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EX-31.2 - CFO CERTIFICATION - Summit Midstream Partners, LPex312cfocertification0316.htm
EX-32.1 - SECTION 906 CERTIFICATION - Summit Midstream Partners, LPex321section906certificati.htm
EX-31.1 - CEO CERTIFICATION - Summit Midstream Partners, LPex311ceocertification0316.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35666
Summit Midstream Partners, LP
(Exact name of registrant as specified in its charter)
Delaware 
(State or other jurisdiction of
 
incorporation or organization)
 
45-5200503 
(I.R.S. Employer
Identification No.)
 
 
 
1790 Hughes Landing Blvd, Suite 500
The Woodlands, TX
(Address of principal executive offices)
 
77380
(Zip Code)
 
 
 
 (832) 413-4770
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes     o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes     o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
As of April 30, 2016
Common Units
 
66,587,235 units
General Partner Units
 
1,354,700 units






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


i


Glossary of Terms
adjusted EBITDA: EBITDA plus our proportional adjusted EBITDA for equity method investees, adjustments related to MVC shortfall payments, impairments and other noncash expenses or losses, less income (loss) from equity method investees and other noncash income or gains
AMI: area of mutual interest; AMIs require that any production from wells drilled by our customers within the AMI be shipped on our gathering systems and/or processed by our processing facilities
associated natural gas: a form of natural gas which is found with deposits of petroleum, either dissolved in the oil or as a free gas cap above the oil in the reservoir
Bbl: one barrel; used for crude oil and produced water and equivalent to 42 U.S. gallons
Bcf: one billion cubic feet
condensate: a natural gas liquid with a low vapor pressure, mainly composed of propane, butane, pentane and heavier hydrocarbon fractions
conventional resource basin:  a basin where natural gas or crude oil production is developed from a well drilled into a geologic formation in which the reservoir and fluid characteristics permit the crude oil and natural gas to readily flow to the wellbore; also referred to as a conventional resource play
delivery point: the point where hydrocarbons or produced water are delivered into a gathering system, processing or fractionation facility or downstream transportation pipeline
distributable cash flow: adjusted EBITDA plus cash interest received and cash taxes received, less cash interest paid, senior notes interest adjustment, cash taxes paid and maintenance capital expenditures
dry gas: natural gas primarily composed of methane where heavy hydrocarbons and water either do not exist or have been removed through processing or treating
EBITDA: net income or loss, plus interest expense, deferred purchase price obligation expense, income tax expense and depreciation and amortization, less interest income and income tax benefit
end users: the ultimate users and consumers of transported energy products
hub: geographic location of a storage facility and multiple pipeline interconnections
LACT unit: lease automatic custody transfer unit; a system for ownership transfer of hydrocarbons or produced water from the production site to trucks, pipelines or storage tanks
Mbbl: one thousand barrels
Mbbl/d: one thousand barrels per day
Mcf: one thousand cubic feet
Mcfe: the equivalent of one thousand cubic feet; generally calculated when liquids are converted into gas; determined using a ratio of six Mcf of natural gas to one barrel of crude oil
MMBtu: one million British Thermal Units
MMcf: one million cubic feet
MMcf/d: one million cubic feet per day
MQD: minimum quarterly distribution; SMLP's partnership agreement has established a minimum quarterly distribution of $0.40 per unit per quarter, or $1.60 per unit per year

ii


MVC: minimum volume commitment; an MVC contractually obligates a customer to ship natural gas, crude oil and/or produced water and/or use processing services for a minimum quantity of volume throughput
NGLs: natural gas liquids; the combination of ethane, propane, normal butane, iso-butane and natural gasolines that, when removed from unprocessed natural gas streams, become liquid under various levels of higher pressure and lower temperature
play: a proven geological formation that contains commercial amounts of hydrocarbons
produced water: water from underground geologic formations that is brought to the surface during the crude oil production process
receipt point: the point where hydrocarbons or produced water are received by or into a gathering system or transportation pipeline
residue gas: the natural gas remaining after being processed and/or treated
segment adjusted EBITDA: calculated as total revenues less total costs and expenses; plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) impairments and (vi) other noncash expenses or losses, less other noncash income or gains.
shortfall payment: the payment received from a counterparty when its volume throughput does not meet or exceed its MVC for the applicable period
tailgate: refers to the point at which processed residue natural gas and NGLs leave a processing facility for end-use markets
Tcf: one trillion cubic feet
throughput volume: the volume of natural gas, crude oil or produced water transported or passing through a pipeline, plant or other facility during a particular period; also referred to as volume throughput
unconventional resource basin: a basin where natural gas or crude oil production is developed from unconventional sources that require hydraulic fracturing as part of the completion process, for instance, natural gas produced from shale formations and coalbeds; also referred to as an unconventional resource play
wellhead: the equipment at the surface of a well used to control the well's pressure; also, the point at which the hydrocarbons and water exit the ground


iii


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
 
December 31,
 
2016
 
2015
 
(In thousands)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
13,087

 
$
21,793

Accounts receivable
49,550

 
89,581

Other current assets
2,887

 
3,573

Total current assets
65,524

 
114,947

Property, plant and equipment, net
1,833,765

 
1,812,783

Intangible assets, net
452,667

 
461,310

Goodwill
16,211

 
16,211

Investment in equity method investees
757,869

 
751,168

Other noncurrent assets
8,847

 
8,253

Total assets
$
3,134,883

 
$
3,164,672

 
 
 
 
Liabilities and Partners' Capital
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
18,783

 
$
40,808

Due to affiliate
395

 
1,149

Deferred revenue
677

 
677

Ad valorem taxes payable
4,288

 
10,271

Accrued interest
7,733

 
17,483

Accrued environmental remediation
6,687

 
7,900

Other current liabilities
12,523

 
13,297

Total current liabilities
51,086

 
91,585

Long-term debt
1,312,158

 
1,267,270

Deferred purchase price obligation
514,890

 

Deferred revenue
46,959

 
45,486

Noncurrent accrued environmental remediation
5,764

 
5,764

Other noncurrent liabilities
7,440

 
7,268

Total liabilities
1,938,297

 
1,417,373

Commitments and contingencies (Note 15)

 

 
 
 
 
Common limited partner capital (66,587 units issued and outstanding at March 31, 2016 and 42,063 units issued and outstanding at December 31, 2015)
1,155,650

 
744,977

Subordinated limited partner capital (0 units issued and outstanding at March 31, 2016 and 24,410 units issued and outstanding at December 31, 2015)

 
213,631

General partner interests (1,355 units issued and outstanding at March 31, 2016 and December 31, 2015)
29,631

 
25,634

Noncontrolling interest
11,305

 

Summit Investments' equity in contributed subsidiaries

 
763,057

Total partners' capital
1,196,586

 
1,747,299

Total liabilities and partners' capital
$
3,134,883

 
$
3,164,672

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

1


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands, except per-unit amounts)
Revenues:
 
 
 
Gathering services and related fees
$
78,100

 
$
68,440

Natural gas, NGLs and condensate sales
7,588

 
12,613

Other revenues
4,883

 
5,034

Total revenues
90,571

 
86,087

Costs and expenses:
 
 
 
Cost of natural gas and NGLs
6,290

 
9,441

Operation and maintenance
25,842

 
22,791

General and administrative
12,879

 
11,599

Transaction costs
1,174

 
110

Depreciation and amortization
27,728

 
25,530

Gain on asset sales
(63
)
 

Total costs and expenses
73,850

 
69,471

Other income
22

 
1

Interest expense
(15,882
)
 
(14,904
)
Deferred purchase price obligation expense
(7,463
)
 

(Loss) income before income taxes
(6,602
)
 
1,713

Income tax benefit (expense)
77

 
(430
)
Income (loss) from equity method investees
2,860

 
(3,768
)
Net loss
$
(3,665
)
 
$
(2,485
)
Less:
 
 
 
Net income (loss) attributable to Summit Investments
2,745

 
(4,152
)
Net income attributable to noncontrolling interest
44

 

Net (loss) income attributable to SMLP
(6,454
)
 
1,667

Less net (loss) income attributable to general partner, including IDRs
1,810

 
1,568

Net (loss) income attributable to limited partners
$
(8,264
)
 
$
99

 
 
 
 
(Loss) earnings per limited partner unit:
 
 
 
Common unit – basic
$
(0.12
)
 
$
0.00

Common unit – diluted
$
(0.12
)
 
$
0.00

Subordinated unit – basic and diluted

 
$
0.00

 
 
 
 
Weighted-average limited partner units outstanding:
 
 
 
Common units – basic
66,493

 
34,439

Common units – diluted
66,493

 
34,585

Subordinated units – basic and diluted

 
24,410

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

2


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

 
Partners' capital
 
Summit Investments' equity in contributed subsidiaries
 
 
 
Limited partners
 
General partner
 
 
 
 
Common
 
Subordinated
 
 
 
Total
 
(In thousands)
Partners' capital, January 1, 2015
$
649,060

 
$
293,153

 
$
24,676

 
$
863,792

 
$
1,830,681

Net income (loss)
58

 
41

 
1,568

 
(4,152
)
 
(2,485
)
Distributions to unitholders
(19,279
)
 
(13,670
)
 
(2,144
)
 

 
(35,093
)
Unit-based compensation
1,312

 

 

 

 
1,312

Tax withholdings on vested SMLP LTIP awards
(910
)
 

 

 

 
(910
)
Cash advance to Summit Investments from contributed subsidiaries, net

 

 

 
(14,468
)
 
(14,468
)
Expenses paid by Summit Investments on behalf of contributed subsidiaries

 

 

 
8,408

 
8,408

Capitalized interest allocated to contributed subsidiaries from Summit Investments

 

 

 
156

 
156

Capital expenditures paid by Summit Investments on behalf of contributed subsidiaries

 

 

 

 

Class B membership interest noncash compensation

 

 

 
251

 
251

Partners' capital, March 31, 2015
$
630,241

 
$
279,524

 
$
24,100

 
$
853,987

 
$
1,787,852


3


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(continued)
 
Partners' capital
 
Noncontrolling interest
 
Summit Investments' equity in contributed subsidiaries
 
 
 
Limited partners
 
General partner
 
 
 
 
 
Common
 
Subordinated
 
 
 
 
Total
 
(In thousands)
Partners' capital, January 1, 2016
$
744,977

 
$
213,631

 
$
25,634

 
$

 
$
763,057

 
$
1,747,299

Net (loss) income
(9,304
)
 
1,040

 
1,810

 
44

 
2,745

 
(3,665
)
Distributions to unitholders
(24,186
)
 
(14,034
)
 
(2,755
)
 

 

 
(40,975
)
Unit-based compensation
1,761

 

 

 

 

 
1,761

Tax withholdings on vested SMLP LTIP awards
(786
)
 

 

 

 

 
(786
)
Subordinated units conversion
200,637

 
(200,637
)
 

 

 

 

Purchase of 2016 Drop Down Assets

 

 

 

 
(867,427
)
 
(867,427
)
Establishment of noncontrolling interest

 

 

 
11,261

 
(11,261
)
 

Distribution of debt related to Carve-Out Financial Statements of Summit Investments

 

 

 

 
342,926

 
342,926

Excess of consideration paid and recognized over acquired carrying value of 2016 Drop Down Assets
242,486

 

 
4,942

 

 
(247,428
)
 

Cash advance from Summit Investments to contributed subsidiaries, net

 

 

 

 
12,214

 
12,214

Expenses paid by Summit Investments on behalf of contributed subsidiaries

 

 

 

 
4,821

 
4,821

Capitalized interest allocated from Summit Investments to contributed subsidiaries

 

 

 

 
223

 
223

Class B membership interest noncash compensation
65

 

 

 

 
130

 
195

Partners' capital, March 31, 2016
$
1,155,650

 
$

 
$
29,631

 
$
11,305

 
$

 
$
1,196,586

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


4


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(3,665
)
 
$
(2,485
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
27,865

 
25,781

Amortization of deferred loan costs
905

 
1,108

Deferred purchase price obligation expense
7,463

 

Unit-based and noncash compensation
1,956

 
1,563

(Income) loss from equity method investees
(2,860
)
 
3,768

Distributions from equity method investees
11,804

 
6,849

Gain on asset sales
(63
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
40,031

 
41,780

Trade accounts payable
(817
)
 
(1,575
)
Due to affiliate
(754
)
 
1,054

Change in deferred revenue
1,473

 
3,745

Ad valorem taxes payable
(5,982
)
 
(5,097
)
Accrued interest
(9,750
)
 
(11,125
)
Accrued environmental remediation

 
(13,719
)
Other, net
(757
)
 
(3,984
)
Net cash provided by operating activities
66,849

 
47,663

Cash flows from investing activities:
 
 
 
Capital expenditures
(61,326
)
 
(49,470
)
Contributions to equity method investees
(15,645
)
 
(27,830
)
Acquisitions of gathering systems from affiliate, net of acquired cash
(360,000
)
 
(2,941
)
Other, net
(377
)
 

Net cash used in investing activities
(437,348
)
 
(80,241
)


5


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands)
Cash flows from financing activities:
 
 
 
Distributions to unitholders
(40,975
)
 
(35,093
)
Borrowings under revolving credit facility
424,300

 
89,000

Repayments under revolving credit facility
(35,300
)
 
(26,000
)
Deferred loan costs
(2,413
)
 
(65
)
Cash advance from (to) Summit Investments to (from) contributed subsidiaries, net
12,214

 
(14,468
)
Expenses paid by Summit Investments on behalf of contributed subsidiaries
4,821

 
8,408

Other, net
(854
)
 
(1,056
)
Net cash provided by financing activities
361,793

 
20,726

Net change in cash and cash equivalents
(8,706
)
 
(11,852
)
Cash and cash equivalents, beginning of period
21,793

 
27,811

Cash and cash equivalents, end of period
$
13,087

 
$
15,959

 
 
 
 
Supplemental cash flow disclosures:
 
 
 
Cash interest paid
$
25,164

 
$
25,464

Less capitalized interest
716

 
527

Interest paid (net of capitalized interest)
$
24,448

 
$
24,937

 
 
 
 
Cash paid for taxes
$

 
$

 
 
 
 
Noncash investing and financing activities:
 
 
 
Capital expenditures in trade accounts payable (period-end accruals)
$
13,769

 
$
45,292

Issuance of deferred purchase price obligation to affiliate to partially fund the 2016 Drop Down
507,427

 

Capitalized interest allocated to contributed subsidiaries from Summit Investments
223

 
156

Excess of consideration paid and recognized over acquired carrying value of 2016 Drop Down Assets
247,428

 

Distribution of debt related to Carve-Out Financial Statements of Summit Investments (see Notes 2 and 9)
342,926

 

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

6


SUMMIT MIDSTREAM PARTNERS, LP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS OPERATIONS AND PRESENTATION AND CONSOLIDATION
Organization. Summit Midstream Partners, LP ("SMLP" or the "Partnership"), a Delaware limited partnership, was formed in May 2012 and began operations in October 2012 in connection with its initial public offering ("IPO") of common limited partner units. SMLP is a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. Our business activities are conducted through our subsidiary, Summit Midstream Holdings, LLC ("Summit Holdings"), a Delaware limited liability company, and its subsidiaries. References to the "Partnership," "we," or "our" refer collectively to SMLP and its subsidiaries.
Summit Midstream GP, LLC (the "general partner"), a Delaware limited liability company, manages our operations and activities. Summit Midstream Partners, LLC ("Summit Investments"), a Delaware limited liability company, is the ultimate owner of our general partner and has the right to appoint the entire board of directors of our general partner.  Summit Investments is controlled by Energy Capital Partners II, LLC and its parallel and co-investment funds (collectively, "Energy Capital Partners" or our "Sponsor").
In addition to its 2% general partner interest in SMLP (including the incentive distribution rights ("IDRs") in respect of SMLP), Summit Investments has direct and indirect ownership interests in our common units. As of March 31, 2016, Summit Investments beneficially owned 29,854,581 SMLP common units.
Our operations are conducted through, and our operating assets are owned by, various wholly owned operating subsidiaries. Neither SMLP nor its subsidiaries have any employees. All of the personnel that conduct our business are employed by Summit Investments, but these individuals are sometimes referred to as our employees.
On February 25, 2016, the Partnership and Summit Midstream Partners Holdings, LLC (“SMP Holdings”), a wholly owned subsidiary of Summit Investments, entered into a contribution agreement (the "Contribution Agreement") pursuant to which SMP Holdings agreed to contribute to the Partnership substantially all of (i) the issued and outstanding membership interests of Summit Midstream Utica, LLC ("Summit Utica"), Meadowlark Midstream Company, LLC ("Meadowlark Midstream") and Tioga Midstream, LLC ("Tioga Midstream" and collectively with Summit Utica and Meadowlark Midstream, the "Contributed Entities"), each a limited liability company and indirect wholly owned subsidiary of SMP Holdings and (ii) SMP Holdings’ 40.0% ownership interest in each of Ohio Gathering Company, L.L.C. and Ohio Condensate Company, L.L.C. (collectively with the Contributed Entities, the “2016 Drop Down Assets”)(the “2016 Drop Down”). The 2016 Drop Down closed on March 3, 2016 (the "Initial Close"). Upon Initial Close, the Partnership held a 99.0% ownership interest in the 2016 Drop Down Assets and Summit Investments held a 1.0% noncontrolling interest.
Business Operations. We provide natural gas gathering, treating and processing services as well as crude oil and produced water gathering services pursuant to primarily long-term and fee-based agreements with our customers. Our results are driven primarily by the volumes of natural gas that we gather, treat, compress and process as well as by the volumes of crude oil and produced water that we gather. Our gathering systems and the unconventional resource basins in which they operate are as follows:
Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;
Bison Midstream, LLC ("Bison Midstream"), an associated natural gas gathering system, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Polar Midstream, LLC ("Polar Midstream" or "Polar and Divide"), crude oil and produced water gathering systems and transmission pipelines located in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Tioga Midstream, crude oil, produced water and associated natural gas gathering systems, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Grand River Gathering, LLC ("Grand River"), a natural gas gathering and processing system located in the Piceance Basin, which includes the Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado and eastern Utah;

7


Niobrara Gathering and Processing ("Niobrara G&P"), an associated natural gas gathering and processing system operating in the Denver-Julesburg ("DJ") Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado;
DFW Midstream Services LLC ("DFW Midstream"), a natural gas gathering system, operating in the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and
Mountaineer Midstream gathering system ("Mountaineer Midstream"), a natural gas gathering system, operating in the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia.
Meadowlark Midstream is the legal entity which owns (i) certain crude oil and produced water gathering pipelines, which is managed and reported as part of the Polar and Divide system subsequent to the 2016 Drop Down and (ii) Niobrara G&P, which is managed and reported as part of the Grand River system subsequent to the 2016 Drop Down.
Ohio Gathering Company, L.L.C. and Ohio Condensate Company, L.L.C. (collectively, "Ohio Gathering") operate a natural gas gathering system and a condensate stabilization facility in the Appalachian Basin, which includes the Utica and Point Pleasant formations in southeastern Ohio.
Presentation and Consolidation. We prepare our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These principles are established by the Financial Accounting Standards Board (the "FASB"). We make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates, including fair value measurements, the reported amounts of revenue and expense and the disclosure of contingencies. Although management believes these estimates are reasonable, actual results could differ from its estimates.
The unaudited condensed consolidated financial statements include the assets, liabilities and results of operations of SMLP and its wholly owned subsidiaries. All intercompany transactions among the consolidated entities have been eliminated in consolidation. The financial position, results of operations and cash flows of acquired drop down assets, liabilities, expenses or entities that were carved out of entities held by Summit Investments and included herein have been derived from the accounting records of the respective Summit Investments' subsidiary on a carve-out basis (see Note 2).
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and the regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. We believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, including normal recurring accruals, which are necessary to fairly present the unaudited condensed consolidated balance sheet as of March 31, 2016, the unaudited condensed consolidated statements of operations, partners' capital and cash flows for the three-month periods ended March 31, 2016 and 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our annual report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on February 29, 2016 (the "2015 Annual Report"). The results of operations for an interim period are not necessarily indicative of results expected for a full year.
SMLP recognized its drop down acquisitions at Summit Investments' historical cost because the acquisitions were executed by entities under common control. The excess of Summit Investments' net investment over the purchase price paid and recognized for a contributed subsidiary is recognized as an addition to partners' capital, while the excess of purchase price paid and recognized over net investment is recognized as a reduction to partners' capital. Due to the common control aspect, we account for drop down transactions on an “as-if pooled” basis for the periods during which common control existed.
Reclassifications. In the first quarter of 2016, we adopted Accounting Standards Update ("ASU") No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). As a result, we reclassified $9.2 million of deferred loan costs from other noncurrent assets to long-term debt at December 31, 2015 (see Note 2).
In 2015, we made certain reclassifications to conform to current presentation. We evaluated our historical classification of (i) gathering fee revenue associated with certain Bison Midstream percent-of-proceeds contracts and (ii) certain pass-through expenses also for Bison Midstream. As a result of this evaluation, we determined that certain amounts that had previously been recognized in cost of natural gas and NGLs would be more appropriately reflected as gathering services and related fees and other revenues to enhance reporting transparency. The impact

8


of these reclassifications, which had no impact on net (loss) income, total partners' capital or segment adjusted EBITDA, follows.
 
Three months ended
March 31, 2015
 
(In thousands)
Gathering services and related fees
$
3,419

Other revenues
638

Net impact on total revenues
$
4,057

 
 
Cost of natural gas and NGLs
$
4,057

Net impact on cost of natural gas and NGLs and total costs and expenses
$
4,057


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant, and Equipment. We record property, plant, and equipment at historical cost of construction or fair value of the assets at acquisition. We capitalize expenditures that extend the useful life of an asset or enhance its productivity or efficiency from its original design over the expected remaining period of use. For maintenance and repairs that do not add capacity or extend the useful life of an asset, we recognize expenditures as an expense as incurred. We capitalize project costs incurred during construction, including interest on funds borrowed to finance the construction of facilities, as construction in progress. To the extent that Summit Investments incurs interest expense related to capital projects of assets that have been acquired by the Partnership, the associated interest expense is allocated to the drop down assets as a noncash equity contribution and capitalized into the basis of the asset.
We record depreciation on a straight-line basis over an asset’s estimated useful life. We base our estimates for useful life on various factors including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Estimates of useful lives follow.
 
Useful lives
(In years)
Gathering and processing systems and related equipment
30
Other
4-15
Construction in progress is depreciated consistent with its applicable asset class once it is placed in service. Land and line fill are not depreciated.
We base an asset’s carrying value on estimates, assumptions and judgments for useful life and salvage value. Upon sale, retirement or other disposal, we remove the carrying value of an asset and its accumulated depreciation from our balance sheet and recognize the related gain or loss, if any.
Accrued capital expenditures are reflected in trade accounts payable.
Equity Method Investments. We account for investments in which we exercise significant influence using the equity method so long as we (i) do not control the investee and (ii) are not the primary beneficiary. We recognize these investments in investment in equity method investees in the accompanying consolidated balance sheets. We recognize our proportionate share of net income or loss on a one-month lag.
We recognize an other-than-temporary impairment for losses in the value of equity method investees when evidence indicates that the carrying amount is no longer supportable. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity method investee to sustain an earnings capacity that would justify the carrying amount of the investment. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. We evaluate our equity method investments whenever evidence exists that would indicate a need to assess the investment for potential impairment.
Other Noncurrent Assets. Other noncurrent assets primarily consist of external costs incurred in connection with the closing of our revolving credit facility and related amendments. We capitalize and then amortize these deferred

9


loan costs over the life of the respective debt instrument. We recognize amortization of deferred loan costs in interest expense.
Deferred Purchase Price Obligation Income or Expense. We recognized a liability for the deferred purchase price obligation to reflect the expected value of the remaining consideration to be paid in 2020 for the acquisition of the 2016 Drop Down Assets. The calculation of the remaining consideration incorporates estimates of projected capital expenditures and Business Adjusted EBITDA. For balance sheet recognition purposes, we discount the remaining consideration using a commensurate risk-adjusted discount rate and recognize the change in present value in earnings in the period of change. The income or expense represents the change in present value, which comprises a time value of money concept as well as adjustments to projections and the expected value of the remaining consideration (see Note 16).
Commitments and Contingencies. We record accruals for loss contingencies when we determine that it is probable that a liability has been incurred and that such economic loss can be reasonably estimated. Such determinations are subject to interpretations of current facts and circumstances, forecasts of future events, and estimates of the financial impacts of such events. We record receivables for gain contingencies when they are realized.
Noncontrolling Interest. Noncontrolling interest represents the ownership interests of third-party entities in the net assets of our consolidated subsidiaries, including Summit Investments' ownership interest in the 2016 Drop Down Assets. For financial reporting purposes, we consolidate the 2016 Drop Down Assets with our wholly owned subsidiaries and Summit Investments' interest is shown as noncontrolling interest in partners' capital. We reflect changes in our ownership of the 2016 Drop Down Assets as adjustments to noncontrolling interest.
Earnings or Loss Per Unit ("EPU"). We determine basic EPU by dividing the net income or loss that is attributed, in accordance with the net income and loss allocation provisions of our partnership agreement, to limited partners under the two-class method, after deducting (i) the 1% noncontrolling interest in the 2016 Drop Down Assets (for periods subsequent to the 2016 Drop Down), (ii) any net income or loss of contributed subsidiaries that is attributable to Summit Investments, (iii) the general partner's 2% interest in net income or loss, and (iv) any payment of IDRs, by the weighted-average number of limited partner units outstanding. Diluted EPU reflects the potential dilution that could occur if securities or other agreements to issue common units, such as unit-based compensation, were exercised, settled or converted into common units and included in the weighted-average number of units outstanding. When it is determined that potential common units resulting from an award subject to performance or market conditions should be included in the diluted EPU calculation, the impact is reflected by applying the treasury stock method.
Comprehensive Income or Loss. Comprehensive income or loss is the same as net income or loss for all periods presented.
Environmental Matters. We are subject to various federal, state and local laws and regulations relating to the protection of the environment. Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines, and penalties and other sources are charged to expense when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties or insurers are recorded as assets when their receipt is deemed probable.
Carve-Out Entities, Assets, Liabilities and Expenses. For drop down transactions involving entities that were carved out of other entities, the majority of the assets and liabilities allocated to the carve-out entity are specifically identified based on the original entity's existing divisional organization. Goodwill is allocated to the carve-out entity based on initial purchase accounting estimates. Revenues and depreciation and amortization are specifically identified based on the relationship of the carve-out entity to the original entity's existing divisional structure. Operation and maintenance and general and administrative expenses are allocated to the carve-out entity based on volume throughput.
For drop down transactions involving assets, liabilities and expenses that were carved out of other entities, the majority of the assets and liabilities allocated to the carve-out are specifically identified based on the original entity's existing divisional organization. Depreciation and amortization are specifically identified based on the relationship of the carve-out entity to the original entity's existing divisional structure. General and administrative expenses are allocated to the carve-out entity based on an allocation of Summit Investments' consolidated expenses.

10


Allocation of Certain Liabilities in Drop Downs. For drop down transactions involving assets for which their development was funded with parent company debt which was replaced with bank borrowings or debt capital at the Partnership, we allocate a portion of that debt, net of deferred loan costs, to the drop down assets during the common control period. Interest expense is allocated and recognized during the common control period. Any outstanding debt balance or principal is included in the calculation of the excess or deficit of acquired carrying value over consideration paid and recognized.
Recent Accounting Pronouncements. Accounting standard setters frequently issue new or revised accounting rules. We review new pronouncements to determine the impact, if any, on our financial statements. Accounting standards that have or could possibly have a material effect on our financial statements are discussed below.
Recently Adopted Accounting Pronouncements. In April 2015, the FASB issued ASU 2015-03. Under ASU 2015-03, entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, will be required to present those costs as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB amended ASU 2015-03 to address the presentation and subsequent measurement of debt issuance costs related to line of credit (“LOC”) arrangements. The amendment permits an entity to defer and present debt issuance costs as an asset and subsequently amortize deferred debt issuance costs ratably over the term of a LOC arrangement, regardless of whether there are outstanding borrowings under that LOC arrangement.  This new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The January 2016 adoption of this update resulted in a reclassification from other noncurrent assets to long-term debt of the debt issuance costs associated with our senior notes (see Note 9). Debt issuance costs associated with the Partnership's revolving credit facility will remain in other noncurrent assets. This standard had no impact on interest expense, net income or loss, EPU or partners' capital.
Accounting Pronouncements Pending Adoption. We are currently in the process of evaluating the applicability and/or impact of the following accounting pronouncements:
ASU No. 2014-09 Revenue From Contracts With Customers (Topic 606) ("ASU 2014-09"). There has been no to our position regarding ASU 2014-09 during the first quarter of 2016. See Note 2 to the consolidated financial statements included in the 2015 Annual Report for additional information.
ASU No. 2016-02 Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires that lessees recognize all leases on the balance sheet, with the exception of short-term leases. A lease liability will be recorded for the obligation of a lessee to make lease payments arising from a lease. A right-of-use asset, will be recorded which represents the lessee’s right to use, or to control the use of, a specified asset for a lease term. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15, 2019, and requires the modified retrospective approach for transition.
ASU No. 2016-08 Revenue From Contracts With Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU No. 2016-08"). ASU No. 2016-08 does not change the core principle of Topic 606, rather it clarifies the implementation guidance on principal versus agent considerations. The effective date and transition for this update are the same as ASU 2014-09.
ASU No. 2016-09 Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects for share-based payment award transactions, including income tax consequences, the liability or equity classification of awards and classification on the statement of cash flows. ASU 2016-09 is effective for public companies for fiscal years beginning after December 15, 2016. It does not specify a single transition approach, rather it specifies retrospective, modified retrospective and/or prospective transition approaches based on the aspect being applied.
ASU No. 2016-10 Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing ("ASU No. 2016-10"). ASU No. 2016-10 clarifies the following two aspects of Topic 606 (i) identifying performance obligations and (ii) the licensing implementation guidance, while retaining the related principles for those areas. The effective date and transition for this update are the same as ASU 2014-09.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on our financial statements. For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on our financial position or results of operations, see Note 2 of the notes to the consolidated financial statements included in the 2015 Annual Report.

11



3. SEGMENT INFORMATION
As of March 31, 2016, our reportable segments are:
the Utica Shale, which includes our ownership interest in Ohio Gathering and also is served by Summit Utica;
the Williston Basin, which is served by Bison Midstream, Polar and Divide and Tioga Midstream;
the Piceance/DJ Basins, which is served by Grand River and Niobrara G&P;
the Barnett Shale, which is served by DFW Midstream; and
the Marcellus Shale, which is served by Mountaineer Midstream.
Each of our reportable segments provides midstream services in a specific geographic area. Our reportable segments reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations.
As noted above, our investment in Ohio Gathering is included in the Utica Shale reportable segment. Segment assets for the Utica Shale includes the associated investment in equity method investees. Income or loss from equity method investees, as reflected on the statements of operations, solely relates to Ohio Gathering and is recognized and disclosed on a one-month lag (see Note 7). No other line items in the statements of operations or cash flows, as disclosed in the tables below, include results for our investment in Ohio.
Corporate represents those assets and liabilities and revenues and expenses that are not specifically attributable to a reportable segment, not individually reportable, or that have not been allocated to our reportable segments.
Assets by reportable segment follow.
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Assets:
 
 
 
Utica Shale (1)
$
922,717

 
$
886,223

Williston Basin
725,641

 
740,361

Piceance/DJ Basins
829,608

 
866,095

Barnett Shale
411,118

 
416,586

Marcellus Shale
232,017

 
233,116

Total reportable segment assets
3,121,101

 
3,142,381

Corporate
13,782

 
22,291

Total assets
$
3,134,883

 
$
3,164,672

__________
(1) Represents the investment in equity method investees for Ohio Gathering (see Note 7) and total assets for Summit Utica.
Revenues by reportable segment follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Revenues:
 
 
 
Utica Shale
$
4,283

 
$
389

Williston Basin
30,008

 
23,066

Piceance/DJ Basins
28,993

 
30,894

Barnett Shale
20,402

 
23,897

Marcellus Shale
6,885

 
7,841

Total reportable segment revenues and total revenues
$
90,571

 
$
86,087


12


Counterparties accounting for more than 10% of total revenues were as follows:
 
Three months ended March 31,
 
2016
 
2015
Percentage of total revenues:
 
 
 
Counterparty A - Piceance/DJ Basins
*
 
13
%
__________
* Less than 10%
Depreciation and amortization, including the amortization expense associated with our favorable and unfavorable gas gathering contracts as reported in other revenues, by reportable segment follows.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Depreciation and amortization:
 
 
 
Utica Shale
$
844

 
$
139

Williston Basin
8,357

 
7,368

Piceance/DJ Basins
12,273

 
11,783

Barnett Shale
4,056

 
4,157

Marcellus Shale
2,219

 
2,168

Total reportable segment depreciation and amortization
27,749

 
25,615

Corporate
116

 
166

Total depreciation and amortization
$
27,865

 
$
25,781

Capital expenditures by reportable segment follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Capital expenditures:
 
 
 
Utica Shale
$
34,988

 
$
22,565

Williston Basin
18,034

 
18,310

Piceance/DJ Basins
5,824

 
6,808

Barnett Shale
563

 
893

Marcellus Shale
1,738

 
496

Total reportable segment capital expenditures
61,147

 
49,072

Corporate
179

 
398

Total capital expenditures
$
61,326

 
$
49,470

We assess the performance of our reportable segments based on segment adjusted EBITDA. We define segment adjusted EBITDA as total revenues less total costs and expenses; plus (i) other income excluding interest income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) impairments and (vi) other noncash expenses or losses, less other noncash income or gains. We define proportional adjusted EBITDA for our equity method investees as the product of total revenues less total expenses, plus amortization for deferred contract costs multiplied by our ownership interest in Ohio Gathering during the respective period.

13


Segment adjusted EBITDA by reportable segment follows.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Reportable segment adjusted EBITDA:
 
 
 
Utica Shale (1)
$
15,577

 
$
5,206

Williston Basin
19,719

 
10,975

Piceance/DJ Basins
24,817

 
28,702

Barnett Shale
14,077

 
16,760

Marcellus Shale
4,600

 
6,536

Total reportable segment adjusted EBITDA
$
78,790

 
$
68,179

__________
(1) Includes our proportional share of adjusted EBITDA for Ohio Gathering and is reflected as the proportional adjusted EBITDA for equity method investees in the reconciliation of income or loss before income taxes to segment adjusted EBITDA.
A reconciliation of loss before income taxes to total reportable segment adjusted EBITDA follows.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Reconciliation of Loss Before Income Taxes to Segment Adjusted EBITDA:
 
 
 
Loss before income taxes
$
(6,602
)
 
$
1,713

Add:
 
 
 
Allocated corporate expenses
8,781

 
6,623

Interest expense
15,882

 
14,904

Deferred purchase price obligation expense
7,463

 

Depreciation and amortization
27,865

 
25,781

Proportional adjusted EBITDA for equity method investees
12,388

 
5,263

Adjustments related to MVC shortfall payments
11,142

 
12,333

Unit-based and noncash compensation
1,956

 
1,563

Loss on asset sales

 

Less:
 
 
 
Interest income
22

 
1

Gain on asset sales
63

 

Total reportable segment adjusted EBITDA
$
78,790

 
$
68,179

Segment adjusted EBITDA excludes the effect of allocated corporate expenses, such as certain general and administrative expenses (including compensation-related expenses and professional services fees), transaction costs, interest expense, deferred purchase price obligation income or expense and income tax expense.
Adjustments related to MVC shortfall payments account for:
the net increases or decreases in deferred revenue for MVC shortfall payments and
our inclusion of expected annual MVC shortfall payments. We include a proportional amount of these historical or expected MVC shortfall payments in each quarter prior to the quarter in which we actually recognize the shortfall payment. These adjustments have not been billed to our customers and are not recognized in our unaudited condensed consolidated financial statements.

14


Adjustments related to MVC shortfall payments by reportable segment follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Adjustments related to MVC shortfall payments:
 
 
 
Williston Basin
$
3,536

 
$
2,653

Piceance/DJ Basins
7,517

 
9,903

Barnett Shale
89

 
(223
)
Total adjustments related to MVC shortfall payments
$
11,142

 
$
12,333


4. PROPERTY, PLANT, AND EQUIPMENT, NET
Details on property, plant, and equipment follow.
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Gathering and processing systems and related equipment
$
1,918,080

 
$
1,883,139

Construction in progress
77,596

 
75,132

Land and line fill
11,436

 
11,055

Other
32,931

 
32,427

Total
2,040,043

 
2,001,753

Less accumulated depreciation
206,278

 
188,970

Property, plant, and equipment, net
$
1,833,765

 
$
1,812,783

Depreciation expense and capitalized interest follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Depreciation expense
$
17,370

 
$
15,264

Capitalized interest
716

 
527


5. AMORTIZING INTANGIBLE ASSETS AND UNFAVORABLE GAS GATHERING CONTRACT
Details regarding our intangible assets and the unfavorable gas gathering contract (included in other noncurrent liabilities), all of which are subject to amortization, follow.
 
March 31, 2016
 
Useful lives
(In years)
 
Gross carrying amount
 
Accumulated amortization
 
Net
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Favorable gas gathering contracts
18.7
 
$
24,195

 
$
(9,872
)
 
$
14,323

Contract intangibles
12.5
 
426,464

 
(119,906
)
 
306,558

Rights-of-way
26.1
 
152,195

 
(20,409
)
 
131,786

Total intangible assets
 
 
$
602,854

 
$
(150,187
)
 
$
452,667

 
 
 
 
 
 
 
 
Unfavorable gas gathering contract
10.0
 
$
10,962

 
$
(6,278
)
 
$
4,684


15


 
December 31, 2015
 
Useful lives
(In years)
 
Gross carrying amount
 
Accumulated amortization
 
Net
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
Favorable gas gathering contracts
18.7
 
$
24,195

 
$
(9,534
)
 
$
14,661

Contract intangibles
12.5
 
426,464

 
(111,052
)
 
315,412

Rights-of-way
26.3
 
150,143

 
(18,906
)
 
131,237

Total intangible assets
 
 
$
600,802

 
$
(139,492
)
 
$
461,310

 
 
 
 
 
 
 
 
Unfavorable gas gathering contract
10.0
 
$
10,962

 
$
(6,077
)
 
$
4,885

We recognized amortization expense in other revenues as follows:
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands)
Amortization expense – favorable gas gathering contracts
$
(338
)
 
$
(426
)
Amortization expense – unfavorable gas gathering contract
201

 
175

We recognized amortization expense in costs and expenses as follows:
 
Three months ended March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands)
Amortization expense – contract intangibles
$
8,854

 
$
8,835

Amortization expense – rights-of-way
1,503

 
1,431

The estimated aggregate annual amortization expected to be recognized for the remainder of 2016 and each of the four succeeding fiscal years follows.
 
Intangible assets
 
Unfavorable gas gathering contract
 
 
 
 
 
(In thousands)
2016
$
32,500

 
$
729

2017
42,028

 
1,047

2018
41,482

 
1,035

2019
41,727

 
1,045

2020
44,373

 
828


6. GOODWILL
We evaluate goodwill for impairment annually on September 30 and whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There have been no impairments of goodwill during the three months ended March 31, 2016.
Fourth Quarter 2015 Goodwill Impairment. In the first quarter of 2016, we finalized our calculations of the fair values of the identified assets and liabilities in step two of the December 31, 2015 goodwill impairment testing for the Grand River and Polar and Divide reporting units. This process confirmed the preliminary goodwill impairments of $45.5 million for Grand River and $203.4 million for Polar and Divide that were recognized as of December 31, 2015.
Fair Value Measurement. Our impairment determinations, in the context of (i) our annual impairment evaluations and (ii) our other-than-annual impairment evaluations involved significant assumptions and judgments, as discussed in the 2015 Annual Report. Differing assumptions regarding any of these inputs could have a significant effect on

16


the various valuations. As such, the fair value measurements utilized within these models are classified as non-recurring Level 3 measurements in the fair value hierarchy because they are not observable from objective sources. Due to the volatility of the inputs used, we cannot predict the likelihood of any future impairment.

7. EQUITY METHOD INVESTMENTS
Ohio Gathering owns, operates and is currently developing midstream infrastructure consisting of a liquids-rich natural gas gathering system, a dry natural gas gathering system and a condensate stabilization facility in the Utica Shale Play in southeastern Ohio. Ohio Gathering provides gathering services pursuant to primarily long-term, fee-based gathering agreements, which include acreage dedications.
In January 2014, Summit Investments acquired a 1.0% ownership interest in Ohio Gathering from Blackhawk Midstream, LLC ("Blackhawk") for $190.0 million. Concurrent with this acquisition, Summit Investments made an $8.4 million capital contribution to Ohio Gathering to maintain its 1.0% ownership interest.
The ownership interest Summit Investments acquired from Blackhawk included an option to increase the holder's ownership interest in Ohio Gathering to 40.0% (the "Option"). In May 2014, Summit Investments exercised the Option to increase its ownership to 40.0% (the "Option Exercise") and made the following payments (i) $326.6 million of capital contribution true-ups, (ii) $50.4 million of additional capital contributions to maintain its 40.0% ownership interest, and (iii) $5.1 million of management fee payments that were recognized as capital contributions in its Ohio Gathering capital accounts. Concurrent with and subsequent to the Option Exercise, the non-affiliated owners have retained their respective 60.0% ownership interest in Ohio Gathering (the "Non-affiliated Owners").
Summit Investments accounted for its initial ownership interests in Ohio Gathering under the cost method due to its ownership percentage and because it determined that it was not the primary beneficiary. Subsequent to the Option Exercise, Summit Investments accounted for its ownership interests in Ohio Gathering as equity method investments because it had joint control with the Non-affiliated Owners, which gave it significant influence. This shift from the cost method to the equity method required that Summit Investments retrospectively reflect its investment in Ohio Gathering and the associated results of operations as if it had been utilizing the equity method since the inception of its investment.
Summit Investments recognized the $190.0 million that it paid to Blackhawk as an investment in Ohio Gathering at inception. In addition, Ohio Gathering had assigned a value of $7.5 million to the Option, recognized it initially as an asset and concurrently attributed the value of the Option to Blackhawk's capital account. Upon acquiring Blackhawk's interest, the Option was reclassified from Blackhawk's capital account to Summit Investments' capital account in Ohio Gathering's records. Neither of these transactions involved a flow of funds to or from Ohio Gathering. As such, they created a basis difference between its recorded investment in equity method investees and that recognized and attributed to Summit Investments by Ohio Gathering. In accordance with the retrospective recognition triggered by the Option Exercise, in February 2014, Summit Investments began amortizing these basis differences over the weighted-average remaining life of the contracts underlying Ohio Gathering's operations. The impact of amortizing these two basis differences will result in a net decrease to its investment in equity method investees.
Subsequent to the Option Exercise, Summit Investments continued to make capital contributions to Ohio Gathering along with receiving distributions such that it maintained its 40.0% ownership interest through the 2016 Drop Down, at which point SMLP began making contributions and receiving distributions such that it maintained its 40.0% ownership interest through March 31, 2016.

17


A rollforward of the investment in equity method investees follows.
 
2016
 
2015
 
(In thousands)
Investment in equity method investees, January 1
$
751,168

 
$
706,172

Cash contributions
15,645

 
27,830

Cash distributions
(11,804
)
 
(6,849
)
Income (loss) from equity method investees
6,198

 
(430
)
Amortization of basis difference in equity method investees
(3,338
)
 
(3,338
)
Investment in equity method investees, March 31
757,869

 
723,385

March cash contributions
(4,291
)
 

March cash distributions
4,816

 
1,884

Basis difference
(153,551
)
 
(166,903
)
Investment in equity method investees, net of basis difference, February 29, 2016 and February 28, 2015
$
604,843

 
$
558,366

The following table presents summarized balance sheet information for Ohio Gathering.
 
February 29, 2016
 
February 28, 2015
 
(In thousands)
Total assets
$
1,513,668

 
$
1,427,142

Total liabilities
45,176

 
74,674

Members' equity
1,468,492

 
1,352,468

The following table presents summarized statements of operations information for Ohio Gathering for the three-month periods ended February 29, 2016 and February 28, 2015.
 
Three months ended
February 29, 2016
 
Three months ended
February 28, 2015
 
(In thousands)
Total revenues
$
42,997

 
$
23,680

Total operating expenses
27,092

 
24,757

Net income (loss)
15,725

 
(1,077
)

8. DEFERRED REVENUE
A rollforward of current deferred revenue follows.
 
Williston Basin
 
Barnett
Shale
 
Piceance/DJ
Basins
 
Total
current
 
(In thousands)
Current deferred revenue, January 1, 2016
$

 
$
677

 
$

 
$
677

Additions

 

 
2,722

 
2,722

Less revenue recognized

 

 
(2,722
)
 
(2,722
)
Current deferred revenue, March 31, 2016
$

 
$
677

 
$

 
$
677


18


A rollforward of noncurrent deferred revenue follows.
 
Williston Basin
 
Barnett
Shale
 
Piceance/DJ
Basins
 
Total noncurrent
 
(In thousands)
Noncurrent deferred revenue, January 1, 2016
$
29,002

 
$

 
$
16,484

 
$
45,486

Additions
235

 

 
1,238

 
1,473

Less revenue recognized

 

 

 

Noncurrent deferred revenue, March 31, 2016
$
29,237

 
$

 
$
17,722

 
$
46,959

As of March 31, 2016, accounts receivable included $1.6 million of shortfall billings related to MVC arrangements that can be utilized to offset gathering fees in subsequent periods.

9. DEBT
Debt consisted of the following:
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
Summit Holdings variable rate senior secured revolving credit facility (3.19% at March 31, 2016 and 2.93% at December 31, 2015) due November 2018
$
721,000

 
$
344,000

SMP Holdings variable rate senior secured revolving credit facility (2.43% at December 31, 2015) (1)

 
115,000

SMP Holdings variable rate senior secured term loan (2.43% at December 31, 2015) (1)

 
217,500

Summit Holdings 5.50% Senior unsecured notes due August 2022
300,000

 
300,000

less unamortized deferred loan costs (2)
(3,981
)
 
(4,139
)
Summit Holdings 7.50% Senior unsecured notes due July 2021
300,000

 
300,000

less unamortized deferred loan costs (2)
(4,861
)
 
(5,091
)
Total long-term debt
$
1,312,158

 
$
1,267,270

__________
(1) Debt was allocated to the 2016 Drop Down Assets prior to the closing of the 2016 Drop Down but was retained by Summit Investments after close.
(2) Issuance costs are being amortized over the life of the notes.
Revolving Credit Facility. We have a senior secured revolving credit facility which allows for revolving loans, letters of credit and swingline loans (the "revolving credit facility"). On February 25, 2016, we closed on an amendment to the revolving credit facility, which became effective concurrent with the Initial Close of the 2016 Drop Down. In connection with this amendment, (i) the revolving credit facility's borrowing capacity increased from $700.0 million to $1.25 billion, (ii) a new investment basket allowing the Co-Issuers (as defined below) to buy back up to $100.0 million of our outstanding senior unsecured notes was included (iii) the total leverage ratio was increased to 5.50 to 1.0 through December 31, 2016 and (iv) various amendments were approved to facilitate the 2016 Drop Down. The revolving credit facility matures in November 2018 and includes a $200.0 million accordion feature. It is secured by the membership interests of Summit Holdings and those of its subsidiaries. Substantially all of Summit Holdings' and its subsidiaries' assets are pledged as collateral under the revolving credit facility. The revolving credit facility, and Summit Holdings' obligations, are guaranteed by SMLP and each of its subsidiaries.
Borrowings under the revolving credit facility bear interest at the London Interbank Offered Rate ("LIBOR") or an Alternate Base Rate ("ABR") plus an applicable margin ranging from 0.75% to 1.75% for ABR borrowings and 1.75% to 2.75% for LIBOR borrowings, with the commitment fee ranging from 0.30% to 0.50% in each case based on our relative leverage at the time of determination. At March 31, 2016, the applicable margin under LIBOR borrowings was 2.75%, the interest rate was 3.19% and the unused portion of the revolving credit facility totaled $529.0 million (subject to a commitment fee of 0.50%).
The revolving credit agreement contains affirmative and negative covenants customary for credit facilities of its size and nature that, among other things, limit or restrict the ability to: (i) incur additional debt; (ii) make investments; (iii) engage in certain mergers, consolidations, acquisitions or sales of assets; (iv) enter into swap agreements and

19


power purchase agreements; (v) enter into leases that would cumulatively obligate payments in excess of $30.0 million over any 12-month period; and (vi) prohibits the payment of distributions by Summit Holdings if a default then exists or would result therefrom, and otherwise limits the amount of distributions Summit Holdings can make. In addition, the revolving credit facility requires Summit Holdings to maintain a ratio of consolidated trailing 12-month earnings before interest, income taxes, depreciation and amortization ("EBITDA," as defined in the credit agreement) to net interest expense of not less than 2.5 to 1.0 (as defined in the credit agreement) and a ratio of total net indebtedness to consolidated trailing 12-month EBITDA of not more than 5.0 to 1.0, or not more than 5.5 to 1.0 for up to 270 days following certain acquisitions. Additionally, the total leverage ratio upper limit can be increased from 5.0 to 1.0 to 5.5 to 1.0 at our option, subject to the inclusion of a senior secured leverage ratio (senior secured net indebtedness to consolidated trailing 12-month EBITDA, as defined in the credit agreement) upper limit of 3.75 to 1.0.
As of March 31, 2016, we were in compliance with the revolving credit facility's covenants. There were no defaults or events of default during the three months ended March 31, 2016.
Senior Notes. In July 2014, Summit Holdings and its 100% owned finance subsidiary, Summit Midstream Finance Corp. ("Finance Corp.," together with Summit Holdings, the "Co-Issuers"), co-issued $300.0 million of 5.50% senior unsecured notes maturing August 15, 2022 (the "5.5% senior notes"). In June 2013, the Co-Issuers co-issued $300.0 million of 7.50% senior unsecured notes maturing July 1, 2021 (the "7.5% senior notes").
SMLP and all of its subsidiaries other than the Co-Issuers (the "Guarantors") have fully and unconditionally and jointly and severally guaranteed the 5.5% senior notes and the 7.5% senior notes. SMLP has no independent assets or operations. Summit Holdings has no assets or operations other than its ownership of its wholly owned subsidiaries and activities associated with its borrowings under the revolving credit facility, the 5.5% senior notes and the 7.5% senior notes. Finance Corp. has no independent assets or operations and was formed for the sole purpose of being a co-issuer of certain of Summit Holdings' indebtedness, including the 5.5% senior notes and the 7.5% senior notes. There are no significant restrictions on the ability of SMLP or Summit Holdings to obtain funds from its subsidiaries by dividend or loan.
As of March 31, 2016, we were in compliance with the covenants of the 5.5% senior notes and the 7.5% senior notes. There were no defaults or events of default during the three months ended March 31, 2016.

10. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk. Financial instruments that potentially subject us to concentrations of credit risk consist of cash and accounts receivable. We maintain our cash in bank deposit accounts that frequently exceed federally insured limits. We have not experienced any losses in such accounts and do not believe we are exposed to any significant risk.
Accounts receivable primarily comprise amounts due for the gathering, treating and processing services we provide to our customers and also the sale of natural gas liquids ("NGLs") resulting from our processing services. This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of our counterparties and can require letters of credit for receivables from counterparties that are judged to have substandard credit, unless the credit risk can otherwise be mitigated. Our top five customers or counterparties accounted for 49% of total accounts receivable at March 31, 2016, compared with 68% as of December 31, 2015.
Fair Value. The carrying amount of cash and cash equivalents, accounts receivable and trade accounts payable reported on the balance sheet approximates fair value due to their short-term maturities.
The deferred purchase price obligation's carrying value is its fair value because carrying value represents the present value of the payment expected to be made in 2020 (see Note 16 for additional information). Our calculation of the present value of the expected cash payment for the 2016 Drop Down Assets involved significant assumptions and judgments. Differing assumptions regarding any of these inputs could have a material effect on the cash payment and its present value. As such, its fair value measurement is classified as a non-recurring Level 3 measurement in the fair value hierarchy because our assumptions and judgments are not observable from objective sources (see Note 16).

20


The roll-forward of the Level 3 liabilities measured at fair value on a recurring basis follows.
 
Three months ended
March 31, 2016
 
Three months ended
March 31, 2015
 
(In thousands)
Level 3 liabilities, beginning of period
$

 
$

Additions
507,427

 

Change in fair value
7,463

 

Level 3 liabilities, end of period
$
514,890

 
$


A summary of the estimated fair value of our debt financial instruments follows.
 
March 31, 2016
 
December 31, 2015
 
Carrying
value
 
Estimated
fair value (1)
 
Carrying
value
 
Estimated
fair value (1)
 
(In thousands)
Summit Holdings revolving credit facility
$
721,000

 
$
721,000

 
$
344,000

 
$
344,000

SMP Holdings revolving credit facility (2)

 

 
115,000

 
115,000

SMP Holdings term loan (2)

 

 
217,500

 
217,500

5.5% Senior notes ($300.0 million principal)
296,019

 
213,000

 
295,861

 
224,000

7.5% Senior notes ($300.0 million principal)
295,139

 
237,750

 
294,909

 
257,000

__________
(1) All estimated fair value calculations are Level 2.
(2) Debt was allocated to the 2016 Drop Down Assets prior to the closing of the 2016 Drop Down but was retained by Summit Investments after close.
The outstanding balance on the revolving credit facility is its fair value due to its floating interest rate. The fair value for the senior notes is based on an average of nonbinding broker quotes as of March 31, 2016 and December 31, 2015. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value of the senior notes.

11. PARTNERS' CAPITAL
A rollforward of the number of common limited partner, subordinated limited partner and general partner units follows.
 
Common
 
Subordinated
 
General partner
 
Total
Units, January 1, 2016
42,062,644

 
24,409,850

 
1,354,700

 
67,827,194

Net units issued under SMLP LTIP
114,741

 

 

 
114,741

Subordinated unit conversion
24,409,850

 
(24,409,850
)
 

 

Units, March 31, 2016
66,587,235

 

 
1,354,700

 
67,941,935

Subordination. Prior to the end of the subordination period, the principal difference between our common units and subordinated units was that holders of the subordinated units were not entitled to receive any distribution of available cash until the common units had received the minimum quarterly distribution ("MQD") plus any arrearages in the payment of the MQD from prior quarters. The subordination period ended in conjunction with the February 2016 distribution payment in respect of the fourth quarter of 2015 and the then-outstanding subordinated units converted to common units on a one-for-one basis.
Noncontrolling Interest. We have recorded Summit Investments' retained ownership interest in the 2016 Drop Down Assets as a noncontrolling interest in the consolidated financial statements.
Summit Investments' Equity in Contributed Subsidiaries. Summit Investments' equity in contributed subsidiaries represents its position in the net assets of the 2016 Drop Down Assets and Polar and Divide that have

21


been acquired by SMLP. The balance also reflects net income or loss attributable to Summit Investments for the 2016 Drop Down Assets and Polar and Divide for the periods beginning on the dates they were acquired or formed by Summit Investments and ending on the dates they were acquired by the Partnership. During the three months ended March 31, 2016 and 2015, net income or loss was attributed to Summit Investments for:
the 2016 Drop Down Assets for the period from January 1, 2015 to March 3, 2016 and
Polar and Divide for the period from January 1, 2015 to May 18, 2015.
Although included in partners' capital, any net income or loss attributable to Summit Investments is excluded from the calculation of EPU.
2016 Drop Down. On March 3, 2016, we acquired the 2016 Drop Down Assets from a subsidiary of Summit Investments. We paid cash consideration of $360.0 million and recognized a deferred purchase price obligation of $507.4 million in exchange for Summit Investments' $1.11 billion net investment in the 2016 Drop Down Assets (see Note 15). We recognized a capital contribution from Summit Investments for the difference between (i) the cash consideration paid and the deferred purchase price obligation and (ii) Summit Investments' net investment in the 2016 Drop Down Assets.
The calculation of the capital distribution and its allocation to partners' capital follows (in thousands).
Summit Investments' net investment in the 2016 Drop Down Assets
$
771,929

 
 
SMP Holdings borrowings allocated to 2016 Drop Down Assets and retained by Summit Investments
342,926

 
 
Acquired carrying value of 2016 Drop Down Assets
 
 
$
1,114,855

 
 
 
 
Deferred purchase price obligation
$
507,427

 
 
Borrowings under revolving credit facility
360,000

 
 
Total consideration paid and recognized by SMLP
 
 
867,427

Excess of acquired carrying value over consideration paid and recognized
 
 
$
247,428

 
 
 
 
Allocation of capital contribution:
 
 
 
General partner interest
$
4,942

 
 
Common limited partner interest
242,486

 
 
Partners' capital contribution – excess of acquired carrying value over consideration paid and recognized
 
 
$
247,428

Cash Distributions Paid and Declared. We paid the following per-unit distributions during the three months ended March 31:
 
Three months ended March 31,
 
2016
 
2015
Per-unit distributions to unitholders
$
0.575

 
$
0.560

On April 21, 2016, the board of directors of our general partner declared a distribution of $0.575 per unit for the quarterly period ended March 31, 2016. This distribution, which totaled $41.0 million, will be paid on May 13, 2016 to unitholders of record at the close of business on May 6, 2016. We allocated the May 2016 distribution using a 25% marginal percentage interest in accordance with the third target distribution level.
Incentive Distribution Rights. Our general partner also currently holds IDRs that entitle it to receive increasing percentage allocations, up to a maximum of 50.0%, of the cash we distribute from operating surplus in excess of $0.46 per unit per quarter. Our payment of IDRs as reported in distributions to unitholders – general partner in the statement of partners' capital during the three months ended March 31 follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
IDR payments
$
1,935

 
$
1,442


22


For the purposes of calculating net income or loss attributable to general partner, the financial impact of IDRs is recognized in respect of the quarter for which the distributions were declared. For the purposes of calculating distributions to unitholders in the statements of partners' capital and cash flows, IDR payments are recognized in the quarter in which they are paid.

12. EARNINGS PER UNIT
The following table details the components of EPU.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands, except per-unit amounts)
Numerator for basic and diluted EPU:
 
 
 
Allocation of net (loss) income among limited partner interests:
 
 
 
Net (loss) income attributable to common units
$
(8,264
)
 
$
69

Net income attributable to subordinated units (1)

 
30

Net (loss) income attributable to limited partners
$
(8,264
)
 
$
99

 
 
 
 
Denominator for basic and diluted EPU:
 
 
 
Weighted-average common units outstanding – basic
66,493

 
34,439

Effect of nonvested phantom units

 
146

Weighted-average common units outstanding – diluted
66,493

 
34,585

 
 
 
 
Weighted-average subordinated units outstanding – basic and diluted (1)
 
 
24,410

 
 
 
 
(Loss) earnings per limited partner unit:
 
 
 
Common unit – basic
$
(0.12
)
 
$
0.00

Common unit – diluted
$
(0.12
)
 
$
0.00

Subordinated unit – basic and diluted (1)

 
$
0.00

__________
(1) The subordinated units converted to common units on a one-for-one basis in February 2016 (see Note 11).
During the three months ended March 31, 2016 and 2015, we excluded 496,959 and 8,524 nonvested phantom units, respectively, in our calculation of diluted EPU because they were anti-dilutive.

13. UNIT-BASED AND NONCASH COMPENSATION
SMLP Long-Term Incentive Plan. The SMLP Long-Term Incentive Plan (the "SMLP LTIP") provides for equity awards to eligible officers, employees, consultants and directors of our general partner and its affiliates. Items to note:
In March 2016, we granted 488,482 phantom units to employees in connection with our annual incentive compensation award cycle. These awards had a grant date fair value of $14.82 and vest ratably over a three-year period.
Also in March 2016, 120,920 phantom units vested.
As of March 31, 2016, approximately 3.9 million common units remained available for future issuance.
SMP Net Profits Interests. In connection with the formation of Summit Investments, up to 7.5% of total membership interests were authorized for issuance (the "SMP Net Profits Interests"). These membership interests were not contributed to SMLP in connection with its IPO. The expense associated with the SMP Net Profits Interests was allocated to Summit Investments' subsidiaries other than SMLP and its subsidiaries after the IPO. In connection with our acquisitions of the 2016 Drop Down Assets and Polar and Divide, we recognized the SMP Net

23


Profits Interests' noncash compensation expense that had been allocated to the contributed subsidiaries prior to their respective drop down date due to common control.
Noncash compensation recognized in general and administrative expense related to the SMP Net Profits Interests was as follows:
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
SMP Net Profits Interests noncash compensation
$
195

 
$
251


14. RELATED-PARTY TRANSACTIONS
Acquisitions. See Notes 1, 9, 11 and 16 for disclosure of the 2016 Drop Down and its funding.
Reimbursement of Expenses from General Partner. Our general partner and its affiliates do not receive a management fee or other compensation in connection with the management of our business, but will be reimbursed for expenses incurred on our behalf. Under our partnership agreement, we reimburse our general partner and its affiliates for certain expenses incurred on our behalf, including, without limitation, salary, bonus, incentive compensation and other amounts paid to our general partner's employees and executive officers who perform services necessary to run our business. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. Due to affiliate on the consolidated balance sheet represents the payables to our general partner for expenses incurred by it and paid on our behalf.
Expenses incurred by the general partner and reimbursed by us under our partnership agreement were as follows:
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Operation and maintenance expense
$
6,749

 
$
6,474

General and administrative expense
7,778

 
7,135

Expenses Incurred by Summit Investments. Prior to the 2016 Drop Down and the Polar and Divide Drop Down, Summit Investments incurred:
certain support expenses and capital expenditures on behalf of the contributed subsidiaries. These transactions were settled periodically through membership interests prior to the respective drop down;
interest expense that was related to capital projects for the contributed subsidiaries. As such, the associated interest expense was allocated to the respective contributed subsidiary's capital projects as a noncash contribution and capitalized into the basis of the asset; and
noncash compensation expense for the SMP Net Profits Interests, which were accounted for as compensatory awards. As such, the annual expense associated with the SMP Net Profits was allocated to the respective contributed subsidiary.
Subsequent to any drop down, these expenses are retrospectively included in the reimbursement of General Partner expenses disclosed above due to common control.

15. COMMITMENTS AND CONTINGENCIES
Operating Leases. We and Summit Investments lease certain office space to support our operations. We have determined that our leases are operating leases. We recognize total rent expense incurred or allocated to us in general and administrative expenses. Rent expense related to operating leases, including rent expense incurred on our behalf and allocated to us, was as follows:
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
Rent expense
$
616

 
$
506


24


Legal Proceedings. The Partnership is involved in various litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims or those arising in the normal course of business would not individually or in the aggregate have a material adverse effect on the Partnership's financial position or results of operations.
Environmental Matters. Although we believe that we are in material compliance with applicable environmental regulations, the risk of environmental remediation costs and liabilities are inherent in pipeline ownership and operation. Furthermore, we can provide no assurances that significant environmental remediation costs and liabilities will not be incurred by the Partnership in the future. We are currently not aware of any material contingent liabilities that exist with respect to environmental matters, except as noted below.
In January 2015, Summit Investments learned of the rupture of a four-inch produced water gathering pipeline on the Meadowlark Midstream gathering system near Williston, North Dakota. The rupture resulted in the release of some of the produced water in the pipeline. Based on Summit Investments' investigation and currently available information, it is at least reasonably possible that the rupture occurred on or prior to December 31, 2014. As such, Summit Investments accounted for the rupture as a 2014 event.
Summit Investments took action to minimize the impact of the rupture on affected landowners, control any environmental impact, help ensure containment and clean up the affected area. The incident, which is covered by Summit Investments' insurance policies, is subject to maximum coverage of $25.0 million from its pollution liability insurance policy and $200.0 million from its property and business interruption insurance policy. Summit Investments exhausted the $25.0 million pollution liability policy in 2015. Property and business interruption claim requests have been submitted, although no amounts have been recognized for any potential recoveries, under the property and business interruption insurance policy.
 
Total
 
(In thousands)
Accrued environmental remediation, January 1, 2015
$
30,000

Payments made by affiliates
(13,136
)
Payments made with proceeds from insurance policies
(25,000
)
Additional accruals
21,800

Accrued environmental remediation, December 31, 2015
$
13,664

Payments made by affiliates
(1,213
)
Accrued environmental remediation, March 31, 2016
$
12,451

As of March 31, 2016, we have recognized (i) a current liability for remediation effort expenditures expected to be incurred within the next 12 months and (ii) a noncurrent liability for estimated remediation expenditures and fines expected to be incurred subsequent to March 31, 2017. Each of these amounts represent our best estimate for costs expected to be incurred. Neither of these amounts has been discounted to its present value.
In 2015, the U.S. Department of Justice issued subpoenas to Summit Investments, the Partnership and our general partner requesting certain materials related to the rupture. We cannot predict the ultimate outcome of this matter with certainty for Summit Investments or Meadowlark Midstream, especially as it relates to any material liability as a result of any governmental proceeding related to the incident. SMLP and its general partner did not have any management or operational control over, or ownership interest in, Meadowlark Midstream or the produced water disposal pipeline prior to the 2016 Drop Down. Furthermore, the Contribution Agreement executed in connection with the 2016 Drop Down contains customary representations and warranties and Summit Investments has agreed to indemnify the Partnership with respect to certain losses, including losses related to the rupture. As a result, we believe at this time that it is unlikely that SMLP or its general partner will be subject to any material liability as a result of any governmental proceeding related to the rupture.
On June 19, 2015, Summit Investments and Meadowlark Midstream received a complaint from the North Dakota Industrial Commission seeking approximately $2.5 million in fines and other fees related to the rupture. Meadowlark Midstream has accrued its best estimate of the amount to be paid for such fines and other fees and intends to vigorously defend this complaint.


25


16. ACQUISITIONS AND DROP DOWN TRANSACTIONS
2016 Drop Down. On March 3, 2016, the Partnership acquired the 2016 Drop Down Assets. These assets include certain natural gas, crude oil and produced water gathering systems located in the Utica Shale, the Williston Basin and the DJ Basin as well as ownership interests in a natural gas gathering system and a condensate stabilization facility, both located in the Utica Shale.
The consideration for the 2016 Drop Down Assets (i) consisted of a cash payment to SMP Holdings of $360.0 million (the “Initial Payment”), funded with borrowings under our revolving credit facility and (ii) includes a deferred payment in 2020 (the “Deferred Purchase Price Obligation”).  The Deferred Purchase Price Obligation will be equal to:
six-and-one-half (6.5) multiplied by the average Business Adjusted EBITDA, as defined below and in the Contribution Agreement, of the 2016 Drop Down Assets for 2018 and 2019, less the G&A Adjuster, as defined in the Contribution Agreement;
less the Initial Payment;
less all capital expenditures incurred for the 2016 Drop Down Assets between the Initial Close and December 31, 2019;
plus all Business Adjusted EBITDA from the 2016 Drop Down Assets between Initial Close and December 31, 2019, less the the Cumulative G&A Adjuster, as defined in the Contribution Agreement. 
Business Adjusted EBITDA is defined as the net income or loss of the 2016 Drop Down Assets for such period:
plus interest expense, income tax expense, and depreciation and amortization of the 2016 Drop Down Assets for such period;
plus any adjustments related to MVC shortfall payments, impairments and other noncash expenses or losses with respect to the 2016 Drop Down Assets for such period;
plus any Special Liability Expenses, as defined below and in the Contribution Agreement, for such period;
less interest income and income tax benefit of the 2016 Drop Down Assets for such period;
less adjustments related to any other noncash income or gains with respect to the 2016 Drop Down Assets for such period.
Business Adjusted EBITDA shall exclude the effect of any Partnership expenses allocated by or to SMLP or its affiliates in respect of the 2016 Drop Down Assets, such as general and administrative expenses (including compensation-related expenses and professional services fees), transaction costs, and allocated interest expense and allocated income tax expense.
Special Liability Expenses are defined as any and all expenses incurred by SMLP with respect to the Special Liabilities, as defined in the Contribution Agreement, including fines, legal fees, consulting fees and remediation costs.
The present value of the Deferred Purchase Price Obligation will be reflected as a liability on our balance sheet until paid.  As of the acquisition date, the estimated future payment obligation (based on management’s estimate of the Partnership’s share of forecasted Business Adjusted EBITDA and capital expenditures for the 2016 Drop Down Assets) was $860.3 million, which had a net present value of $507.4 million, using a discount rate of 13%. As of March 31, 2016, the net present value of this obligation was $514.9 million and has been recorded on the consolidated balance sheet. Deferred purchase price obligation expense for the three months ended March 31, 2016 was $7.5 million. Any subsequent changes to the estimated future payment obligation will be calculated using a discounted cash flow model with a commensurate risk-adjusted discount rate. Such changes and the impact on the liability due to the passage of time will be recorded as deferred purchase price obligation income or expense on the consolidated statements of operations in the period of the change.
At the discretion of the board of directors of our general partner, the Deferred Purchase Price Obligation can be paid in cash, SMLP common units or a combination thereof.  We currently expect that the Deferred Purchase Price Obligation will be financed with a combination of (i) net proceeds from the sale of common units by us, (ii) the net proceeds from the issuance of senior unsecured debt by us, (iii) borrowings under our revolving credit facility and/or (iv) other internally generated sources of cash.
Because of the common control aspects in a drop down transaction, the 2016 Drop Down was deemed a transaction between entities under common control and, as such, has been accounted for on an “as-if pooled” basis

26


for all periods in which common control existed. Subsequent to Initial Close, SMLP’s financial results will retrospectively include the combined financial results of the 2016 Drop Down Assets for all common-control periods.
Summit Utica. Summit Investments completed the acquisition of certain natural gas gathering assets located in the Utica Shale Play for $25.2 million on December 15, 2014. These assets, which were contributed to Summit Investments' then-newly formed subsidiary, Summit Utica, gather natural gas under a long-term, fee-based contract. Summit Investments accounted for the purchase under the acquisition method of accounting. As of December 31, 2014, we assigned the full purchase price to property, plant and equipment.
Ohio Gathering. For information on the acquisition and initial recognition of Ohio Gathering, see Note 7.
Meadowlark Midstream. At the time of the 2016 Drop Down, Meadowlark Midstream owned Niobrara G&P and certain crude oil and produced water gathering pipelines located in Williams County, North Dakota. Summit Investments accounted for its purchase of Meadowlark Midstream under the acquisition method of accounting, whereby the various gathering systems' identifiable tangible and intangible assets acquired and liabilities assumed were recorded based on their fair values as of initial acquisition on February 15, 2013. Both Bison Midstream and Polar Midstream have previously been carved out of Meadowlark Midstream. Their fair values were determined based upon assumptions related to future cash flows, discount rates, asset lives, and projected capital expenditures to complete the system. We recognized the 2016 acquisition of Meadowlark Midstream at Summit Investments' historical cost of construction and fair value of assets and liabilities at acquisition, which reflected its fair value accounting for the initial acquisition of Meadowlark Midstream in 2013, due to common control.
The fair values of the assets acquired and liabilities assumed as of February 15, 2013, were as follows (in thousands):
Purchase price assigned to Meadowlark Midstream
 
 
$
25,376

Current assets
$
2,227

 
 
Property, plant, and equipment
18,795

 
 
Other noncurrent assets
4,354

 
 
Total assets acquired
25,376

 
 
Total liabilities assumed
$

 


Net identifiable assets acquired
 
 
$
25,376

From a financial position and operational standpoint, the crude oil and produced water gathering pipelines held by Meadowlark Midstream and acquired in connection with the 2016 Drop Down are recognized as part of the Polar and Divide gathering system.
Supplemental Disclosures – As-If Pooled Basis. As a result of accounting for our drop down transactions similar to a pooling of interests, our historical financial statements and those of the 2016 Drop Down Assets and Polar and Divide have been combined to reflect the historical operations, financial position and cash flows from the date common control began. Revenues and net income or loss for the previously separate entities and the combined amounts, as presented in these unaudited condensed consolidated financial statements follow.
 
Three months ended March 31,
 
2016
 
2015
 
(In thousands)
SMLP revenues
$
81,704

 
$
72,635

2016 Drop Down Assets revenues
8,867

 
4,870

Polar and Divide revenues (1)
 
 
8,582

Combined revenues
$
90,571

 
$
86,087

 
 
 
 
SMLP net (loss) income
$
(6,410
)
 
$
1,667

2016 Drop Down Assets net income (loss)
2,745

 
(7,498
)
Polar and Divide net income (1)
 
 
3,346

Combined net loss
$
(3,665
)
 
$
(2,485
)
__________
(1) Results are fully reflected in SMLP's results of operations subsequent to closing the respective drop down.

27



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to inform the reader about matters affecting the financial condition and results of operations of SMLP and its subsidiaries for the period since December 31, 2015. As a result, the following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report and the MD&A and the audited consolidated financial statements and related notes that are included in the 2015 Annual Report. Among other things, those financial statements and the related notes include more detailed information regarding the basis of presentation for the following information. This discussion contains forward-looking statements that constitute our plans, estimates and beliefs. These forward-looking statements involve numerous risks and uncertainties, including, but not limited to, those discussed in the Forward-Looking Statements section below. Actual results may differ materially from those contained in any forward-looking statements.
This MD&A comprises the following sections:

Overview
We are a growth-oriented limited partnership focused on developing, owning and operating midstream energy infrastructure assets that are strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in the continental United States. Our gathering systems and the unconventional resource basins in which they operate are as follows:
Summit Utica, a natural gas gathering system operating in the Appalachian Basin, which includes the Utica and Point Pleasant shale formations in southeastern Ohio;
Bison Midstream, an associated natural gas gathering system, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Polar and Divide, crude oil and produced water gathering systems and transmission pipelines located in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Tioga Midstream, crude oil, produced water and associated natural gas gathering systems, operating in the Williston Basin, which includes the Bakken and Three Forks shale formations in northwestern North Dakota;
Grand River, a natural gas gathering and processing system located in the Piceance Basin, which includes the Mesaverde formation and the Mancos and Niobrara shale formations in western Colorado and eastern Utah;
Niobrara G&P, an associated natural gas gathering and processing system operating in the DJ Basin, which includes the Niobrara and Codell shale formations in northeastern Colorado;
DFW Midstream, a natural gas gathering system, operating in the Fort Worth Basin, which includes the Barnett Shale formation in north-central Texas; and
Mountaineer Midstream, a natural gas gathering system, operating in the Appalachian Basin, which includes the Marcellus Shale formation in northern West Virginia.

28


Ohio Gathering operates a natural gas gathering system and a condensate stabilization facility in the Appalachian Basin, which includes the Utica and Point Pleasant formations in southeastern Ohio.
Our results are driven primarily by the volumes that we gather, treat and/or process. We generate the majority of our revenue from the natural gas gathering, treating and processing services that we provide to our natural gas customers. Under the substantial majority of these agreements, we are paid a fixed fee based on the volumes we gather, treat and/or process. These agreements enhance the stability of our cash flows by providing a revenue stream that is not subject to direct commodity price risk.
We also earn revenue from (i) crude oil and produced water gathering, (ii) the sale of physical natural gas and NGLs purchased under percentage-of-proceeds arrangements with certain of our customers on the Bison Midstream and Grand River gathering systems, (ii) the sale of natural gas we retain from our DFW Midstream customers and (iii) the sale of condensate we retain from our gathering services at Grand River. We can be exposed to commodity price risk from engaging in any of these additional activities with the exception of crude oil and produced water gathering. We also have indirect exposure to changes in commodity prices in that persistently low commodity prices may cause our customers to delay and/or cancel drilling and/or completion activities or temporarily shut-in production, which would reduce the volumes of natural gas and crude oil (and associated volumes of produced water) that we gather. If our customers cancel or delay drilling and/or completion activities or temporarily shut-in production, our MVCs ensure that we will receive a minimum amount of revenue from certain of our customers.
The following table presents certain consolidated financial data.
 
Three months ended
March 31,
 
2016
 
2015
 
(In thousands)
Selected Financial Results:
 
 
 
Net loss
$
(3,665
)
 
$
(2,485
)
EBITDA (1)
47,446

 
38,629

Adjusted EBITDA (1)
70,009

 
61,556

Distributable cash flow (1)
51,538

 
42,758

 
 
 
 
Acquisitions of gathering systems (2)
$
867,427

 
$
2,941

Capital expenditures (3)
61,326

 
49,470

Contributions to equity method investees
15,645

 
27,830

 
 
 
 
Borrowings under revolving credit facility, net
389,000

 
63,000

Distributions to unitholders
40,975

 
35,093

_________
(1) See "Non-GAAP Financial Measures" herein for additional information on EBITDA, adjusted EBITDA and distributable cash flow as well as their reconciliations to the most directly comparable GAAP financial measure.
(2) Reflects consideration paid and recognized, including working capital and capital expenditure adjustments paid (received), for acquisitions and/or drop downs. For additional information, see Notes 11 and 16 to the unaudited condensed consolidated financial statements.
(3) See "Liquidity and Capital Resources" herein for additional information on capital expenditures.
Three months ended March 31, 2016. In the first quarter of 2016, we acquired the 2016 Drop Down Assets from a subsidiary of Summit Investments. We funded the drop down with borrowings under our revolving credit facility and the execution of a deferred purchase price obligation with Summit Investments.
The per-unit distribution declared in respect of the first quarter of 2016 increased 1.8% over the per-unit distribution declared in respect of the first quarter of 2015.

Trends and Outlook
Our business has been, and we expect our future business to continue to be, affected by the following key trends:
Natural gas, NGL and crude oil supply and demand dynamics;

29


Growth in production from U.S. shale plays;
Capital markets activity and cost of capital;
Acquisitions from third parties; and
Shifts in operating costs and inflation.
Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results. For additional information, see the "Trends and Outlook" section of MD&A included in the 2015 Annual Report.

How We Evaluate Our Operations
We conduct and report our operations in the midstream energy industry through five reportable segments:
the Utica Shale, which includes our ownership interest in Ohio Gathering and is served by Summit Utica;
the Williston Basin, which is served by Bison Midstream, Polar and Divide and Tioga;
the Piceance/DJ Basins, which is served by Grand River and Niobrara G&P;
the Barnett Shale, which is served by DFW Midstream; and
the Marcellus Shale, which is served by Mountaineer Midstream.
Each of our reportable segments provides midstream services in a specific geographic area. Our reportable segments reflect the way in which we internally report the financial information used to make decisions and allocate resources in connection with our operations. See Note 3 to the unaudited condensed consolidated financial statements for additional information.
Our management uses a variety of financial and operational metrics to analyze our consolidated and segment performance. We view these metrics as important factors in evaluating our profitability and determining the amounts of cash distributions to pay to our unitholders. These metrics include:
throughput volume,
revenues,
operation and maintenance expenses,
EBITDA,
adjusted EBITDA and segment adjusted EBITDA, and
distributable cash flow.
We review these metrics on a regular basis for consistency and trend analysis. There have been no changes in the composition or characteristics of these metrics during the three months ended March 31, 2016, except as noted below.
EBITDA, Adjusted EBITDA, Segment Adjusted EBITDA and Distributable Cash Flow
EBITDA, adjusted EBITDA, segment adjusted EBITDA and distributable cash flow are used as supplemental financial measures by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others.
EBITDA and adjusted EBITDA (including segment adjusted EBITDA) are used to assess:
the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
the ability of our assets to generate cash sufficient to support our indebtedness and make cash distributions to our unitholders and general partner;
our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and

30


the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.
In addition, adjusted EBITDA (including segment adjusted EBITDA) is used to assess:
the financial performance of our assets without regard to (i) income or loss from equity method investees, (ii) the impact of the timing of minimum volume commitments shortfall payments under our gathering agreements or (iii) the timing of impairments or other noncash income or expense items.
Distributable cash flow is used to assess:
the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and
the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.
Additional Information. For additional information on how these metrics help us manage our business, see the "How We Evaluate Our Operations" section of MD&A included in the 2015 Annual Report. For information on impending accounting changes that are expected to materially impact our financial results reported in future periods, see Note 2 to the unaudited condensed consolidated financial statements.


31


Results of Operations
Consolidated Overview of the Three Months Ended March 31, 2016 and 2015
The following table presents certain consolidated and operating data.
 
Three months ended
March 31,
 
2016
 
2015
 
 
 
 
 
(In thousands)
Revenues:
 
 
 
Gathering services and related fees
$
78,100

 
$
68,440

Natural gas, NGLs and condensate sales
7,588

 
12,613

Other revenues
4,883

 
5,034

Total revenues
90,571

 
86,087

Costs and expenses:
 
 
 
Cost of natural gas and NGLs
6,290

 
9,441

Operation and maintenance
25,842

 
22,791

General and administrative
12,879

 
11,599

Transaction costs
1,174

 
110

Depreciation and amortization
27,728

 
25,530

Gain on asset sales
(63
)
 

Total costs and expenses
73,850

 
69,471

Other income
22

 
1

Interest expense
(15,882
)
 
(14,904
)
Deferred purchase price obligation expense
(7,463
)
 

(Loss) income before income taxes
(6,602
)
 
1,713

Income tax benefit (expense)
77

 
(430
)
Income (loss) from equity method investees
2,860

 
(3,768
)
Net loss
$
(3,665
)
 
$
(2,485
)
 
 
 
 
Operating Data:
 
 
 
Aggregate average throughput – gas (MMcf/d)
1,523

 
1,605

Aggregate average throughput rate per Mcf – gas
$
0.44

 
$
0.42

Average throughput – liquids (Mbbl/d)
95.0

 
53.4

Average throughput rate per Bbl – liquids
$
1.95

 
$
1.74

Volumes – Gas. Aggregate natural gas throughput volumes decreased in 2016 primarily reflecting declines in volume throughput for Mountaineer Midstream, DFW Midstream and Grand River partially offset by an increase in volume throughput on Summit Utica.
Volumes – Liquids. Average daily throughput for crude oil and produced water increased in 2016 primarily reflecting new pad site connections and producers' drilling activity on the Polar and Divide system. The impact of a rupture and early-January 2015 shut in of certain produced water and crude oil gathering pipelines constrained first quarter 2015 volume throughput (see Note 15 to the unaudited condensed consolidated financial statements).
Revenues. Total revenues increased $4.5 million in 2016 primarily reflecting:
an increase in gathering services and related fees for the Polar and Divide and Summit Utica systems, partially offset by declines on DFW Midstream, Grand River and Mountaineer Midstream.
an offset to revenues as a result of declines in natural gas, NGLs and condensate sales for Bison Midstream, Grand River and DFW Midstream.

32


Gathering Services and Related Fees. The increase in gathering services and related fees during 2016 was primarily driven by higher volume throughput on the Polar and Divide system and the development of the Summit Utica system.
The aggregate average throughput rate for natural gas increased to $0.44/Mcf during 2016, compared with $0.42/Mcf during 2015, largely due to a shift in volume mix. The aggregate average throughput rate for crude oil and produced water increased to $1.95/Bbl during 2016, compared with $1.74/Bbl in the prior-year period primarily as a result of the effect of contract amendments in 2014 which increased gathering rates in connection with our commitment to further expand the Polar and Divide system.
Natural Gas, NGLs and Condensate Sales. The decrease in natural gas, NGLs and condensate sales for 2016 was primarily a result of the impact of declining commodity prices. Declining commodity prices negatively impacted our percent-of-proceeds arrangements at Bison Midstream and Grand River, our fuel retainage revenue at DFW Midstream and condensate revenue for Grand River.
Costs and Expenses. Total costs and expenses increased $4.4 million, or 6%, in 2016 primarily reflecting:
the impact of lower commodity prices on cost of natural gas and NGLs at Bison Midstream and Grand River.
an increase in depreciation and amortization expense for all systems, except DFW Midstream.
an increase in operation and maintenance, primarily as a result of repairs to rights-of-way at Mountaineer Midstream.