natural gas gathering fees decreased$3 million due to lower average rates on certain contracts and volume curtailments and production freeze-offs related to Winter Storm Uri, partially offset by higher assessed producer imbalance penalties and •crude oil, condensate and produced water gathering revenue remained flat, due to an increase in gathered crude oil volumes in theWilliston Basin , offset by a decrease in gathered crude oil and condensate volumes in theAnadarko Basin primarily due to lower producer activity. Our gathering and processing segment operation and maintenance and general and administrative expenses decreased$21 million . The decrease was primarily due to a$20 million loss on retirement of anArk-La-Tex gathering system in 2020, with minor activity in 2021, a$13 million decrease in payroll-related costs as a result of lower headcount, a$5 million decrease in field equipment rentals and a$2 million decrease due to insurance proceeds, partially offset by remediation costs associated with ourWilliston Basin operations. These decreases were partially offset by a$16 million increase in professional services primarily due to transaction costs related to the pending merger with Energy Transfer and a$2 million increase due to lower capitalized overhead costs.
Our gathering and processing segment depreciation and amortization decreased
During the nine months endedSeptember 30, 2020 , our gathering and processing segment recognized impairments of property, plant and equipment and goodwill of$28 million with no impairment recognized in 2021.
Transportation and Storage
Three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 . Our transportation and storage segment reported operating income of$46 million for the three months endedSeptember 30, 2021 compared to operating income of$43 million for the three months endedSeptember 30, 2020 . The difference of$3 million in operating income between periods was primarily due to a$4 million decrease in operation and maintenance and general and administrative expenses, and a$1 million decrease in taxes other than income tax, partially offset by a$2 million decrease in gross margin. Our transportation and storage segment revenues increased$74 million . The increase was primarily due to the following: Product Sales: •revenues from natural gas sales increased$81 million primarily due to higher average sales prices, •revenues from NGL sales increased$3 million due to higher average sales prices, partially offset by lower volumes and •changes in the fair value of natural gas derivatives, which increased$1 million . These increases were partially offset by higher realized losses on natural gas derivatives of$7 million . 45 -------------------------------------------------------------------------------- Table of Contents Service Revenues: •volume-dependent transportation and storage revenue increased$2 million primarily due to an increase in interstate transported volumes. This increase was offset by firm transportation and storage services, which decreased$6 million primarily due to interstate contract extensions at lower rates and reductions in contracted capacity on certain intrastate firm transportation agreements. Our transportation and storage segment gross margin decreased$2 million . The decrease was primarily due to the following: •higher realized losses on natural gas derivatives of$7 million and •firm transportation and storage services decreased$6 million primarily due to interstate contract extensions at lower rates and reductions in contracted capacity on certain intrastate firm transportation agreements. These decreases were partially offset by: •system management activities increased$5 million , •volume-dependent transportation and storage revenue increased$2 million primarily due to an increase in interstate transported volumes, •a$2 million reduction in lower of cost or net realizable value adjustments related to natural gas storage inventories, •revenues from NGL sales, less the cost of NGLs increased$1 million due to an increase in average NGL prices, partially offset by lower volumes and •changes in the fair value of natural gas derivatives, which increased$1 million . Our transportation and storage segment operation and maintenance and general and administrative expenses decreased$4 million . The decrease was primarily driven by a$3 million decrease in payroll-related costs as a result of lower headcount and a$3 million decrease due to the receipt of previously reserved amounts in allowance for doubtful accounts, partially offset by a$1 million increase due to a decrease in capitalized costs.
Our transportation and storage segment taxes other than income decreased
Nine months endedSeptember 30, 2021 compared to nine months endedSeptember 30, 2020 . Our transportation and storage segment reported operating income of$235 million for the nine months endedSeptember 30, 2021 compared to operating income of$159 million for the nine months endedSeptember 30, 2020 . The difference of$76 million in operating income between periods was primarily due to a$68 million increase in gross margin and a$8 million decrease in operation and maintenance and general and administrative expenses. Our transportation and storage segment revenues increased$392 million . The increase was primarily due to the following: Product Sales: •revenues from natural gas sales increased$414 million primarily due to higher average sales prices and sales volumes and •revenues from NGL sales increased$6 million due to higher average sales prices, partially offset by lower volumes. These increases were partially offset by: •higher realized losses on natural gas derivatives of$8 million and •changes in the fair value of natural gas derivatives, which decreased$1 million . Service Revenues: •volume-dependent transportation and storage revenues increased$8 million due to an increase in interstate transported volumes and assessed shipper imbalance penalties, partially offset by lower off-system intrastate transported volumes, inclusive of disruptions in natural gas supply associated with Winter Storm Uri and the recognition in 2020 of$1 million of revenue upon the settlement of the MRT rate case with no comparable item in 2021 46 -------------------------------------------------------------------------------- Table of Contents This increase was partially offset by firm transportation and storage services which decreased$27 million due to the recognition in 2020 of$16 million of previously reserved revenue upon the settlement of the MRT rate case with no comparable item in 2021 combined with interstate contract extensions at lower rates and terminations of certain intrastate firm transportation agreements. Our transportation and storage segment gross margin increased$68 million . The increase was primarily due to the following: •system management activities increased$85 million primarily due to higher average natural gas sales prices, less the cost of natural gas, •volume-dependent transportation and storage revenues increased$8 million due to an increase in interstate transported volumes and assessed shipper imbalance penalties, partially offset by lower off-system intrastate transported volumes, inclusive of disruptions in natural gas supply associated with Winter Storm Uri and the recognition in 2020 of$1 million of revenue upon the settlement of the MRT rate case with no comparable item in 2021, •an$8 million reduction in lower of cost or net realizable value adjustments related to natural gas storage inventories and •revenues from NGL sales, less the cost of NGLs increased$3 million due to an increase in average NGL prices, partially offset by lower volumes. These increases were partially offset by: •firm transportation and storage services decreased$27 million due to the recognition in 2020 of$16 million of previously reserved revenue upon the settlement of the MRT rate case with no comparable item in 2021 combined with interstate contract extensions at lower rates and terminations of certain intrastate firm transportation agreements, •higher realized losses on natural gas derivatives of$8 million and •changes in the fair value of natural gas derivatives, which decreased$1 million . Our transportation and storage segment operation and maintenance and general and administrative expenses decreased$8 million . The decrease was primarily driven by a$9 million decrease in payroll-related costs as a result of lower headcount and a$3 million decrease in operation and maintenance outside services. These decreases were partially offset by a$3 million increase in loss contingencies and a$1 million increase due to a decrease in capitalized costs.
Condensed Consolidated Interim Information
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(In millions)
Operating Income $ 152 $ 100 $ 482 $ 326
Other Income (Expense):
Interest expense (41) (43) (125) (136)
Equity in earnings (losses) of equity method affiliate, net
(1) 4 (222) 5 (211)
Other, net 1 2 7 7
Total Other Expense (36) (263) (113) (340)
Income (Loss) Before Income Taxes 116 (163) 369 (14)
Income tax benefit - - - -
Net Income (Loss) $ 116
- 1 2 (6)
Net Income (Loss) Attributable to Limited Partners $ 116 $ (164) $ 367 $ (8)
Less: Series A Preferred Unit distributions 9 9 26 27
Net Income (Loss) Attributable to Common Units $ 107 _____________________
(1)See Item 1 Note 8 of Part I for discussion regarding ownership interests in
SESH and related equity earnings included in the transportation and storage
segment for the three and nine months ended
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Table of Contents
Three Months Ended
Net Income (Loss) Attributable to Limited Partners. We reported net income attributable to limited partners of$116 million in the three months endedSeptember 30, 2021 compared to net loss attributable to limited partners of$164 million in the three months endedSeptember 30, 2020 . The increase in net income attributable to limited partners of$280 million was primarily attributable to an increase in equity in earnings (losses) of equity method affiliate, net of$226 million , an increase in operating income of$52 million , a decrease in interest expense of$2 million and a$1 million change in net income (loss) attributable to noncontrolling interest, partially offset by a decrease of$1 million in Other, net in the three months endedSeptember 30, 2021 . Equity in Earnings (Losses) of Equity Method Affiliate, net. Equity in earnings (losses) of equity method affiliate, net increased$226 million primarily due to a$225 million impairment of the Partnership's equity method affiliate investment in the third quarter of 2020.
Interest Expense. Interest expense decreased
Other, net. Other, net is primarily comprised of equity AFUDC in the three
months ended
Nine Months Ended
Net Income (Loss) Attributable to Limited Partners. We reported net income attributable to limited partners of$367 million in the nine months endedSeptember 30, 2021 compared to net loss attributable to limited partners of$8 million in the nine months endedSeptember 30, 2020 . The increase in net income attributable to limited partners of$375 million was primarily attributable to an increase in equity in earnings (losses) of equity method affiliate, net of$216 million , an increase in operating income of$156 million and a decrease in interest expense of$11 million , partially offset by an$8 million change in net income (loss) attributable to noncontrolling interest in the nine months endedSeptember 30, 2021 . Equity in Earnings (Losses) of Equity Method Affiliate, net. Equity in earnings (losses) of equity method affiliate, net increased$216 million primarily due to a$225 million impairment of the Partnership's equity method affiliate investment in the third quarter of 2020.
Interest Expense. Interest expense decreased
Net Income (Loss) Attributable to Noncontrolling Interest. Net income (loss) attributable to noncontrolling interest changed$8 million primarily due to an impairment in 2020 in the Partnership'sAtoka assets of which the Partnership owns a 50% interest in the consolidated joint venture.
Other, net. Other, net is primarily comprised of equity AFUDC for the nine
months ended
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Table of Contents Reconciliations of Non-GAAP Financial Measures The Partnership has included the non-GAAP financial measures Gross margin, Adjusted EBITDA, Adjusted interest expense, DCF and Distribution coverage ratio in this report based on information in its Condensed Consolidated Financial Statements. Gross margin, Adjusted EBITDA, Adjusted interest expense, DCF and Distribution coverage ratio are part of the performance measures that we use to manage the Partnership. Provided below are reconciliations of Gross margin to total revenues, Adjusted EBITDA and DCF to net income attributable to limited partners, and Adjusted EBITDA to net cash provided by operating activities and Adjusted interest expense to interest expense, the most directly comparable GAAP financial measures, on a historical basis, as applicable, for each of the periods indicated. Gross margin, Adjusted EBITDA, Adjusted interest expense, DCF and Distribution coverage ratio should not be considered as alternatives to net income, operating income, total revenues, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. These non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP measures. Additionally, because Gross margin, Adjusted EBITDA, Adjusted interest expense, DCF and Distribution coverage ratio may be defined differently by other companies in the Partnership's industry, these measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
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