Noble Midstream Partners LP - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Noble Midstream Partners LP	nblx-20170331x10qxex322.htm
EX-32.1 - EXHIBIT 32.1 - Noble Midstream Partners LP	nblx-20170331x10qxex321.htm
EX-31.2 - EXHIBIT 31.2 - Noble Midstream Partners LP	nblx-20170331x10qxex312.htm
EX-31.1 - EXHIBIT 31.1 - Noble Midstream Partners LP	nblx-20170331x10qxex311.htm
EX-10.4 - EXHIBIT 10.4 - Noble Midstream Partners LP	nblx-20170331x10qxex104.htm
EX-10.3 - EXHIBIT 10.3 - Noble Midstream Partners LP	nblx-20170331x10qxex103.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission file number: 001-37640

NOBLE MIDSTREAM PARTNERS LP

(Exact name of registrant as specified in its charter)



Delaware		47-3011449
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)
1001 Noble Energy Way
Houston, Texas		77070
(Address of principal executive offices)		(Zip Code)
(281) 872-3100 (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.

Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller

reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company ” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company ý
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

As of March 31, 2017, the registrant had 15,902,584 common units and 15,902,584 subordinated units outstanding.

Table of Contents



Part I. Financial Information	3

Item 1. Financial Statements	3

Consolidated Statements of Operations and Comprehensive Income	3

Consolidated Balance Sheets	4

Consolidated Statements of Cash Flows	5

Consolidated Statements of Changes in Equity	6

Notes to Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3. Quantitative and Qualitative Disclosures About Market Risk	25

Item 4. Controls and Procedures	26

Part II. Other Information	27

Item 1. Legal Proceedings	27

Item 1A. Risk Factors	27

Item 5. Other Information	27

Item 6. Exhibits	27

Signatures	28

Index to Exhibits	29

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

Noble Midstream Partners LP

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per unit amounts, unaudited)



	Three Months Ended March 31,
	2017			2016
Revenues
Midstream Services — Affiliate	$	50,314		$	32,123
Costs and Expenses
Direct Operating	11,401			5,888
Depreciation and Amortization	2,449			2,144
General and Administrative	2,742			2,654
Total Operating Expenses	16,592			10,686
Operating Income	33,722			21,437
Other (Income) Expense
Interest Expense, Net of Amount Capitalized	267			910
Investment Income	(1,065		)	(1,293		)
Total Other (Income) Expense	(798		)	(383		)
Income Before Income Taxes	34,520			21,820
Income Tax Provision	—			8,310
Net Income and Comprehensive Income	34,520			$	13,510
Less: Net Income Attributable to Noncontrolling Interests	10,178
Net Income Attributable to Noble Midstream Partners LP	$	24,342

Net Income Attributable to Noble Midstream Partners LP Per Limited Partner Unit — Basic and Diluted
Common Units	$	0.77
Subordinated Units	$	0.77

Weighted Average Limited Partner Units Outstanding — Basic
Common Units — Public	14,375
Common Units — Noble	1,528
Subordinated Units — Noble	15,903

Weighted Average Limited Partner Units Outstanding — Diluted
Common Units — Public	14,381
Common Units — Noble	1,528
Subordinated Units — Noble	15,903

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

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Noble Midstream Partners LP

Consolidated Balance Sheets

(in thousands, unaudited)



	March 31, 2017			December 31, 2016
ASSETS
Current Assets
Cash and Cash Equivalents	$	38,859		$	57,421
Accounts Receivable — Affiliate	21,209			19,191
Other Current Assets	263			380
Total Current Assets	60,331			76,992
Property, Plant and Equipment
Total Property, Plant and Equipment, Gross	386,756			311,045
Less: Accumulated Depreciation and Amortization	(34,018		)	(31,642		)
Total Property, Plant and Equipment, Net	352,738			279,403
Investments	12,392			11,151
Deferred Charges	1,717			1,813
Total Assets	$	427,178		$	369,359
LIABILITIES
Current Liabilities
Accounts Payable — Affiliate	$	740		$	1,452
Accounts Payable — Trade	55,548			12,501
Current Portion of Capital Lease	4,060			4,786
Other Current Liabilities	2,399			1,617
Total Current Liabilities	62,747			20,356
Asset Retirement Obligations	5,486			5,415
Other Long-Term Liabilities	659			683
Total Liabilities	68,892			26,454
EQUITY
Partners' Equity
Limited Partner
Common Units — Public (14,375 units outstanding as of March 31, 2017 and December 31, 2016)	316,772			311,872
Common Units — Noble (1,528 units outstanding as of March 31, 2017 and December 31, 2016)	(3,027		)	(3,534		)
Subordinated Units — Noble (15,903 units outstanding as of March 31, 2017 and December 31, 2016)	(31,519		)	(36,799		)
Noncontrolling Interests	76,060			71,366
Total Equity	358,286			342,905
Total Liabilities and Equity	$	427,178		$	369,359

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

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Noble Midstream Partners LP

Consolidated Statements of Cash Flows

(in thousands, unaudited)



	Three Months Ended March 31,
	2017			2016
Cash Flows From Operating Activities
Net Income and Comprehensive Income	$	34,520		$	13,510
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation and Amortization	2,449			2,144
Deferred Income Taxes	—			3,993
Other Adjustments for Noncash Items Included in Income	222			75
Changes in Operating Assets and Liabilities
Increase in Accounts Receivable — Affiliate	(3,322		)	(9,803		)
Increase in Current Income Taxes Payable	—			4,153
(Decrease) Increase in Accounts Payable	(2,518		)	464
Other Operating Assets and Liabilities, Net	874			63
Net Cash Provided by Operating Activities	32,225			14,599
Cash Flows From Investing Activities
Additions to Property, Plant and Equipment	(32,298		)	(11,906		)
Additions to Investments	(414		)	(35		)
Distributions from Investments	123			280
Net Cash Used in Investing Activities	(32,589		)	(11,661		)
Cash Flows From Financing Activities
Distributions to Parent	—			(21,480		)
Contributions from Parent	—			223
Distributions to Noncontrolling Interests	(11,267		)	—
Cash Contributions from Noncontrolling Interests	7,087			—
Distributions to Unitholders	(13,782		)	—
Repayment of Capital Lease Obligation	(236		)	—
Net Cash Used in Financing Activities	(18,198		)	(21,257		)
Decrease in Cash and Cash Equivalents	(18,562		)	(18,319		)
Cash and Cash Equivalents at Beginning of Period	57,421			26,612
Cash and Cash Equivalents at End of Period	$	38,859		$	8,293

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

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Noble Midstream Partners LP

Consolidated Statements of Changes in Equity

(in thousands, unaudited)



	Predecessor			Partnership
	Parent Net Investment			Common Units — Public			Common Units — Noble			Subordinated Units — Noble			Noncontrolling Interests			Total
December 31, 2015	$	263,539		$	—		$	—		$	—		$	—		$	263,539
Net Income	13,510			—			—			—			—			13,510
Contributions from Parent	297			—			—			—			—			297
Distributions to Parent	(21,480		)	—			—			—			—			(21,480		)
March 31, 2016	$	255,866		$	—		$	—		$	—		$	—		$	255,866

December 31, 2016	$	—		$	311,872		$	(3,534	)	$	(36,799	)	$	71,366		$	342,905
Net Income	—			11,002			1,169			12,171			10,178			34,520
Contributions from Noncontrolling Interests	—			—			—			—			5,783			5,783
Distributions to Noncontrolling Interests	—			—			—			—			(11,267		)	(11,267		)
Distributions to Unitholders	—			(6,229		)	(662		)	(6,891		)	—			(13,782		)
Unit Based Compensation	—			127			—			—			—			127
March 31, 2017	$	—		$	316,772		$	(3,027	)	$	(31,519	)	$	76,060		$	358,286

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

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Note 1. Organization and Nature of Operations

Organization Noble Midstream Partners LP (the Partnership, we, or us) is a growth-oriented Delaware master limited partnership formed in December 2014 by our sponsor, Noble Energy, Inc. (Noble or Parent), to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Our current focus areas are the Denver-Julesburg (DJ) Basin in Colorado and the Southern Delaware Basin position of the Permian Basin (Delaware Basin) in Texas, where additional midstream assets are currently under construction.

On September 20, 2016, we completed our initial public offering (the Offering) of 14,375,000 common units representing limited partner interests in the Partnership (common units), which included 1,875,000 common units issued pursuant to the underwriters’ exercise of their option to purchase additional common units, at a price to the public of $22.50 per common unit ($21.20625 per common unit, net of underwriting discounts).

In connection with the Offering, Noble contributed ownership interests in certain development companies (DevCos) and a 3.33% ownership interest in White Cliffs Pipeline L.L.C. to us (the White Cliffs Interest). The ownership interests in the DevCos, together with the White Cliffs Interest, are referred to collectively as the Contributed Businesses.

Nature of Operations Through our ownership interests in the DevCos, we operate and own interests in the following assets, some of which are currently under construction:


•	crude oil and natural gas gathering systems;


•	crude oil treating facilities;


•	produced water collection, gathering, and cleaning systems; and


•	fresh water storage and delivery systems.

We generate revenues primarily by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. We have entered into multiple fee-based commercial agreements with Noble to provide these services, which are critical to Noble’s upstream operations. Our agreements include substantial acreage dedications.

Predecessor This quarterly report on Form 10-Q includes the assets, liabilities and results of operations of the Contributed Businesses on a carve-out basis, our Predecessor for accounting purposes, for periods prior to September 20, 2016, the date on which we completed the Offering.

References in this report to “Predecessor,” “we,” “our,” “us” or like terms, when referring to periods prior to September 20, 2016, refer to Noble’s Contributed Businesses, our Predecessor for accounting purposes. References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to periods after September 20, 2016, refer to the Partnership.

Note 2. Basis of Presentation

Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying consolidated financial statements at March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and partners' equity for such periods. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. Certain prior-period amounts have been reclassified to conform to the current-period presentation.

The accompanying consolidated financial statements for periods prior to September 20, 2016 represent the Contributed Businesses of certain of Noble's midstream assets as the accounting Predecessor to the Partnership, presented on a carve-out basis of Noble’s historical ownership of the Predecessor. The Predecessor financial statements have been prepared from the separate records maintained by Noble and may not necessarily be indicative of the actual results of operations that might have occurred if the Predecessor had been operated separately during the periods reported.

The Partnership has no items of other comprehensive income; therefore, its net income is identical to its comprehensive income.

Consolidation Our consolidated financial statements include our accounts and the accounts of the DevCos, each of which we control as general partner. All intercompany balances and transactions have been eliminated upon consolidation.

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Investments We use the cost method of accounting for our White Cliffs Interest as we have virtually no influence over its operations and financial policies. Under the cost method of accounting, we recognize cash distributions from White Cliffs Pipeline L.L.C. as investment income in our consolidated statements of operations to the extent there is net income and record cash distributions in excess of our ratable share of earnings as return of investment.

We use the equity method of accounting for our investment in the Advantage Pipeline, L.L.C. (Advantage) joint venture, as we do not control, but do exert significant influence over, its operations. See Note 13. Subsequent Events. Upon closing of the Advantage transactions, we will record the investment at our share of net assets of the investee plus our loans and advances. Differences in the basis of the investment and the separate net asset value of the investee will be amortized into income over the remaining useful life of the underlying assets. As of March 31, 2017, we capitalized $1.4 million in acquisition related expenses that are included in the basis of the investment.

Consolidated Variable Interest Entities We have determined that the partners with equity at risk in each of the DevCos lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact their economic performance; therefore, each DevCo is considered a variable interest entity, or VIE. Through our 100% ownership interest in Noble Midstream Services, LLC, a Delaware limited liability company which owns controlling interests in each of the DevCos, we have the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to us. Therefore, we are considered the primary beneficiary and consolidate each of the DevCos in our financial statements. All financial statement activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. See Note 7. Segments.

Revenue Recognition We generate revenues primarily by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing fresh water, and collecting, cleaning and disposing of produced water. We recognize revenue when services have been rendered, the prices are fixed or determinable, and collectibility is reasonably assured.

Under our commercial agreements, if dedicated volumes do not flow through our gathering facilities, we may have the right to charge a fee for the resulting unutilized capacity. Any income associated with the fee is recognized as revenue in the accompanying consolidated statements of operations.

Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.

Fair Value Measurements We measure assets and liabilities requiring fair value presentation and disclose such amounts according to the quality of valuation inputs under the fair value hierarchy. The carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature and maturity of the instruments and use Level 1 inputs.

Supplemental Cash Flow Information We accrued $48.5 million and $7 million related to midstream capital expenditures as of March 31, 2017 and March 31, 2016, respectively.

Concentration of Credit Risk For all periods presented, 100% of our revenues are from Noble and its affiliates.

Recently Issued Accounting Standards In January 2017, the Financial Accounting Standards Board (FASB) issued Account Standards Update No. 2017-01 (ASU 2017-01): Business Combinations - Clarifying the Definition of a Business, that assists in determining whether certain transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment provides a screen to be applied to the fair value of an acquisition or disposal to evaluate whether the assets in question are simply assets or if they meet the requirements of a business. If the screen is not met, no further evaluation is needed. If the screen is met, certain steps are subsequently taken to make the determination. This ASU is effective for annual and interim periods beginning after December 15, 2017 and is required to be applied prospectively. We are currently evaluating the effect, if any, the guidance will have on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18): Statement of Cash Flows - Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This ASU will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-18 will have a material impact on our statement of cash flows and related disclosures.

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15): Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, to clarify how eight specific cash receipt and cash payment transactions should be presented in the statement of cash flows. ASU 2016-15 will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-15 will have a material impact on our statement of cash flows and related disclosures as this update pertains to classification of items and is not a change in accounting principle.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. ASU 2016-02 also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted. In the normal course of business, we enter into capital and operating lease agreements to support our exploration and development operations and lease assets such as drilling rigs, platforms, storage facilities, field services and well equipment, pipeline capacity, office space and other assets. At this time, we cannot reasonably estimate the financial impact ASU 2016-02 will have on our financial statements; however, we do believe adoption and implementation of ASU 2016-02 will likely materially impact our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities. As part of our assessment to date, we have formed an implementation work team, prepared educational and training materials pertinent to ASU 2016-02 and have begun contract review and documentation.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. In March 2016, the FASB released certain implementation guidance through ASU 2016-08 to clarify principal versus agent considerations. We are continuing to evaluate the provisions of ASU 2014-09 and have not yet determined the full impact it may have on our financial position and results of operations.

Note 3. Transactions with Affiliates

Revenues We derive substantially all of our revenues from commercial agreements with Noble. Revenues generated from commercial agreements with Noble and its affiliates included the following:



	Three Months Ended March 31,
(in thousands)	2017		2016
Midstream Services — Affiliate
Crude Oil, Natural Gas and Produced Water Gathering	$	28,409	$	21,574
Fresh Water Delivery	20,319		8,875
Crude Oil Treating	1,267		1,275
Other	319		399
Total Midstream Services — Affiliate	$	50,314	$	32,123

Expenses General and administrative expense included the following:



	Three Months Ended March 31,
(in thousands)	2017		2016
General and Administrative Expense — Affiliate	$	1,713	$	1,847
General and Administrative Expense — Third Party	1,029		807
Total General and Administrative Expense	$	2,742	$	2,654

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Note 4. Property, Plant and Equipment

Property, plant and equipment, at cost, is as follows:



(in thousands)	March 31, 2017			December 31, 2016
Crude Oil, Natural Gas and Produced Water Gathering Systems and Facilities	$	202,351		$	201,323
Fresh Water Delivery Systems ⁽¹⁾	57,067			56,792
Crude Oil Treating Facilities	20,099			20,099
Construction-in-Progress ⁽²⁾	107,239			32,831
Total Property, Plant and Equipment, at Cost	386,756			311,045
Accumulated Depreciation and Amortization	(34,018		)	(31,642		)
Property, Plant and Equipment, Net	$	352,738		$	279,403


⁽¹⁾	Fresh water delivery system assets at March 31, 2017 and December 31, 2016 include $5 million related to a leased pond accounted for as a capital lease.


⁽²⁾	Construction-in-progress at March 31, 2017 primarily includes $91.6 million in gathering system projects and $15.6 million in fresh water delivery system projects. Construction-in-progress at December 31, 2016 primarily includes $27.6 million in gathering system projects and $5.2 million in fresh water delivery system projects.

Note 5. Debt

Revolving Credit Facility We maintain a $350 million revolving credit facility to fund working capital and to finance acquisitions and other capital expenditures. The revolving credit facility matures on September 20, 2021. There were no amounts outstanding under the revolving credit facility as of December 31, 2016 and March 31, 2017. See Note 13. Subsequent Events for a discussion of amounts drawn on our revolving credit facility to fund the Advantage transaction. Unamortized debt issuance costs totaled $1.8 million and $1.7 million as of December 31, 2016 and March 31, 2017, respectively.

Borrowings under the revolving credit facility bear interest at a rate equal to an applicable margin plus, at our option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the greater of the federal funds rate or the overnight bank funding rate, plus 0.5% and (3) the LIBOR for an interest period of one month plus 1.00%; or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period.

The unused portion of the revolving credit facility is subject to a commitment fee. Commitment fees began to accrue beginning on the date we entered into the revolving credit facility. As of December 31, 2016 and March 31, 2017, the commitment fee rate was 0.2%.

The revolving credit facility requires us to comply with the following financial covenants as of the end of each fiscal quarter:


•	a consolidated leverage ratio prior to the date that consolidated EBITDA for four fiscal quarters is less than $135 million, of less than or equal to 4.00 to 1.00 (except following certain acquisitions the consolidated leverage ratio shall be less than or equal to 4.50 to 1.00);


•	a consolidated leverage ratio on or after the date that consolidated EBITDA for four fiscal quarters exceeds $135 million, of less than or equal to 5.00 to 1.00 (except following certain acquisitions the consolidated leverage ratio shall be less than or equal to 5.50 to 1.00); and


•	a consolidated interest coverage ratio of not less than 3.00 to 1.00.

Certain lenders that are a party to the credit agreement have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending or commercial banking services for us for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Note 6. Asset Retirement Obligations

Asset retirement obligations (ARO) consist of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our infrastructure assets. Changes in ARO are as follows:



	Three Months Ended March 31,
(in thousands)	2017		2016
Asset Retirement Obligations, Beginning Balance	$	5,415	$	3,612
Accretion Expense ⁽¹⁾	71		42
Asset Retirement Obligations, Ending Balance	$	5,486	$	3,654


⁽¹⁾	Accretion expense is included in depreciation and amortization expense in the consolidated statements of operations.

Note 7. Segments

Our operations are located in the U.S. and are organized into the following reportable segments: Gathering Systems (crude oil, natural gas and produced water gathering as well as crude oil treating), Fresh Water Delivery, and Investments and Other. Our reportable segments comprise the structure used to make key operating decisions and assess performance.

Summarized financial information concerning our reportable segments is as follows:



(in thousands)	Gathering Systems⁽¹⁾		Fresh Water Delivery⁽¹⁾		Investments and Other⁽¹⁾			Consolidated
Three Months Ended March 31, 2017
Revenues: Midstream Services — Affiliate	$	29,995	$	20,319	$	—		$	50,314
Income (Loss) Before Income Taxes ⁽²⁾	23,254		13,333		(2,067		)	34,520
Three Months Ended March 31, 2016
Revenues: Midstream Services — Affiliate	$	23,248	$	8,875	$	—		$	32,123
Income (Loss) before Income Taxes	19,860		4,321		(2,361		)	21,820
March 31, 2017
Total Assets	$	287,213	$	65,525	$	74,440		$	427,178
December 31, 2016
Total Assets	$	224,861	$	54,542	$	89,956		$	369,359

⁽¹⁾

The Investments in White Cliffs and Other segment includes activity associated with the White Cliffs Interest as well all general Partnership activity not attributable to our DevCos. All activity associated with our DevCos is captured within the Gathering Systems and Fresh Water Delivery reportable segments. As our DevCos represent VIEs, see the Gathering Systems and Fresh Water Delivery reportable segments for our VIEs impact to the consolidated financial statements.


⁽²⁾	For periods subsequent to the Offering, our consolidated financial statements do not include a provision for income taxes, as we are treated as a partnership for federal and state income tax purposes. Each partner is separately taxed on its share of taxable income.

Note 8. Commitments and Contingencies

Legal Proceedings We may become involved in various legal proceedings in the ordinary course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we will regularly assesses the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our combined financial condition, results of operations or cash flows.

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Note 9. Unit-Based Compensation

The Noble Midstream Partners LP 2016 Long-Term Incentive Plan (the LTIP) provides for the grant, at the discretion of the board of directors of our general partner, of unit awards, restricted units, phantom units (the nomenclature used in accounting literature), unit options, unit appreciation rights, distribution equivalent rights, profits interest units and other unit-based awards. The purpose of awards under the LTIP is to provide additional incentive compensation to individuals providing services to us, and to align the economic interests of such individuals with the interests of our unitholders.

The LTIP limits the number of units that may be delivered pursuant to vested awards to 1,860,000 common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are canceled, forfeited, withheld to satisfy exercise prices or tax withholding obligations or otherwise terminated without delivery of common units will be available for delivery pursuant to other awards. As of March 31, 2017, 1,831,806 common units are available for future grant under the LTIP.

Restricted unit activity for the three months ended March 31, 2017 was as follows:



	Number of Units	Weighted Average Award Date Fair Value
Awarded and Unvested Units at December 31, 2016	7,868	$	30.50
Awarded	20,326	44.59
Awarded and Unvested Units at March 31, 2017	28,194	$	40.66

As of March 31, 2017, $1 million of compensation cost related to all of our unvested restricted units awarded under the LTIP remained to be recognized. The cost is expected to be recognized over a weighted-average period of 2 years.

Note 10. Partnership Distributions

Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash to unitholders of record on the applicable record date. The following table details the distributions paid in respect of the periods presented below:



					Distributions
Period	Record Date	Distribution Date	Distribution per Common Unit		Common Unitholders		Subordinated Unitholders		Total
Q4 2016⁽¹⁾	February 6, 2017	February 14, 2017	$	0.4333	$	6,891	$	6,891	$	13,782


⁽¹⁾	The distribution for the fourth quarter 2016 is comprised of $0.3925 per unit for the fourth quarter 2016 and $0.0408 per unit for the 10-day period beginning on the closing of the Offering on September 20, 2016 and ending on September 30, 2016.

On April 27, 2017, the board of directors of our general partner declared a quarterly cash distribution of $0.4108 per common unit. The distribution will be paid on May 15, 2017, to unitholders of record on May 8, 2017.

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Noble Midstream Partners LP

Notes to Consolidated Financial Statements

Note 11. Net Income Per Limited Partner Unit

Net income per unit applicable to common and subordinated unitholders is computed by dividing the respective limited partners’ interest in net income for the period by the weighted-average number of common units and subordinated units outstanding for the period. The common and subordinated unitholders represent an aggregate 100% limited partner interest in us. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units and subordinated units.

Pursuant to our partnership agreement, to the extent that the quarterly distributions exceed certain target levels, Noble, as the holder of our incentive distribution rights (IDRs), is entitled to receive certain incentive distributions that will result in more net income proportionately being allocated to Noble than to the holders of common units and subordinated units.

Our calculation of net income per common and subordinated units is as follows:



(in thousands except per unit amounts)	Common Units — Public		Common Units — Noble		Subordinated Units — Noble		Total
Three Months Ended March 31, 2017
Distribution Declared⁽¹⁾	$	5,905	$	628	$	6,533	$	13,066
Income in Excess of Distribution	5,097		541		5,638		11,276
Net Income Attributable to Noble Midstream Partners LP	$	11,002	$	1,169	$	12,171	$	24,342

Weighted Average Units Outstanding:
Basic	14,375		1,528		15,903		31,806
Diluted	14,381		1,528		15,903		31,812

Net Income Attributable to Noble Midstream Partners LP Per Limited Partner Unit:
Basic	$	0.77	$	0.77	$	0.77	$	0.77
Diluted	$	0.77	$	0.77	$	0.77	$	0.77

Antidilutive Restricted Units	5		—		—		5


⁽¹⁾	On April 27, 2017, the board of directors of our general partner declared a quarterly cash distribution of $0.4108 per common unit. The distribution will be paid on May 15, 2017, to unitholders of record on May 8, 2017.

Note 12. Income Taxes

We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes are generally borne by our partners through the allocation of taxable income, and accordingly for the periods subsequent to the Offering date, we do not record deferred taxes related to the aggregate difference in the basis of our assets for financial and tax reporting purposes. We did not record a tax provision for the three months ended March 31, 2017. The income tax provision for the three months ended March 31, 2016 is the income tax provision of our Predecessor. The provision was prepared on a separate return basis as if the Predecessor were a stand-alone entity.

Note 13. Subsequent Events

On April 3, 2017, Trinity River DevCo LLC (Trinity), an indirect wholly owned subsidiary of the Partnership, and Plains Pipeline, L.P. (Plains), a wholly owned subsidiary of Plains All American Pipeline, L.P., completed the Advantage acquisition for $133 million through a newly formed 50/50 joint venture. Trinity contributed $66.5 million of cash in exchange for its 50% interest in the joint venture. We serve as the operator of the Advantage system, which includes a 70-mile crude oil pipeline in the southern Delaware Basin from Reeves County, Texas to Crane County, Texas with 150,000 barrels of daily shipping capacity (expandable to over 200,000 barrels per day) and 490,000 barrels of storage capacity.

During April 2017, we drew $60 million under our revolving credit facility in connection with the completion of the Advantage acquisition and for capital expenditures.

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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 provide a narrative about our business from the perspective of our management. Our MD&A is presented in the following major sections:


•	Executive Overview;


•	Operating Outlook;


•	Results of Operations; and


•	Liquidity and Capital Resources.

Predecessor This quarterly report on Form 10-Q includes the assets, liabilities and results of operations of the Contributed Businesses on a carve-out basis (our Predecessor for accounting purposes) for periods prior to September 20, 2016, the date on which we completed the Offering. Our future results of operations may not be comparable to our Predecessor’s historical results of operations.

Unless otherwise stated or the context otherwise indicates, references in this report to “Predecessor,” “we,” “our,” “us” or like terms, when referring to periods prior to September 20, 2016, refer to Noble’s Contributed Businesses, our Predecessor for accounting purposes. All references to “Noble Midstream Partners,” “the Partnership,” “us,” “our,” “we” or similar expressions, when referring to periods after September 20, 2016, refer to Noble Midstream Partners LP, including its consolidated subsidiaries. References to Noble may refer to Noble and/or its subsidiaries, depending on the context.

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Partnership does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Partnership’s disclosures under the heading: “Disclosure Regarding Forward-Looking Statements.”

EXECUTIVE OVERVIEW

Overview

We are a growth-oriented Delaware master limited partnership formed by Noble to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. We currently provide crude oil, natural gas, and water-related midstream services for Noble through long-term, fixed-fee contracts.

Our current areas of focus are in the DJ Basin in Colorado and the Delaware Basin in Texas, where additional midstream assets are currently under construction. Noble intends for us to become the primary vehicle for its midstream operations in the onshore United States, outside of the Marcellus Shale in the northeastern U.S. We believe that our diverse midstream infrastructure assets and our relationship with Noble position us as a leading midstream service provider.

Operating and Financial Results

The following discussion highlights significant operating and financial results for first quarter 2017.

Significant Operating Highlights Included:


•	average crude oil gathering volumes of 44.2 MBbl/d;


•	average natural gas gathering volumes of 146.4 BBtu/d;


•	average produced water gathered volumes of 9.1 MBbl/d; and


•	average fresh water delivered volumes of 129.5 MBbl/d.

Significant Financial Highlights Included:


•	net income of $34.5 million, of which $24.3 million is attributable to the Partnership;


•	net cash provided by operating activities of $32.2 million;


•	capital expenditures of $77.1 million;


•	EBITDA (non-GAAP financial measure) of $37.2 million, of which $26.4 million is attributable to the Partnership; and


•	distributable cash flow (non-GAAP financial measure) of $24.1 million.

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For additional information regarding our Non-GAAP financial measures, please see EBITDA, Distributable Cash Flow and Reconciliation of Non-GAAP Financial Measures, below.

Advantage Acquisition

On April 3, 2017, Trinity and Plains completed the Advantage acquisition for $133 million through a newly formed 50/50 joint venture. Trinity contributed $66.5 million of cash in exchange for its 50% interest in the joint venture. We serve as the operator of the Advantage system, which includes a 70-mile crude oil pipeline in the southern Delaware Basin from Reeves County, Texas to Crane County, Texas with 150,000 barrels of daily shipping capacity (expandable to over 200,000 barrels per day) and 490,000 barrels of storage capacity.

OPERATING OUTLOOK

Third Party Volumes

In April 2017, we began delivering fresh water to an unaffiliated third party in the Greeley Crescent integrated development plan (IDP) area.

Dedication and Right of First Refusal Update

On April 24, 2017, Noble completed the acquisition of Clayton Williams Energy, Inc.. Upon closing of the acquisition, approximately 64,000 net acres in Reeves County, Texas, was dedicated to us for infield crude oil, natural gas, and produced water gathering. We have a right of first refusal (ROFR) on the remaining acreage acquired by Noble. Additionally, an infield natural gas gathering dedication was added to the existing crude oil and produced water gathering dedication on substantially all of Noble's legacy 47,000 Delaware Basin net acres. Both acreage dedications are held by the Blanco River DevCo.

In conjunction with the new dedications, we waived our ROFR for natural gas processing on approximately 80,000 net acres in the Delaware Basin, of which, approximately 35,000 net acres were dedicated to a third party through 2021.

2017 Capital Investment Program

Our 2017 capital investment program has increased and will accommodate a gross investment level of approximately $365 to $405 million, with $185 to $205 million attributable to the Partnership. The increase in investment level was primarily driven by the new dedications discussed above.

We will continue to evaluate the level of capital spending throughout the year based on the following factors, among others, and their effect on project financial returns:


•	pace of our customers' development;


•	operating and construction costs and our ability to achieve material supplier price reductions;


•	impact of new laws and regulations on our business practices;


•	indebtedness levels; and


•	availability of financing or other sources of funding.

We plan to fund our investment program with cash on hand, cash generated from operations, borrowings under our revolving credit facility and, if necessary, the issuance of additional equity or debt securities.

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RESULTS OF OPERATIONS

Results of operations were as follows:



	Three Months Ended March 31,
(thousands)	2017			2016
Revenues
Midstream Services — Affiliate	$	50,314		$	32,123
Costs and Expenses
Direct Operating	11,401			5,888
Depreciation and Amortization	2,449			2,144
General and Administrative	2,742			2,654
Total Operating Expenses	16,592			10,686
Operating Income	33,722			21,437
Other (Income) Expense
Interest Expense, Net of Amount Capitalized	267			910
Investment Income	(1,065		)	(1,293		)
Total Other (Income) Expense	(798		)	(383		)
Income Before Income Taxes	34,520			21,820
Income Tax Provision	—			8,310
Net Income and Comprehensive Income	34,520			$	13,510
Less: Net Income Attributable to Noncontrolling Interests	10,178
Net Income Attributable to Noble Midstream Partners LP	$	24,342

EBITDA Attributable to Noble Midstream Partners LP	$	26,374

Distributable Cash Flow of Noble Midstream Partners LP	$	24,098

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics, each as described in more detail below, to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include:


•	throughput volumes;


•	operating costs and expenses;


•	EBITDA (non-GAAP financial measure);


•	distributable cash flow (non-GAAP financial measure); and


•	capital expenditures.

Throughput Volumes

The amount of revenue we generate primarily depends on the volumes of crude oil, natural gas and water for which we provide midstream services. These volumes are affected primarily by the level of drilling and completion activity in which Noble engages in our areas of operations, and by changes in the supply of and demand for crude oil, natural gas and NGLs in the markets served directly or indirectly by our assets.

Noble’s willingness to engage in drilling and completion activity is determined by a number of factors, the most important of which are the prevailing and projected prices of crude oil and natural gas, the cost to drill and operate a well, expected well performance, the availability and cost of capital, and environmental and government regulations. We generally expect the level of drilling to positively correlate with long-term trends in commodity prices. Similarly, production levels nationally and regionally generally tend to positively correlate with drilling activity.

Noble has dedicated acreage to us based on the services we provide. Our commercial agreements with Noble provide that, in addition to our existing dedicated acreage, any future acreage that is acquired by Noble in the IDP areas, and that is not subject to a pre-existing third-party commitment, will be included in the dedication to us for midstream services, including gathering and treating.

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Revenues and throughput volumes related to gathering and fresh water delivery services were as follows:



	Three Months Ended March 31,
	2017		2016
Colorado River DevCo
Crude Oil Gathering Volumes (Bbl/d)	44,235		50,096
Natural Gas Gathering Volumes (MMBtu/d)	146,430		99,752
Produced Water Gathering Volumes (Bbl/d)	9,052		10,282
Fresh Water Delivery Volumes (Bbl/d)	73,825		43,583
Gathering and Fresh Water Delivery Revenues — Affiliate (in thousands)	$	36,211	$	28,368

San Juan River DevCo
Fresh Water Delivery Volumes (Bbl/d)	55,648		—
Fresh Water Delivery Revenues — Affiliate (in thousands)	$	12,517	$	58

Green River DevCo
Fresh Water Delivery Volumes (Bbl/d)	—		14,819
Fresh Water Delivery Revenues — Affiliate (in thousands)	$	—	$	2,023

Total Gathering Systems
Crude Oil Gathering Volumes (Bbl/d)	44,235		50,096
Natural Gas Gathering Volumes (MMBtu/d)	146,430		99,752
Produced Water Gathering Volumes (Bbl/d)	9,052		10,282
Gathering Revenues — Affiliate (in thousands)	$	28,409	$	21,574

Total Fresh Water Delivery
Fresh Water Delivery Volumes (Bbl/d)	129,473		58,402
Fresh Water Delivery Revenues — Affiliate (in thousands)	$	20,319	$	8,875

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Revenues Trend Analysis

Revenues from Midstream Services — Affiliate were as follows:



	Three Months Ended March 31,				Increase (Decrease) From Prior Year
(in thousands)	2017		2016		Increase (Decrease) From Prior Year
Revenues: Midstream Services — Affiliate
Crude Oil, Natural Gas and Produced Water Gathering	$	28,409	$	21,574	32	%
Fresh Water Delivery	20,319		8,875		129	%
Crude Oil Treating	1,267		1,275		(1	)%
Other	319		399		(20	)%
Revenues: Midstream Services — Affiliate	$	50,314	$	32,123	57	%

Midstream Services — Affiliate We derive substantially all of our revenues from commercial agreements with Noble. Revenues from Midstream Services — Affiliate increased by $18.2 million during first quarter 2017 as compared with first quarter 2016 due to the following:


•	an increase of $12.7 million in fresh water delivery revenues driven by increased fresh water volumes delivered to the Wells Ranch IDP and East Pony IDP due to fresh water volumes required per well for higher intensity completions;


•	an increase of $4.2 million in water logistic services, including water transfer, hauling, recycling, and disposal services, driven by an increased scope of services in the Wells Ranch IDP and East Pony IDP;


•	an increase of $2.9 million in natural gas gathering services revenues driven by increased throughput volumes in our Wells Ranch IDP natural gas gathering systems resulting from expansion and gathering system growth as well as an increased natural gas gathering rate;


•	an increase of $1.2 million in crude oil gathering services revenues driven by increased throughput volumes in our Wells Ranch IDP crude oil gathering systems resulting from expansion and gathering system growth as well as an increased crude oil gathering rate;


•	an increase of $1.2 million in charges associated with dedicated crude oil and produced water gathering volumes that did not flow through our gathering facilities;


•	an increase of $0.4 million in fresh water delivery revenues driven by an increased fresh water delivery rate;

partially offset by:


•	a decrease of $2 million in fresh water delivery revenues related to the Mustang IDP due to the timing of well completion activity by Noble; and


•	a decrease of $2.5 million in crude oil gathering services revenues due to decreased volumes in our East Pony IDP gathering system due to the timing of upstream activity by Noble.

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Costs and Expenses

Direct Operating Expense

We seek to maximize the profitability of our operations in part by minimizing, to the extent appropriate, expenses directly associated with operating our assets. Direct labor costs, ad valorem taxes, repair and non-capitalized maintenance costs, integrity management costs, utilities and contract services comprise the most significant portion of our operations and maintenance expense. Many of these expenses remain relatively stable across broad ranges of throughput volumes, but a portion of these expenses can fluctuate from period to period depending on the mix of activities performed during that period and the timing of these expenses. We also seek to manage operating expenditures on our midstream systems by scheduling maintenance over time to avoid significant variability in our maintenance expenditures and minimize their impact on our cash flow.

General and Administrative Expense

Following the completion of the Offering, Noble charges us a combination of direct and allocated charges for general and administrative services. Direct charges include a fixed fee under our omnibus agreement and compensation of our executives under our secondment agreement based on the percentage of time spent working on us. Between January 2015 and the Offering date, Noble charged us a fixed fee for overhead and support services.

We have also begun incurring incremental general and administrative expenses attributable to being a publicly traded partnership, including expenses associated with: annual, quarterly and current reporting with the SEC; tax return and Schedule K-1 preparation and distribution; Sarbanes-Oxley compliance; NYSE listing; independent auditor fees; legal fees; investor relations expenses; transfer agent and registrar fees; incremental salary and benefits costs of seconded employees; outside director fees; director and officer insurance coverage expenses; and compensation expense associated with the LTIP.

Costs and Expenses Trend Analysis

Costs and expenses were as follows:



	Three Months Ended March 31,				Increase from Prior Year
(in thousands)	2017		2016		Increase from Prior Year
Direct Operating	$	11,401	$	5,888	94	%
Depreciation and Amortization	2,449		2,144		14	%
General and Administrative	2,742		2,654		3	%
Total Operating Expenses	$	16,592	$	10,686	55	%

Direct Operating Expenses Direct operating expenses increased $5.5 million during first quarter 2017 as compared with first quarter 2016 due to an increase of $5.2 million in water delivery and logistics expense driven by increased fresh water volumes required per well for higher intensity completions and an expanded scope of services delivered for produced water.

Depreciation and Amortization Depreciation and amortization expense increased $0.3 million during first quarter 2017 as compared with first quarter 2016. The increase is primarily related to assets placed in service due to the expansion of the Wells Ranch Central Gathering Facility (CGF) and gathering system, commissioning of the East Pony crude oil gathering system and expansion of the Mustang fresh water system during 2016.

General and Administrative Expense General and administrative expense increased $0.1 million during first quarter 2017 as compared with first quarter 2016. The increase is due primarily to the omnibus agreement with Noble that we entered into effective as of the Offering date and that provides for our payment of an annual general and administrative fee, initially in the amount of $6.9 million, for the provision of certain services by Noble and its affiliates.

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Other (Income) Expense Trend Analysis



	Three Months Ended March 31,						Increase (Decrease) from Prior Year
(in thousands)	2017			2016			Increase (Decrease) from Prior Year
Other (Income) Expense
Interest Expense	$	267		1,385			(81	)%
Capitalized Interest	—			(475		)	(100	)%
Interest Expense, Net	267			910			(71	)%
Investment Income	(1,065		)	(1,293		)	(18	)%
Total Other (Income) Expense	$	(798	)	$	(383	)	108	%

Interest Expense, Net For periods prior to the Offering, interest expense represents allocations from Noble to our Predecessor. The allocations were based on the percentage that our Predecessor's capital expenditures comprised of Noble's total consolidated capital expenditures. A portion of the interest expense is capitalized based upon construction-in-progress during the year.

Interest expense decreased $1.1 million during first quarter 2017 as compared with first quarter 2016. The decrease is due primarily to Noble no longer allocating interest expense to us after the Offering. Interest expense for first quarter 2017 includes the non-cash amortization of origination fees and cash commitment fees on the undrawn portion of our revolving credit facility, as no amounts were drawn on our revolving credit facility during the period.

Capitalized interest decreased $0.5 million during first quarter 2017 as compared with first quarter 2016. The decrease is due primarily to Noble no longer allocating interest expense to us after the Offering as well as the absence of interest expense associated with our revolving credit facility, as no amounts were drawn on our revolving credit facility during the period.

Investment Income Investment income decreased $0.2 million during first quarter 2017 as compared with first quarter 2016. The decrease is due to lower cash distributions from our White Cliffs Interest resulting from decreased income.

Income Tax Provision

See Item 1. Financial Statements. Note 12. Income Taxes.

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EBITDA (Non-GAAP Financial Measure)

EBITDA should not be considered an alternative to net income, net cash provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income or net cash, and these measures may vary from those of other companies. As a result, our EBITDA may not be comparable to similar measures of other companies in our industry.

For a reconciliation of EBITDA to its most comparable measures calculated and presented in accordance with GAAP, see Reconciliation of Non-GAAP Financial Measures, below.

We define EBITDA as net income (loss) before income taxes, net interest expense, depreciation and amortization. EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:


•	our operating performance as compared with those of other companies in the midstream energy industry, without regard to financing methods, historical cost basis or capital structure;


•	the ability of our assets to generate sufficient cash flow to make distributions to our partners;


•	our ability to incur and service debt and fund capital expenditures; and


•	the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that the presentation of EBITDA provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities. EBITDA should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.

Distributable Cash Flow (Non-GAAP Financial Measure)

Distributable cash flow should not be considered an alternative to net income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow excludes some, but not all, items that affect net income or net cash provided by operating activities, and these measures may vary from those of other companies. As a result, our distributable cash flow may not be comparable to similar measures of other companies in our industry.

For a a reconciliation of distributable cash flow to its most comparable measures calculated and presented in accordance with GAAP, see Reconciliation of Non-GAAP Financial Measures, below.

We define distributable cash flow as EBITDA less estimated maintenance capital expenditures and cash interest paid. Distributable cash flow does not reflect changes in working capital balances. Our partnership agreement requires us to distribute all available cash on a quarterly basis, and distributable cash flow is one of the factors used by the board of directors of our general partner to help determine the amount of cash that is available to our unitholders for a given period. Therefore, we believe distributable cash flow provides information useful to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities. Distributable cash flow should not be considered an alternative to, or more meaningful than, net income, net cash provided by operating activities or any other measure as reported in accordance with GAAP.

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Reconciliation of Non-GAAP Financial Measures

The following tables present reconciliations of EBITDA and distributable cash flow to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Reconciliation of Net Income to EBITDA and Distributable Cash Flow



	Three Months Ended March 31,
(thousands)	2017		2016
Reconciliation from Net Income
Net Income and Comprehensive Income	$	34,520	$	13,510
Add:
Depreciation and Amortization	2,449		2,144
Interest Expense, Net of Amount Capitalized	267		910
Income Tax Provision	—		8,310
EBITDA	37,236		$	24,874
Less:
EBITDA Attributable to Noncontrolling Interests	10,862
EBITDA Attributable to Noble Midstream Partners LP	26,374
Less:
Cash Interest Paid	175
Maintenance Capital Expenditures	2,101
Distributable Cash Flow of Noble Midstream Partners LP	$	24,098

Reconciliation of Net Cash Provided by Operating Activities to EBITDA and Distributable Cash Flow



	Three Months Ended March 31,
(thousands)	2017			2016
Reconciliation from Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities	$	32,225		$	14,599
Add:
Interest Expense, Net of Amount Capitalized	267			910
Changes in Operating Assets and Liabilities	4,966			5,123
Change in Income Tax Payable	—			4,153
Stock Based Compensation and Other	(222		)	89
EBITDA	37,236			$	24,874
Less:
EBITDA Attributable to Noncontrolling Interests	10,862
EBITDA Attributable to Noble Midstream Partners LP	26,374
Less:
Cash Interest Paid	175
Maintenance Capital Expenditures	2,101
Distributable Cash Flow of Noble Midstream Partners LP	$	24,098

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LIQUIDITY AND CAPITAL RESOURCES

Financing Strategy

Our primary source of liquidity is cash flows generated from operations based on commercial agreements with Noble. We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and, if necessary, the issuance of additional equity or debt securities. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions. We do not have any commitment from Noble or our general partner or any of their respective affiliates to fund our cash flow deficits or provide other direct or indirect financial assistance to us.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including our revolving credit facility and the issuance of debt and equity securities, to fund acquisitions and our expansion capital expenditures.

Certain consolidated subsidiaries make distributions to or receive contributions from Noble in proportion to Noble's ownership in the subsidiary.

Available Liquidity

Information regarding liquidity was as follows:



(in thousands)	March 31, 2017		December 31, 2016
Total Cash	$	38,859	$	57,421
Amount Available to be Borrowed Under Our Revolving Credit Facility ⁽¹⁾	350,000		350,000
Available Liquidity	$	388,859	$	407,421


⁽¹⁾	See Item 1. Financial Statements – Note 5. Debt and See Item 1. Financial Statements – Note 13. Subsequent Events.

Cash Flows

Summary cash flow information was as follows:



	Three Months Ended March 31,
(in thousands)	2017			2016
Total Cash Provided By (Used in)
Operating Activities	$	32,225		$	14,599
Investing Activities	(32,589		)	(11,661		)
Financing Activities	(18,198		)	(21,257		)
Decrease in Cash and Cash Equivalents	$	(18,562	)	$	(18,319	)

Net cash provided by operating activities increased by $17.6 million during first quarter 2017 as compared with first quarter 2016 primarily due to:


•	an increase of $21 million in net income driven by increased revenues resulting from higher throughput volumes;


•	a decrease of $6.5 million due to accounts receivable activity resulting from the timing of cash collections:

partially offset by:


•	a decrease of $8.1 million due to decreases in deferred income taxes and current income taxes payable resulting from the Partnership's status as a non-taxable entity for U.S. federal income tax purposes; and


•	a decrease of $3.0 million due to accounts payable activity resulting from the timing of cash disbursements.

Cash used in investing activities increased by $20.9 million during first quarter 2017 as compared with first quarter 2016. Additions to property, plant and equipment were higher in 2017 primarily due to the construction of the Greeley Crescent gathering and fresh water delivery system as well as construction of the Delaware Basin gathering system.

During first quarter 2017, our financing activities primarily include cash distributions to our unitholders ($13.8 million), cash distributions to noncontrolling interest owners ($11.3 million), and cash contributions from noncontrolling interest owners ($7.1 million). In comparison, during first quarter 2016, our only financing activities were a cash distribution to our Parent ($21.5 million) and a cash contribution from our Parent ($0.2 million).

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Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Contractual Obligations

As of December 31, 2016, we had purchase obligations of approximately $19.3 million. Our purchase obligations represented the short-term obligation to purchase pipe for use in our capital projects. During first quarter 2017, we assigned approximately $9.1 million of this purchase obligation to various third parties. We have remaining purchase obligations of approximately $10.2 million.

Capital Requirements

Capital Expenditures and Other Investing Activities

The midstream energy business is capital intensive, requiring the maintenance of existing gathering systems and other midstream assets and facilities and the acquisition or construction and development of new gathering systems and other midstream assets and facilities. Capital expenditures and other investing activities (on an accrual basis) were as follows:



	Three Months Ended March 31,
(in thousands)	2017		2016
Gathering System Expenditures	$	64,899	$	4,744
Fresh Water Delivery System Expenditures	10,814		428
Total Capital Expenditures	$	75,713	$	5,172

Additions to Investments	$	1,364	$	35

For first quarter 2017, gathering system expenditures were primarily associated with the construction of the Greeley Crescent, Mustang, and Delaware Basin gathering systems, as well as expansion of the Wells Ranch gathering system. Fresh water delivery system expenditures were primarily associated with the expansion of the Mustang fresh water delivery system as well as the construction of the Greeley Crescent fresh water delivery system.

For first quarter 2016, gathering system expenditures were primarily associated with the construction of the East Pony crude oil gathering system and expansion of the Wells Ranch CGF.

For first quarter 2017, additions to investments were related to acquisition related costs associated with our investment in the Advantage joint venture. See Item 1. Financial Information – Note 13. Subsequent Events.

Cash Distributions

Our partnership agreement requires that we distribute all of our available cash quarterly. Quarterly distributions, if any, will be made within 45 days after the end of each calendar quarter to holders of record on the applicable record date.

For future quarters, the minimum quarterly distribution of $0.375 per unit equates to $11.9 million per quarter, or $47.7 million million per year, based on the number of common and subordinated units outstanding as of March 31, 2017.

Other than the requirement in our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to make quarterly cash distributions in this or any other amount, and the board of directors of our general partner has considerable discretion to determine the amount of our available cash each quarter. In addition, the board of directors of our general partner may change our cash distribution policy at any time, subject to the requirement in our partnership agreement to distribute all of our available cash quarterly.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

We currently generate substantially all of our revenues pursuant to fee-based commercial agreements with Noble under which we are paid based on the volumes of crude oil, natural gas and produced water that we gather and handle and fresh water services we provide, rather than the underlying value of the commodity.

We have indirect exposure to commodity price risk in that persistent low commodity prices may cause Noble or other potential customers to delay drilling or shut in production, which would reduce the volumes available for gathering and processing by our infrastructure assets. If Noble delays drilling or completion activity, or temporarily shuts in production due to persistently low commodity prices or for any other reason, we are not assured a certain amount of revenue as our commercial agreements with Noble do not contain minimum volume commitments. Because of the natural decline in production from existing wells, our success, in part, depends on our ability to maintain or increase hydrocarbon and water throughput volumes on our midstream systems, which depends on Noble’s levels of drilling and completion activity on our dedicated acreage.

We may acquire or develop additional midstream assets in a manner that increases our exposure to commodity price risk. Future exposure to the volatility of crude oil, natural gas and NGL prices could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions to our unitholders.

Interest Rate Risk

No amounts were outstanding under our revolving credit facility as of March 31, 2017. However, if we assume an average debt level of $20 million, comprised of funds drawn on the revolving credit facility, an increase of one percentage point in the interest rates will result in an increase in annual interest expense of $0.2 million. As a result, our results of operations, cash flows and financial condition and, as a further result, our ability to make cash distributions to our unitholders, could be adversely affected by significant increases in interest rates.

Seasonality

Demand for crude oil and natural gas generally decreases during the spring and fall months and increases during the summer and winter months. However, seasonal anomalies such as mild winters or mild summers sometimes lessen this fluctuation. In addition, certain crude oil and natural gas users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer. This can also lessen seasonal demand fluctuations. These seasonal anomalies can increase demand for crude oil and natural gas during the summer and winter months and decrease demand for crude oil and natural gas during the spring and fall months. With respect to our completed midstream systems, we do not expect seasonal conditions to have a material impact on our throughput volumes. Severe or prolonged winters may, however, impact our ability to complete additional well connections or construction projects, which may impact the rate of our growth. In addition, severe winter weather may also impact or slow the ability of Noble to execute its drilling and development plans.

Disclosure Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictive in nature, depend upon or refer to future events or conditions or include the words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. Our forward-looking statements may include statements about our business strategy, our industry, our future profitability, our expected capital expenditures and the impact of such expenditures on our performance, the costs of being a publicly traded partnership and our capital programs.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. While we believe that we have chosen these assumptions or bases in good faith and that they are reasonable, you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:


•	the ability of Noble Energy, Inc. (Noble, NBL or Parent) to meet its drilling and development plans;


•	changes in general economic conditions;


•	competitive conditions in our industry;


•	actions taken by third-party operators, gatherers, processors and transporters;


•	the demand for crude oil and natural gas gathering and processing services;


•	our ability to successfully implement our business plan;


•	our ability to complete internal growth projects on time and on budget;


•	the price and availability of debt and equity financing;

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•	the availability and price of crude oil and natural gas to the consumer compared to the price of alternative and competing fuels;


•	competition from the same and alternative energy sources;


•	energy efficiency and technology trends;


•	operating hazards and other risks incidental to our midstream services;


•	natural disasters, weather-related delays, casualty losses and other matters beyond our control;


•	interest rates;


•	labor relations;


•	defaults by Noble under our gathering and processing agreements;


•	changes in availability and cost of capital;


•	changes in our tax status;


•	the effect of existing and future laws and government regulations; and


•	the effects of future litigation.

You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, unless required by law. You should consider carefully the statements under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements. Our Annual Report on Form 10-K for the year ended December 31, 2016 is available on our website at www.nblmidstream.com.

Unless otherwise stated or the context otherwise indicates, references in this report to “Predecessor,” “we,” “our,” “us” or like terms, when referring to periods prior to September 20, 2016, refer to Noble’s Contributed Businesses (as defined herein), our Predecessor for accounting purposes. All references to “Noble Midstream Partners,” “NBLX,” “the Partnership,” “us,” “our,” “we” or similar expressions, when referring to periods after September 20, 2016, refer to Noble Midstream Partners LP, including its consolidated subsidiaries. References to Noble may refer to Noble and/or its subsidiaries, depending on the context. Our future results of operations may not be comparable to our Predecessor’s historical results of operations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on the evaluation of our disclosure controls and procedures by our principal executive officer and our principal financial officer, as of the end of the period covered by this quarterly report, each of them has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

Information regarding legal proceedings is set forth in Part I. Financial Information, Item 1. Financial Statements -Note 8. Commitments and Contingencies of this Form 10-Q, which is incorporated by reference into this Part II. Item 1.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 5. Other Information

On April 27, 2017, the board of directors of our general partner approved grants of time-based restricted unit awards (Restricted Units) to John F. Bookout, IV, Chief Financial Officer of our general partner, and John C. Nicholson, Chief Operating Officer of our general partner, pursuant to the Partnership’s 2016 Long-Term Incentive Plan. On May 4, 2017, Mr. Bookout and Mr. Nicholson will receive Restricted Units with a grant date value equal to $180,000 and $190,000, respectively. The Restricted Units will be subject to a three-year restricted period commencing on the date of grant and ending on the third anniversary of the grant date, provided that the executive officer remains employed by the general partner or one of its affiliates throughout the three-year restricted period. If the executive officer’s employment is terminated prior to the vesting of the Restricted Units, then he will forfeit all unvested Restricted Units and restricted distributions, except that upon a change of control (as defined in the LTIP) or termination of the executive officer due to death or disability, all unvested Restricted Units and restricted distributions will become immediately vested in full. The grants of Restricted Units are subject to the terms of the LTIP and an Employee Restricted Unit Agreement, the form of which is filed as Exhibit 10.3 to this quarterly report on Form 10-Q.

Item 6. Exhibits

The information required by this Part II. Item 6 is set forth in the Index to Exhibits accompanying this quarterly report on Form 10-Q and is incorporated by reference into this Part II. Item 6.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Noble Midstream Partners LP
		By: Noble Midstream GP, LLC, its General Partner

Date	May 2, 2017	By: /s/ John F. Bookout, IV
		John F. Bookout, IV Chief Financial Officer

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Index to Exhibits



Exhibit Number		Exhibit

2.1		Advantage Pipeline Holdings LLC Subscription Agreement, dated February 12, 2017, by and among Advantage Pipeline Holdings LLC, Trinity River DevCo LLC and Plains Pipeline, L.P. (filed as Exhibit 2.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-37640) filed February 14, 2017 and incorporated herein by reference)

3.1		Certificate of Limited Partnership of the Registrant (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-207560) filed October 22, 2015 and incorporated herein by reference).

3.2		Amendment to the Certificate of Limited Partnership of the Registrant (filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-207560) filed October 22, 2015 and incorporated herein by reference).

3.3		Amendment to the Certificate of Limited Partnership of the Registrant (filed as Exhibit 3.3 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-207560) filed November 6, 2015 and incorporated herein by reference).

3.4		First Amended and Restated Agreement of Limited Partnership of the Registrant (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (Date of Event: September 14, 2016) filed September 20, 2016 and incorporated herein by reference).

3.5		Certificate of Formation of Noble Midstream GP LLC (filed as Exhibit 3.4 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-207560) filed October 22, 2015 and incorporated herein by reference).

3.6		Amendment to Certificate of Formation of Noble Midstream GP LLC (filed as Exhibit 3.5 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-207560) filed October 22, 2015 and incorporated herein by reference).

3.7		First Amended and Restated Limited Liability Company Agreement of Noble Midstream GP LLC (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (Date of Event: September 14, 2016) filed September 20, 2016 and incorporated herein by reference).

10.1		First Amendment to Credit Agreement, dated February 12, 2017, to Credit Agreement dated September 20, 2016, by and among the Registrant, as the parent, and Noble Midstream Services, LLC, as the Borrower, the subsidiaries of the Borrower identified therein, JPMorgan Chase Bank, N.A., and the other lenders party thereto (filed as Exhibit 10.5.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-37640) filed February 14, 2017 and incorporated herein by reference).

10.2†		Registrant's Form of Employee Restricted Unit Agreement under the Partnership’s 2016 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (Date of Event: January 26, 2017) filed January 26, 2017 and incorporated herein by reference).

10.3*		Registrant's Form of Employee Restricted Unit Agreement [3-Year Cliff Vest] under the Partnership’s 2016 Long-Term Incentive Plan.

10.4*		Limited Waiver to Omnibus Agreement dated February 14, 2017 by and among the Registrant, Noble Midstream GP, LLC, Noble Midstream Services, LLC, Noble Energy, Inc., Noble Energy Services, Inc. and NBL Midstream LLC.

31.1*		Certification of the Company’s Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

31.2*		Certification of the Company’s Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

32.1*		Certification of the Company’s Chief Executive Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

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32.2*		Certification of the Company’s Chief Financial Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS*		XBRL Instance Document

101.SCH*		XBRL Schema Document

101.CAL*		XBRL Calculation Linkbase Document

101.LAB*		XBRL Label Linkbase Document

101.PRE*		XBRL Presentation Linkbase Document

101.DEF*		XBRL Definition Linkbase Document



*	Filed herewith.
†	Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.
+	Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be furnished to the Securities and Exchange Commission upon request.

Noble Midstream Partners LP - FORM 10-Q - May 2, 2017

Attached files

Noble Midstream Partners LP Reports