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EX-32.1 - EXHIBIT 32.1 - EnLink Midstream Partners, LPex321enlkq2-2015.htm
EX-31.2 - EXHIBIT 31.2 - EnLink Midstream Partners, LPex312enlkq2-2015.htm
EX-31.1 - EXHIBIT 31.1 - EnLink Midstream Partners, LPex311enlkq2-2015.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
Form 10-Q
 
x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
for the quarterly period ended June 30, 2015
 
OR
 
o         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: 001-36340
 
ENLINK MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter) 
Delaware
 
16-1616605
(State of organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2501 CEDAR SPRINGS RD.
 
 
DALLAS, TEXAS
 
75201
(Address of principal executive offices)
 
(Zip Code)
 
(214) 953-9500
(Registrant’s telephone number, including area code)
 
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 x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
 
As of July 24, 2015, the Registrant had 284,429,533 common units, 6,804,079 Class C Common Units and 36,629,888 Class E Common Units outstanding.
 



TABLE OF CONTENTS
 
Item
 
Description
 
Page
 
 
 
 
 
 
 
PART I—FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




ENLINK MIDSTREAM PARTNERS, LP 
Condensed Consolidated Balance Sheets 
 
June 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
 
(In millions, except unit data)
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
8.1

 
$
9.6

Accounts receivable:
 

 
 

Trade, net of allowance for bad debt of $0.4
67.4

 
139.0

Accrued revenue and other
379.6

 
253.3

     Related party
110.9

 
121.6

Fair value of derivative assets
14.0

 
16.7

Natural gas and NGLs inventory, prepaid expenses and other
53.3

 
30.8

Total current assets
633.3


571.0

Property and equipment, net of accumulated depreciation of $1,585.7 and $1,426.3,
    respectively
5,550.5

 
5,042.8

Intangible assets, net of accumulated amortization of $66.3 and $36.5, respectively
840.5

 
533.0

Goodwill
2,304.2

 
2,257.8

Fair value of derivative assets
4.9

 
10.0

Investments in unconsolidated affiliates
261.2

 
270.8

Other assets, net
24.7

 
16.6

Total assets
$
9,619.3

 
$
8,702.0

 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and drafts payable
$
39.1

 
$
121.8

Accounts payable to related party
21.6

 
3.0

Accrued gas, NGLs, condensate and crude oil purchases
316.3

 
204.5

Fair value of derivative liabilities
3.5

 
3.0

Other current liabilities
164.3

 
149.8

Total current liabilities
544.8


482.1

Long-term debt
2,827.2

 
2,022.5

Fair value of derivative liabilities
0.8

 
2.0

Asset retirement obligation
12.6

 
12.4

Other long-term liabilities
75.2

 
84.0

Deferred tax liability
77.2

 
73.1

 
 
 
 
Redeemable non-controlling interest
6.9

 

 
 
 
 
Partners’ equity:
 
 
 
Common unitholders (321,058,288 units issued and outstanding at June 30, 2015 and 245,421,549 units issued and outstanding at December 31, 2014)
5,666.8

 
5,833.3

Class C unitholders (6,804,079 units issued and outstanding at June 30, 2015)
180.8

 

General partner interest (1,594,974 equivalent units outstanding at June 30, 2015 and December 31, 2014)
219.8

 
180.3

Non controlling interest
7.2

 
12.3

Total partners' equity
6,074.6

 
6,025.9

Commitment and Contingencies (Note 13)


 


Total liabilities and partners’ equity
$
9,619.3


$
8,702.0


See accompanying notes to condensed consolidated financial statements.
3


ENLINK MIDSTREAM PARTNERS, LP
 
Condensed Consolidated Statements of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
(In millions, except per unit amounts)
Revenues:
 
 
 
 
 
 
 
Product sales
$
956.2

 
$
687.9

 
$
1,626.9

 
$
901.3

Product sales - affiliates
31.7

 

 
47.9

 
436.4

Midstream services
135.9

 
67.1

 
238.3

 
86.2

Midstream services - affiliates
149.5

 
173.8

 
300.5

 
229.3

Gain (loss) on derivative activity
1.2

 
(1.6
)
 
1.4

 
(2.9
)
Total revenues
1,274.5

 
927.2

 
2,215.0


1,650.3

Operating costs and expenses:
 

 
 

 
 

 
 

Cost of sales (1)
968.2

 
661.9

 
1,625.6

 
1,200.8

Operating expenses (2)
109.1

 
73.9

 
207.6

 
120.6

General and administrative (3)
27.0

 
25.8

 
68.8

 
41.3

Depreciation and amortization
97.7

 
74.5

 
189.0

 
123.0

Total operating costs and expenses
1,202.0

 
836.1


2,091.0


1,485.7

Operating income
72.5

 
91.1

 
124.0


164.6

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net of interest income
(22.4
)
 
(13.2
)
 
(41.3
)
 
(18.0
)
Equity in income of equity investment
5.9

 
4.5

 
9.7

 
8.7

Gain on extinguishment of debt

 
0.8

 

 
0.8

Other income (expense)
0.1

 
(0.1
)
 
0.6

 
(0.8
)
Total other expense
(16.4
)
 
(8.0
)
 
(31.0
)
 
(9.3
)
Income from continuing operations before non-controlling interest and income taxes
56.1

 
83.1

 
93.0

 
155.3

Income tax provision
(0.7
)
 
(1.2
)
 
(1.9
)
 
(20.8
)
Net income from continuing operations
55.4

 
81.9

 
91.1

 
134.5

Discontinued operations:
 
 
 
 
 
 
 
Income from discontinued operations, net of tax

 

 

 
1.0

Discontinued operations, net of tax

 

 

 
1.0

Net income
55.4

 
81.9

 
91.1


135.5

Net income (loss) attributable to the non-controlling interest
(0.1
)
 
0.1

 

 
0.1

Net income attributable to EnLink Midstream Partners, LP
$
55.5

 
$
81.8

 
$
91.1

 
$
135.4

Predecessor interest in net income (4)
$

 
$

 
$

 
$
35.5

General partner interest in net income
$
19.1

 
$
43.5

 
$
45.6

 
$
53.9

Limited partners’ interest in net income attributable to EnLink Midstream Partners, LP
$
35.7

 
$
38.3

 
$
44.7

 
$
46.0

Class C partners’ interest in net income attributable to EnLink Midstream Partners, LP
$
0.7

 
$

 
$
0.8

 
$

Net income attributable to EnLink Midstream Partners, LP per limited partners’ unit:
 

 
 

 
 

 
 

  Basic per common unit
$
0.12

 
$
0.17

 
$
0.16

 
$
0.20

  Diluted per common unit
$
0.12

 
$
0.17

 
$
0.16

 
$
0.20

(1) Includes $32.0 million for the three months ended June 30, 2015 and $39.9 million and $325.8 million for the six months ended June 30, 2015 and 2014, respectively, of affiliate cost of sales.
(2) Includes $0.2 million for the three and six months ended June 30, 2015 and $5.9 million for the six months ended June 30, 2014 of affiliate operating expenses.
(3) Includes $0.1 million for the three and six months ended June 30, 2015 and $1.1 million and $9.6 million for the three and six months ended June 30, 2014, respectively, of affiliate general and administrative expenses.
(4) Represents net income attributable to the Predecessor for the period prior to March 7, 2014.

See accompanying notes to condensed consolidated financial statements.
4


ENLINK MIDSTREAM PARTNERS, LP
 
Consolidated Statement of Changes in Partners’ Equity
Six Months Ended June 30, 2015
 
 
Common Units
 
Class C Common Units
 
General Partner
Interest

Non-Controlling Interest
 
 
 
Redeemable Non-controlling Interest (Temporary Equity)
 
 
Units
 
 
Units
 
 
Units
 
 
Total
 
 
(Unaudited)
 
 
 
(In millions)
 
 
Balance, December 31, 2014
$
5,833.3

 
245.4

 
$

 

 
$
180.3

 
1.6

 
$
12.3

 
$
6,025.9

 
$

Issuance of common units
184.1

 
75.5

 
180.0

 
6.7

 

 

 

 
364.1

 

Conversion of restricted units for common units, net of units withheld for taxes
(2.5
)
 
0.2

 

 

 

 

 

 
(2.5
)
 

Unit-based compensation
10.5

 

 

 

 
10.9

 

 

 
21.4

 

Contribution from Devon
28.8

 

 

 

 

 

 

 
28.8

 

Distribution attributable to net assets
    transferred (Note 3)
(171.0
)
 

 

 

 

 

 

 
(171.0
)
 
 
Distributions
(194.6
)
 

 

 
0.1

 
(17.0
)
 

 

 
(211.6
)
 

Non-controlling interest contributions

 

 

 

 

 

 
7.2

 
7.2

 

Distributions to non-controlling interest

 

 

 

 

 

 
(66.5
)
 
(66.5
)
 

Adjustment related to mandatory redemption of E2 non-controlling interest

 

 

 

 

 

 
(5.4
)
 
(5.4
)
 

Redeemable non-controlling interest

 

 

 

 

 

 
(6.9
)
 
(6.9
)
 
6.9

Transfer of interest in Midstream Holdings (Note 3)
(66.5
)
 

 

 

 

 

 
66.5

 

 

Net income
44.7

 

 
0.8

 

 
45.6

 

 

 
91.1

 

Balance, June 30, 2015
$
5,666.8

 
321.1

 
$
180.8

 
6.8

 
$
219.8

 
1.6

 
$
7.2

 
$
6,074.6

 
$
6.9



See accompanying notes to condensed consolidated financial statements.
5


ENLINK MIDSTREAM PARTNERS, LP
 
Consolidated Statements of Cash Flows
 
Six Months Ended June 30,
 
2015
 
2014
 
(Unaudited)
(In millions)
Cash flows from operating activities:
 

 
 

Net income from continuing operations
$
91.1

 
$
134.5

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
189.0

 
123.0

Accretion expense
0.3

 
0.3

Gain on extinguishment of debt

 
(0.8
)
Deferred tax expense

 
20.0

Non-cash unit-based compensation
21.4

 
6.9

(Gain) loss on derivatives recognized in net income
(5.0
)
 
2.9

Cash settlements on derivatives
11.3

 
(0.9
)
Amortization of debt issue costs
1.4

 
0.4

Amortization of premium on notes
(1.5
)
 
(1.0
)
Redeemable non-controlling interest expense
(3.3
)
 

Distribution of earnings from equity investment
10.3

 
0.7

Equity in income from equity investments
(9.7
)
 
(8.7
)
Changes in assets and liabilities:
 

 
 

Accounts receivable, accrued revenue and other
57.3

 
5.0

Natural gas and NGLs inventory, prepaid expenses and other
(18.3
)
 
(15.1
)
Accounts payable, accrued gas and crude oil purchases and other accrued liabilities
(52.0
)
 
(45.8
)
Net cash provided by operating activities
292.3

 
221.4

Cash flows from investing activities, net of assets acquired and liabilities assumed:
 

 
 

Additions to property and equipment
(349.2
)
 
(336.7
)
Acquisition of business, net of cash acquired
(324.8
)
 
(93.9
)
Proceeds from sale of property
0.1

 

Investment in limited liability company

 
(5.7
)
Distribution from equity investment company in excess of earnings
8.9

 
5.0

Net cash used in investing activities
(665.0
)
 
(431.3
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
2,327.4

 
1,613.7

Payments on borrowings
(1,521.2
)
 
(1,391.5
)
Payments on capital lease obligations
(1.6
)
 
(1.2
)
Increase (decrease) in drafts payable
(12.4
)
 
8.6

Debt financing costs
(9.5
)
 
(6.2
)
Conversion of restricted units, net of units withheld for taxes
(2.5
)
 

Proceeds from issuance of common units
4.1

 
19.9

Proceeds from exercise of unit options

 
0.3

Distributions to non-controlling partners
(66.5
)
 
(51.8
)
Contributions by non-controlling partners
7.2

 
1.2

Distributions to partners
(211.6
)
 
(55.6
)
Contributions from Devon
28.8

 
95.3

Distributions to Devon for net assets acquired (Note 3)
(171.0
)
 

  Distributions to Predecessor

 
(22.1
)
Net cash provided by financing activities
371.2

 
210.6

Cash flow from discontinued operations:
 
 
 
    Net cash provided by operating activities

 
5.0

    Net cash used in investing activities

 
(0.6
)
    Net cash used in financing activities – net distributions to
       Devon and non-controlling interests

 
(4.4
)
Net cash provided by discontinued operations

 

Net increase (decrease) in cash and cash equivalents
(1.5
)

0.7

Cash and cash equivalents, beginning of period
9.6

 
0.1

Cash and cash equivalents, end of period
$
8.1

 
$
0.8

Cash paid for interest
$
44.0

 
$
17.3

Cash paid for income taxes
$
0.1

 
$
6.9

 

See accompanying notes to condensed consolidated financial statements.
6


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements
 
June 30, 2015
(Unaudited)
 
(1) General

In this report, the term “Partnership,” as well as the terms “our,” “we,” “us” and “its,” are sometimes used as abbreviated references to EnLink Midstream Partners, LP itself or EnLink Midstream Partners, LP together with its consolidated subsidiaries, including the Operating Partnership (as defined below) and Midstream Holdings (as defined below) and their consolidated subsidiaries. The term “Midstream Holdings” is sometimes used to refer to EnLink Midstream Holdings, LP itself or to EnLink Midstream Holdings, LP together with EnLink Midstream Holdings GP, LLC and their subsidiaries.

(a)Organization of Business

EnLink Midstream Partners, LP is a publicly traded Delaware limited partnership formed in 2002. Our common units are traded on the New York Stock Exchange under the symbol “ENLK.” Our business activities are conducted through our subsidiary, EnLink Midstream Operating, LP, a Delaware limited partnership (the “Operating Partnership”), and the subsidiaries of the Operating Partnership.

EnLink Midstream GP, LLC, a Delaware limited liability company, is our general partner (the “General Partner”). Our General Partner manages our operations and activities. Our General Partner is an indirect wholly-owned subsidiary of EnLink Midstream, LLC (“ENLC”). ENLC’s units are traded on the New York Stock Exchange under the symbol “ENLC.” Devon Energy Corporation ("Devon") owns ENLC's managing member and common units which represent approximately 70% of the outstanding limited liability company interests in ENLC.

Effective as of March 7, 2014, the Operating Partnership acquired (the “Acquisition”) 50% of the outstanding equity interests in EnLink Midstream Holdings, LP (“Midstream Holdings”) and all of the outstanding equity interests in EnLink Midstream Holdings GP, LLC, the general partner of Midstream Holdings, in exchange for the issuance by the Partnership of 120,542,441 units representing limited partnership interests in the Partnership. At the same time, EnLink Midstream, Inc. (“EMI”), the entity that directly owns our General Partner, became a wholly-owned subsidiary of ENLC (together with the Acquisition, the “business combination”). At the conclusion of the business combination, another wholly-owned subsidiary of ENLC, Acacia Natural Gas Corp. I, Inc. (“Acacia”), owned the remaining 50% of the outstanding equity interests in Midstream Holdings.

On February 17, 2015, Acacia contributed a 25% interest in Midstream Holdings (the "February Transferred Interests") to us in a drop down transaction (the "February EMH Drop Down") in exchange for 31,618,311 of our Class D Common Units. On May 27, 2015, Acacia contributed the remaining 25% limited partner interest in Midstream Holdings (the “May Transferred Interests”) to us in a drop down transaction (the "May EMH Drop Down" and together with the February EMH Drop Down, the "EMH Drop Downs") in exchange for 36,629,888 of our Class E Common Units. After giving effect to the EMH Drop-Downs, the Partnership owns 100% of Midstream Holdings. In addition, on April 1, 2015 the Partnership acquired the Victoria Express Pipeline and related truck terminal and storage assets from Devon (the "VEX Interests"). See Note (3) - Acquisitions for further discussion.

(b)Nature of Business

The Partnership primarily focuses on providing midstream energy services, including gathering, processing, transmission, fractionation, condensate stabilization, and brine services to producers of natural gas, natural gas liquids ("NGLs"), crude oil and condensate. Our gas gathering systems consist of networks of pipelines that collect natural gas from points near producing wells and transport it to larger pipelines for further transmission. Our transmission pipelines primarily receive natural gas from our gathering systems and from third party gathering and transmission systems and deliver natural gas to industrial end-users, utilities and other pipelines. We also have transmission lines that transport NGLs from east Texas and our south Louisiana processing plants to our fractionators in south Louisiana. We operate processing plants that process gas transported to the plants by major interstate pipelines or from our own gathering systems under a variety of arrangements. Our processing plants remove NGLs and CO2 from a natural gas stream and our fractionators separate the NGLs into separate NGL products, including ethane, propane, iso-butane, normal butane and natural gasoline. We also provide a variety of crude oil and

7


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



condensate services which include crude oil and condensate gathering and transmission via pipelines, barges, rail and trucking facilities as well as brine disposal services.

(2) Significant Accounting Policies

(a) Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with the instructions to Form 10-Q, are unaudited and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America ("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. All significant intercompany balances and transactions have been eliminated in consolidation.

Further, the unaudited condensed consolidated financial statements give effect to the business combination and related transactions discussed in Note 1(a) above under the acquisition method of accounting and are treated as a reverse acquisition. Under the acquisition method of accounting, Midstream Holdings was the accounting acquirer in the transactions because its parent company, Devon, obtained control of the Partnership through the indirect control of the General Partner as a result of the business combination. All financial results prior to March 7, 2014 reflect the historical operations of Midstream Holdings and are reflected as Predecessor income in the statement of operations. Additionally, the Partnership’s assets acquired and liabilities assumed by Midstream Holdings in the business combination were recorded at their fair values measured as of the acquisition date, March 7, 2014. The excess of the purchase price over the estimated fair values of the Partnership’s net assets acquired was recorded as goodwill. Financial results subsequent to March 7, 2014 reflect the combined operations of Midstream Holdings and the Partnership, which give effect to new contracts entered into with Devon and include the legacy Partnership assets. Certain assets were not contributed to Midstream Holdings from the Predecessor and the operations of such non contributed assets have been presented as discontinued operations. In conjunction with the business combination, Midstream Holdings became a non-taxable entity which was treated as a reorganization under common control with the removal of historical deferred taxes reflected through equity.

During the fourth quarter of 2014 and the first half of 2015, the Partnership acquired assets from ENLC and Devon through drop down transactions. Due to ENLC's control of the Partnership through its ownership and control of the General Partner and Devon's control of the Partnership through its ownership of the managing member of ENLC, each acquisition from ENLC and Devon was considered a transfer of net assets between entities under common control. As such, the Partnership was required to recast its historical financial statements to include the activities of such assets from the date that these entities were under common control. The consolidated financial statements for periods prior to the Partnership’s acquisition of the assets from ENLC and Devon have been prepared from ENLC’s and Devon's historical cost-basis accounts for the acquired assets and may not necessarily be indicative of the actual results of operations that would have occurred if the Partnership had owned the acquired assets during the periods reported. Net income attributable to the assets acquired from ENLC and Devon for periods prior to the Partnership’s acquisition is allocated to the general partner.

(b) Revenue Recognition

The Partnership generates the majority of its revenues from midstream energy services, including gathering, processing, transmission, fractionation, condensate stabilization, and brine services through various contractual arrangements which include fee based contract arrangements or arrangements where it purchases and resells commodities in connection with providing the related service and earns a net margin for its fee. While the Partnership's transactions vary in form, the essential element of each transaction is the use of its assets to transport a product or provide a processed product to an end-user at the tailgate of the plant, barge terminal, or pipeline. The Partnership reflects revenue as Product sales and Midstream services revenue on the Condensed Consolidated Statements of Operations as follows:

Product sales - Product sales represent the sale of natural gas, NGLs, crude oil and condensate where the product is purchased and resold in connection with providing the Partnership's midstream services as outlined above.


8


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



Midstream services - Midstream services represents all other revenue generated as a result of performing the Partnership's midstream services outlined above.

The Partnership recognizes revenue for sales or services at the time the natural gas, NGLs, crude oil or condensate are delivered or at the time the service is performed at a fixed or determinable price. The Partnership generally accrues one month of sales and the related natural gas, NGL, condensate and crude oil purchases and reverses these accruals when the sales and purchases are actually invoiced and recorded in the subsequent month. Actual results could differ from the accrual estimates. Except for fee based arrangements, the Partnership acts as the principal in these purchase and sale transactions, bearing the risk and reward of ownership as evidenced by title transfer, scheduling the transportation of products and assuming credit risk. The Partnership accounts for taxes collected from customers attributable to revenue transactions and remitted to government authorities on a net basis (excluded from revenues).
    
(c) Redeemable Non-Controlling Interest

Non-controlling interests that contain an option for the non-controlling interest holder to require the Partnership to buy out such interests for cash are considered to be redeemable non-controlling interests because the redemption feature is not deemed to be a freestanding financial instrument and because the redemption is not solely within the control of the Partnership. Redeemable non-controlling interest is not considered to be a component of partners' equity and is reported as temporary equity in the mezzanine section on the Condensed Consolidated Balance Sheets. The amount recorded as redeemable non-controlling interest at each balance sheet date is the greater of the redemption value and the carrying value of the redeemable non-controlling interest (the initial carrying value increased or decreased for the non-controlling interest holders' share of net income or loss and distributions).

(d) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 will replace existing revenue recognition requirements in GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Partnership expects to be entitled in exchange for transferring goods or services to a customer. The new standard will also require significantly expanded disclosures regarding the qualitative and quantitative information of the Partnership's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively, with early application permitted for annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact the pronouncement will have on our condensed consolidated financial statements and related disclosures. Subject to this evaluation, we have reviewed all recently issued accounting pronouncements that became effective during the six months ended June 30, 2015, and have determined that none would have a material impact on our Condensed Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Topic 835). The update requires debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability. The standard requires retrospective application and is effective for us beginning on January 1, 2016.
In April 2015, the FASB issued ASU No. 2015-06, Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions (a Consensus of the FASB Emerging Issues Task Force), which requires a master limited partnership (MLP) to allocate earnings (losses) of a transferred business entirely to the general partner when computing earnings per unit (EPU) for periods before the dropdown transaction occurred. The EPU that the limited partners previously reported would not change as a result of the dropdown transaction. The ASU also requires an MLP to disclose the effects of the dropdown transaction on EPU for the periods before and after the dropdown transaction occurred. ASU 2015-06 is effective for the fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The ASU requires retrospective application and early adoption is permitted.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The update provides additional guidance to reporting entities in evaluating whether certain legal entities, such as limited partnerships, limited liability corporations and securitization structures, should be consolidated. The update is considered to be an improvement on current accounting requirements as it reduces the number of existing consolidation models. The update is effective for us beginning on January 1, 2016, and we are currently evaluating the impact this standard will have on our consolidated financial statements and related disclosures.

9


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




(3) Acquisitions

Chevron Acquisition

Effective November 1, 2014, the Partnership acquired, from affiliates of Chevron Corporation, Gulf Coast natural gas pipeline assets predominantly located in southern Louisiana, together with 100% of the equity interests (all of which were voting) in certain entities, for approximately $231.5 million in cash. The natural gas assets include natural gas pipelines spanning from Beaumont, Texas to the Mississippi River corridor and working natural gas storage capacity in southern Louisiana. The transaction was accounted for using the acquisition method, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The following table presents the fair value of the identified assets received and liabilities assumed at the acquisition date.
Purchase Price Allocation (in millions):
 
 
Assets acquired:
 
 
Property, plant and equipment
 
$
225.3

Intangibles
 
13.0

Liabilities assumed:
 
 
Current liabilities
 
(6.8
)
Total identifiable net assets
 
$
231.5


The Partnership recognized intangible assets related to customer relationships. The acquired intangible assets will be amortized on a straight-line basis over the estimated customer contract life of approximately 20 years.

The purchase price allocation has been prepared on a preliminary basis pending receipt of a final valuation report and is subject to change. We incurred $0.4 million of direct transaction costs for the six months ended June 30, 2015. These costs are included in general and administrative costs in the accompanying Condensed Consolidated Statements of Operations.

For the period from January 1, 2015 to June 30, 2015, the Partnership recognized $16.0 million of revenues and $0.1 million of net income related to the assets acquired.

LPC Acquisition

On January 31, 2015, the Partnership acquired 100% of the equity interests (all of which were voting) of LPC Crude Oil Marketing LLC (“LPC”), which has crude oil gathering, transportation and marketing operations in the Permian Basin, for approximately $100.0 million ($78.9 million, net of cash acquired). The transaction was accounted for using the acquisition method.


10


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



The following table presents the fair value of the identified assets received and liabilities assumed at the acquisition date.

Purchase Price Allocation (in millions):
 
 
Assets acquired:
 
 
Current assets (including $21.1 million in cash)
 
$
107.4

Property, plant and equipment
 
29.8

Intangibles
 
43.2

Goodwill
 
29.6

Liabilities assumed:
 
 
Current liabilities
 
(106.0
)
Deferred tax liability
 
(4.0
)
Total identifiable net assets
 
$
100.0


The Partnership recognized intangible assets related to customer relationships and trade name. The acquired intangible assets related to customer relationships will be amortized on a straight-line basis over the estimated customer contract life of approximately 10 years.

The purchase price allocation has been prepared on a preliminary basis pending receipt of a final valuation report and is subject to change. Goodwill recognized from the acquisition primarily relates to the value created from additional growth opportunities and greater operating leverage in the Permian Basin. All such goodwill is allocated to our Crude and Condensate segment and is non-deductible for tax purposes.

We incurred $0.2 million of direct transaction costs for the six months ended June 30, 2015. These costs are included in general and administrative costs in the accompanying Condensed Consolidated Statements of Operations.

For the period from January 31, 2015 to June 30, 2015, the Partnership recognized $559.6 million of revenues and $1.6 million of net income related to the assets acquired.

Coronado Acquisition

On March 16, 2015, the Partnership acquired 100% of the equity interests (all of which were voting) in Coronado Midstream Holdings LLC (“Coronado”), which owns natural gas gathering and processing facilities in the Permian Basin, for approximately $602.1 million. The purchase price consisted of $242.1 million in cash ($232.5 million, net of cash acquired), 6,704,285 common units and 6,704,285 Class C Common Units, both in the Partnership.

The following table presents the fair value of the identified assets received and liabilities assumed at the acquisition date. The purchase price allocation has been prepared on a preliminary basis pending receipt of a final valuation report and is subject to change.

Purchase Price Allocation (in millions):
 
 
Assets acquired:
 
 
Current assets (including $9.6 million in cash)
 
$
26.2

Property, plant and equipment
 
302.1

Intangibles
 
281.0

  Goodwill
 
16.9

Liabilities assumed:
 
 
Current liabilities
 
(24.1
)
Total identifiable net assets
 
$
602.1


11


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




The Partnership recognized intangible assets related to customer relationships. The acquired intangible assets will be amortized on a straight-line basis over the estimated customer contract life of approximately 10 years. Goodwill recognized from the acquisition primarily relates to the value created from additional growth opportunities and greater operating leverage in the Permian Basin. All such goodwill is allocated to our Texas segment and is non-deductible for tax purposes.

We incurred $3.0 million of direct transaction costs for the six months ended June 30, 2015. These costs are included in general and administrative costs in the accompanying Condensed Consolidated Statements of Operations.

For the period from March 17, 2015 to June 30, 2015, the Partnership recognized $61.5 million of revenues and $4.1 million of net loss related to the assets acquired.

EMH Drop Downs

On February 17, 2015, the Partnership acquired an additional 25% limited partner interest in Midstream Holdings from Acacia in the February EMH Drop Down. As consideration for the February Transferred Interests, the Partnership issued 31.6 million Class D Common Units in the Partnership to Acacia with an implied value of $925.0 million. The Class D Common Units were substantially similar in all respects to the Partnership’s common units, except that they received only a pro rata distribution for the fiscal quarter ended March 31, 2015. The Class D Common Units converted into common units on a one-for-one basis on May 4, 2015.

On May 27, 2015, the Partnership acquired the remaining 25% limited partner interest in Midstream Holdings from Acacia in the May EMH Drop Down in exchange for 36.6 million Class E Common Units in the Partnership with an implied value of $900.0 million. The Class E Common Units are substantially similar in all respects to the Partnership’s common units, except that they are only entitled to a pro rata distribution for the fiscal quarter ended June 30, 2015. The Class E Common Units converted into common units on a one-for-one basis on August 3, 2015, which was the first business day following the record date for distribution payments with respect to the distribution for the quarter ended June 30, 2015. After giving effect to the EMH Drop Downs, the Partnership owns 100% of Midstream Holdings. The period of common control for EMH began on March 7, 2014, the effective date of the business combination described under "Devon Transaction" below.

The Partnership accounted for the acquisition of the EMH Drop Downs from Acacia as a transfer between entities under common control in accordance with ASC 805-50-30. As such, the February Transferred Interests and May Transferred Interests were recorded on the Partnership’s books at historical cost on the date of transfer, which was February 17, 2015 and May 27, 2015, respectively. The “Transfer of interest in Midstream Holdings” presented in the Consolidated Statement of Changes in Partners’ Equity represents the adjustment to equity due to the recast to offset distributions paid to ENLC for its related ownership during the period January 1, 2015 to May 27, 2015.
VEX Pipeline Drop Down
On April 1, 2015, the Partnership acquired the Victoria Express Pipeline and related truck terminal and storage assets located in the Eagle Ford shale in south Texas, together with 100% of the equity interests (all of which were voting) in certain entities, from Devon in a drop down transaction (the "VEX Drop Down"). The aggregate consideration paid by the Partnership consisted of $171.0 million in cash, 338,159 common units representing limited partner interests in the Partnership with an aggregate value of approximately $9.0 million and the Partnership’s assumption of up to $40.0 million in certain construction costs related to VEX. The VEX pipeline is a multi-grade crude oil pipeline located in the Eagle Ford Shale. Other VEX assets at the destination of the pipeline include a truck unloading terminal, above-ground storage and rights to barge loading docks. The acquisition has been accounted for as an acquisition under common control under ASC 805, resulting in the retrospective adjustment of our prior results. As such, the VEX Interests were recorded on the Partnership's books at historical cost on the date of transfer of $132.7 million. The difference between the historical cost of the net assets and consideration given was $38.3 million and is recognized as a distribution to Devon. The period of common control for VEX began on February 28, 2014, the effective date of the acquisition of the VEX Interests by Devon.
E2 Drop Down

On October 22, 2014, the Partnership acquired all remaining voting equity interests in E2 Appalachian Compression, LLC and E2 Energy Services, LLC (together “E2”) in a drop down transaction from EMI (the "E2 Drop Down"). The total

12


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



consideration for the transaction was approximately $194.0 million, including a cash payment of $163.0 million and the issuance of approximately 1.0 million Partnership units (valued at approximately $31.2 million based on the October 22, 2014 closing price of the Partnership's units). This acquisition has been accounted for as an acquisition under common control under ASC 805. The period of common control for E2 began on March 7, 2014, the effective date of the business combination described in "Devon Transaction" below.

The following tables present the collective impact of the E2 Drop Down, the VEX Drop Down and the EMH Drop Downs as presented in the Partnership's historical Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and the six months ended June 30, 2015:
 
 
Six Months Ended June 30, 2015
 
 
Partnership Historical
 
EMH
 
VEX
 
Combined
 
 
(in millions)
Revenues
 
$
2,210.8

 
$

 
$
4.2

 
$
2,215.0

Net income (loss)
 
$
90.4

 
$

 
$
0.7

 
$
91.1

Net income attributable to non-controlling interest
 
$
15.3

 
$
(15.3
)
 
$

 
$

Net income attributable to EnLink Midstream Partners,
LP
 
$
75.1

 
$
15.3

 
$
0.7

 
$
91.1

General partner interest in net income
 
$
29.6

 
$
15.3

 
$
0.7

 
$
45.6


 
 
Three Months Ended June 30, 2014
 
 
Partnership Historical
 
EMH
 
E2
 
VEX
 
Combined
 
 
(in millions)
Revenues
 
$
924.0

 
$

 
$
3.2

 
$

 
$
927.2

Net income (loss)
 
$
84.1

 
$

 
$
(0.1
)
 
$
(2.1
)
 
$
81.9

Net income attributable to non-controlling interest
 
$
42.7

 
$
(42.7
)
 
$
0.1

 
$

 
$
0.1

Net income attributable to EnLink Midstream Partners,
LP
 
$
41.4

 
$
42.7

 
$
(0.2
)
 
$
(2.1
)
 
$
81.8

General partner interest in net income
 
$
3.1

 
$
42.7

 
$
(0.2
)
 
$
(2.1
)
 
$
43.5


 
 
Six Months Ended June 30, 2014
 
 
Partnership Historical
 
EMH**
 
E2
 
VEX**
 
Combined
 
 
(in millions)
Revenues
 
$
1,646.5

 
$

 
$
3.8

 
$

 
$
1,650.3

Net income (loss)
 
$
138.6

 
$

 
$
(0.1
)
 
$
(3.0
)
 
$
135.5

Net income attributable to non-controlling interest
 
$
53.1

 
$
(53.1
)
 
$
0.1

 
$

 
$
0.1

Net income attributable to EnLink Midstream Partners,
LP
 
$
85.5

 
$
53.1

 
$
(0.2
)
 
$
(3.0
)
 
$
135.4

General partner interest in net income
 
$
4.0

 
$
53.1

 
$
(0.2
)
 
$
(3.0
)
 
$
53.9

* * Represents the VEX Interests and Transferred Interests amounts for the period from March 7, 2014 through June 30, 2014.


13


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



Devon Transaction

As discussed in Note 1(a), on March 7, 2014, the Partnership acquired, through one of its wholly owned subsidiaries, 50% of the outstanding equity interests in Midstream Holdings and all of the outstanding equity interests in EnLink Midstream Holdings GP, LLC, the general partner of Midstream Holdings, in exchange for the issuance by the Partnership of 120.5 million units representing a new class of limited partnership interests in the Partnership (the “Class B Units”). Midstream Holdings owns midstream assets in the Barnett Shale in North Texas and the Cana-Woodford and Arkoma-Woodford Shales in Oklahoma, as well as a contractual right to the economic burdens and benefits of Devon’s 38.75% interest in Gulf Coast Fractionators (“GCF”) in Mt. Belvieu, Texas.

Under the acquisition method of accounting, Midstream Holdings was the acquirer in the business combination because its parent company, Devon, obtained control of the Partnership through the indirect control of the General Partner. Consequently, Midstream Holdings’ assets and liabilities retained their carrying values and the Partnership’s assets acquired and liabilities assumed by Midstream Holdings as the Predecessor in the business combination have been recorded at their fair values measured as of the acquisition date. The excess of the purchase price over the estimated fair values of the Partnership’s net assets acquired has been recorded as goodwill.

For the period from March 7, 2014 to June 30, 2014, the Partnership recognized $968.8 million of revenues and $3.2 million of net loss related to the assets acquired in the business combination.

Pro Forma Information

The following unaudited pro forma condensed financial information for the three and six months ended June 30, 2015 and 2014 gives effect to the business combination, Chevron acquisition, Coronado acquisition, LPC acquisition, EMH Drop Downs, VEX Drop Down and E2 Drop Down as if they had occurred on January 1, 2014. The unaudited pro forma condensed financial information has been included for comparative purposes only and is not necessarily indicative of the results that might have occurred had the transactions taken place on the dates indicated and is not intended to be a projection of future results. Pro forma financial information associated with the business combination and acquisitions is reflected below.
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2014
 
2015
 
2014
 
(in millions)
Pro forma total revenues (1)
 
$
1,453.4

 
$
2,337.1

 
$
2,833.2

Pro forma net income
 
$
71.8

 
$
85.9

 
$
105.6

Pro forma net income attributable to EnLink Midstream Partners, LP
 
$
71.7

 
$
85.9

 
$
105.5

Pro forma net income per common unit:
 
 
 


 
 
Basic
 
$
0.11

 
$
0.14

 
$
0.11

Diluted
 
$
0.11

 
$
0.14

 
$
0.11

(1)On January 1, 2014, Midstream Holdings entered into gathering and processing agreements with Devon, which
are described in Note 5.

(4) Goodwill and Intangible Assets

Goodwill

Goodwill is the cost of an acquisition less the fair value of the net identifiable assets of the acquired business. The Partnership evaluates goodwill for impairment annually as of October 31, and whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Partnership first assesses qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Partnership may elect to perform the two-step goodwill impairment test without completing a qualitative assessment. If a two-step goodwill impairment test is elected or required, the first step involves comparing the fair value of the reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, the second step of the process involves

14


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



comparing the implied fair value to the goodwill for that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, the excess of the carrying value over the implied fair value is recognized as an impairment loss. The Partnership performed its annual impairment test of goodwill as of the fourth quarter of 2014. Based on these assessments, no impairment of goodwill was required.

The table below provides a summary of the Partnership’s goodwill, by assigned reporting unit.

 
 
June 30,
2015
 
December 31,
 2014
 
 
(in millions)
Texas
 
$
1,185.0

 
$
1,168.2

Louisiana
 
786.8

 
786.8

Oklahoma
 
190.3

 
190.3

Crude and Condensate
 
142.1

 
112.5

       Total
 
$
2,304.2

 
$
2,257.8


The change in goodwill is related to an increase of $29.6 million attributable to the acquisition of LPC, which is included in the Crude and Condensate segment, and an increase of $16.9 million attributable to the acquisition of Coronado, which is included in the Texas segment. See Note 3-Acquisitions for further discussion.

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 range from five to twenty years.

The following table represents the Partnership's total purchased intangible assets for the periods stated (in millions):

 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
June 30, 2015
 
 
 
 
 
 
Customer relationships
 
$
906.8

 
$
(66.3
)
 
$
840.5

December 31, 2014
 
 
 
 
 
 
Customer relationships
 
$
569.5

 
$
(36.5
)
 
$
533.0


The weighted average amortization period for intangible assets is 11.2 years. Amortization expense for intangibles was approximately $18.2 million and $11.3 million for the three months ended June 30, 2015 and 2014, respectively, and $29.7 million and $13.0 million for the six months ended June 30, 2015 and 2014, respectively.

The following table summarizes the Partnership's estimated aggregate amortization expense for the next five years (in millions):

2015 (remaining)
$
33.2

2016
66.4

2017
66.4

2018
66.3

2019
65.5

Thereafter
542.7

Total
$
840.5



15


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



(5) Affiliate Transactions

The Partnership engages in various transactions with Devon and other affiliated entities. For the three and six months ended June 30, 2015 and 2014, Devon was a significant customer to the Partnership. Devon accounted for 14.2% and 15.7% of the Partnership's revenues for the three and six months ended June 30, 2015, respectively, and 18.7% and 40.3% for the three and six months ended June 30, 2014, respectively. The Partnership had an accounts receivable balance related to transactions with Devon of $112.2 million as of June 30, 2015 and $121.6 million as of December 31, 2014. Additionally, the Partnership had an accounts payable balance related to transactions with Devon of $21.6 million as of June 30, 2015 and $3.0 million as of December 31, 2014. Management believes these transactions are executed on terms that are fair and reasonable and are consistent with terms for transactions with nonaffiliated third parties. The amounts related to affiliate transactions are specified in the accompanying financial statements.

Gathering, Processing and Transportation Agreements with Devon

As described in Note 1, Midstream Holdings was previously a wholly-owned subsidiary of Devon, and all of its assets were contributed to it by Devon.  On January 1, 2014, in connection with the consummation of the business combination, EnLink Midstream Services, LLC, a wholly-owned subsidiary of Midstream Holdings ("EnLink Midstream Services"), entered into 10-year gathering and processing agreements with Devon pursuant to which EnLink Midstream Services provides gathering, treating, compression, dehydration, stabilization, processing and fractionation services, as applicable, for natural gas delivered by Devon Gas Services, L.P., a subsidiary of Devon ("Gas Services"), to Midstream Holdings’ gathering and processing systems in the Barnett, Cana-Woodford and Arkoma-Woodford Shales. On January 1, 2014, SWG Pipeline, L.L.C. (“SWG Pipeline”), another wholly-owned subsidiary of Midstream Holdings, entered into a 10-year gathering agreement with Devon pursuant to which SWG Pipeline provides gathering, treating, compression, dehydration and redelivery services, as applicable, for natural gas delivered by Gas Services to another of the Partnership's gathering systems in the Barnett Shale.

These agreements provide Midstream Holdings with dedication of all of the natural gas owned or controlled by Devon and produced from or attributable to existing and future wells located on certain oil, natural gas and mineral leases covering land within the acreage dedications, excluding properties previously dedicated to other natural gas gathering systems not owned and operated by Devon. Pursuant to the gathering and processing agreements entered into on January 1, 2014, Devon has committed to deliver specified average minimum daily volumes of natural gas to Midstream Holdings’ gathering systems in the Barnett, Cana-Woodford and Arkoma-Woodford Shales during each calendar quarter for a five-year period following execution. Devon is entitled to firm service, meaning that if capacity on a system is curtailed or reduced, or capacity is otherwise insufficient, Midstream Holdings will take delivery of as much Devon natural gas as is permitted in accordance with applicable law.

The gathering and processing agreements are fee-based, and Midstream Holdings is paid a specified fee per MMBtu for natural gas gathered on Midstream Holdings’ gathering systems and a specified fee per MMBtu for natural gas processed. The particular fees, all of which are subject to an automatic annual inflation escalator at the beginning of each year, differ from one system to another and do not contain a fee redetermination clause.

In connection with the closing of the business combination, Midstream Holdings entered into an agreement with a wholly-owned subsidiary of Devon pursuant to which Midstream Holdings provides transportation services to Devon on its Acacia pipeline.

Effective December 1, 2014, Gas Services assigned one of its 10-year gathering and processing agreements to Linn Exchange Properties, LLC (“Linn Energy”), which is a subsidiary of Linn Energy, LLC, in connection with Gas Services' divestiture of certain of its southeastern Oklahoma assets. Accordingly, beginning on December 1, 2014, Linn Energy began performing Gas Services' obligations under the applicable agreement, which relates to production dedicated to our Northridge assets in southeastern Oklahoma and remains in full force and effect.

Other Commercial Relationships with Devon

As noted above, the Partnership continues to maintain a customer relationship with Devon originally established prior to the business combination pursuant to which the Partnership provides gathering, transportation, processing and gas lift services to Devon in exchange for fee-based compensation under several agreements with Devon.  The terms of these agreements vary,

16


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



but the agreements expire between July 2015 and July 2021, renewing automatically for month-to-month or year-to-year periods unless canceled by Devon prior to expiration.  In addition, the Partnership has agreements with Devon pursuant to which the Partnership purchases and sells NGLs, gas and crude oil and pays or receives, as applicable, a margin-based fee.  These NGL, gas and crude oil purchase and sale agreements have month-to-month terms.

VEX Transportation Agreement

In connection with the VEX acquisition, the Operating Partnership became party to a five year transportation services agreement with Devon pursuant to which the Operating Partnership provides transportation services to Devon on the VEX pipeline.
Transition Services Agreement

In connection with the consummation of the business combination, the Partnership entered into a transition services agreement with Devon pursuant to which Devon provides certain services to the Partnership with respect to the business and operations of Midstream Holdings and the Partnership provides certain services to Devon. General and administrative expenses related to the transition service agreement were $0.1 million for the three and six months ended June 30, 2015 and $1.1 million and $1.3 million for the three and six months ended June 30, 2014, respectively. We received $0.2 million from Devon under the transition services agreement for the six months ended June 30, 2015. Substantially all services under the transition services agreement were completed during 2014.

Drop Down Transactions

During the fourth quarter of 2014 and the first half of 2015, the Partnership acquired assets from ENLC and Devon through drop down transactions. See Note (3) - Acquisitions for further discussion.

17


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




Predecessor Affiliate Transactions

Prior to March 7, 2014, affiliate transactions relate to Predecessor transactions consisting of sales to and from affiliates, services provided by affiliates, cost allocations from affiliates and centralized cash management activities performed by affiliates.

The following presents financial information for the Predecessor's affiliate transactions and other transactions with Devon, all of which are settled through an adjustment to equity prior to March 7, 2014 (in millions):

 
Six Months Ended June 30, 2014
Continuing Operations:
 
Revenues - affiliates
$
(436.4
)
Operating cost and expenses - affiliates
340.0

Net affiliate transactions
(96.4
)
Capital expenditures
21.3

Other third-party transactions, net
53.0

Net third-party transactions
74.3

Net cash distributions to Devon - continuing operations
(22.1
)
Non-cash distribution of net assets to Devon
(23.2
)
Total net distributions per equity
$
(45.3
)
 
 
Discontinued operations:
 
Revenues - affiliates
$
(10.4
)
Operating costs and expenses - affiliates
5.0

Net affiliate transactions
(5.4
)
Capital expenditures
0.6

Other third-party transactions, net
0.4

Net third-party transactions
1.0

Net cash distributions to Devon and non-controlling interests - discontinued operations
(4.4
)
Non-cash distribution of net assets to Devon
(39.9
)
Total net distributions per equity
$
(44.3
)
Total distributions- continuing and discontinued operations
$
(89.6
)

Share-based compensation costs included in the management services fee charged to Midstream Holdings by Devon were approximately $2.8 million for the six months ended June 30, 2014. Pension, postretirement and employee savings plan costs included in the management services fee charged to the Partnership by Devon were approximately $1.6 million for the six months ended June 30, 2014. These amounts are included in general and administrative expenses in the accompanying statements of operations.

18


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



(6) Long-Term Debt

As of June 30, 2015 and December 31, 2014, long-term debt consisted of the following (in millions):
 
June 30,
2015
 
December 31,
2014
Partnership credit facility (due 2020), interest based on Prime and/or LIBOR plus an applicable margin, interest rate at June 30, 2015 and December 31, 2014 was 2.3% and 1.9%, respectively
$
150.0

 
$
237.0

Senior unsecured notes (due 2019), net of discount of $0.4 million at June 30, 2015 and $0.5 million at December 31, 2014, which bear interest at the rate of 2.70%
399.6

 
399.5

Senior unsecured notes (due 2022), including a premium of $20.4 million at June 30, 2015 and $21.9 million at December 31, 2014, which bear interest at the rate of 7.125%
182.9

 
184.4

Senior unsecured notes (due 2024), net of premium of $3.0 million at June 30, 2015 and $3.2 million at December 31, 2014, which bear interest at the rate of 4.40%
553.0

 
553.2

Senior unsecured notes (due 2025), net of discount of $1.3 million at June 30, 2015, which bear interest at the rate of 4.15%
748.7

 

Senior unsecured notes (due 2044), net of discount of $0.3 million at June 30, 2015 and December 31, 2014, which bear interest at the rate of 5.60%
349.7

 
349.7

Senior unsecured notes (due 2045), net of discount of $7.0 million at June 30, 2015 and $1.7 million at December 31, 2014, which bear interest at the rate of 5.05%
443.0

 
298.3

Other debt
0.3

 
0.4

Debt classified as long-term
$
2,827.2

 
$
2,022.5


Credit Facility

On February 20, 2014, the Partnership entered into a $1.0 billion unsecured revolving credit facility, which includes a $500.0 million letter of credit subfacility (the “Partnership credit facility”). On February 5, 2015, the Partnership exercised the accordion under the Partnership credit facility, increasing the size of the facility to $1.5 billion, and also exercised an option to extend the maturity date of the Partnership credit facility to March 6, 2020. The Partnership also entered into certain amendments to the Partnership credit facility pursuant to which the Partnership is permitted to (1) subject to certain conditions and the receipt of additional commitments by one or more lenders, increase the aggregate commitments under the Partnership credit facility by an additional amount not to exceed $500 million and (2) subject to certain conditions and the consent of the requisite lenders, on two separate occasions extend the maturity date of the Partnership credit facility by one year. The Partnership credit facility contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of consolidated indebtedness to consolidated EBITDA (as defined in the Partnership credit facility, which definition includes projected EBITDA from certain capital expansion projects) of no more than 5.0 to 1.0. If the Partnership consummates one or more acquisitions in which the aggregate purchase price is $50.0 million or more, the maximum allowed ratio of consolidated indebtedness to consolidated EBITDA may be increased to 5.5 to 1.0 for the quarter of the acquisition and the three following quarters.

Borrowings under the Partnership credit facility bear interest at the Partnership’s option at the Eurodollar Rate (the LIBOR Rate) plus an applicable margin or the Base Rate (the highest of the Federal Funds Rate plus 0.50%, the 30-day Eurodollar Rate plus 1.0% or the administrative agent’s prime rate) plus an applicable margin. The applicable margins vary depending on the Partnership’s credit rating. Upon breach by the Partnership of certain covenants governing the Partnership credit facility, amounts outstanding under the Partnership credit facility, if any, may become due and payable immediately.

As of June 30, 2015, there were $2.9 million in outstanding letters of credit and $150.0 million in outstanding borrowings under the Partnership’s credit facility, leaving approximately $1.3 billion available for future borrowing based on the borrowing capacity of $1.5 billion.

All other material terms of the Partnership credit facility are described in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014, as recast by the Partnership's Current Report on Form 8-K dated May 28, 2015. The Partnership expects to be in compliance with all credit facility covenants for at least the next twelve months.

19


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




On May 12, 2015, the Partnership issued $900.0 million aggregate principal amount of unsecured senior notes, consisting of $750.0 million aggregate principal amount of its 4.150% senior notes due 2025 (the “2025 Notes”) and $150.0 million aggregate principal amount of its 5.050% senior notes due 2045 (the “2045 Notes”) at prices to the public of 99.827% and 96.381%, respectively, of their face value. The 2025 Notes mature on June 1, 2025 and the 2045 Notes mature on April 1, 2045. Interest payments on the 2025 Notes are payable on June 1 and December 1 of each year, beginning December 1, 2015. Interest payments on the 2045 Notes are payable on April 1 and October 1 of each year, beginning October 1, 2015.
Prior to March 1, 2025, the 2025 Notes are redeemable, at the option of the Partnership, at any time in whole, or from time to time in part, at a redemption price equal to the greater of: (i) 100% of the principal amount of the 2025 Notes to be redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2025 Notes to be redeemed that would be due if the 2025 Notes matured on March 1, 2025 (exclusive of interest accrued to, but excluding, the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus 30 basis points; plus, in either case, accrued and unpaid interest to, but excluding, the redemption date. At any time on or after March 1, 2025, the 2025 Notes are redeemable, at the option of the Partnership, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
Prior to October 1, 2044, the Partnership may redeem all or a part of the 2045 Notes at a redemption price equal to the greater of: (i) 100% of the principal amount of the 2045 Notes to be redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2045 Notes to be redeemed that would be due after the related redemption date but for such redemption (exclusive of interest accrued to, but excluding, the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Rate plus 30 basis points; plus, in either case, accrued and unpaid interest to, but excluding, the redemption date. At any time on or after October 1, 2044, the Partnership may redeem all or a part of the 2045 Notes at a redemption price equal to 100% of the principal amount of the 2045 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
The indentures governing the Senior Notes contain covenants that, among other things, limit our ability to create or incur certain liens or consolidate, merge or transfer all or substantially all of our assets.
Each of the following is an event of default under the indentures:
failure to pay any principal or interest when due;

failure to observe any other agreement, obligation or other covenant in the indenture, subject to the cure periods for certain failures;

our default under other indebtedness that exceeds a certain threshold amount;

failure by us to pay final judgments that exceed a certain threshold amount; and

bankruptcy or other insolvency events involving us.
If an event of default relating to bankruptcy or other insolvency events occurs, the Senior Notes will immediately become due and payable. If any other event of default exists under the indenture, the trustee under the indenture or the holders of the Senior Notes may accelerate the maturity of the Senior Notes and exercise other rights and remedies.

(7)      Partners’ Capital

(a) Issuance of Common Units

In November 2014, the Partnership entered into an Equity Distribution Agreement (the “BMO EDA”) with BMO Capital Markets Corp., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Jefferies LLC, Raymond James & Associates, Inc. and RBC Capital Markets, LLC (collectively, the “Sales Agents”) to sell up to $350.0 million in aggregate gross sales of the Partnership’s common units from time to time through an “at the market” equity offering program. The Partnership may also sell common units to any Sales Agent as principal for the Sales Agent’s own account at a price agreed upon at the time of sale. The Partnership has no obligation to sell any of the common units under the BMO EDA and may at

20


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



any time suspend solicitation and offers under the BMO EDA. For the six months ended June 30, 2015, the Partnership sold an aggregate of 0.2 million common units under the BMO EDA, generating proceeds of approximately $4.1 million (net of less than $0.1 million of commissions). The Partnership used the net proceeds for general partnership purposes. As of June 30, 2015, approximately $337.6 million remains available to be issued under the agreement.

(b) Class C Common Units

In March 2015, the Partnership issued 6,704,285 Class C Common Units representing a new class of limited partner interests as partial consideration for the acquisition of Coronado. For further discussion see Note 3- Acquisitions. The Class C Common Units are substantially similar in all respects to the Partnership's common units, except that distributions paid on the Class C Common Units may be paid in cash or in additional Class C Common Units issued in kind, as determined by the General Partner in its sole discretion. The Class C Common Units will automatically convert into common units on a one-for-one basis on the earlier to occur of (i) the date on which the General Partner, in its sole discretion, determines to convert all of the outstanding Class C Common Units into common units and (ii) the first business day following the date of the distribution for the quarter ended March 31, 2016. Distributions on the Class C Common Units for the three months ended March 31, 2015 were paid-in-kind ("PIK") through the issuance of 99,794 Class C Common Units on May 14, 2015. A distribution on the Class C Common Units of $0.385 per unit was declared for the three months ended June 30, 2015, which will result in the issuance of 120,622 additional Class C Common Units on August 13, 2015.

(c) Class D Common Units

In February 2015, the Partnership issued 31,618,311 Class D Common Units to Acacia as consideration for a 25% interest in Midstream Holdings. For further discussion see Note 3 - Acquisitions. The Partnership’s Class D Common Units were substantially similar in all respects to the Partnership’s common units, except that they only received a pro rata distribution from the date of issuance for the fiscal quarter ended March 31, 2015. The Partnership’s Class D Common Units automatically converted into the Partnership’s common units on a one-for-one basis on May 4, 2015.

(d) Class E Common Units

In May 2015, the Partnership issued 36,629,888 Class E Common Units to Acacia as consideration for the remaining 25% interest in Midstream Holdings. For further discussion see Note 3 - Acquisitions. The Partnership’s Class E Common Units were substantially similar in all respects to the Partnership’s common units, except that they were only entitled to a pro rata distribution from the date of issuance for the fiscal quarter ended June 30, 2015. The Partnership’s Class E Common Units automatically converted into the Partnership’s common units on a one-for-one basis on August 3, 2015 and are included with common units outstanding as of June 30, 2015.

(e)  Distributions
 
Unless restricted by the terms of the Partnership’s credit facility and/or the indentures governing the Partnership's senior unsecured notes, the Partnership must make distributions of 100% of available cash, as defined in the partnership agreement, within 45 days following the end of each quarter. Distributions are made to the General Partner in accordance with its current percentage interest with the remainder to the common unitholders, subject to the payment of incentive distributions as described below to the extent that certain target levels of cash distributions are achieved. The General Partner is not entitled to its general partner or incentive distributions with respect to the Class C Common Units issued in kind.

Our General Partner owns the general partner interest in us and all of our incentive distribution rights. Our General Partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. Under the quarterly incentive distribution provisions, generally our General Partner is entitled to 13.0% of amounts we distribute in excess of $0.25 per unit, 23% of the amounts we distribute in excess of $0.3125 per unit and 48.0% of amounts we distribute in excess of $0.375 per unit.


21


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



A summary of the distribution activity relating to the common units for the six months ended June 30, 2015 is provided below:
Declaration period
 
Distribution/unit
 
Date paid/payable
Fourth Quarter of 2014
 
$
0.375

 
February 12, 2015
First Quarter of 2015 (1) (2)
 
$
0.38

 
May 14, 2015
Second Quarter of 2015 (3)
 
$
0.385

 
August 13, 2015
(1)
The Partnership declared a partial first quarter 2015 distribution on its Class D Common Units of $0.18 per unit paid on May 14, 2015. Distributions paid for the Class D Common Units represent a pro rata distribution for the number of days the Class D Common Units were issued and outstanding during the quarter. The Class D Common Units automatically converted into common units on a one-for-one basis on May 4, 2015.
(2)
The Partnership's first quarter distributions on its Class C Common Units of $0.38 per unit were PIK through the issuance of 99,794 Class C Common Units on May 14, 2015.
(3)
The Partnership declared a partial second quarter 2015 distribution on its Class E Common Units of $0.15 per unit to be paid on August 13, 2015. Distributions declared for the Class E Common Units represent a pro rata distribution for the number of days the Class E Common Units were issued and outstanding during the quarter. The Class E Common Units automatically converted into common units on a one-for-one basis on August 3, 2015.

(f) Earnings per Unit and Dilution Computations
 
As required under FASB ASC 260-10-45-61A, unvested share-based payments that entitle employees to receive non-forfeitable distributions are considered participating securities, as defined in FASB ASC 260-10-20, for earnings per unit calculations. Net income earned by the Predecessor prior to March 7, 2014 is not included for purposes of calculating earnings per unit as the Predecessor did not have any unitholders.  The following table reflects the computation of basic and diluted earnings per limited partner unit for the period presented (in millions, except per unit amounts):
 
Three Months Ended
 June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014*
Limited partners’ interest in net income
$
35.7

 
$
38.3

 
$
44.7

 
$
46.0

Distributed earnings allocated to:
 
 
 
 
 
 
 
Common units (1) (2) (3)
$
117.6

 
$
83.8

 
$
214.4

 
$
135.2

Unvested restricted units (1)
0.4

 
0.4

 
0.9

 
0.6

Total distributed earnings
$
118.0

 
$
84.2

 
$
215.3

 
$
135.8

Undistributed loss allocated to:
 
 
 
 
 
 
 
Common units (2) (3)
$
(82.0
)
 
$
(45.7
)
 
$
(169.9
)
 
$
(89.5
)
Unvested restricted units
(0.3
)
 
(0.2
)
 
(0.7
)
 
(0.3
)
Total undistributed loss
$
(82.3
)
 
$
(45.9
)
 
$
(170.6
)
 
$
(89.8
)
Net income allocated to:
 
 
 
 
 
 
0

Common units (2) (3)
$
35.6

 
$
38.1

 
$
44.5

 
$
45.7

Unvested restricted units
0.1

 
0.2

 
0.2

 
0.3

Total limited partners’ interest in net income
$
35.7

 
$
38.3

 
$
44.7

 
$
46.0

Basic and diluted net income per unit:
 
 
 
 
 
 
 
Basic
$
0.12

 
$
0.17

 
$
0.16

 
$
0.20

Diluted
$
0.12

 
$
0.17

 
$
0.16

 
$
0.20

* The six months ended June 30, 2014 amounts consist only of the period from March 7, 2014 through June 30, 2014.
(1)
Three months ended June 30, 2015 and 2014 represents a declared distribution of $0.385 per unit payable on August 13, 2015 and declared distribution of $0.365 per unit for common units paid on August 13, 2014, respectively.
(2)
Six months ended June 30, 2015 and 2014 represents distributions paid of $0.38 per unit on May 14, 2015 and a declared distribution of $0.385 per unit payable on August 13, 2015 and distributions paid of $0.36 per unit on May 14, 2014 and of $0.365 per unit on August 13, 2014.
(3)
Six months ended June 30, 2015 includes declared partial distribution of $0.15 per unit for Class E Common Units payable on August 13, 2015 and declared partial distribution of $0.18 per unit for Class D Common Units paid on May 14, 2015. The three and six months ended June 30, 2014 includes a declared partial distribution of $0.10 per unit for Class B Common Units paid on May 14, 2014.
 

22


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



The following are the unit amounts used to compute the basic and diluted earnings per limited partner unit for the periods presented (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Basic weighted average units outstanding:
2015
 
2014
 
2015
 
2014*
Weighted average limited partner basic common units outstanding
284.3

 
229.8

 
273.1

 
229.7

Weighted average Class C Common Units outstanding
6.8

 

 
4.0

 

Weighted average Class E Common Units outstanding
14.1

 

 
7.1

 

    Total weighted average limited partner common units outstanding
305.2

 
229.8

 
284.2

 
229.7

Diluted weighted average units outstanding:
 
 
 
 
 
 
 
Weighted average limited partner basic common units outstanding
305.2

 
229.8

 
284.2

 
229.7

Dilutive effect of restricted units issued
0.4

 
0.3

 
0.4

 
0.3

    Total weighted average limited partner diluted common units outstanding
305.6

 
230.1

 
284.6

 
230.0

* The six months ended June 30, 2014 amounts consist only of the period from March 7, 2014 through June 30, 2014.

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 periods presented.

Net income is allocated to the General Partner in an amount equal to its incentive distributions as described in Note 7(e). The General Partner's share of net income consists of incentive distributions to the extent earned, a deduction for unit-based compensation attributable to ENLC’s restricted units and the percentage interest of the Partnership’s net income adjusted for ENLC's unit-based compensation specifically allocated to the General Partner. The net income allocated to the General Partner is as follows for the periods presented (in millions).
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014*
Income allocation for incentive distributions
$
11.3

 
$
5.9

 
$
20.1

 
$
7.3

Unit-based compensation attributable to ENLC’s restricted units
(3.9
)
 
(3.1
)
 
(10.9
)
 
(3.7
)
General Partner interest in net income
0.2

 
0.3

 
0.3

 
0.4

General Partner interest in drop down transactions
11.5

 
40.4

 
36.1

 
49.9

General Partner share of net income
$
19.1

 
$
43.5

 
$
45.6

 
$
53.9

* The six months ended June 30, 2014 amounts consist only of the period from March 7, 2014 through June 30, 2014.

(8) Asset Retirement Obligations

The schedule below summarizes the changes in the Partnership’s asset retirement obligation:
 
June 30,
2015
 
June 30,
2014
 
(in millions)
Beginning asset retirement obligation
$
20.6

 
$
8.1

Revisions to existing liabilities
(4.0
)
 
3.4

Liabilities acquired

 
0.5

Accretion
0.3

 
0.3

Liabilities settled
(3.2
)
 

Ending asset retirement obligation
$
13.7

 
$
12.3


Asset retirement obligations of $1.1 million and $8.2 million as of June 30, 2015 and December 31, 2014, respectively are included in Other Current Liabilities.


23


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



(9) Investment in Unconsolidated Affiliates

The Partnership’s unconsolidated investments consisted of a contractual right to the economic benefits and burdens associated with Devon's 38.75% ownership interest in GCF at June 30, 2015 and 2014 and a 30.6% ownership interest in Howard Energy Partners ("HEP") at June 30, 2015 and 2014.

The following table shows the activity related to the Partnership’s investment in unconsolidated affiliates for the periods indicated (in millions):
 
Gulf Coast Fractionators
 
Howard Energy Partners
 
Total
Three months ended
 
 
 
 
 
June 30, 2015
 
 
 
 
 
Distributions
$
4.2

 
$
8.2

 
$
12.4

Equity in income
$
2.9

 
$
3.0

 
$
5.9

 
 
 
 
 
 
June 30, 2014 (1)
 
 
 
 
 
Distributions
$

 
$
3.0

 
$
3.0

Equity in income
$
3.9

 
$
0.6

 
$
4.5

 
 
 
 
 
 
Six months ended
 
 
 
 
 
June 30, 2015
 
 
 
 
 
Distributions
$
6.9

 
$
12.3

 
$
19.2

Equity in income
$
6.3

 
$
3.4

 
$
9.7

 
 
 
 
 
 
June 30, 2014 (1)
 
 
 
 
 
Distributions
$

 
$
5.7

 
$
5.7

Equity in income
$
8.0

 
$
0.7

 
$
8.7

(1) Includes income and distributions for the period from March 7, 2014 through June 30, 2014 for HEP.

The following table shows the balances related to the Partnership’s investment in unconsolidated affiliates for the periods indicated (in millions):
 
June 30,
2015
 
December 31,
2014
Gulf Coast Fractionators
$
53.4

 
$
54.1

Howard Energy Partners
207.8

 
216.7

Total investments in unconsolidated affiliates
$
261.2

 
$
270.8


(10) Employee Incentive Plans
 
(a)         Long-Term Incentive Plans
 
The Partnership accounts for unit-based compensation in accordance with FASB ASC 718, which requires that compensation related to all unit-based awards, including unit options, be recognized in the consolidated financial statements.

24


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




The Partnership and ENLC each have similar unit-based compensation payment plans for officers and employees, which are described below.  Unit-based compensation associated with ENLC's unit-based compensation plan awarded to officers and employees of the Partnership are recorded by the Partnership since ENLC has no substantial or managed operating activities other than its interests in the Partnership. Amounts recognized in the condensed consolidated financial statements with respect to these plans are as follows (in millions): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Cost of unit-based compensation allocated to Predecessor general and
    administrative expense (1)
$

 
$

 
$

 
$
2.8

Cost of unit-based compensation charged to general and administrative
    expense
6.5

 
4.9

 
18.4

 
5.9

Cost of unit-based compensation charged to operating expense
1.1

 
0.8

 
3.0

 
1.0

    Total amount charged to income
$
7.6

 
$
5.7

 
$
21.4

 
$
9.7

(1)
Unit-based compensation expense was treated as a contribution by the Predecessor in the Consolidated Statement of Changes in Partners' Equity in 2014.

(b)  EnLink Midstream Partners, LP Restricted Incentive Units
 
The Partnership's restricted incentive units are valued at their fair value at the date of grant which is equal to the market value of common units on such date. A summary of the restricted incentive unit activity for the six months ended June 30, 2015 is provided below:
 
 
Six Months Ended 
June 30, 2015
EnLink Midstream Partners, LP Restricted Incentive Units:
 
Number of
Units
 
Weighted
Average
Grant-Date
 Fair Value
Non-vested, beginning of period
 
1,022,191

 
$
31.25

Granted
 
564,524

 
27.05

Vested*
 
(261,409
)
 
28.76

Forfeited
 
(62,451
)
 
31.09

Non-vested, end of period
 
1,262,855

 
$
29.89

Aggregate intrinsic value, end of period (in millions)
 
$
27.7

 
 

 * Vested units include 89,679 units withheld for payroll taxes paid on behalf of employees.

The Partnership issued restricted incentive units in the first quarter of 2015 to officers and other employees. These restricted incentive units typically vest at the end of three years. In March 2015, the Partnership issued 128,675 restricted incentive units with a fair value of $3.4 million to officers and certain employees as bonus payments for 2014, which vested immediately and are included in the restricted units granted and vested line items above.
 

25


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



A summary of the restricted incentive units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested during the three and six months ended June 30, 2015 are provided below (in millions):

 
Three Months Ended June 30, 2015

Six Months Ended June 30, 2015
EnLink Midstream Partners, LP Restricted Incentive Units:
 

Aggregate intrinsic value of units vested
 
$
0.4


$
7.2

Fair value of units vested
 
$
0.5


$
7.5


As of June 30, 2015, there was $24.3 million of unrecognized compensation cost related to non-vested restricted incentive units. That cost is expected to be recognized over a weighted-average period of 2.0 years.

(c)  EnLink Midstream Partners, LP Performance Units

In March 2015, the Partnership and ENLC granted performance awards under the amended and restated EnLink Midstream GP, LLC Long-Term Incentive Plan (the "GP Plan") and the 2014 Long-Term Incentive Plan (the “LLC Plan”), respectively. The performance award agreements provide that the vesting of restricted incentive units granted thereunder is dependent on the achievement of certain total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Companies”) over the applicable performance period. The performance award agreements contemplate that the Peer Companies for an individual performance award (the “Subject Award”) are the companies comprising the Alerian MLP Index for Master Limited Partnerships (“AMZ”), excluding the Partnership and ENLC (collectively, "EnLink"), on the grant date for the Subject Award. The performance units will vest based on the percentile ranking of the average of the Partnership’s and ENLC’s TSR achievement ("EnLink TSR") for the applicable performance period relative to the TSR achievement of the Peer Companies.

At the end of the vesting period, recipients receive distribution equivalents with respect to the number of performance units vested. The vesting of units may be between zero and 200 percent of the units granted depending on EnLink’s TSR as compared to the peer group on the vesting date. The fair value of each performance unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all performance unit grants made under the plan: (i) a risk-free interest rate based on United States Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of the Partnership and the designated peer group; (iii) an estimated ranking of the Partnership among the designated peer group and (iv) the distribution yield. The fair value of the unit on the date of grant is expensed over a vesting period of three years. The following table presents a summary of the grant-date fair values of performance units granted and the related assumptions.
EnLink Midstream Partners, LP Performance Units:
 
2015
Beginning TSR Price
 
$
27.68

Risk-free interest rate
 
0.99
%
Volatility factor
 
33.01
%
Distribution yield
 
5.66
%


26


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



The following table presents a summary of the Partnership's performance units.
 
 
Six Months Ended 
June 30, 2015
EnLink Midstream Partners, LP Performance Units:
 
Number of
Units
 
Weighted
Average
Grant-Date
Fair Value
Non-Vested, beginning of period
 

 
$

Granted
 
118,126

 
35.41

Vested
 

 

Non-vested, end of period
 
118,126

 
$
35.41

Aggregate intrinsic value, end of period (in millions)
 
$
2.6

 


As of June 30, 2015, there was $3.6 million of unrecognized compensation expense that related to non-vested Partnership performance units. That cost is expected to be recognized over a weighted-average period of 2.5 years.

(d)         EnLink Midstream, LLC’s Restricted Incentive Units
 
ENLC’s restricted incentive units are valued at their fair value at the date of grant which is equal to the market value of the common units on such date. A summary of the restricted incentive units activity for the six months ended June 30, 2015 is provided below:
 
 
Six Months Ended 
June 30, 2015
EnLink Midstream, LLC Restricted Incentive Units:
 
Number of
Units
 
Weighted
Average
Grant-Date
Fair Value
Non-vested, beginning of period
 
986,472

 
$
37.03

Granted
 
481,042

 
31.74

Vested*
 
(258,094
)
 
35.79

Forfeited
 
(53,723
)
 
36.15

Non-vested, end of period
 
1,155,697

 
$
35.15

Aggregate intrinsic value, end of period (in millions)
 
$
35.9

 
 

* Vested units include 82,352 units withheld for payroll taxes paid on behalf of employees.

ENLC issued restricted incentive units in the first quarter of 2015 to officers and other employees. These restricted incentive units typically vest at the end of three years and are included in restricted incentive units outstanding. In March 2015, ENLC issued 102,543 restricted incentive units with a fair value of $3.4 million to officers and certain employees as bonus payments for 2014, which vested immediately and are included in the restricted units granted and vested line items above.

A summary of the restricted incentive units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested during the three and six months ended June 30, 2015 are provided below (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
EnLink Midstream, LLC Restricted Incentive Units:
 
2015
 
2015
Aggregate intrinsic value of units vested
 
$
0.6

 
$
8.9

Fair value of units vested
 
$
0.6

 
$
9.2


As of June 30, 2015, there was $24.1 million of unrecognized compensation costs related to non-vested ENLC restricted incentive units. The cost is expected to be recognized over a weighted-average period of 1.9 years.



27


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)



(e) EnLink Midstream, LLC's Performance Units

In March 2015, ENLC granted performance awards under the LLC Plan discussed in Note (c) above. At the end of the vesting period, recipients receive distribution equivalents with respect to the number of performance units vested. The vesting of units may be between zero and 200 percent of the units granted depending on EnLink’s TSR as compared to the peer group on the vesting date. The fair value of each performance unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all performance unit grants made under the plan: (i) a risk-free interest rate based on United States Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of ENLC and the designated peer group; (iii) an estimated ranking of ENLC among the designated peer group and (iv) the distribution yield. The fair value of the unit on the date of grant is expensed over a vesting period of three years. The following table presents a summary of the grant-date fair values of performance units granted and the related assumptions.

EnLink Midstream, LLC Performance Units:
 
2015
Beginning TSR Price
 
$
34.24

Risk-free interest rate
 
0.99
%
Volatility factor
 
33.02
%
Distribution yield
 
2.98
%

The following table presents a summary of the ENLC's performance units.
 
 
Six Months Ended 
June 30, 2015
EnLink Midstream, LLC Performance Units:
 
Number of
Units
 
Weighted
Average
Grant-Date
Fair Value
Non-Vested, beginning of period
 

 
$

Granted
 
105,080

 
40.5

Vested
 

 

Non-vested, end of period
 
105,080

 
$
40.5

Aggregate intrinsic value, end of period (in millions)
 
$
3.3

 


As of June 30, 2015, there was $3.7 million of unrecognized compensation expense that related to non-vested ENLC performance units. That cost is expected to be recognized over a weighted-average period of 2.5 years.

(11) Derivatives
 
Interest Rate Swaps
The Partnership entered into interest rate swaps in April and May 2015 in connection with the issuance of the 2025 Notes in May 2015.                
The impact of the interest rate swaps on net income is included in other income (expense) in the Condensed Consolidated Statements of Operations as part of interest expense, net, as follows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2015
Settlement gains on derivatives
 
$
3.6

 
$
3.6


28


ENLINK MIDSTREAM PARTNERS, LP
 
Notes to Condensed Consolidated Financial Statements-(Continued)
(Unaudited)




Commodity Swaps

The Partnership manages its exposure to fluctuation in commodity prices by hedging the impact of market fluctuations. Swaps are used to manage and hedge price and location risk related to these market exposures. Swaps are also used to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas and NGLs. The Partnership does not designate transactions as cash flow or fair value hedges for hedge accounting treatment under FASB ASC 815. Therefore, changes in the fair value of the Partnership's derivatives are recorded in revenue in the period incurred. In addition, the Partnership's risk management policy does not allow the Partnership to take speculative positions with its derivative contracts.

The Partnership commonly enters into index (float-for-float) or fixed-for-float swaps in order to mitigate its cash flow exposure to fluctuations in the future prices of natural gas, NGLs and crude oil. For natural gas, index swaps are used to protect against the price exposure of daily priced gas versus first-of-month priced gas. They are also used to hedge the basis location price risk resulting from supply and markets being priced on different indices. For natural gas, NGLs, condensate and crude, fixed-for-float swaps are used to protect cash flows against price fluctuations: (1) where the Partnership receives a percentage of liquids as a fee for processing third-party gas or where the Partnership receives a portion of the proceeds of the sales of natural gas and liquids as a fee, (2) in the natural gas processing and fractionation components of its business and (3) where the Partnership is mitigating the price risk for product held in inventory or storage.

The components of gain (loss) on derivative activity in the Condensed Consolidated Statements of Operations relating to commodity swaps are as follows for the three and six months ended June 30, 2015 and 2014 (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014*
Change in fair value of derivatives
$
(2.5
)
 
$
(1.3
)
 
$
(6.3
)
 
$
(2.0
)
Realized gain (loss) on derivatives
3.7

 
(0.3
)
 
7.7

 
(0.9
)
    Gain (loss) on derivative activity
$
1.2

 
$