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H.S. junior Avg
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New words:
earliest, retroactively, West
Removed:
capped, Chief, Diesel, exclude, HOBO, investor, issuable, renewable, satisfaction
Financial report summary
?Risks
- Risks Related to Our Energy Transition Infrastructure Business
- We may be unable to fund our future capital requirements related to the Levo JV and the HOBO Transaction.
- Risks Related to Our Midstream Business
- Mesquite accounts for the majority of our total revenue in general and all of our revenue relating to the operation of our midstream business, as a result, any development that materially and adversely affects Mesquite’s business, financial condition, cash flows or results of operations could have a material and adverse impact on us.
- Because of the natural decline in production from existing wells, our success depends, in part, on Mesquite’s ability to replace declining production. Any decrease in volumes of natural gas, NGLs and oil that Mesquite produces or any decrease in the number of wells that Mesquite completes could reduce throughput volumes that could adversely affect our business and operating results.
- Interruptions in operations at our facilities or facilities that Targa operates on behalf of Carnero JV may adversely affect our business, financial condition, cash flows and results of operations.
- We may not be able to attract additional third-party volumes, which could limit our ability to grow and would increase our dependence on Mesquite.
- All of our midstream assets are located in the Eagle Ford Shale in Texas, making us vulnerable to risks associated with operating in one major geographic area.
- We do not intend to obtain independent evaluations of reserves of natural gas, NGLs and oil reserves connected to the Catarina Gathering System on a regular or ongoing basis; therefore, in the future, volumes of natural gas, NGLs and oil on the gathering system could be less than we anticipate.
- A shortage of equipment and skilled labor in the Eagle Ford Shale could reduce equipment availability and labor productivity and increase labor and equipment costs, which could have a material adverse effect on our business and results of operations.
- Distributions we receive from Carnero JV may fluctuate from quarter to quarter, which could adversely affect our cash flows and ability to pay our payables timely.
- Our participation in joint ventures exposes us to liability or harm to our reputation resulting from failures by our joint venture partners.
- Increased competition from other companies that provide gathering services could have a negative impact on the demand for our services, which could adversely affect our business, financial condition, cash flows and results of operations.
- If third-party pipelines or other midstream facilities interconnected to our facilities become partially or fully unavailable, it could adversely affect our business, financial condition, cash flows and results of operations.
- We do not own the land on which the Catarina Gathering System or the Seco Pipeline is located, which could have a material adverse effect on our business, results of operations and financial condition.
- Our operations could be disrupted if our information systems are hacked or fail, causing increased expenses and loss of revenue.
- As a non-operator, our development of successful operations relies extensively on third-parties, including Mesquite and Targa, which could adversely affect our business, financial condition and results of operations.
- Risks Related to Financing and Credit Environment
- Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
- Our Credit Agreement has substantial prepayment requirements, other restrictions and financial covenants.
- We may not be able to extend, replace or refinance our Credit Agreement on terms reasonably acceptable to us, or at all, which could materially and adversely affect our business, liquidity, cash flows and prospects.
- The expected replacement of the LIBOR benchmark interest rate and other interbank offered rates with new benchmark rates may adversely affect our financing costs.
- We will be required to make substantial capital expenditures to increase our asset base. If we are unable to obtain needed capital or financing on satisfactory terms, our cash flows may be diminished or our financial leverage could increase.
- Our ability to access the capital and credit markets to raise capital and borrow on favorable terms will be affected by disruptions in the capital and credit markets, which could adversely affect our operations, our ability to make acquisitions and our ability to pay cash distributions.
- We are exposed to credit risk in the ordinary course of our business activities.
- Our business could be negatively impacted by inflation in the cost of labor, services and materials.
- Risks Related to Our Cash Distributions
- You will not receive cash distributions on your common units until we are able to redeem 100% of the outstanding Class C Preferred Units, as a result, you are unlikely to receive cash distributions on your common units for the foreseeable future.
- Our Credit Agreement restricts us from paying any distributions on our outstanding common units.
- You may continue to experience substantial dilution.
- If we do not complete expansion projects or make and integrate acquisitions, our future growth may be limited.
- Inadequate insurance could have a material adverse impact on our business, financial condition and results of operations.
- Risks Related to Regulatory Compliance
- Potential regulatory actions could increase our operating or capital costs and delay our operations or otherwise alter the way we conduct our business.
- Our failure to obtain or maintain necessary permits could adversely affect our operations.
- Increased regulation of hydraulic fracturing could result in reductions or delays in the production of natural gas, NGLs and oil by Mesquite, which could reduce the throughput on our facilities and adversely impact our revenues.
- We may incur significant liability under, or costs and expenditures to comply with, environmental and worker health and safety regulations, which are complex and subject to frequent change.
- We may incur significant costs and liabilities as a result of increasing stringency of pipeline safety regulatory requirements.
- Because we handle oil, natural gas and other petroleum products in our business, we may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental regulations.
- Risks Inherent in an Investment in Our Common Units
- In a liquidation, the preferential rights of the holder of our Class C Preferred Units could result in common unitholders losing their entire investment.
- We are currently not in compliance with the NYSE American listing standards. If our common units are delisted, it could result in even further reductions in the trading price and liquidity of our common units, which could materially adversely affect our ability to raise capital or pursue strategic transactions on acceptable terms, or at all.
- Certain events may result in our general partner exercising its limited call right, which may require common unitholders to sell their common units at an undesirable time or price.
- Stonepeak Catarina and its affiliates, including our general partner, will have conflicts of interest with us. They will not owe any fiduciary duties to us or our common unitholders, but instead will owe us and our common unitholders limited contractual duties, and they may favor their own interests to the detriment of us and our other common unitholders.
- Our general partner and its affiliates, including SP Holdings and Stonepeak Catarina, may not allocate corporate opportunities to us.
- Stonepeak may sell common units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.
- Our partnership agreement permits our general partner to redeem any partnership interests held by a limited partner who is an ineligible holder.
- Our partnership agreement replaces our general partner’s fiduciary duties to our common unitholders with contractual standards governing its duties.
- Our partnership agreement restricts the remedies available to our common unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
- Our partnership agreement includes exclusive forum, venue and jurisdiction provisions and limitations regarding claims, suits, actions or proceedings. By taking ownership of a common unit, a limited partner is irrevocably consenting to these provisions and limitations regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of Delaware courts.
- Holders of our common units will have limited voting rights and will not be entitled to elect our general partner or its directors.
- Our partnership agreement restricts the voting rights of common unitholders owning 20% or more of our common units.
- Our general partner interest or the control of our general partner may be transferred to a third-party without unitholder consent.
- We are able to issue additional units without common unitholder approval, which would dilute unitholder interests.
- Our general partner intends to limit its liability regarding our obligations.
- Your liability may not be limited if a court finds that unitholder action constitutes control of our business.
- Unitholders may have liability to repay distributions that were wrongfully distributed to them.
- The NYSE American does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.
- Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by states and localities. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for U.S. federal income tax purposes or if we were otherwise subject to a material amount of entity-level taxation, then our cash available for distribution would be substantially reduced.
- The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
- Our common unitholders’ share of our income will be taxable to them even if they do not receive any cash distributions from us. You will not receive cash distributions on your common units until we are able to redeem 100% of the outstanding Class C Preferred Units, as a result, you are unlikely to receive cash distributions on your common units for the foreseeable future.
- If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted, and our cash available for distribution might be substantially reduced.
- Tax gain or loss on the disposition of our common units could be more or less than expected.
- Unitholders may be subject to limitations on their ability to deduct interest expense we incur.
- Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
- Non-U.S. unitholders will be subject to U.S. federal income taxes and withholding with respect to income and gain from owning our common units.
- We treat each purchaser of our common units as having the same tax benefits without regard to the common units purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
- We prorate our items of income, gain, loss and deduction between transferors and transferees of common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the
- date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
- A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered as having disposed of those common units. If so, the unitholder would no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
- We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, and such a challenge could adversely affect the value of our common units.
- As a result of investing in our common units, our unitholders may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.
- The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.
Management Discussion
- (a)Variances deemed to be Not Meaningful “NM.”
- Gathering and transportation lease revenues. Gathering and transportation lease revenues decreased approximately $0.1 million or 2%, to approximately $5.9 million for the three months ended September 30, 2023 compared to approximately $6.0 million for the three months ended June 30, 2023. This decrease was primarily the result of a decrease in throughput.
- Transportation operating expenses. Our transportation operating expenses generally consist of equipment rentals, chemicals, treating, metering fees, permit and regulatory fees, labor, minor maintenance, tools, supplies and pipeline integrity management expenses and ad valorem taxes. Our transportation operating expenses increased by approximately $0.1 million, or 3%, to approximately $2.5 million for the three months ended September 30, 2023 compared to approximately $2.4 million for the three months ended June 30, 2023. This increase was due to an increase in non-recurring maintenance.