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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2024
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: 001-36336
ENLINK MIDSTREAM, LLC
(Exact name of registrant as specified in its charter) | | | | | | | | |
Delaware | 46-4108528 |
(State of organization) | (I.R.S. Employer Identification No.) |
| | |
1722 Routh St., Suite 1300 | |
Dallas, | Texas | 75201 |
(Address of principal executive offices) | (Zip Code) |
(214) 953-9500
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934: | | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol | | Name of Exchange on which Registered |
Common Units Representing Limited Liability Company Interests | | ENLC | | The New York Stock Exchange |
| | | |
Indicate by check mark whether 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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act. (Check one): | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of April 25, 2024, the Registrant had 451,304,161 common units outstanding.
TABLE OF CONTENTS
DEFINITIONS
The following terms as defined are used in this document:
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Defined Term | | Definition |
/d | | Per day. |
2014 Plan | | ENLC’s 2014 Long-Term Incentive Plan. |
Adjusted gross margin | | Revenue less cost of sales, exclusive of operating expenses and depreciation and amortization. Adjusted gross margin is a non-GAAP financial measure. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information. |
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Amarillo Rattler Acquisition | | On April 30, 2021, we completed the acquisition of Amarillo Rattler, LLC, the owner of a gathering and processing system located in the Midland Basin. |
AR Facility | | An accounts receivable securitization facility of up to $500 million entered into by EnLink Midstream Funding, LLC, a bankruptcy-remote special purpose entity and our indirect subsidiary, with PNC Bank, National Association, as administrative agent and lender, and PNC Capital Markets, LLC, as structuring agent and sustainability agent. |
ASC | | The Financial Accounting Standards Board Accounting Standards Codification. |
ASC 718 | | ASC 718, Compensation—Stock Compensation. |
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ASC 820 | | ASC 820, Fair Value Measurements. |
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Ascension JV | | Ascension Pipeline Company, LLC, a joint venture between a subsidiary of ENLK and a subsidiary of Marathon Petroleum Corporation in which ENLK owns a 50% interest and Marathon Petroleum Corporation owns a 50% interest. The Ascension JV, which began operations in April 2017, owns an NGL transmission pipeline that connects ENLK’s Riverside fractionator to Marathon Petroleum Corporation’s Garyville refinery. |
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Bbl | | Barrel. |
Bbtu | | Billion British thermal units. |
Bcf | | Billion cubic feet. |
Beginning TSR Price | | The beginning total shareholder return (“TSR”) price, which is the closing unit price of ENLC on the grant date of the performance award agreement or the previous trading day if the grant date was not a trading day, is one of the assumptions used to calculate the grant-date fair value of performance award agreements. |
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Board | | The board of directors of the Managing Member. |
CCS | | Carbon capture, transportation, and sequestration. |
Cedar Cove JV | | Cedar Cove Midstream LLC, a joint venture in which we own a 30% interest. The Cedar Cove JV, which was formed in November 2016, owns gathering and compression assets in Blaine County, Oklahoma, located in the STACK play. |
Central Oklahoma Acquisition | | On December 19, 2022, we acquired gathering and processing assets located in Central Oklahoma, including approximately 900 miles of lean and rich natural gas gathering pipeline and two processing plants with 280 MMcf/d of total processing capacity. |
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CO2 | | Carbon dioxide. |
Commission | | U.S. Securities and Exchange Commission. |
Delaware Basin | | A large sedimentary basin in West Texas and New Mexico. |
Delaware Basin JV | | Delaware G&P LLC, a joint venture between a subsidiary of ENLK and an affiliate of NGP in which ENLK owns a 50.1% interest and NGP owns a 49.9% interest. The Delaware Basin JV, which was formed in August 2016, owns the Lobo processing facilities and the Tiger processing plants located in the Delaware Basin in Texas. |
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ENLC | | EnLink Midstream, LLC together with its consolidated subsidiaries. |
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ENLK | | EnLink Midstream Partners, LP or, when applicable, EnLink Midstream Partners, LP together with its consolidated subsidiaries. |
Exchange Act | | The Securities Exchange Act of 1934, as amended. |
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FCDTCs | | Futures and Cleared Derivatives Transactions Customer Agreements. |
Federal Reserve | | The Board of Governors of the Federal Reserve System of the United States. |
GAAP | | Generally accepted accounting principles in the United States of America. |
Gal | | Gallon. |
GCF | | Gulf Coast Fractionators, a joint venture in which we own a 38.75% interest. GCF owns an NGL fractionator in Mont Belvieu, Texas. The GCF assets were idled to reduce operating expenses in 2021 but are expected to resume operations in the third quarter of 2024. |
General Partner | | EnLink Midstream GP, LLC, the general partner of ENLK. |
GIP | | Global Infrastructure Management, LLC, an independent infrastructure fund manager, itself, its affiliates, or managed fund vehicles, including GIP III Stetson I, L.P., GIP III Stetson II, L.P., and their affiliates. |
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ISDAs | | International Swaps and Derivatives Association Agreements. |
LIBOR | | U.S. Dollar London Interbank Offered Rate. |
LNG | | Liquified natural gas. |
Managing Member | | EnLink Midstream Manager, LLC, the managing member of ENLC. |
Matterhorn JV | | Matterhorn JV, a joint venture in which we own a 15% interest. The Matterhorn JV is constructing a pipeline designed to transport up to 2.5 Bcf/d of natural gas through approximately 490 miles of 42-inch pipeline from the Waha Hub in West Texas to Katy, Texas. |
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Midland Basin | | A large sedimentary basin in West Texas. |
MMbbls | | Million barrels. |
MMbtu | | Million British thermal units. |
MMcf | | Million cubic feet. |
MMgals | | Million gallons. |
MVC | | Minimum volume commitment. |
NGL | | Natural gas liquid. |
NGP | | NGP Natural Resources XI, LP. |
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NYMEX | | New York Mercantile Exchange. |
Operating Partnership | | EnLink Midstream Operating, LP, a Delaware limited partnership and wholly owned subsidiary of ENLK. |
OPIS | | Oil Price Information Service. |
ORV | | ENLK’s Ohio River Valley crude oil, condensate stabilization, natural gas compression, and brine disposal assets in the Utica and Marcellus shales, which were divested in November 2023. |
OTC | | Over-the-counter. |
Permian Basin | | A large sedimentary basin that includes the Midland and Delaware Basins primarily in West Texas and New Mexico. |
PIK Distribution | | A quarterly distribution in-kind of Series B Preferred Units. We agreed with the holders of the Series B Preferred Units to make a PIK Distribution until the quarterly distribution in respect of the earlier of (x) any quarter in which the holders of the Series B Preferred Units give notice to the General Partner of their election to terminate such PIK Distribution right and (y) the quarter ending June 30, 2024. |
POL contracts | | Percentage-of-liquids contracts. |
POP contracts | | Percentage-of-proceeds contracts. |
Revolving Credit Facility | | A $1.40 billion unsecured revolving credit facility entered into by ENLC, which includes a $500.0 million letter of credit subfacility. The Revolving Credit Facility is guaranteed by ENLK. |
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Series B Preferred Unit | | ENLK’s Series B Cumulative Convertible Preferred Unit. |
Series C Preferred Unit | | ENLK’s Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Unit. |
SOFR | | Secured overnight financing rate. |
SPV | | EnLink Midstream Funding, LLC, a bankruptcy-remote special purpose entity that is an indirect subsidiary of ENLC. |
STACK | | Sooner Trend Anadarko Basin Canadian and Kingfisher Counties in Oklahoma. |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions, except unit data) | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 16.8 | | | $ | 28.7 | |
Accounts receivable: | | | |
Trade receivables (1) | 57.5 | | | 85.9 | |
Accrued revenue and other | 483.5 | | | 581.4 | |
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Fair value of derivative assets | 90.6 | | | 76.9 | |
Other current assets | 63.7 | | | 65.4 | |
Total current assets | 712.1 | | | 838.3 | |
Property and equipment, net of accumulated depreciation of $5,261.6 and $5,137.2, respectively | 6,360.4 | | | 6,407.0 | |
Intangible assets, net of accumulated amortization of $1,083.0 and $1,051.2, respectively | 761.8 | | | 793.6 | |
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Investment in unconsolidated affiliates | 159.8 | | | 150.5 | |
Fair value of derivative assets | 21.5 | | | 27.0 | |
Other assets, net | 112.4 | | | 112.2 | |
Total assets | $ | 8,128.0 | | | $ | 8,328.6 | |
LIABILITIES AND MEMBERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and drafts payable | $ | 113.0 | | | $ | 126.5 | |
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Accrued natural gas, NGLs, condensate, and crude oil purchases | 356.2 | | | 428.0 | |
Fair value of derivative liabilities | 98.0 | | | 62.7 | |
Current maturities of long-term debt | 97.9 | | | 97.9 | |
Other current liabilities | 247.9 | | | 278.5 | |
Total current liabilities | 913.0 | | | 993.6 | |
Long-term debt, net of unamortized issuance cost | 4,469.5 | | | 4,471.0 | |
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Other long-term liabilities | 83.5 | | | 98.0 | |
Deferred tax liability, net | 101.1 | | | 104.2 | |
Fair value of derivative liabilities | 21.8 | | | 26.7 | |
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Members’ equity: | | | |
Members’ equity (448,783,413 and 451,614,086 units issued and outstanding, respectively) | 892.5 | | | 1,000.5 | |
Accumulated other comprehensive income | 3.7 | | | 0.7 | |
Non-controlling interest | 1,642.9 | | | 1,633.9 | |
Total members’ equity | 2,539.1 | | | 2,635.1 | |
Commitments and contingencies (Note 15) | | | |
Total liabilities and members’ equity | $ | 8,128.0 | | | $ | 8,328.6 | |
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(1)There was no allowance for bad debt at March 31, 2024 and December 31, 2023.
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Statements of Operations
(In millions, except per unit data) | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| (Unaudited) |
Revenues: | | | | | | | |
Product sales | $ | 1,405.0 | | | $ | 1,476.3 | | | | | |
Midstream services | 271.9 | | | 279.3 | | | | | |
Gain (loss) on derivative activity | (29.0) | | | 11.9 | | | | | |
Total revenues | 1,647.9 | | | 1,767.5 | | | | | |
Operating costs and expenses: | | | | | | | |
Cost of sales, exclusive of operating expenses and depreciation and amortization | 1,150.4 | | | 1,271.9 | | | | | |
Operating expenses | 152.6 | | | 132.4 | | | | | |
Depreciation and amortization | 165.3 | | | 160.4 | | | | | |
Impairments | 14.2 | | | — | | | | | |
Gain on disposition of assets | (1.7) | | | (0.4) | | | | | |
General and administrative | 55.2 | | | 29.5 | | | | | |
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Total operating costs and expenses | 1,536.0 | | | 1,593.8 | | | | | |
Operating income | 111.9 | | | 173.7 | | | | | |
Other income (expense): | | | | | | | |
Interest expense, net of interest income | (65.4) | | | (68.5) | | | | | |
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Loss from unconsolidated affiliate investments | (0.8) | | | (0.1) | | | | | |
Other income | 0.5 | | | — | | | | | |
Total other expense | (65.7) | | | (68.6) | | | | | |
Income before non-controlling interest and income taxes | 46.2 | | | 105.1 | | | | | |
Income tax benefit (expense) | 3.8 | | | (10.9) | | | | | |
Net income | 50.0 | | | 94.2 | | | | | |
Net income attributable to non-controlling interest | 35.5 | | | 36.0 | | | | | |
Net income attributable to ENLC | $ | 14.5 | | | $ | 58.2 | | | | | |
Net income attributable to ENLC per unit: | | | | | | | |
Basic common unit | $ | 0.03 | | | $ | 0.12 | | | | | |
Diluted common unit | $ | 0.03 | | | $ | 0.12 | | | | | |
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In millions) | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| (Unaudited) |
Net income | $ | 50.0 | | | $ | 94.2 | | | | | |
Unrealized gain (loss) on designated cash flow hedge (1) | 3.0 | | | (1.2) | | | | | |
Comprehensive income | 53.0 | | | 93.0 | | | | | |
Comprehensive income attributable to non-controlling interest | 35.5 | | | 36.0 | | | | | |
Comprehensive income attributable to ENLC | $ | 17.5 | | | $ | 57.0 | | | | | |
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(1)Includes tax expense of $0.9 million and a tax benefit of $0.4 million for the three months ended March 31, 2024 and 2023, respectively.
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Statements of Changes in Members’ Equity
(In millions)
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| Common Units | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interest | | Total |
| $ | | Units | | $ | | $ | | $ |
| (Unaudited) |
Balance, December 31, 2023 | $ | 1,000.5 | | | 451.6 | | | $ | 0.7 | | | $ | 1,633.9 | | | $ | 2,635.1 | |
Conversion of unit-based awards for common units, net of units withheld for taxes | (15.5) | | | 2.6 | | | — | | | — | | | (15.5) | |
Unit-based compensation | 5.6 | | | — | | | — | | | — | | | 5.6 | |
Contributions from non-controlling interests | — | | | — | | | — | | | 13.0 | | | 13.0 | |
Distributions | (62.4) | | | — | | | — | | | (39.5) | | | (101.9) | |
Unrealized gain on designated cash flow hedge (1) | — | | | — | | | 3.0 | | | — | | | 3.0 | |
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Common units repurchased (2) | (27.1) | | | (5.4) | | | — | | | — | | | (27.1) | |
Accrued common unit repurchase (3) | (23.1) | | | — | | | — | | | — | | | (23.1) | |
Net income | 14.5 | | | — | | | — | | | 35.5 | | | 50.0 | |
Balance, March 31, 2024 | $ | 892.5 | | | 448.8 | | | $ | 3.7 | | | $ | 1,642.9 | | | $ | 2,539.1 | |
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(1)Includes tax expense of $0.9 million for the three months ended March 31, 2024.
(2)Excludes the $41.5 million repurchase of ENLC common units held by GIP on February 19, 2024, which was accrued at December 31, 2023.
(3)Relates to the repurchase of ENLC common units held by GIP, which are contractually subject to repurchase by ENLC at the end of each quarter and settled in the subsequent quarter. For additional information, see “Note 8—Members’ Equity.”
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Statements of Changes in Members’ Equity (Continued)
(In millions)
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| Common Units | | Accumulated Other Comprehensive Income (Loss) | | Non-Controlling Interest | | Total | | |
| $ | | Units | | $ | | $ | | $ | | |
| (Unaudited) |
Balance, December 31, 2022 | $ | 1,306.4 | | | 469.0 | | | $ | — | | | $ | 1,606.3 | | | $ | 2,912.7 | | | |
Conversion of unit-based awards for common units, net of units withheld for taxes | (16.8) | | | 2.5 | | | — | | | — | | | (16.8) | | | |
Unit-based compensation | 4.0 | | | — | | | — | | | — | | | 4.0 | | | |
Contributions from non-controlling interests | — | | | — | | | — | | | 8.4 | | | 8.4 | | | |
Distributions | (61.7) | | | — | | | — | | | (42.4) | | | (104.1) | | | |
Unrealized loss on designated cash flow hedge (1) | — | | | — | | | (1.2) | | | — | | | (1.2) | | | |
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Repurchase of Series C Preferred Units | — | | | — | | | — | | | (3.9) | | | (3.9) | | | |
Common units repurchased | (51.4) | | | (4.4) | | | — | | | — | | | (51.4) | | | |
Net income | 58.2 | | | — | | | — | | | 36.0 | | | 94.2 | | | |
Balance, March 31, 2023 | $ | 1,238.7 | | | 467.1 | | | $ | (1.2) | | | $ | 1,604.4 | | | $ | 2,841.9 | | | |
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(1)Includes a tax benefit of $0.4 million for the three months ended March 31, 2023.
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions) | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| (Unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 50.0 | | | $ | 94.2 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 165.3 | | | 160.4 | |
Gain on disposition of assets | (1.7) | | | (0.4) | |
Non-cash unit-based compensation | 5.6 | | | 4.0 | |
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Non-cash loss on derivatives recognized in net income | 26.1 | | | 1.4 | |
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Amortization of debt issuance costs and net discount of senior unsecured notes | 1.5 | | | 1.5 | |
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Deferred income tax (benefit) expense | (4.0) | | | 10.8 | |
Loss from unconsolidated affiliate investments | 0.8 | | | 0.1 | |
Impairments | 14.2 | | | — | |
Other operating activities | (2.0) | | | 1.7 | |
Changes in assets and liabilities, net of the effects of acquisitions: | | | |
Accounts receivable, accrued revenue, and other | 126.7 | | | 101.1 | |
Product inventory, prepaid expenses, and other | 11.3 | | | 68.3 | |
Accounts payable, accrued product purchases, and other accrued liabilities | (100.5) | | | (171.0) | |
Net cash provided by operating activities | 293.3 | | | 272.1 | |
Cash flows from investing activities: | | | |
Additions to property and equipment | (110.4) | | | (100.7) | |
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Contributions to unconsolidated affiliate investments | (9.4) | | | (49.7) | |
Other investing activities | (5.7) | | | 0.4 | |
Net cash used in investing activities | (125.5) | | | (150.0) | |
Cash flows from financing activities: | | | |
Proceeds from borrowings | 629.4 | | | 1,173.0 | |
Repayments on borrowings | (632.4) | | | (1,067.4) | |
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Distributions to members | (62.4) | | | (61.7) | |
Distributions to non-controlling interests | (39.5) | | | (42.4) | |
Earnout payments | (2.5) | | | — | |
Payment to redeem mandatorily redeemable non-controlling interest | — | | | (10.5) | |
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Repurchase of Series C Preferred Units | — | | | (3.9) | |
Contributions from non-controlling interests | 13.0 | | | 8.4 | |
Common unit repurchases | (68.6) | | | (51.4) | |
Conversion of unit-based awards for common units, net of units withheld for taxes | (15.5) | | | (16.8) | |
Other financing activities | (1.2) | | | 0.8 | |
Net cash used in financing activities | (179.7) | | | (71.9) | |
Net increase (decrease) in cash and cash equivalents | (11.9) | | | 50.2 | |
Cash and cash equivalents, beginning of period | 28.7 | | | 22.6 | |
Cash and cash equivalents, end of period | $ | 16.8 | | | $ | 72.8 | |
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Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 65.8 | | | $ | 62.2 | |
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Non-cash investing activities: | | | |
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Right-of-use assets obtained in exchange for operating lease liabilities | $ | 11.2 | | | $ | 10.4 | |
Non-cash accrual of property and equipment | $ | (7.0) | | | $ | 13.4 | |
See accompanying notes to consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2024
(Unaudited)
(1) General
In this report, the terms “Company” or “Registrant,” as well as the terms “ENLC,” “our,” “we,” “us,” or like terms, are sometimes used as abbreviated references to EnLink Midstream, LLC itself or EnLink Midstream, LLC together with its consolidated subsidiaries, including ENLK and its consolidated subsidiaries. References in this report to “EnLink Midstream Partners, LP,” the “Partnership,” “ENLK,” or like terms refer to EnLink Midstream Partners, LP itself or EnLink Midstream Partners, LP together with its consolidated subsidiaries, including the Operating Partnership.
Please read the notes to the consolidated financial statements in conjunction with the Definitions page set forth in this report prior to Part I—Financial Information.
a.Organization of Business
ENLC is a Delaware limited liability company formed in October 2013. The Company’s common units are traded on the New York Stock Exchange under the symbol “ENLC.” As of March 31, 2024, GIP, through GIP III Stetson I, L.P. and GIP III Stetson II, L.P, owns 45.8% of the outstanding limited liability company interests in ENLC. In addition to GIP’s equity interests in ENLC, GIP III Stetson I, L.P. maintains control over the Managing Member through its ownership of all of the equity interests in the Managing Member. ENLC owns all of ENLK’s common units and also owns all of the membership interests of the General Partner. The General Partner manages ENLK’s operations and activities.
b.Nature of Business
We primarily focus on owning, operating, investing in, and developing midstream energy infrastructure assets to provide midstream energy services, including:
•gathering, compressing, treating, processing, transporting, storing, and selling natural gas;
•fractionating, transporting, storing, and selling NGLs; and
•gathering, transporting, storing, trans-loading, and selling crude oil and condensate.
As of March 31, 2024, our midstream infrastructure network includes approximately 13,600 miles of pipelines, 25 natural gas processing plants with approximately 5.8 Bcf/d of processing capacity, seven fractionators with approximately 316,300 Bbls/d of fractionation capacity, barge and rail terminals, product storage facilities, purchasing and marketing capabilities, and equity investments in certain joint ventures. Our operations are based in the United States, and our sales are derived primarily from domestic customers.
Our natural gas gathering business includes connecting the wells of producers in our market areas to our gathering systems. Our gathering systems consist of networks of pipelines that collect natural gas from points at or near producing wells and transport it to our processing plants or to larger diameter pipelines for further transmission. Our processing plants remove NGLs from the natural gas stream that is transported to the processing plants by our own gathering systems or by third-party pipelines. In conjunction with our gathering and processing business, we may purchase natural gas and NGLs from producers and other supply sources and sell that natural gas or NGLs to utilities, industrial consumers, marketers, and pipelines. We also store natural gas and NGLs on behalf of third parties for a fee or to balance our own purchases and sales in marketing natural gas and NGLs for our customers.
Our large diameter natural gas transmission pipelines provide access to multiple domestic production basins to a variety of customers, such as industrial end-users, LNG facilities, and utilities. Our large diameter natural gas transmission pipelines are connected to our gathering systems or third party gathering systems, natural gas transmission pipeline systems, and natural gas storage caverns.
Our fractionators separate NGLs into separate purity products, including ethane, propane, iso-butane, normal butane, and natural gasoline. Our fractionators receive NGLs primarily through our transmission lines that transport NGLs from East Texas and from our South Louisiana processing plants. Our fractionators also have the capability to receive NGLs by truck or rail terminals. We also have agreements pursuant to which we transport NGLs from our West Texas and Central Oklahoma
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
operations on third party pipelines to our NGL transmission lines that then transport the NGLs to our fractionators. In addition, we have NGL storage capacity to provide storage for customers.
Our crude oil and condensate business includes the gathering and transmission of crude oil and condensate via pipelines, in addition to condensate stabilization. We also purchase crude oil and condensate from producers and other supply sources and sell that crude oil and condensate through our terminal facilities to various markets.
Across our businesses, we primarily earn our fees through various fee-based contractual arrangements, which include stated fee-only contract arrangements or arrangements with fee-based components where we purchase and resell commodities in connection with providing the related service and earn a net margin as our fee. We earn our net margin under our purchase and resell contract arrangements primarily as a result of stated service-related fees that are deducted from the price of the commodities purchased.
(2) Significant Accounting Policies
a.Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, are unaudited, and do not include all the information and disclosures required by GAAP for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Commission on February 21, 2024. Certain reclassifications were made to the financial statements for the prior period to conform to current period presentation. The effect of these reclassifications had no impact on previously reported members’ equity or net income. All significant intercompany balances and transactions have been eliminated in consolidation.
b.Revenue Recognition
The following table summarizes the contractually committed fees (in millions) that we expect to recognize in our consolidated statements of operations, in either revenue or reductions to cost of sales, from MVC and firm transportation contractual provisions. Under these agreements, our customers or suppliers agree to transport or process a minimum volume of commodities on our system over an agreed period. If a customer or supplier fails to meet the minimum volume specified in such agreement, the customer or supplier is obligated to pay a contractually determined fee based upon the shortfall between actual volumes and the contractually stated minimum volumes. All amounts in the table below are determined using the contractually-stated MVC or firm transportation volumes specified for each period multiplied by the relevant deficiency or reservation fee. Actual amounts could differ due to the timing of revenue recognition or reductions to cost of sales resulting from make-up right provisions included in our agreements, as well as due to nonpayment or nonperformance by our customers. We record revenue under MVC and firm transportation contracts during periods of shortfall when it is known that the customer cannot, or will not, make up the deficiency. These fees do not represent the shortfall amounts we expect to collect under our MVC and firm transportation contracts, as we generally do not expect volume shortfalls to equal the full amount of the contractual MVCs and firm transportation contracts during these periods.
| | | | | | | | |
Contractually Committed Fees | | Commitments |
2024 (remaining) | | $ | 116.3 | |
2025 | | 147.9 | |
2026 | | 153.3 | |
2027 | | 125.1 | |
2028 | | 116.4 | |
Thereafter | | 1,053.0 | |
Total | | $ | 1,712.0 | |
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
c.Property and Equipment
In accordance with ASC 360, Property, Plant, and Equipment, we evaluate long-lived assets of identifiable business activities for potential impairment whenever events or changes in circumstances, or triggering events, indicate that their carrying value may not be recoverable. Triggering events include, but are not limited to, significant changes in the use of the asset group, current operating results that are significantly less than forecasted results, and negative industry or economic trends, including changes in commodity prices, significant adverse changes in legal or regulatory factors, or an expectation that it is more likely than not that an asset group will be sold before the end of its useful life. The carrying amount of a long-lived asset is not recoverable when it exceeds the undiscounted sum of the future cash flows expected to result from the use and eventual disposition of the asset. Estimates of expected future cash flows represent management’s best estimate based on reasonable and supportable assumptions. When the carrying amount of a long-lived asset is not recoverable, an impairment is recognized equal to the excess of the asset’s carrying value over its fair value, which is based on inputs that are not observable in the market, and thus represent Level 3 inputs.
During the first quarter of 2024, we identified changes in our outlook for future cash flows and the anticipated use of certain non-core assets in our North Texas segment. We determined that the carrying amounts of these assets exceeded their fair values, based on market inputs and certain assumptions, and recorded an impairment expense of $14.2 million for the three months ended March 31, 2024. In April 2024, we sold these non-core assets in our North Texas segment. We did not record any impairment expense for the three months ended March 31, 2023.
d.Recent Accounting Pronouncements
On November 27, 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” (“ASU 2023-07”). ASU 2023-07 amends reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect ASU 2023-07 to have a material impact on our financial statements.
On December 14, 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” (“ASU 2023-09”). ASU 2023-09 is intended to improve the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction. ASU 2023-09 will become effective for annual periods beginning after December 15, 2024, with early adoption permitted. Management is currently evaluating ASU 2023-09 to determine its impact on the Company’s annual disclosures.
(3) Intangible Assets
Intangible assets associated with customer relationships are amortized on a straight-line basis over the expected period of benefits of the customer relationships, which ranged from 10 to 20 years at the time the intangible assets were originally recorded. The weighted average amortization period for intangible assets is 14.9 years.
The following table represents our change in carrying value of intangible assets (in millions): | | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Three Months Ended March 31, 2024 | | | | | |
Customer relationships, beginning of period | $ | 1,844.8 | | | $ | (1,051.2) | | | $ | 793.6 | |
Amortization expense | — | | | (31.8) | | | (31.8) | |
| | | | | |
Customer relationships, end of period | $ | 1,844.8 | | | $ | (1,083.0) | | | $ | 761.8 | |
Amortization expense was $31.8 million and $31.9 million for the three months ended March 31, 2024 and 2023, respectively.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The following table summarizes our estimated aggregate amortization expense for the next five years and thereafter (in millions):
| | | | | |
2024 (remaining) | $ | 95.8 | |
2025 | 110.2 | |
2026 | 106.3 | |
2027 | 106.3 | |
2028 | 106.3 | |
Thereafter | 236.9 | |
| |
Total | $ | 761.8 | |
(4) Related Party Transactions
(a) Transactions with the Cedar Cove JV
We process natural gas and purchase the related residue natural gas and NGLs from the Cedar Cove JV. We recorded the following amounts (in millions) on our consolidated balance sheets related to our transactions with the Cedar Cove JV:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Accrued natural gas, NGLs, condensate, and crude oil purchases | $ | 0.3 | | | $ | 0.3 | |
We recorded the following amounts (in millions) on our consolidated statements of operations related to our transactions with the Cedar Cove JV:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Midstream services revenue | $ | 0.5 | | | $ | 0.7 | | | | | |
Cost of sales | (1.4) | | | (1.5) | | | | | |
(b) Transactions with GIP
GIP Repurchase Agreement. On February 15, 2022, we entered into an agreement with GIP pursuant to which we agreed to repurchase, on a quarterly basis, a pro rata portion of the ENLC common units held by GIP, based upon the number of common units purchased by us during the applicable quarter from public unitholders under our common unit repurchase program. The number of ENLC common units held by GIP that we repurchase in any quarter is calculated such that GIP’s then-existing economic ownership percentage of our outstanding common units is maintained after our repurchases of common units from public unitholders are taken into account, and the per unit price we pay to GIP is the average per unit price paid by us for the common units repurchased from public unitholders, less broker commissions, which are not paid with respect to the GIP units. The repurchase agreement terminated as of December 31, 2022 in accordance with its terms.
On December 20, 2022, we entered into a renewed repurchase agreement with GIP for 2023 (the “Second Repurchase Agreement”) on terms substantially similar to those of the repurchase agreement entered into by the Company and GIP on February 15, 2022. The Second Repurchase Agreement terminated on December 31, 2023. On January 16, 2024, we entered into a new repurchase agreement with GIP with terms substantially similar to the Second Repurchase Agreement. The current repurchase agreement will renew for successive one-year terms (each, a “Renewal Year”) on January 1 of each Renewal Year, with the first Renewal Year beginning on January 1, 2025, unless either the Company or the GIP Entities elects to terminate the Repurchase Agreement prior to the start of any Renewal Year, during a two-week period in December preceding the applicable Renewal Year. See “Note 8—Members’ Equity” for additional information on the activity related to the GIP repurchase agreement.
Management believes the foregoing transactions with related parties were executed on terms that are fair and reasonable. The amounts related to related party transactions are specified in the accompanying consolidated financial statements.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(5) Long-Term Debt
As of March 31, 2024 and December 31, 2023, long-term debt consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Outstanding Principal | | Premium (Discount) | | Long-Term Debt | | Outstanding Principal | | Premium (Discount) | | Long-Term Debt |
| | | | | | | | | | | |
Revolving Credit Facility due 2027 (1) | $ | 150.0 | | | $ | — | | | $ | 150.0 | | | $ | — | | | $ | — | | | $ | — | |
AR Facility due 2025 (2) | 147.0 | | | — | | | 147.0 | | | 300.0 | | | — | | | 300.0 | |
ENLK’s 4.40% Senior unsecured notes due 2024 | 97.9 | | | — | | | 97.9 | | | 97.9 | | | — | | | 97.9 | |
ENLK’s 4.15% Senior unsecured notes due 2025 | 421.6 | | | — | | | 421.6 | | | 421.6 | | | — | | | 421.6 | |
ENLK’s 4.85% Senior unsecured notes due 2026 | 491.0 | | | (0.2) | | | 490.8 | | | 491.0 | | | (0.2) | | | 490.8 | |
ENLC’s 5.625% Senior unsecured notes due 2028 | 500.0 | | | — | | | 500.0 | | | 500.0 | | | — | | | 500.0 | |
ENLC’s 5.375% Senior unsecured notes due 2029 | 498.7 | | | — | | | 498.7 | | | 498.7 | | | — | | | 498.7 | |
ENLC’s 6.50% Senior unsecured notes due 2030 | 1,000.0 | | | (2.6) | | | 997.4 | | | 1,000.0 | | | (2.7) | | | 997.3 | |
ENLK’s 5.60% Senior unsecured notes due 2044 | 350.0 | | | (0.2) | | | 349.8 | | | 350.0 | | | (0.2) | | | 349.8 | |
ENLK’s 5.05% Senior unsecured notes due 2045 | 450.0 | | | (4.9) | | | 445.1 | | | 450.0 | | | (5.0) | | | 445.0 | |
ENLK’s 5.45% Senior unsecured notes due 2047 | 500.0 | | | (0.1) | | | 499.9 | | | 500.0 | | | (0.1) | | | 499.9 | |
Debt classified as long-term, including current maturities of long-term debt | $ | 4,606.2 | | | $ | (8.0) | | | 4,598.2 | | | $ | 4,609.2 | | | $ | (8.2) | | | 4,601.0 | |
Debt issuance cost (3) | | | | | (30.8) | | | | | | | (32.1) | |
Less: Current maturities of long-term debt (4) | | | | | (97.9) | | | | | | | (97.9) | |
Long-term debt, net of unamortized issuance cost | | | | | $ | 4,469.5 | | | | | | | $ | 4,471.0 | |
____________________________
(1)The effective interest rate was 6.9% at March 31, 2024.
(2)The effective interest rate was 6.3% and 6.4% at March 31, 2024 and December 31, 2023, respectively.
(3)Net of accumulated amortization of $21.4 million and $20.0 million at March 31, 2024 and December 31, 2023, respectively.
(4)The outstanding balance, net of debt issuance costs, of ENLK’s 4.40% senior unsecured notes are classified as “Current maturities of long-term debt” on the consolidated balance sheets as of March 31, 2024 and December 31, 2023 as these notes matured on April 1, 2024.
Revolving Credit Facility
The Revolving Credit Facility permits ENLC to borrow up to $1.4 billion on a revolving credit basis and includes a $500.0 million letter of credit subfacility. There were $150.0 million in outstanding borrowings under the Revolving Credit Facility and $22.3 million in outstanding letters of credit as of March 31, 2024.
At March 31, 2024, we were in compliance with and expect to be in compliance with the financial covenants of the Revolving Credit Facility for at least the next twelve months.
AR Facility
On October 21, 2020, the SPV entered into the AR Facility. We are the primary beneficiary of the SPV, and we consolidate its assets and liabilities, which consist primarily of billed and unbilled accounts receivable of $497.0 million as of March 31, 2024. As of March 31, 2024, the AR Facility had a borrowing base of $389.1 million and there were $147.0 million in outstanding borrowings under the AR Facility.
At March 31, 2024, we were in compliance with and expect to be in compliance with the financial covenants of the AR Facility for at least the next twelve months.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(6) Income Taxes
The components of our income tax benefit (expense) are as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Current income tax expense | $ | (0.2) | | | $ | (0.1) | | | | | |
Deferred income tax benefit (expense) | 4.0 | | | (10.8) | | | | | |
Income tax benefit (expense) | $ | 3.8 | | | $ | (10.9) | | | | | |
The following schedule reconciles income tax benefit (expense) and the amount calculated by applying the statutory U.S. federal tax rate to income before non-controlling interest and income taxes (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Expected income tax expense based on federal statutory tax rate | $ | (2.2) | | | $ | (14.5) | | | | | |
State income tax expense, net of federal benefit | (0.4) | | | (1.8) | | | | | |
Unit-based compensation (1) | 7.3 | | | 6.5 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other | (0.9) | | | (1.1) | | | | | |
Income tax benefit (expense) | $ | 3.8 | | | $ | (10.9) | | | | | |
____________________________
(1)Related to book-to-tax differences recorded upon the vesting of unit-based awards.
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax liabilities, net of deferred tax assets, are included in “Deferred tax liability, net” in the consolidated balance sheets. As of March 31, 2024, we had $774.0 million of deferred tax assets, net of a $1.2 million valuation allowance, and $875.1 million of deferred tax liabilities for net deferred tax liabilities of $101.1 million. As of December 31, 2023, we had $758.3 million of deferred tax assets, net of a $1.2 million valuation allowance, and $862.5 million of deferred tax liabilities for net deferred tax liabilities of $104.2 million.
We provide a valuation allowance, if necessary, to reduce deferred tax assets, if all, or some portion, of such assets will more than likely not be realized. As of March 31, 2024, management believes it is more likely than not that the Company will realize the benefits of the deferred tax assets, net of valuation allowance.
(7) Certain Provisions of the ENLK Partnership Agreement
a.Series B Preferred Units
As of March 31, 2024 and December 31, 2023, there were 54,712,077 and 54,575,638 Series B Preferred Units issued and outstanding, respectively.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Income and Distributions
Income is allocated to the Series B Preferred Units in an amount equal to the quarterly distribution with respect to the period earned. A summary of the distribution activity relating to the Series B Preferred Units during the three months ended March 31, 2024 and 2023 is provided below: | | | | | | | | | | | | | | | | | | | | |
Declaration period | | PIK Distribution | | Cash distribution (in millions) | | Date paid/payable |
2024 | | | | | | |
Fourth Quarter of 2023 | | 136,439 | | | $ | 15.3 | | | February 9, 2024 |
First Quarter of 2024 | | 130,270 | | | $ | 14.7 | | | May 14, 2024 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
2023 | | | | | | |
Fourth Quarter of 2022 | | — | | | $ | 17.3 | | | February 13, 2023 |
First Quarter of 2023 | | 135,421 | | | $ | 15.2 | | | May 12, 2023 |
| | | | | | |
| | | | | | |
| | | | | | |
Allocation of Taxable Income to the Series B Preferred Units
For tax purposes, holders of Series B Preferred Units are allocated items of gross income from ENLK in respect of each Series B Preferred Unit until the cumulative amount of gross income so allocated equals the cumulative amount of distributions made in respect of such Series B Preferred Unit, but not in excess of the positive net income of ENLK for the allocation year (the “Allocation Cap”). As of March 31, 2024, due to the application of the Allocation Cap, the cumulative amount of distributions made in respect of each Series B Preferred Unit exceeded the cumulative amount of gross income allocated to each Series B Preferred Unit by $7.05 per Series B Preferred Unit (the “Catch-Up Income Allocation”). As a result, holders of Series B Preferred Units will ultimately be allocated taxable income during future periods equal to the Catch-Up Income Allocation plus the amount of distributions received in respect of Series B Preferred Units, if ENLK generates positive net income.
b.Series C Preferred Units
As of March 31, 2024 and December 31, 2023, there were 366,500 Series C Preferred Units issued and outstanding.
Distributions
Income is allocated to the Series C Preferred Units in an amount equal to the earned distribution for the respective reporting period. A summary of the distribution activity relating to the Series C Preferred Units is provided below:
| | | | | | | | | | | | | | | | | | | | |
Declaration period (1) | | Distribution rate (2) | | Cash distribution (in millions) | | Date paid/payable |
2024 | | | | | | |
December 15, 2023 – March 14, 2024 | | 9.749 | % | | $ | 9.0 | | | March 15, 2024 |
March 15, 2024 – June 14, 2024 | | 9.701 | % | | $ | 9.1 | | | June 17, 2024 |
| | | | | | |
| | | | | | |
| | | | | | |
2023 | | | | | | |
December 15, 2022 – March 14, 2023 | | 8.846 | % | | $ | 8.4 | | | March 15, 2023 |
March 15, 2023 – June 14, 2023 | | 9.051 | % | | $ | 8.7 | | | June 15, 2023 |
| | | | | | |
| | | | | | |
____________________________(1)Distributions on the Series C Preferred Units accrue quarterly in arrears on the 15th day of March, June, September, and December of each year, in each case, if and when declared by the General Partner out of legally available funds for such purpose.
(2)Distributions on the Series C Preferred Units accumulate for each distribution period at a percentage of the $1,000 liquidation preference per unit equal to the floating rate of the three-month LIBOR plus a spread of 4.11%. Starting on September 15, 2023, distributions on the Series C Preferred Units are based on the forward-looking term rate based on SOFR (“Term SOFR”), plus a Term SOFR spread adjustment of 0.26161%, plus a spread of 4.11%.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(8) Members’ Equity
a.Common Unit Repurchase Program
The table below provides a summary of the Board’s authorizations of the 2023 and 2024 common unit repurchase programs.
| | | | | | | | | | | | | | |
Date | | Board Action | | Authorized Amount (in millions)(1) |
December 2022 | | Reauthorization of common unit repurchase program and set amount available for repurchases for 2023 | | $ | 200 | |
November 2023 | | Increase in 2023 common unit repurchase program | | $ | 50 | |
December 2023 | | Reauthorization of common unit repurchase program and set amount available for repurchases for 2024 | | $ | 200 | |
____________________________
(1)The authorized amount includes repurchases of common units held by GIP. Refer to “Note 4—Related Party Transactions” for more information on our ENLC common unit repurchase agreement with GIP.
Repurchases under the common unit repurchase program will be made, in accordance with applicable securities laws, from time to time in open market or private transactions and may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act. The repurchases will depend on market conditions and may be discontinued at any time.
The following table summarizes our ENLC common unit repurchase activity for the periods presented (in millions, except for unit amounts):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Publicly held ENLC common units | 2,166,805 | | | 2,207,305 | | | | | |
ENLC common units held by GIP (1) | 3,280,637 | | | 2,237,110 | | | | | |
Total ENLC common units | 5,447,442 | | | 4,444,415 | | | | | |
| | | | | | | |
Aggregate cost for publicly held ENLC common units | $ | 26.9 | | | $ | 26.8 | | | | | |
Aggregate cost for ENLC common units held by GIP | 41.5 | | | 24.6 | | | | | |
Excise tax on common unit repurchases | 0.2 | | | — | | | | | |
Total aggregate cost for ENLC common units | $ | 68.6 | | | $ | 51.4 | | | | | |
| | | | | | | |
Average price paid per publicly held ENLC common unit (2) | $ | 12.41 | | | $ | 12.14 | | | | | |
Average price paid per ENLC common unit held by GIP (2)(3) | $ | 12.66 | | | $ | 11.01 | | | | | |
____________________________
(1)The units repurchased in each quarter represent GIP’s pro rata share of the aggregate number of common units repurchased by us under our common unit repurchase program during the prior quarter.
(2)The average price paid per common unit excludes excise tax on common unit repurchases.
(3)The per unit price we paid to GIP in each quarter was the average per unit price paid by us for publicly held ENLC common units repurchased in the prior quarter, less broker commissions.
Additionally, on April 29, 2024, we repurchased 1,862,695 ENLC common units held by GIP at an aggregate cost of $23.1 million, or an average of $12.40 per common unit. These units represented GIP’s pro rata share of the aggregate number of common units repurchased by us during the three months ended March 31, 2024. The per unit price we paid to GIP was the same as the average per unit price paid by us for publicly held ENLC common units repurchased during the same period, less broker commissions, which were not paid with respect to the GIP units. As of March 31, 2024, $23.1 million is classified as “Other current liabilities” on the consolidated balance sheets related to our obligation to repurchase our common units from GIP. See “Note 4—Related Party Transactions” for additional information relating to the GIP repurchase agreement.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
b.Earnings Per Unit and Dilution Computations
As required under ASC 260, Earnings Per Share, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities for earnings per unit calculations. The following table reflects the computation of basic and diluted earnings per unit for the periods presented (in millions, except per unit amounts): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Distributed earnings allocated to: | | | | | | | |
Common units (1) | $ | 59.8 | | | $ | 58.6 | | | | | |
Unvested unit-based awards (1) | 0.7 | | | 0.9 | | | | | |
Total distributed earnings | $ | 60.5 | | | $ | 59.5 | | | | | |
Undistributed loss allocated to: | | | | | | | |
Common units | $ | (45.4) | | | $ | (1.3) | | | | | |
Unvested unit-based awards | (0.6) | | | — | | | | | |
Total undistributed loss | $ | (46.0) | | | $ | (1.3) | | | | | |
Net income attributable to ENLC allocated to: | | | | | | | |
Common units | $ | 14.4 | | | $ | 57.3 | | | | | |
Unvested unit-based awards | 0.1 | | | 0.9 | | | | | |
Total net income attributable to ENLC | $ | 14.5 | | | $ | 58.2 | | | | | |
Net income attributable to ENLC per unit: | | | | | | | |
Basic | $ | 0.03 | | | $ | 0.12 | | | | | |
Diluted | $ | 0.03 | | | $ | 0.12 | | | | | |
____________________________
(1)Represents distribution activity consistent with the distribution activity table below.
The following are the unit amounts used to compute the basic and diluted earnings per unit for the periods presented (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Basic weighted average units outstanding: | | | | | | | |
Weighted average common units outstanding | 451.3 | | | 468.9 | | | | | |
Diluted weighted average units outstanding: | | | | | | | |
Weighted average basic common units outstanding | 451.3 | | | 468.9 | | | | | |
Dilutive effect of unvested restricted units | 2.9 | | | 4.4 | | | | | |
| | | | | | | |
Total weighted average diluted common units outstanding | 454.2 | | | 473.3 | | | | | |
All outstanding units were included in the computation of diluted earnings per unit and weighted based on the number of days such units were outstanding during the period presented.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
c.Distributions
A summary of our distribution activity related to the ENLC common units for the three months ended March 31, 2024 and 2023, respectively, is provided below: | | | | | | | | | | | | | | |
Declaration period | | Distribution/unit | | Date paid/payable |
2024 | | | | |
Fourth Quarter of 2023 | | $ | 0.1325 | | | February 9, 2024 |
First Quarter of 2024 | | $ | 0.1325 | | | May 14, 2024 |
| | | | |
| | | | |
| | | | |
| | | | |
2023 | | | | |
Fourth Quarter of 2022 | | $ | 0.1250 | | | February 13, 2023 |
First Quarter of 2023 | | $ | 0.1250 | | | May 12, 2023 |
| | | | |
| | | | |
(9) Investment in Unconsolidated Affiliates
As of March 31, 2024, our unconsolidated investments consisted of a 38.75% ownership in GCF, a 30% ownership in the Cedar Cove JV, and a 15% ownership in the Matterhorn JV. The following table shows the activity related to our investment in unconsolidated affiliates for the periods indicated (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
GCF | | | | | | | |
Contributions | $ | 9.4 | | | $ | 6.2 | | | | | |
| | | | | | | |
Equity in loss | $ | (1.8) | | | $ | (1.1) | | | | | |
| | | | | | | |
Cedar Cove JV | | | | | | | |
| | | | | | | |
Distributions | $ | — | | | $ | (0.1) | | | | | |
Equity in loss | $ | (0.7) | | | $ | (0.6) | | | | | |
| | | | | | | |
Matterhorn JV | | | | | | | |
Contributions | $ | — | | | $ | 43.5 | | | | | |
| | | | | | | |
Equity in income | $ | 1.7 | | | $ | 1.6 | | | | | |
| | | | | | | |
Total | | | | | | | |
Contributions | $ | 9.4 | | | $ | 49.7 | | | | | |
Distributions | $ | — | | | $ | (0.1) | | | | | |
Equity in loss | $ | (0.8) | | | $ | (0.1) | | | | | |
The following table shows the balances related to our investment in unconsolidated affiliates as of March 31, 2024 and December 31, 2023 (in millions): | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
GCF | $ | 52.1 | | | $ | 44.5 | |
Cedar Cove JV (1) | (8.0) | | | (7.3) | |
Matterhorn JV | 107.7 | | | 106.0 | |
Total investment in unconsolidated affiliates | $ | 151.8 | | | $ | 143.2 | |
____________________________
(1)As of March 31, 2024 and December 31, 2023, our investment in the Cedar Cove JV is classified as “Other long-term liabilities” on the consolidated balance sheets.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(10) Employee Incentive Plans
a. Long-Term Incentive Plans
We account for unit-based compensation in accordance with ASC 718, which requires that compensation related to all unit-based awards be recognized in the consolidated financial statements. Unit-based compensation cost is valued at fair value at the date of grant, and that grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.
Amounts recognized on the consolidated financial statements with respect to these plans are as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Cost of unit-based compensation charged to operating expense | $ | 0.9 | | | $ | 0.9 | | | | | |
Cost of unit-based compensation charged to general and administrative expense | 4.7 | | | 3.1 | | | | | |
Total unit-based compensation expense | $ | 5.6 | | | $ | 4.0 | | | | | |
Amount of related income tax benefit recognized in net income (1) | $ | 1.3 | | | $ | 0.9 | | | | | |
____________________________
(1)The amount of related income tax benefit recognized in net income excluded book-to-tax differences recorded upon the vesting of unit-based awards. For additional information, see “Note 6—Income Taxes.”
b.Restricted Incentive Units
The restricted incentive units were valued at their fair value at the date of grant, which is equal to the market value of ENLC common units on such date. A summary of the restricted incentive unit activity for the three months ended March 31, 2024 is provided below: | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 |
Restricted Incentive Units: | | Number of Units | | Weighted Average Grant-Date Fair Value |
Unvested, beginning of period | | 5,445,980 | | | $ | 7.27 | |
Granted (1) | | 1,343,217 | | | 12.36 | |
Vested (1)(2) | | (2,309,954) | | | 3.94 | |
Forfeited | | (5,397) | | | 9.96 | |
Unvested, end of period | | 4,473,846 | | | $ | 10.51 | |
Aggregate intrinsic value, end of period (in millions) | | $ | 61.0 | | | |
____________________________
(1)Beginning in 2024, restricted incentive units awarded typically vest on a graded vesting schedule over three years. Prior to 2024, restricted incentive units awarded typically vested at the end of three years.
(2)Vested units included 680,384 ENLC common units withheld for payroll taxes paid on behalf of employees.
A summary of the restricted incentive units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) for the three months ended March 31, 2024 and 2023 is provided below (in millions): | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
Restricted Incentive Units: | | 2024 | | 2023 | | | | |
Aggregate intrinsic value of units vested | | $ | 28.1 | | | $ | 27.1 | | | | | |
Fair value of units vested | | $ | 9.1 | | | $ | 13.4 | | | | | |
As of March 31, 2024, there were $29.7 million of unrecognized compensation costs that related to unvested restricted incentive units. These costs are expected to be recognized over a weighted average period of 2.1 years.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
c.Performance Units
We grant performance awards under the 2014 Plan. The performance award agreements provide that the vesting of performance units (i.e., performance-based restricted incentive units) granted thereunder is dependent on the achievement of certain performance goals over the applicable performance period. At the end of the vesting period, recipients receive distribution equivalents, if any, with respect to the number of performance units vested. The vesting of such units ranges from zero to 200% of the units granted depending on the extent to which the related performance goals are achieved over the relevant performance period.
The following table presents a summary of the performance units: | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2024 |
Performance Units: | | Number of Units | | Weighted Average Grant-Date Fair Value |
Unvested, beginning of period | | 2,236,744 | | | $ | 6.37 | |
Granted | | 508,586 | | | 12.92 | |
Vested (1) | | (1,061,232) | | | 4.77 | |
Forfeited | | (39,052) | | | 11.84 | |
Unvested, end of period | | 1,645,046 | | | $ | 9.30 | |
Aggregate intrinsic value, end of period (in millions) | | $ | 22.4 | | | |
____________________________
(1)Vested units included 576,040 ENLC common units withheld for payroll taxes paid on behalf of employees.
A summary of the performance units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) for the three months ended March 31, 2024 and 2023 is provided below (in millions).
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
Performance Units: | | 2024 | | 2023 | | | | |
Aggregate intrinsic value of units vested | | $ | 19.2 | | | $ | 22.0 | | | | | |
Fair value of units vested | | $ | 5.1 | | | $ | 8.1 | | | | | |
As of March 31, 2024, there were $13.4 million of unrecognized compensation costs that related to unvested performance units. These costs are expected to be recognized over a weighted average period of 2.0 years.
The following table presents a summary of the grant-date fair value assumptions by performance unit grant date: | | | | | | | | | | | | | | |
Performance Units: | | February 2024 | | | | | | |
Grant-date fair value | | $ | 12.92 | | | | | | | |
Beginning TSR Price | | $ | 12.74 | | | | | | | |
Risk-free interest rate | | 4.46 | % | | | | | | |
Volatility factor | | 41.51 | % | | | | | | |
| | | | | | | | |
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
(11) Derivatives
Interest Rate Swap
In January 2023, we entered into a $400.0 million interest rate swap to manage the interest rate risk associated with our floating-rate, SOFR-based borrowings, including borrowings on the Revolving Credit Facility and the AR Facility. We designated our interest rate swap as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging. There is no ineffectiveness related to our hedge.
The components of the unrealized gain (loss) on designated cash flow hedge related to changes in the fair value of our interest rate swap are as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Change in fair value of interest rate swap | $ | 3.9 | | | $ | (1.6) | | | | | |
Tax benefit (expense) | (0.9) | | | 0.4 | | | | | |
Unrealized gain (loss) on designated cash flow hedge | $ | 3.0 | | | $ | (1.2) | | | | | |
The fair value of derivative assets and liabilities related to the interest rate swap are as follows (in millions):
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Fair value of derivative assets—current | $ | 4.3 | | | $ | 3.3 | |
Fair value of derivative assets—long-term | 0.5 | | | — | |
| | | |
Fair value of derivative liabilities—long-term | — | | | (2.4) | |
Net fair value of interest rate swap | $ | 4.8 | | | $ | 0.9 | |
Interest income is recognized from accumulated other comprehensive income from the monthly settlement of our interest rate swap and was included in our consolidated statements of operations as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Interest income | $ | 1.5 | | | $ | 0.5 | | | | | |
We expect to recognize an additional $4.3 million of interest income out of accumulated other comprehensive income (loss) over the next twelve months.
Commodity Derivatives
The components of gain (loss) on derivative activity in the consolidated statements of operations related to commodity derivatives are as follows (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Change in fair value of derivatives | $ | (26.1) | | | $ | (1.4) | | | | | |
Realized gain (loss) on derivatives | (2.9) | | | 13.3 | | | | | |
Gain (loss) on derivative activity | $ | (29.0) | | | $ | 11.9 | | | | | |
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The fair value of derivative assets and liabilities related to commodity derivatives are as follows (in millions): | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Fair value of derivative assets—current | $ | 86.3 | | | $ | 73.6 | |
Fair value of derivative assets—long-term | 21.0 | | | 27.0 | |
Fair value of derivative liabilities—current | (98.0) | | | (62.7) | |
Fair value of derivative liabilities—long-term | (21.8) | | | (24.3) | |
Net fair value of commodity derivatives | $ | (12.5) | | | $ | 13.6 | |
Set forth below are the summarized notional volumes and fair values of all instruments related to commodity derivatives that we held for price risk management purposes and the related physical offsets at March 31, 2024 (in millions, except volumes). The remaining term of the contracts extend no later than January 2028. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commodity | | Instruments | | Unit | | Volume | | Net Fair Value | | |
NGL (short contracts) | | Swaps | | MMgals | | (136.1) | | | $ | (16.3) | | | |
NGL (long contracts) | | Swaps | | MMgals | | 72.5 | | | (2.1) | | | |
Natural gas (short contracts) | | Swaps and futures | | Bbtu | | (143.1) | | | 87.4 | | | |
Natural gas (long contracts) | | Swaps and futures | | Bbtu | | 119.0 | | | (81.4) | | | |
Crude and condensate (short contracts) | | Swaps and futures | | MMbbls | | (7.2) | | | (7.8) | | | |
Crude and condensate (long contracts) | | Swaps and futures | | MMbbls | | 0.9 | | | 7.7 | | | |
Total fair value of commodity derivatives | | | | | | | | $ | (12.5) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
On all transactions where we are exposed to counterparty risk, we analyze the counterparty’s financial condition prior to entering into an agreement, establish limits, and monitor the appropriateness of these limits on an ongoing basis. We primarily deal with financial institutions when entering into financial derivatives on commodities. We have entered into Master ISDAs that allow for netting of swap contract receivables and payables in the event of default by either party. Additionally, we have entered into FCDTCs that allow for netting of futures contract receivables and payables in the event of default by either party. If our counterparties failed to perform under existing commodity swap and futures contracts, the maximum loss on our gross receivable position of $107.3 million as of March 31, 2024 would be reduced to $4.2 million due to the offsetting of gross fair value payables against gross fair value receivables as allowed by the ISDAs and the FCDTCs.
(12) Fair Value Measurements
Derivative assets and liabilities measured at fair value on a recurring basis are summarized below (in millions): | | | | | | | | | | | | | | |
| | Level 2 |
| | March 31, 2024 | | December 31, 2023 |
Interest rate swap (1) | | $ | 4.8 | | | $ | 0.9 | |
Commodity derivatives (2) | | $ | (12.5) | | | $ | 13.6 | |
____________________________
(1)The fair values of the interest rate swaps are estimated based on the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows using observable benchmarks for the variable interest rates.
(2)The fair values of commodity derivatives represent the amount at which the instruments could be exchanged in a current arms-length transaction adjusted for our credit risk and/or the counterparty credit risk as required under ASC 820.
Fair Value of Financial Instruments
The estimated fair value of our financial instruments has been determined using available market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value; thus, the estimates provided below are not necessarily indicative of the amount we could realize upon the sale or refinancing of such financial instruments.
ENLINK MIDSTREAM, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
Long-term debt, including current maturities of long-term debt. The carrying value and estimated fair value of our outstanding debt balances are disclosed below (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Long-term debt, including current maturities of long-term debt (1) | $ | 4,567.4 | | | $ | |