UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38919

Rattler Midstream LP

(Exact Name of Registrant As Specified in Its Charter)

83-1404608

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

500 West Texas

Suite 1200

Midland,

79701

(Address of principal executive offices)

(Zip code)

(432) 221-7400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	RTLR	The Nasdaq Stock Market LLC
		(NASDAQ Global Select Market)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October~~April 29, ~~2021,~~2022, the registrant had outstanding ~~39,905,768~~38,146,047 common units representing limited partner interests and 107,815,152 Class B units representing limited partner interests.

~~Table of Contents~~

RATTLER MIDSTREAM LP

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2021~~MARCH 31, 2022

TABLE OF CONTENTS


			Page
Glossary of Oil and Natural Gas Terms			ii
Glossary of Certain Other Terms			iii
Cautionary Statement Regarding Forward-Looking Statements			iv

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Statements of Changes in Unitholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			65
Condensed Notes to Consolidated Financial Statements			76

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2019

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3028

Item 4. Controls and Procedures			3129

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			3130

Item 1A. Risk Factors			3130

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3231



Item 6. Exhibits			3332

Signatures			3433

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GLOSSARY OF OIL AND NATURAL GAS TERMS

The following is a glossary of certain oil and natural gas industry terms used in this Quarterly Report on Form 10-Q (this “report”):


Basin			A large depression on the earth’s surface in which sediments accumulate.
Bbl or barrel			One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to crude oil, natural gas liquids or other liquid hydrocarbons.
Bbl/d			Bbl per day.





British Thermal Unit or Btu			The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
~~Completion~~			The process of treating a drilled well, followed by the installation of permanent equipment for the production of natural gas or oil or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Crude oil			Liquid hydrocarbons found in the earth, which may be refined into fuel sources.


~~Dry hole or dry well~~			~~A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.~~








Hydrocarbon			An organic compound containing only carbon and hydrogen.






~~Mcf~~			~~One thousand cubic feet of natural gas.~~
~~Mcf/d~~			~~One thousand cubic feet of natural gas per day.~~
MMcf			One million cubic feet of natural gas.
MMcf/d			One million cubic feet of natural gas per day.





MMBtu			One million British Thermal Units.
MMBtu/d			One million British Thermal Units per day.

Natural gas			Hydrocarbon gas found in the earth, composed of methane, ethane, butane, propane and other gases.
NGL			Natural gas liquids; the combination of ethane, propane, butane and natural gasolines that, when removed from natural gas, becomes liquid under various levels of higher pressure and lower temperature.






~~Operator~~Plugging and abandonment			~~The individual~~Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or ~~company responsible for~~to the ~~exploration and/or production~~surface. Regulations of ~~a crude oil or natural gas well or lease.~~all states require plugging of abandoned wells.






Reserves			Estimated remaining quantities of crude oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering crude oil and natural gas or related substances to the market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., potentially recoverable resources from undiscovered accumulations).
Reservoir			A porous and permeable underground formation containing a natural accumulation of producible natural gas and/or crude oil that is confined by impermeable rock or water barriers and is separate from other reservoirs.



Throughput			The volume of product transported or passing through a pipeline, plant, terminal or other facility.

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GLOSSARY OF CERTAIN OTHER TERMS

The following is a glossary of certain other terms used in this report:



ASU			Accounting Standards Update.
ASC			Accounting Standards Codification.
Diamondback			Diamondback Energy, Inc., a Delaware corporation, and its subsidiaries other than the Partnership and its subsidiaries (including the Operating Company).



Exchange Act			The Securities Exchange Act of 1934, as amended.

~~FASB~~			~~Financial Accounting Standards Board.~~
GAAP			Accounting principles generally accepted in the United States.
General Partner			Rattler Midstream GP LLC, a Delaware limited liability company; the ~~general partner~~General Partner of the Partnership and a wholly owned subsidiary of Diamondback.



Holding Company			Rattler Holdings LLC, a Delaware limited liability company and wholly owned subsidiary of Rattler.
LIBOR			The London interbank offered rate.
LTIP			Rattler Midstream LP Long Term Incentive Plan.
Nasdaq			The Nasdaq Global Select Market.
Notes			The 5.625% Senior Notes due 2025 issued on July 14, 2020.
OPEC			Organization of the Petroleum Exporting Countries.
Operating Company			Rattler Midstream Operating LLC, a Delaware limited liability company and a consolidated subsidiary of the Partnership.

Partnership			Rattler Midstream LP, a Delaware limited partnership.

Partnership agreement			The first amended and restated agreement of limited partnership, dated May 28, 2019.

RRC			The Railroad Commission of Texas.
SEC			Securities and Exchange Commission.
Securities Act			The Securities Act of 1933, as amended.

iii

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report ~~that express a belief, expectation, or intention, or that~~ are ~~not statements of historical fact, are forward-looking statements~~“forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange ~~Act. These forward-looking statements are subject to a number of~~Act, which involve risks, uncertainties, and ~~uncertainties, many of which are beyond our control.~~assumptions. All statements, other than statements of historical fact, including statements regarding ~~our strategy,~~our: future ~~operations,~~performance; business strategy; future operations; estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial ~~position, estimated revenues~~position; anticipated benefits of strategic transactions (including acquisitions and ~~losses, projected costs, prospects,~~divestitures); and plans and objectives of management (including plans for future cash flow from operations) are forward-looking statements. When used in this ~~report,~~document, the words ~~“could,~~“aim,” “anticipate,” “believe,” ~~“anticipate,~~“continue,” ~~“intend,~~“could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” ~~“continue,~~“model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” ~~“potential,~~“project,” ~~“project,~~“seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to the Partnership are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. ~~In particular,~~Although we believe that the ~~factors discussed~~expectations and assumptions reflected in ~~this report~~our forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond our control. Accordingly, forward-looking statements are not guarantees of future performance and our ~~Annual Report on Form 10-K for the year ended December 31, 2020~~actual outcomes could ~~affect our actual results and cause our actual results to~~ differ materially from ~~expectations, estimates or assumptions~~what we have expressed ~~forecasted or implied~~ in ~~such~~our forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our” or the “Partnership” are intended to mean the business and operations of the Partnership and its consolidated subsidiaries.

~~Forward-looking statements may~~Factors that could cause our outcomes to differ materially include ~~statements about:~~(but are not limited to) the following:

•Diamondback’s ability to meet its drilling and development plans on a timely basis or at all;

•~~the volatility of realized~~changes in supply and demand levels for oil, natural gas, and natural gas ~~prices, including in Diamondback’s area of operation in~~liquids, and the ~~Permian Basin;~~resulting impact on the price for those commodities;

•the ~~implications and logistical challenges~~impact of public health crises, including epidemic or pandemic diseases ~~including~~such as the COVID-19 pandemic, and ~~its impact on~~any related company or government policies or actions;

•actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and ~~natural gas industry pricing and demand for oil and natural gas and supply chain logistics;~~global political, economic, or diplomatic developments;

•changes in general economic, business or industry ~~conditions;~~conditions, including changes in foreign currency exchange rates, interest rates, and inflation rates;

•regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits;

•federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;

•restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the RRC in an effort to control induced seismicity in the Permian Basin;

•significant declines in prices for oil, natural gas, or natural gas liquids, which could require recognition of significant impairment charges;

•changes in U.S. energy, environmental, monetary and trade policies;

•conditions in the capital, financial and credit ~~markets;~~markets, including the availability and pricing of capital for drilling and development operations and our environmental and social responsibility projects;

•challenges with employee retention and an increasingly competitive ~~conditions in our industry and~~labor market due to a sustained labor shortage or increased turnover caused by the ~~effect of U.S. energy, environmental, monetary and trade policies on our industry and business;~~COVID-19 pandemic;

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

•changes in the demand for and costs of conducting midstream infrastructure services;

•~~our ability to successfully implement our business plan;~~changes in safety, health, environmental, tax, and other regulations or requirements (including those addressing air emissions, water management, or the impact of global climate change);

•security threats, including cybersecurity threats and disruptions to our ~~ability to complete internal growth projects on time~~business and ~~on budget;~~operations from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;

•our ability to identify, complete and effectively integrate acquisitions into our ~~operations, including the pending drop down acquisition discussed elsewhere in this report;~~operations;

•our ability to achieve anticipated synergies, system optionality and accretion associated with acquisitions;

•the ~~impact of potential impairment charges;~~

•~~the~~ results of our investments in joint ventures;

•~~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;~~

•~~the impact of severe weather conditions on Diamondback’s production volumes;~~

•~~increases in our tax liability;~~

•the conditions impacting the timing and amount of common units repurchased under our common unit repurchase program;

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

•~~the effects of future litigation; and~~

•~~certain other factors discussed elsewhere in this report.~~severe weather conditions;

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~~All~~•acts of war or terrorist acts and the governmental or military response thereto;

•defaults by Diamondback under our commercial agreements;

•changes in the financial strength of counterparties to our credit agreement;

•changes in our credit rating; and

•the risk factors discussed in Part II, Item 1A Risk Fa ctor s in this report and Part I, Item 1A Risk Factors of our Annual Report on Form 10-Kfor the year ended December 31, 2021.

In light of these factors, the events anticipated by our forward-looking statements ~~speak only as of~~may not occur at the ~~date of this report~~time anticipated or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities laws. You should not place undue reliance on these forward-looking statements.at all. Moreover, we operate in a very competitive and rapidly changing ~~environment. New~~environment and new risks emerge from time to time. ~~It is not possible for our management to~~We cannot predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those ~~contained in~~anticipated by any forward-looking statements we may make. ~~Although we believe that our plans, intentions and expectations reflected in or suggested by the~~Accordingly, you should not place undue reliance on any forward-looking statements ~~we make~~made in this ~~report are reasonable, we can give no assurance that these plans, intentions~~document. All forward-looking statements speak only as of the date of this document or, ~~expectations will be achieved~~if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or ~~occur, and actual results could differ materially and adversely from those anticipated or implied in the~~revise any forward-looking ~~statements.~~statements unless required by applicable law.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Rattler Midstream LP

Condensed Consolidated Balance Sheets

(Unaudited)


							March 31,		December 31,
		September 30,		December 31,			2022		2021
		2021		2020
		(In thousands)					(In thousands)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash	Cash	$	13,080	$	23,927	Cash	$	13,702	$	19,897
Accounts receivable—related party		47,094		57,447
Accounts receivable—third party, net		11,042		5,658
Accounts receivable—related-party						Accounts receivable—related-party	49,885		58,154
Accounts receivable—third-party, net						Accounts receivable—third-party, net	14,107		9,415
Sourced water inventory	Sourced water inventory	9,668		10,108		Sourced water inventory	13,512		13,081
Assets held for sale		83,285		—
Other current assets	Other current assets	658		1,127		Other current assets	1,008		1,181
Total current assets	Total current assets	164,827		98,267		Total current assets	92,214		101,728
Property, plant and equipment:	Property, plant and equipment:					Property, plant and equipment:
Land	Land	85,826		85,826		Land	98,646		98,645
Property, plant and equipment	Property, plant and equipment	922,650		1,012,777		Property, plant and equipment	1,119,113		1,075,405
Accumulated depreciation, amortization and accretion	Accumulated depreciation, amortization and accretion	(111,995)		(100,728)		Accumulated depreciation, amortization and accretion	(130,989)		(121,507)
Property, plant and equipment, net	Property, plant and equipment, net	896,481		997,875		Property, plant and equipment, net	1,086,770		1,052,543
Right of use assets		59		574

Equity method investments	Equity method investments	509,174		532,927		Equity method investments	643,205		612,541
Real estate assets, net	Real estate assets, net	85,339		96,687		Real estate assets, net	84,563		84,609
Intangible lease assets, net	Intangible lease assets, net	3,771		4,262		Intangible lease assets, net	3,544		3,650
Deferred tax asset	Deferred tax asset	65,016		73,264		Deferred tax asset	59,548		62,356
Other assets	Other assets	3,924		4,732		Other assets	6,160		3,708
Total assets	Total assets	$	1,728,591	$	1,808,588	Total assets	$	1,976,004	$	1,921,135
Liabilities and Unitholders’ Equity	Liabilities and Unitholders’ Equity					Liabilities and Unitholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:

Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	41,125	$	42,647	Accounts payable and accrued liabilities	$	58,480	$	48,267
Taxes payable	Taxes payable	655		192		Taxes payable	603		603
Short-term lease liability		59		574

Asset retirement obligations	Asset retirement obligations	79		35		Asset retirement obligations	—		79
Total current liabilities	Total current liabilities	41,918		43,448		Total current liabilities	59,083		48,949
Long-term debt	Long-term debt	492,456		569,947		Long-term debt	723,460		687,956
Asset retirement obligations	Asset retirement obligations	16,476		15,093		Asset retirement obligations	33,932		16,911

Total liabilities	Total liabilities	550,850		628,488		Total liabilities	816,475		753,816
Commitments and contingencies (Note 15)		0		0
Commitments and contingencies (Note 16)						Commitments and contingencies (Note 16)	0		0
Unitholders’ equity:	Unitholders’ equity:					Unitholders’ equity:

General partner—Diamondback		839		899
Common units—public (39,960,128 units issued and outstanding as of September 30, 2021 and 42,356,637 units issued and outstanding as of December 31, 2020)		364,985		385,189
Class B units—Diamondback (107,815,152 units issued and outstanding as of September 30, 2021 and as of December 31, 2020)		839		899
General Partner—Diamondback						General Partner—Diamondback	799		819
Common units—public (38,146,047 units issued and outstanding as of March 31, 2022 and 38,356,771 units issued and outstanding as of December 31, 2021)						Common units—public (38,146,047 units issued and outstanding as of March 31, 2022 and 38,356,771 units issued and outstanding as of December 31, 2021)	347,628		350,230
Class B units—Diamondback (107,815,152 units issued and outstanding as of March 31, 2022 and as of December 31, 2021)						Class B units—Diamondback (107,815,152 units issued and outstanding as of March 31, 2022 and as of December 31, 2021)	799		819
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	10		(123)		Accumulated other comprehensive income (loss)	11		10
Total Rattler Midstream LP unitholders’ equity	Total Rattler Midstream LP unitholders’ equity	366,673		386,864		Total Rattler Midstream LP unitholders’ equity	349,237		351,878
Non-controlling interest	Non-controlling interest	811,068		793,638		Non-controlling interest	810,292		815,441
Non-controlling interest in accumulated other comprehensive income (loss)		—		(402)

Total equity	Total equity	1,177,741		1,180,100		Total equity	1,159,529		1,167,319
Total liabilities and unitholders’ equity	Total liabilities and unitholders’ equity	$	1,728,591	$	1,808,588	Total liabilities and unitholders’ equity	$	1,976,004	$	1,921,135

See accompanying notes to condensed consolidated financial statements.

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Rattler Midstream LP

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands, expect per unit amounts)									(In thousands, expect per unit amounts)
Revenues:	Revenues:									Revenues:
Revenues—related party		$	87,613	$	85,846	$	266,270	$	280,460
Revenues—third party		5,885		7,229		19,973		23,504
Other income—related party		2,080		2,431		7,162		5,419
Other income—third party		992		1,033		3,104		5,286
Midstream revenues—related-party										Midstream revenues—related-party	$	90,302	$	87,078
Midstream revenues—third-party										Midstream revenues—third-party	10,446		8,121
Other revenues—related-party										Other revenues—related-party	1,751		2,540
Other revenues—third-party										Other revenues—third-party	964		1,069
Total revenues	Total revenues	96,570		96,539		296,509		314,669		Total revenues	103,463		98,808
Costs and expenses:	Costs and expenses:									Costs and expenses:
Direct operating expenses	Direct operating expenses	22,335		31,173		81,145		101,425		Direct operating expenses	21,628		32,511
Cost of goods sold (exclusive of depreciation and amortization)	Cost of goods sold (exclusive of depreciation and amortization)	10,951		6,663		30,060		27,368		Cost of goods sold (exclusive of depreciation and amortization)	15,180		8,811
Real estate operating expenses	Real estate operating expenses	558		494		1,619		1,812		Real estate operating expenses	533		517
Depreciation, amortization and accretion	Depreciation, amortization and accretion	11,443		10,990		37,928		35,596		Depreciation, amortization and accretion	20,687		11,246
Impairment and abandonments	Impairment and abandonments	—		—		3,371		—		Impairment and abandonments	1,082		3,371
General and administrative expenses	General and administrative expenses	5,338		3,140		14,928		11,829		General and administrative expenses	5,345		4,634
(Gain) loss on disposal of assets	(Gain) loss on disposal of assets	1,144		(16)		6,155		2,765		(Gain) loss on disposal of assets	(71)		6
Total costs and expenses	Total costs and expenses	51,769		52,444		175,206		180,795		Total costs and expenses	64,384		61,096
Income (loss) from operations	Income (loss) from operations	44,801		44,095		121,303		133,874		Income (loss) from operations	39,079		37,712
Other income (expense):	Other income (expense):									Other income (expense):
Interest income (expense), net	Interest income (expense), net	(8,172)		(5,817)		(23,717)		(10,364)		Interest income (expense), net	(8,684)		(7,310)
Gain (loss) on sale of equity method investments		31		—		23,020		—

Income (loss) from equity method investments	Income (loss) from equity method investments	4,825		3,369		6,474		(9,910)		Income (loss) from equity method investments	9,080		(2,823)
Total other income (expense), net	Total other income (expense), net	(3,316)		(2,448)		5,777		(20,274)		Total other income (expense), net	396		(10,133)
Net income (loss) before income taxes	Net income (loss) before income taxes	41,485		41,647		127,080		113,600		Net income (loss) before income taxes	39,475		27,579
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	2,551		2,851		7,761		7,754		Provision for (benefit from) income taxes	2,384		1,671
Net income (loss)	Net income (loss)	38,934		38,796		119,319		105,846		Net income (loss)	37,091		25,908
Less: Net income (loss) attributable to non-controlling interest	Less: Net income (loss) attributable to non-controlling interest	30,449		29,578		92,374		80,775		Less: Net income (loss) attributable to non-controlling interest	29,160		19,893
Net income (loss) attributable to Rattler Midstream LP	Net income (loss) attributable to Rattler Midstream LP	$	8,485	$	9,218	$	26,945	$	25,071	Net income (loss) attributable to Rattler Midstream LP	$	7,931	$	6,015
Net income (loss) attributable to limited partners per common unit:	Net income (loss) attributable to limited partners per common unit:									Net income (loss) attributable to limited partners per common unit:
Basic	Basic	$	0.20	$	0.20	$	0.62	$	0.53	Basic	$	0.19	$	0.13
Diluted	Diluted	$	0.20	$	0.20	$	0.62	$	0.53	Diluted	$	0.19	$	0.13
Weighted average number of limited partner common units outstanding:	Weighted average number of limited partner common units outstanding:									Weighted average number of limited partner common units outstanding:
Basic	Basic	40,542		43,996		41,101		43,837		Basic	38,159		41,742
Diluted	Diluted	40,542		43,996		41,101		43,837		Diluted	38,376		41,742

See accompanying notes to condensed consolidated financial statements.

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Rattler Midstream LP

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In thousands)
Net income (loss)	Net income (loss)	$	38,934	$	38,796	$	119,319	$	105,846	Net income (loss)	$	37,091	$	25,908
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Change in accumulated other comprehensive income (loss) of equity method investees attributable to non-controlling interest	Change in accumulated other comprehensive income (loss) of equity method investees attributable to non-controlling interest	—		306		402		(70)		Change in accumulated other comprehensive income (loss) of equity method investees attributable to non-controlling interest	—		299
Change in accumulated other comprehensive income (loss) of equity method investees attributable to limited partner	Change in accumulated other comprehensive income (loss) of equity method investees attributable to limited partner	—		97		133		(25)		Change in accumulated other comprehensive income (loss) of equity method investees attributable to limited partner	1		93
Total other comprehensive income (loss)	Total other comprehensive income (loss)	—		403		535		(95)		Total other comprehensive income (loss)	1		392
Comprehensive income (loss)	Comprehensive income (loss)	$	38,934	$	39,199	$	119,854	$	105,751	Comprehensive income (loss)	$	37,092	$	26,300

See accompanying notes to condensed consolidated financial statements.

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Rattler Midstream LP

Condensed Consolidated Statements of Changes in Unitholders’ Equity

(Unaudited)

Limited Partners General Partner Non-Controlling Interest Accumulated Other Comprehensive Income Non-Controlling Interest-Accumulated Other Comprehensive Income
Common Units Amount Class B Units Amount Amount Amount Amount Amount Total
(In thousands)
Balance at December 31, 2020 42,357 $ 385,189 107,815 $ 899 $ 899 $ 793,638 $ (123) $ (402) $ 1,180,100
Repurchased units as part of unit buyback (1,082) (11,114) — — — — — — (11,114)
Unit-based compensation — 2,332 — — — — — — 2,332
Issuance of common units 3 — — — — — — — —
Other comprehensive income (loss) — — — — — — 93 299 392
Change in ownership of consolidated subsidiaries, net — 712 — — — (908) — — (196)
Cash paid for tax withholding on vested common units — (21) — — — — — — (21)
Distribution equivalent rights payments — (418) — — — — — — (418)
Distributions — (8,263) — (20) (20) (21,563) — — (29,866)
Net income (loss) — 6,015 — — — 19,893 — — 25,908
Balance at March 31, 2021 41,278 374,432 107,815 879 879 791,060 (30) (103) 1,167,117
Repurchased units as part of unit buyback (475) (5,198) — — — — — — (5,198)
Unit-based compensation — 2,485 — — — — — — 2,485
Issuance of common units 273 — — — — — — — —
Other comprehensive income (loss) — — — — — — 40 103 143
Change in ownership of consolidated subsidiaries, net — 1,941 — — — (2,476) — — (535)
Cash paid for tax withholding on vested common units — (1,693) — — — — — — (1,693)
Distribution equivalent rights payments — (456) — — — — — — (456)
Distributions — (8,183) — (20) (20) (21,563) — — (29,786)
Net income (loss) — 12,445 — — — 42,032 — — 54,477
Balance at June 30, 2021 41,076 375,773 107,815 859 859 809,053 10 — 1,186,554
Repurchased units as part of unit buyback (1,148) (12,312) — — — — — — (12,312)
Unit-based compensation — 2,491 — — — — — — 2,491
Issuance of common units 32 — — — — — — — —
Other comprehensive income (loss) — — — — — 0 — — —
Change in ownership of consolidated subsidiaries, net — 1,160 — — — (1,480) — — (320)
Cash paid for tax withholding on vested common units — — — — — — — — —
Distribution equivalent rights payments — (458) — — — — — — (458)
Distributions — (10,154) — (20) (20) (26,954) — — (37,148)
Net income (loss) — 8,485 — — — 30,449 — — 38,934
Balance at September 30, 2021 39,960 $ 364,985 107,815 $ 839 $ 839 $ 811,068 $ 10 $ — $ 1,177,741

~~See accompanying notes to condensed consolidated financial statements.~~

~~Table of Contents~~

~~Rattler Midstream LP~~

~~Condensed Consolidated Statements of Changes in Unitholders’ Equity - Continued~~

~~(Unaudited)~~


	Limited Partners						General Partner		Non-Controlling Interest		Accumulated Other Comprehensive Income		Non-Controlling Interest-Accumulated Other Comprehensive Income
	Common Units	Amount		Class B Units	Amount		Amount		Amount		Amount		Amount		Total
	(In thousands)
Balance at December 31, 2021	38,357	$	350,230	107,815	$	819	$	819	$	815,441	$	10	$	—	$	1,167,319
Repurchased units as part of unit buyback	(217)	(2,582)		—	—		—		—		—		—		(2,582)
Unit-based compensation	—	2,520		—	—		—		—		—		—		2,520
Issuance of common units	6	—		—	—		—		—		—		—		—

Other comprehensive income (loss)	—	—		—	—		—		—		1		—		1
Change in ownership of consolidated subsidiaries, net	—	1,540		—	—		—		(1,964)		—		—		(424)
Cash paid for tax withholding on vested common units	—	(56)		—	—		—		—		—		—		(56)
Distribution equivalent rights payments	—	(511)		—	—		—		—		—		—		(511)
Distributions	—	(11,444)		—	(20)		(20)		(32,345)		—		—		(43,829)
Net income (loss)	—	7,931		—	—		—		29,160		—		—		37,091
Balance at March 31, 2022	38,146	$	347,628	107,815	$	799	$	799	$	810,292	$	11	$	—	$	1,159,529


		Limited Partners						General Partner		Non-Controlling Interest		Accumulated Other Comprehensive Income		Non-Controlling Interest-Accumulated Other Comprehensive Income					Limited Partners						General Partner		Non-Controlling Interest		Accumulated Other Comprehensive Income		Non-Controlling Interest-Accumulated Other Comprehensive Income
		Common Units	Amount		Class B Units	Amount										Total			Common Units	Amount		Class B Units	Amount										Total
		(In thousands)																	(In thousands)
Balance at December 31, 2019		43,700	$	737,777	107,815	$	979	$	979	$	376,928	$	(198)	$	(625)	$	1,115,840
Balance at December 31, 2020																		Balance at December 31, 2020	42,357	$	385,189	107,815	$	899	$	899	$	793,638	$	(123)	$	(402)	$	1,180,100
Repurchased units as part of unit buyback																		Repurchased units as part of unit buyback	(1,082)	(11,114)		—	—		—		—		—		—		(11,114)
Unit-based compensation	Unit-based compensation	—	2,219		—	—		—		—		—		—		2,219		Unit-based compensation	—	2,332		—	—		—		—		—		—		2,332
Issuance of common units																		Issuance of common units	3	—		—	—		—		—		—		—		—
Other comprehensive income (loss)																		Other comprehensive income (loss)	—	—		—	—		—		—		93		299		392
Change in ownership of consolidated subsidiaries, net																		Change in ownership of consolidated subsidiaries, net	—	712		—	—		—		(908)		—		—		(196)
Cash paid for tax withholding on vested common units																		Cash paid for tax withholding on vested common units	—	(21)		—	—		—		—		—		—		(21)
Distribution equivalent rights payments	Distribution equivalent rights payments	—	(652)		—	—		—		—		—		—		(652)		Distribution equivalent rights payments	—	(418)		—	—		—		—		—		—		(418)
Other comprehensive income (loss)		—	—		—	—		—		—		(63)		(195)		(258)
Distributions	Distributions	—	(12,673)		—	(20)		(20)		(31,266)		—		—		(43,979)		Distributions	—	(8,263)		—	(20)		(20)		(21,563)		—		—		(29,866)
Net income (loss)	Net income (loss)	—	13,031		—	—		—		41,557		—		—		54,588		Net income (loss)	—	6,015		—	—		—		19,893		—		—		25,908
Balance at March 31, 2020		43,700	739,702		107,815	959		959		387,219		(261)		(820)		1,127,758
Unit-based compensation		450	2,120		—	—		—		—		—		—		2,120
Distribution equivalent rights payments		—	(644)		—	—		—		—		—		—		(644)
Other comprehensive income (loss)		—	—		—	—		—		—		(59)		(181)		(240)
Distributions		—	(12,673)		—	(20)		(20)		(31,267)		—		—		(43,980)
Change in ownership of consolidated subsidiaries, net		—	(329,034)		—	—		—		419,647		—		—		90,613
Units repurchased for tax withholding		(154)	(1,365)		—	—		—		—		—		—		(1,365)
Net income (loss)		—	2,822		—	—		—		9,640		—		—		12,462
Balance at June 30, 2020		43,996	400,928		107,815	939		939		785,239		(320)		(1,001)		1,186,724
Unit-based compensation		—	2,216		—	—		—		—		—		—		2,216
Distribution equivalent rights payments		—	(524)		—	—		—		—		—		—		(524)
Other comprehensive income (loss)		—	—		—	—		—		—		97		306		403
Distributions		—	(12,758)		—	(20)		(20)		(31,267)		—		—		(44,065)
Balance at March 31, 2021																		Balance at March 31, 2021	41,278	$	374,432	107,815	$	879	$	879	$	791,060	$	(30)	$	(103)	$	1,167,117

Net income (loss)		—	9,218		—	—		—		29,578		—		—		38,796
Balance at September 30, 2020		43,996	$	399,080	107,815	$	919	$	919	$	783,550	$	(223)	$	(695)	$	1,183,550

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Rattler Midstream LP

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	37,091	$	25,908
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for deferred income taxes	2,387		1,671
Depreciation, amortization and accretion	20,687		11,246


Unit-based compensation expense	2,520		2,332
Impairment and abandonments	1,082		3,371

(Income) loss from equity method investments	(9,080)		2,823
Distributions from equity method investments	7,550		—
Other	574		509
Changes in operating assets and liabilities:
Accounts receivable—related-party	5,740		11,209
Accounts receivable—third-party	(4,660)		(1,402)

Accounts payable and accrued liabilities	(4,067)		(6,092)
Other	64		1,093
Net cash provided by (used in) operating activities	59,888		52,668
Cash flows from investing activities:
Additions to property, plant and equipment	(17,888)		(5,860)
Acquisitions of property, plant and equipment	(4,334)		—
Contributions to equity method investments	(29,133)		(3,663)

Distributions from equity method investments	—		9,107



Other	(2,750)		—
Net cash provided by (used in) investing activities	(54,105)		(416)
Cash flows from financing activities:

Proceeds from borrowings from Credit Agreement	35,000		12,000
Payments on Credit Agreement	—		(37,000)


Repurchased units as part of unit buyback	(2,582)		(11,114)


Distribution to public	(11,444)		(8,263)
Distribution to Diamondback	(32,365)		(21,583)
Other	(587)		(459)
Net cash provided by (used in) financing activities	(11,978)		(66,419)
Net increase (decrease) in cash	(6,195)		(14,167)
Cash at beginning of period	19,897		23,927
Cash at end of period	$	13,702	$	9,760






Supplemental disclosure of non-cash investing activity:

Accrued liabilities related to capital expenditures	$	23,180	$	8,725

See accompanying notes to condensed consolidated financial statements.

~~Table of Contents~~

~~Rattler Midstream LP~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Nine Months Ended September 30,
2021 2020
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 119,319 $ 105,846
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for deferred income taxes 7,761 7,754
Depreciation, amortization and accretion 37,928 35,596
(Gain) loss on disposal of assets 6,155 2,765
Unit-based compensation expense 7,308 6,555
Impairment and abandonments 3,371 —
Gain (loss) on sale of equity method investments (23,020) —
(Income) loss from equity method investments (6,474) 9,910
Distributions from equity method investments 23,284 —
Other 1,509 467
Changes in operating assets and liabilities:
Accounts receivable—related party 10,347 1,649
Accounts payable, accrued liabilities and taxes payable (3,673) 117
Other 1,984 6,715
Net cash provided by (used in) operating activities 185,799 177,374
Cash flows from investing activities:
Additions to property, plant and equipment (24,139) (124,989)
Contributions to equity method investments (7,069) (89,751)
Distributions from equity method investments 9,107 27,490
Proceeds from the sale of equity method investments 23,485 —
Proceeds from the sale of real estate 9,191 —
Other 250 42
Net cash provided by (used in) investing activities 10,825 (187,208)
Cash flows from financing activities:
Proceeds from senior notes — 500,000
Proceeds from borrowings from credit facility 44,000 179,000
Payments on credit facility (123,000) (518,000)
Debt issuance costs — (10,014)
Repurchased units as part of unit buyback (28,624) —
Distribution to public (26,600) (38,104)
Distribution to Diamondback (70,140) (93,860)
Other (3,107) (3,245)
Net cash provided by (used in) financing activities (207,471) 15,777
Net increase (decrease) in cash (10,847) 5,943
Cash at beginning of period 23,927 10,633
Cash at end of period $ 13,080 $ 16,576
Supplemental disclosure of non-cash investing activity:
Accrued liabilities related to capital expenditures $ 35,373 $ 13,689

~~See accompanying notes to condensed consolidated financial statements.~~

Table of Contents

Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

The Partnership is a publicly traded Delaware limited partnership focused on owning, operating, developing and acquiring midstream and energy-related infrastructure assets in the Midland and Delaware Basins of the Permian Basin.

As of ~~September 30, 2021,~~March 31, 2022, the General Partner held a 100% general partner interest in the ~~Partnership and~~Partnership. Diamondback beneficially owned all of the Partnership’s 107,815,152 outstanding Class B units, representing approximately ~~73%~~74% of the Partnership’s total units outstanding. Diamondback owns and controls the General Partner.

As of ~~September 30, 2021,~~March 31, 2022, the ~~Partnership~~Holding Company owned a ~~27% controlling~~26% membership interest and 100% of the sole managing membership interest in the Operating Company, and Diamondback owned, through its ownership of the Operating Company units, a ~~73%~~74% economic, non-voting interest in the Operating Company. As required by GAAP, the Partnership consolidates 100% of the assets and operations of the Holding Company and the Operating Company in its financial statements and reflects a non-controlling interest attributable to Diamondback. In addition to the Holding Company and the Operating Company, other consolidated subsidiaries of the Partnership include Tall City Towers LLC (“Tall Towers”), Rattler Ajax Processing LLC, Rattler BANGL LLC, Rattler WTG LLC and Rattler OMOG LLC.

As of ~~September 30, 2021,~~March 31, 2022, the Partnership also owns indirect interests in OMOG JV LLC (“OMOG”), EPIC Crude Holdings, LP (“EPIC”), EPIC Crude Holdings GP, LLC, Wink to Webster Pipeline LLC (“Wink to Webster”) ~~and~~, Gray Oak Pipeline, LLC (“Gray Oak”), Remuda Midstream Holdings LLC (the “WTG joint venture”) and BANGL LLC (“BANGL”), which are accounted for as equity method investments as discussed further in Note 7—8— Equity Method Investments.

Basis of Presentation

The accompanying condensed consolidated financial statements and related notes thereto were prepared in accordance with GAAP. All significant intercompany balances and transactions have been eliminated upon consolidation. The Partnership reports its operations in 1 reportable segment. Effective in the first quarter of fiscal 2021, the Partnership determined the former real estate operations segment no longer met the criteria to be an operating segment due to a change in focus and the relative immateriality of the activity.

These condensed consolidated financial statements have been prepared by the Partnership without audit, pursuant to the rules and regulations of the SEC. They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to SEC rules and regulations, although the Partnership believes the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10–Q should be read in conjunction with the Partnership’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which contains a summary of the Partnership’s significant accounting policies and other disclosures.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications had no effect on the previously reported total assets, total liabilities, unitholders’ equity, results of operations or cash flows.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Certain amounts included in or affecting the Partnership’s financial statements and related notes must be estimated by management, requiring certain assumptions to be made with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts the Partnership reports for assets and liabilities and the Partnership’s disclosure of contingent assets and liabilities as of the date of the financial statements.

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Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements - Continued

(Unaudited)

Making accurate estimates and assumptions is particularly difficult in the oil and natural gas industry given the challenges resulting from volatility in oil and natural gas prices. For instance, in ~~2020,~~response to the effects of COVID-19 and actions by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets, resulted in significant negative pricing pressure in the first half of 2020, followed by a recovery in pricing and an increase in demand in the second half of 2020 and into 2021. However, the COVID-19 Delta variant emerged in March 2021 and became highly transmissible in July 2021, which contributed to additional pricing volatility during the third quarter of 2021. Manymany companies in the oil and natural gas industry, including Diamondback, changed their business plans in response to changing market conditions. Such circumstances generally increase the uncertainty in the Partnership’s accounting estimates, particularly those involving financial forecasts.

The Partnership evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods it considers reasonable in each particular circumstance. Nevertheless, actual results may differ significantly from the Partnership’s estimates. Any effects on the Partnership’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Significant items subject to such estimates and assumptions include, but are not limited to, (i) revenue accruals, (ii) the fair value of long-lived assets ~~(iii) asset retirement obligations~~ and ~~(iv)~~equity method investments and (iii) income taxes.

Accrued Liabilities and Accounts Payable

Accrued liabilities and accounts payable consist of the following as of the dates indicated:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In thousands)
Direct operating expenses accrued	Direct operating expenses accrued	$	15,043	$	18,160	Direct operating expenses accrued	$	11,213	$	12,978
Interest expense accrued						Interest expense accrued	5,859		12,911
Capital expenditures accrued	Capital expenditures accrued	6,868		5,328		Capital expenditures accrued	16,079		5,509
Interest expense accrued		5,859		12,969
Sourced water purchases accrued	Sourced water purchases accrued	5,704		3,597		Sourced water purchases accrued	7,759		7,040
Accounts Payable		5,752		139
Accounts payable						Accounts payable	16,688		8,452
Other	Other	1,899		2,454		Other	882		1,377
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	41,125	$	42,647	Accounts payable and accrued liabilities	$	58,480	$	48,267

Accumulated Other Comprehensive Income

The following table provides changes in the components of accumulated other comprehensive income, net of related income tax effects (in thousands):



Balance as of December 31, ~~2020~~2021	$	~~(525)~~10
Other comprehensive income (loss)	~~535~~1
Balance as of ~~September 30, 2021~~March 31, 2022	$	1011

Recent Accounting Pronouncements

Recently Adopted Pronouncements

~~In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the~~ There are no recently adopted pronouncements.

Accounting ~~for Income Taxes.” This update is intended to simplify the~~Pronouncements Not Yet Adopted

There are no recent accounting for income taxes by removing certain exceptions and by clarifying and amending existing guidance. This update is effective for public business entities beginning after December 15, 2020, with early adoption permitted. The Partnership adopted this update effective January 1, 2021. The adoption of this update didpronouncements not ~~have a material impact on its financial position, results of operations or liquidity.~~yet adopted.

The Partnership considers the applicability and impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable or clarifications of ASUs previously disclosed.

Table of Contents

Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements - Continued

(Unaudited)

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Partnership generates revenues by charging fees on a per unit basis for gathering crude oil and natural gas, delivering and storing sourced water, and collecting, recycling and disposing of produced water.

Surface revenue, rental and real estate income and amortization of out of market leases are outside the scope of ASC Topic 606, “Revenue from Contracts with Customers.”

Disaggregation of Revenue

In the following table, revenue from contracts with customers is disaggregated by type of service and fee:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In thousands)
Type of Service:	Type of Service:									Type of Service:
Produced water gathering and disposal	Produced water gathering and disposal	$	64,943	$	67,800	$	199,876	$	217,646	Produced water gathering and disposal	$	71,047	$	66,328
Sourced water gathering	Sourced water gathering	16,832		12,653		49,514		48,308		Sourced water gathering	23,019		16,577
Crude oil gathering	Crude oil gathering	5,933		7,531		19,521		22,617		Crude oil gathering	6,209		6,791
Natural gas gathering	Natural gas gathering	5,697		5,076		17,021		14,506		Natural gas gathering	—		5,400
Caliche										Caliche	365		—
Real estate contracts (non ASC 606 revenues)	Real estate contracts (non ASC 606 revenues)	3,072		3,464		10,266		10,705		Real estate contracts (non ASC 606 revenues)	2,714		3,609
Surface revenue (non ASC 606 revenues)	Surface revenue (non ASC 606 revenues)	93		15		311		887		Surface revenue (non ASC 606 revenues)	109		103
Total revenues	Total revenues	$	96,570	$	96,539	$	296,509	$	314,669	Total revenues	$	103,463	$	98,808

4. ACQUISITIONS AND DIVESTITURES

2022 Activity

Acquisition

BANGL Joint Venture Acquisition

On January 19, 2022, a wholly owned subsidiary of the Operating Company invested approximately $22.2 million in cash to acquire a 10% interest in the BANGL joint venture. The BANGL pipeline, which began full commercial service in the fourth quarter of 2021, provides NGL takeaway capacity from the MPLX and WTG gas processing plants in the Permian Basin to the NGL fractionation hub in Sweeny, Texas and has expansion capacity of up to 300,000 Bbl/d.

2021 Activity

Acquisitions

WTG Joint Venture Acquisition

On October 5, 2021, the Partnership and a private affiliate of an investment fund formed the WTG joint venture. The Operating Company invested approximately $104.0 million in cash to acquire a 25% interest in the WTG joint venture, which then completed an acquisition of a majority interest in WTG Midstream LLC (“WTG Midstream”) from West Texas Gas, Inc. and its affiliates. WTG Midstream’s assets primarily consist of an interconnected gas gathering system and 6 major gas processing plants servicing the Midland Basin with 925 MMcf/d of total processing capacity with additional gas gathering and processing expansions planned.

Table of Contents

Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements - Continued

(Unaudited)

Drop Down Transaction

On December 1, 2021, the Partnership acquired certain water midstream assets (the “Drop Down assets”) from Diamondback and certain of its subsidiaries (the “Seller”) for $164.4 million, including post-closing adjustments, in cash in a drop down transaction (the “Drop Down”). The Partnership and the Seller also amended their commercial agreements covering produced water gathering and disposal and sourced water gathering services to add certain Diamondback leasehold acreage to the Partnership’s dedication. The Drop Down was accounted for as a transaction between entities under common control with assets recognized at Diamondback’s historical carrying value of $163.9 million in the consolidated balance sheet.

The Drop Down assets include 9 active saltwater disposal injection wells with 330 MBbl/d of capacity, 7 produced water recycling and storage facilities, 20 fresh water pits and approximately 4,000 acres of fee surface. Also included are 55 miles of produced water gathering pipeline and 18 miles of sourced water gathering pipeline. The Partnership funded the transaction with borrowings under the Credit Agreement (as defined below).

Divestitures

Amarillo Rattler Divestiture

On April 30, 2021, each of the Partnership and its joint venture partner, Amarillo Midstream, LLC, sold its 50% interest in Amarillo Rattler, LLC (“Amarillo Rattler”) to EnLink Midstream Operating, LP for aggregate total gross potential consideration of $75.0 million, consisting of $50.0 million at closing, $10.0 million upon the first anniversary of closing and up to $15.0 million in contingent earn-out payments over a three-year span based upon Diamondback's development activity. The earn-out payments are contingent on connected wells drilled in Diamondback’s leasehold acreage in the specified earn-out area during each year between 2023 and 2025. Net of transaction expenses and working capital adjustments, the Partnership received $23.5 million at closing, with an incremental $5.0 million due in April 2022, which resulted in a gain on sale of equity method investments of $23.0 ~~million in the consolidated statement of operations for the nine months ended September 30, 2021.The~~million. The Partnership’s share of the contingent earn-out payments, which cannot exceed $7.5 million in total over the three-year span, will be recorded if and when the contingent payments become realizable.

In the first quarter of 2022, the Partnership acquired Amarillo Midstream, LLC’s share of the contingent consideration earn-out payments from the sale of Amarillo Rattler for $2.8 million. The Partnership will record the contingent earn-out payments if and when they become realizable.

Real Estate Divestiture

On June 28, 2021, the Partnership ~~closed on~~completed the sale of 1 of its real estate properties located in Midland, Texas for proceeds of $9.1 million, including closing adjustments. The sale resulted in a loss on disposal of assets of ~~$1.6 million, in the consolidated statement of operations for the nine-months ended September 30, 2021.~~$0.4 million.

Pecos County Gas Gathering Divestiture

~~See Note 16—~~
~~Subsequent Events~~

On November 1, 2021, the Partnership completed the sale of its gas gathering assets to Brazos Delaware Gas, LLC, an affiliate of Brazos Midstream, for ~~further discussion~~aggregate total gross potential consideration of ~~acquisitions~~$93.0 million, consisting of (i) $83.0 million due at closing, subject to customary closing adjustments, (ii) a $5.0 million contingent payment due in 2023 if the aggregate actual deliveries of gas volumes into the gas gathering system by and/or on behalf of Diamondback and ~~divestitures~~its affiliates exceed certain specified thresholds during 2022, and (iii) a $5.0 million contingent payment due in 2024 if the ~~fourth quarter~~aggregate actual deliveries of ~~2021.~~gas volumes into the gas gathering system by and/or on behalf of Diamondback and its affiliates exceed certain specified thresholds during 2022 and 2023. The contingent payments will be recorded if and when they become realizable.

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5. REAL ESTATE ASSETS

The following schedules present the cost and related accumulated depreciation or amortization (as applicable) of the Partnership’s real estate assets and intangible lease assets:


			As of						As of
		Estimated Useful Lives	September 30, 2021		December 31, 2020			Estimated Useful Lives	March 31, 2022		December 31, 2021
		(Years)	(In thousands)					(Years)	(In thousands)
Buildings	Buildings	20-30	$	94,760	$	102,918	Buildings	20-30	$	95,611	$	94,825
Tenant improvements	Tenant improvements	15	4,506		4,506		Tenant improvements	5-15	4,527		4,506
Land	Land	N/A	947		2,437		Land	N/A	964		964
Land improvements	Land improvements	15	484		484		Land improvements	5-15	531		531
Total real estate assets	Total real estate assets		100,697		110,345		Total real estate assets		101,633		100,826
Less: accumulated depreciation	Less: accumulated depreciation		(15,358)		(13,658)		Less: accumulated depreciation		(17,070)		(16,217)
Total investment in real estate, net	Total investment in real estate, net		$	85,339	$	96,687	Total investment in real estate, net		$	84,563	$	84,609


			As of						As of
		Weighted Average Useful Lives	September 30, 2021		December 31, 2020			Weighted Average Useful Lives	March 31, 2022		December 31, 2021
		(Months)	(In thousands)					(Months)	(In thousands)
In-place lease intangibles	In-place lease intangibles	45	$	11,580	$	11,405	In-place lease intangibles	45	$	11,710	$	11,645
Less: accumulated amortization	Less: accumulated amortization		(9,416)		(8,980)		Less: accumulated amortization		(9,603)		(9,520)
In-place lease intangibles, net	In-place lease intangibles, net		2,164		2,425		In-place lease intangibles, net		2,107		2,125

Above-market lease intangibles	Above-market lease intangibles	45	3,623		3,623		Above-market lease intangibles	45	3,623		3,623
Less: accumulated amortization	Less: accumulated amortization		(2,016)		(1,786)		Less: accumulated amortization		(2,186)		(2,098)
Above-market lease intangibles, net	Above-market lease intangibles, net		1,607		1,837		Above-market lease intangibles, net		1,437		1,525
Total intangible lease assets, net	Total intangible lease assets, net		$	3,771	$	4,262	Total intangible lease assets, net		$	3,544	$	3,650

Depreciation and amortization expense for real estate assets was ~~$1.0~~$0.9 million and ~~$1.7~~$1.2 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $3.3 million and $5.2 million for the nine months ended September 30, 2021 and 2020,~~ respectively.

The following table presents the Partnership’s estimated amortization expense related to lease intangibles for the periods indicated (in thousands):

Remainder of
2021 2022 2023 2024 2025 Thereafter
$ 483 $ 623 $ 763 $ 874 $ 816 $ 212

~~See Note 4—Divestitures~~ ~~for discussion of the Partnership’s significant real estate divestiture.~~


Remainder of
2022		2023		2024		2025		2026		Thereafter
$	621	$	777	$	952	$	978	$	206	$	10

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6. PROPERTY, PLANT AND EQUIPMENT

The following table sets forth the Partnership’s property, plant and equipment:


			As of						As of
		Estimated Useful Lives	September 30, 2021		December 31, 2020			Estimated Useful Lives	March 31, 2022		December 31, 2021
		(Years)	(In thousands)					(Years)	(In thousands)
Produced water disposal systems	Produced water disposal systems	10-30	$	671,577	$	654,545	Produced water disposal systems	10-30	$	788,269	$	766,052
Crude oil gathering systems(1)	Crude oil gathering systems(1)	30	135,613		133,998		Crude oil gathering systems(1)	30	135,614		135,869
Natural gas gathering and compression systems(1)	Natural gas gathering and compression systems(1)	10-30	6,115		112,072		Natural gas gathering and compression systems(1)	10-30	6,216		6,192
Sourced water gathering systems(1)	Sourced water gathering systems(1)	30	108,727		112,162		Sourced water gathering systems(1)	30	188,091		166,549
Auto and trucks		3	374		—
Computer software		3	244		—

Other							Other	3	923		743
Total property, plant and equipment	Total property, plant and equipment		922,650		1,012,777		Total property, plant and equipment		1,119,113		1,075,405
Less: accumulated depreciation, amortization and accretion	Less: accumulated depreciation, amortization and accretion		(111,995)		(100,728)		Less: accumulated depreciation, amortization and accretion		(130,989)		(121,507)
Land	Land	N/A	85,826		85,826		Land	N/A	98,646		98,645
Total property, plant and equipment, net	Total property, plant and equipment, net		$	896,481	$	997,875	Total property, plant and equipment, net		$	1,086,770	$	1,052,543

(1)Included in gathering systems are ~~$13.6~~$27.5 million and ~~$27.5~~$13.1 million of assets at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, that are not subject to depreciation, amortization and accretion as the systems were under construction and had not yet been put into service.

Depreciation expense related to property, plant and equipment was ~~$10.1~~$19.1 million and ~~$8.9~~$9.8 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, respectively. Depreciation expense included a write-off of $8.0 million related to early plugging and ~~2020, respectively, and $33.7 million and $29.4 million for~~abandonment during the ~~nine~~three months ended ~~September 30,~~March 31, 2022. Depreciation expense in 2021 ~~and 2020, respectively.~~included a write-off of $3.4 million related to in-service projects that were abandoned during the three months ended March 31, 2021.

Capitalized internal costs and capitalized interest related to property, plant and equipment were immaterial for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

The Partnership evaluates its long-lived assets for potential impairment whenever events or circumstances indicate it is more likely than not that the carrying amount of the asset, or set of assets, is greater than the fair value. An impairment involves comparing the estimated future undiscounted cash flows of an asset with the carrying amount. If the carrying amount of the asset exceeds the estimated future undiscounted cash flows, then an impairment charge is recorded for the difference between the estimated fair value of the asset and its carrying value. No such impairment charges were recorded during the three months ended September 30, 2021, or the three and nine months ended September 30, 2020. Abandonment charges of $3.4 million related to projects which had begun, but were later terminated, were recorded in depreciation, amortization and accretion on the consolidated statement of operations during the nine months ended September 30, 2021. It is possible that circumstances requiring additional impairment testing will occur in future interim periods, which could result in potentially material impairment charges being recorded.

~~Assets held for sale~~

At September 30, 2021, the Partnership classified certain gas gathering assets with a carrying value of $83.3 million as held for sale in the consolidated balance sheet. The net realizable value of these assets approximates the carrying value based on the expected sales price negotiated with a third party purchaser as discussed further in Note 16—~~Subsequent Events~~.

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7. ASSET RETIREMENT OBLIGATIONS

Asset retirement obligations consist primarily of estimated costs of dismantlement, removal, site reclamation, plugging and abandonment and similar activities associated with the Partnership’s infrastructure assets. The following table reflects the changes in the Partnership’s asset retirement obligation for the following periods:


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Asset retirement obligations, beginning of period	$	16,990	$	15,128
Liabilities incurred(1)	17,173		258
Liabilities settled and divested	(899)		6
Revisions	109		—
Accretion expense during period	559		264
Asset retirement obligations, end of period	33,932		15,656
Less current portion of asset retirement obligations	—		35
Asset retirement obligations, long term	$	33,932	$	15,621

(1)Includes asset retirement obligations recorded for assets acquired in the Drop Down transaction and placed in service during the three months ended March 31, 2022.

8. EQUITY METHOD INVESTMENTS

The following table presents the carrying values of the Partnership’s equity method investments as of the dates indicated:


		Ownership Interest		September 30, 2021		December 31, 2020			Ownership Interest		March 31, 2022		December 31, 2021
				(In thousands)							(In thousands)
EPIC Crude Holdings, LP	EPIC Crude Holdings, LP	10	%	$	111,785	$	120,863	EPIC Crude Holdings, LP	10	%	$	105,739	$	107,210
Gray Oak Pipeline, LLC	Gray Oak Pipeline, LLC	10	%	121,411		130,353		Gray Oak Pipeline, LLC	10	%	119,851		121,105
Wink to Webster Pipeline LLC (1)	Wink to Webster Pipeline LLC (1)	4	%	86,286		82,631		Wink to Webster Pipeline LLC(1)	4	%	86,145		86,207
OMOG JV LLC	OMOG JV LLC	60	%	189,418		193,726		OMOG JV LLC	60	%	188,699		187,809
Amarillo Rattler, LLC (2)		—	%	—		5,354
Remuda Midstream Holdings LLC (3)		—	%	274		—
WTG joint venture								WTG joint venture	25	%	117,490		110,143
BANGL, LLC								BANGL, LLC	10	%	25,281		67

Total	Total			$	509,174	$	532,927	Total			$	643,205	$	612,541

(1)The Wink to Webster joint venture is developing a crude oil pipeline (the “Wink to Webster pipeline”). The Wink to Webster pipeline’s main segment began interim service operation in the fourth quarter of 2020, and the joint venture ~~is expected to begin~~began full commercial operations in the first quarter of 2022.

~~(2)The ownership interest in Amarillo Rattler was 50% at December 31, 2020. See Note 4—Divestitures~~ ~~for discussion regarding the sale of this equity method investment during the second quarter of 2021.~~

~~(3)~~Includes $0.3 million of direct transaction costs incurred in the third quarter of 2021 for the acquisition of the WTG Joint Venture in the fourth quarter of 2021 as defined and discussed further in Note 16—~~Subsequent Events~~.

Currently, the Partnership receives distributions from Gray Oak and OMOG, which are classified either within the operating or investing sections of the consolidated statements of cash flows by determining the nature of each distribution. The following table presents total distributions received from the Partnership’s equity method investments for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Gray Oak Pipeline, LLC $ 7,847 $ 5,720 $ 19,140 $ 14,771
OMOG JV LLC 6,382 3,900 13,251 12,719
Total $ 14,229 $ 9,620 $ 32,391 $ 27,490

~~The following table summarizes the income (loss) of equity method investees reflected in the condensed consolidated statement of operations for the periods indicated:~~


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In thousands)
EPIC Crude Holdings, LP		$	(2,530)	$	(1,904)	$	(10,638)	$	(4,703)

Gray Oak Pipeline, LLC	Gray Oak Pipeline, LLC	4,368		3,832		10,198		5,585		Gray Oak Pipeline, LLC	$	5,998	$	5,758
Wink to Webster Pipeline LLC		(550)		(127)		(1,641)		73

OMOG JV LLC	OMOG JV LLC	3,537		1,499		8,943		(10,681)		OMOG JV LLC	1,552		3,349
Amarillo Rattler, LLC		—		69		(388)		(184)

Total	Total	$	4,825	$	3,369	$	6,474	$	(9,910)	Total	$	7,550	$	9,107

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(Unaudited)

The following table summarizes the income (loss) of equity method investees reflected in the condensed consolidated statement of operations for the periods indicated:


	Three Months Ended March 31,
	2022		2021
	(In thousands)
EPIC Crude Holdings, LP	$	(2,771)	$	(5,436)
Gray Oak Pipeline, LLC	4,744		2,298
Wink to Webster Pipeline LLC	(663)		(563)
OMOG JV LLC	2,428		1,115
Amarillo Rattler, LLC	—		(237)
WTG joint venture	5,325		—
BANGL, LLC	17		—
Total	$	9,080	$	(2,823)

The Partnership reviews its equity method investments to determine if a loss in value which is other than temporary has occurred. If such a loss has occurred, the Partnership recognizes an impairment provision. ~~During~~

Based on indicators present at December 31, 2021 and March 31, 2022, the ~~three~~Partnership reviewed its equity method investment in EPIC and ~~nine months ended September 30, 2021,~~determined the carrying value of the investment was less than its estimated fair value due to a reduction in expected future cash flow. However, based on the Partnership’s ~~income (loss) from equity method investments includes a proportional charge~~review of ~~$0.6 million~~various factors leading to the decline in the fair value of the investment, it was determined that the carrying value of the EPIC investment will recover in the near term and, ~~$3.5 million, respectively, representing~~therefore, an other than temporary impairment ~~recorded by~~in the ~~investee associated with inventory write-downs and abandoned projects. During~~carrying value of the ~~three and nine months ended September 30, 2020,~~EPIC investment does not exist at March 31, 2022. However, should the conclusions on certain factors included in the Partnership’s ~~income (loss) from equity method investments includes a proportional charge~~analysis, including estimates of ~~$15.8 million representing goodwill~~EPIC’s future cash flows change, the Partnership may recognize an impairment ~~recorded by an investee. No other impairments were recorded for the Partnership’s equity method investments for the three and nine months ended September 30, 2021 or 2020.~~ that could materially impact its consolidated financial statements.

The entities in which the Partnership is invested all serve customers in the oil and natural gas industry, which has recently experienced economic challenges due to the Russian-Ukrainian military conflict, COVID-19 pandemic and other macroeconomic ~~factors during 2020.~~factors. If similar economic challenges occur in future interim periods, it could result in circumstances requiring the Partnership to record potentially material impairment charges on its equity method investments.

8.9. DEBT

Long-term debt consisted of the following as of the dates indicated:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(In thousands)					(In thousands)
5.625% Senior Notes due 2025		$	500,000	$	500,000
Operating Company revolving credit facility		—		79,000
5.625% unsecured Senior Notes due 2025(1)						5.625% unsecured Senior Notes due 2025(1)	$	500,000	$	500,000
Credit Agreement						Credit Agreement	230,000		195,000
Unamortized debt issuance costs	Unamortized debt issuance costs	(7,544)		(9,053)		Unamortized debt issuance costs	(6,540)		(7,044)
Total long-term debt	Total long-term debt	$	492,456	$	569,947	Total long-term debt	$	723,460	$	687,956

(1)Interest on the Notes is payable on January 15 and July 15 of each year. The Notes mature on July 15, 2025.

The Operating Company’s ~~Revolving~~ Credit ~~Facility~~Agreement

The Operating Company’s credit agreement (the “Credit Agreement”) provides for a revolving credit facility in the maximum amount of $600.0 million, which is expandable to $1.0 billion upon the Partnership’s election, subject to obtaining additional lender commitments and satisfaction of customary conditions. ~~Loan principal may be optionally repaid from time to time without premium or penalty (other than customary LIBOR breakage), and is required to be paid at the maturity date of~~The Credit Agreement will mature on May 28, 2024. As of ~~September 30, 2021,~~March 31, 2022, the Operating Company had no$230.0 million outstanding borrowings and ~~$600.0~~$370.0 million available for future borrowings under the Credit Agreement. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, the weighted average interest rate on borrowings under the Credit Agreement was 1.34% and 1.38%, respectively. During the three and nine months ended September 30, 2020, the weighted average interest rate on borrowings under the Credit Agreement was 1.46% and 2.18%, respectively.1.40%.

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(Unaudited)

As of ~~September 30, 2021,~~March 31, 2022, the Operating Company was in compliance with all financial maintenance covenants under the Credit Agreement.

~~2025 Senior Notes~~

On July 14, 2020, the Partnership completed a notes offering (the “Notes Offering”) of $500.0 million in aggregate principal amount of its 5.625% Senior Notes due 2025 (the “Notes”). Interest on the Notes is payable on January 15 and July 15 of each year, beginning on January 15, 2021. The Notes mature on July 15, 2025. The Partnership received net proceeds of approximately $489.5 million from the Notes Offering. The Partnership loaned the gross proceeds of $500.0 million to the Operating Company, which used such proceeds to pay down borrowings under the Credit Agreement.

9.10. UNIT-BASED COMPENSATION

On May 22, 2019, the board of directors of the General Partner adopted the Rattler Midstream LP Long Term Incentive Plan (“LTIP”) for employees, consultants and directors of the General Partner and any of its affiliates, including Diamondback, who perform services for the Partnership. The LTIP provides for the grant of unit options, unit appreciation rights, restricted units, unit awards, phantom units, distribution equivalent rights, cash awards, performance awards, other unit-based awards and substitute awards. AsExcluding unvested phantom units, as of ~~September 30, 2021, a total of 14,535,791~~March 31, 2022, the Partnership had 12,488,231 common units ~~had been reserved~~remaining for issuance ~~pursuant to~~under its LTIP of the ~~LTIP.~~15,151,515 common units initially authorized. Common units that are cancelled, forfeited or withheld to satisfy exercise prices or tax withholding obligations will be available for delivery pursuant to other awards. The LTIP is administered by the board of directors of the General Partner or a committee thereof.

~~Table~~For the three months ended March 31, 2022 and 2021, the Partnership incurred $2.5 million and $2.3 million, respectively, of ~~Contents~~

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~~Condensed Notes to Consolidated Financial Statements - Continued~~

~~(Unaudited)~~

unit–based compensation expense.

Phantom Units

Under the LTIP, the board of directors of the General Partner is authorized to issue phantom units to eligible employees and non-employee directors. The Partnership estimates the fair value of phantom units based on the closing price of the Partnership’s common units on the grant date of the award, and expenses this value over the applicable vesting period. Upon vesting, the phantom units entitle the recipient to 1 common unit of the Partnership for each phantom unit. The recipients are also entitled to distribution equivalent rights, which represent the right to receive a cash payment equal to the value of the distributions paid on 1 phantom unit between the grant date and the vesting date.

The following table presents the phantom unit activity under the LTIP for the ~~nine~~three months ended ~~September 30, 2021:~~March 31, 2022:


		Phantom Units	Weighted Average Grant-Date Fair Value			Phantom Units	Weighted Average Grant-Date Fair Value
Unvested at December 31, 2020		2,089,668	$	17.07
Unvested at December 31, 2021					Unvested at December 31, 2021	1,737,525	$	16.64
Granted	Granted	238,399	$	10.99	Granted	213,917	$	13.08
Vested	Vested	(469,221)	$	18.37	Vested	(10,294)	$	11.87
Forfeited	Forfeited	(32,100)	$	6.72	Forfeited	(1,950)	$	8.34
Unvested at September 30, 2021		1,826,746	$	16.12
Unvested at March 31, 2022					Unvested at March 31, 2022	1,939,198	$	16.28

The aggregate fair value of phantom units that vested during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$8.6~~$0.1 million. As of ~~September 30, 2021,~~March 31, 2022, the unrecognized compensation cost related to unvested phantom units was ~~$25.4~~$23.3 million, and is expected to be recognized over a weighted-average period of ~~2.54~~2.23 years. For the three and nine months ended September 30, 2021, the Partnership incurred $2.5 million and $7.3 million, respectively, of unit–based compensation expense. For the three and nine months ended September 30, 2020, the Partnership incurred $2.2 million and $6.6 million, respectively, of unit–based compensation expense.

~~10.~~11. UNITHOLDERS’ EQUITY AND DISTRIBUTIONS

The Partnership has ~~general partner~~General Partner and limited partner units. At ~~September 30, 2021,~~March 31, 2022, the Partnership had a total of ~~39,960,128~~38,146,047 common units issued and outstanding and 107,815,152 Class B units issued and outstanding, of which no common units and 107,815,152 Class B units, representing approximately ~~73%~~74% of the Partnership’s total units outstanding, were beneficially owned by Diamondback. At ~~September 30, 2021,~~March 31, 2022, Diamondback also beneficially owned 107,815,152 Operating Company units, representing an overall ~~73%~~74% economic, non-voting interest in the Operating Company. The Operating Company units and the Partnership’s Class B units beneficially owned by Diamondback are exchangeable from time to time for the Partnership’s common units (that is, 1 Operating Company unit and 1 Partnership Class B unit, together, will be exchangeable for 1 Partnership common unit).

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(Unaudited)

Common Unit Repurchase Program

~~On October 29, 2020, the~~The board of directors of the General Partner has approved a common unit repurchase program to acquire up to ~~$100~~$150.0 million of the Partnership’s outstanding common ~~units. The common unit repurchase program was authorized to extend through December 31, 2021, but in October 2021, the board~~units over an indefinite period of ~~directors of the General Partner increased the repurchase program authorization to $150.0 million and extended the program indefinitely.~~time. The Partnership ~~intends to~~may purchase common units under the repurchase program opportunistically with cash on hand, free cash flow from operations and proceeds from potential liquidity events such as the sale of assets. The repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors of the General Partner at any time. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. Any common units purchased as part of this program will be ~~retired~~retired. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Partnership repurchased approximately ~~$12.3~~$2.6 million ~~and $28.6 million, respectively,~~ of common units under the repurchase program. As of ~~September 30, 2021, $56.6~~March 31, 2022, $85.1 million remained available for ~~use to repurchase~~future repurchases of common units under the Partnership’s common unit repurchase program.

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~~(Unaudited)~~

Changes in Ownership of Consolidated Subsidiaries

Non-controlling interest in the accompanying condensed consolidated financial statements represents Diamondback’s ownership in the net assets of the Operating Company. Diamondback’s relative ownership interest in the Operating Company can change due to the Partnership’s public offerings, issuance of units for acquisitions, issuance of unit-based compensation, repurchases of common units and distribution equivalent rights paid on the Partnership’s units. These changes in ownership percentage and the disproportionate allocation of net income to Diamondback discussed below result in adjustments to non-controlling interest and common unitholder equity, tax effected.

The following table summarizes changes in the ownership interest in consolidated subsidiaries during the period:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Net income (loss) attributable to the Partnership $ 8,485 $ 9,218 $ 26,945 $ 25,071
Change in ownership of consolidated subsidiaries 1,160 — 3,813 (329,034)
Change from net income (loss) attributable to the Partnership's unitholders and transfers to non-controlling interest $ 9,645 $ 9,218 $ 30,758 $ (303,963)

In the second quarter of 2020, the Partnership recorded adjustments to non-controlling interest of $419.6 million, common unitholder equity of $(329.0) million, and deferred tax assets of $90.6 million to reflect the ownership structure that was effective at June 30, 2020. The adjustment had no impact on earnings for the three and nine months ended September 30, 2020.


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Net income (loss) attributable to the Partnership	$	7,931	$	6,015

Change in ownership of consolidated subsidiaries	1,540		712
Change from net income (loss) attributable to the Partnership's unitholders and transfers to non-controlling interest	$	9,471	$	6,727

Cash Distributions on Common Units

The board of directors of the General Partner sets and administers the cash distribution policies for the Partnership and the Operating Company. Cash distributions paid by the Operating Company to Diamondback and the Partnership as the holders of the Operating Company’s common units are determined by the board of directors of the General Partner on a quarterly basis. The partnership agreement does not require the Partnership to pay minimum distributions to its common unitholders on a quarterly or other basis, and the Partnership does not employ structures intended to consistently maintain or increase distributions over time. On October 27, 2021, the board of directors of the General Partner approved a cash distribution for the third quarter of 2021 of $0.25 per Operating Company unit and per common unit. Distributions due to common unitholders are payable on November 22, 2021, to common unitholders of record at the close of business on November 15, 2021. The board of directors of the General Partner ~~may change the distribution policies at any time and from time to time.~~

The following table presents information regarding cash distributions approved by the board of directors of the General Partner and paid during the three ~~and nine~~ months ended ~~September 30, 2021:~~March 31, 2022:

Distributions
(in thousands)
Period Amount per Unit Operating Company Distributions to Diamondback Common Unitholders Declaration Date Unitholder Record Date Payment Date
Q4 2020 $ 0.20 $ 21,563 $ 8,263 February 17, 2021 March 8, 2021 March 15, 2021
Q1 2021 $ 0.20 $ 21,563 $ 8,183 April 28, 2021 May 14, 2021 May 21, 2021
Q2 2021 $ 0.25 $ 26,954 $ 10,154 August 2, 2021 August 16, 2021 August 23, 2021

Distributions

(in thousands)

Period

Amount per Unit

Operating Company Distributions to Diamondback

Common Unitholders

Declaration Date

Unitholder Record Date

Payment Date

Q4 2021

0.30

32,345

11,444

February 16, 2022

March 7, 2022

March 14, 2022

~~11.~~

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12. EARNINGS PER COMMON UNIT

Earnings per common unit on the condensed consolidated statements of operations is based on the net income of the Partnership for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ which is the amount of net income that is attributable to the Partnership’s common units. The Partnership’s net income is allocated wholly to the common units, as the General Partner does not have an economic interest.

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~~Rattler Midstream LP~~

~~Condensed Notes to Consolidated Financial Statements - Continued~~

~~(Unaudited)~~

Basic and diluted earnings per common unit is calculated using the two-class method. The two-class method is an earnings allocation proportional to the respective ownership among holders of common units and participating securities. Basic earnings per common unit is calculated by dividing net income by the weighted-average number of common units outstanding during the period. Diluted earnings per common unit also considers the dilutive effect of unvested common units granted under the LTIP, calculated using the treasury stock method.

A reconciliation of the components of basic and diluted earnings per common unit is presented in the table below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands, except per unit amounts)									(In thousands, except per unit amounts)
Net income (loss) attributable to Rattler Midstream LP	Net income (loss) attributable to Rattler Midstream LP	$	8,485	$	9,218	$	26,945	$	25,071	Net income (loss) attributable to Rattler Midstream LP	$	7,931	$	6,015
Less: net (income) loss allocated to participating securities(1)	Less: net (income) loss allocated to participating securities(1)	(458)		(524)		(1,332)		(1,820)		Less: net (income) loss allocated to participating securities(1)	(511)		(418)
Net income (loss) attributable to common unitholders	Net income (loss) attributable to common unitholders	$	8,027	$	8,694	$	25,613	$	23,251	Net income (loss) attributable to common unitholders	$	7,420	$	5,597
Weighted average common units outstanding:	Weighted average common units outstanding:									Weighted average common units outstanding:
Basic weighted average common units outstanding	Basic weighted average common units outstanding	40,542		43,996		41,101		43,837		Basic weighted average common units outstanding	38,159		41,742
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Potential common units issuable(2)	Potential common units issuable(2)	—		—		—		—		Potential common units issuable(2)	217		—
Diluted weighted average common units outstanding	Diluted weighted average common units outstanding	40,542		43,996		41,101		43,837		Diluted weighted average common units outstanding	38,376		41,742
Net income per common unit, basic	Net income per common unit, basic	$	0.20	$	0.20	$	0.62	$	0.53	Net income per common unit, basic	$	0.19	$	0.13
Net income per common unit, diluted	Net income per common unit, diluted	$	0.20	$	0.20	$	0.62	$	0.53	Net income per common unit, diluted	$	0.19	$	0.13

(1) Distribution equivalent rights granted to employees are considered participating securities.

(2) For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, ~~and 2020,~~ no potential common units were included in the computation of diluted earnings per unit because their inclusion would have been anti-dilutive under the treasury stock method for the ~~periods~~period presented. ~~However, such potential common units could dilute basic earnings per unit in future periods.~~

~~12. RELATED PARTY~~13. RELATED-PARTY TRANSACTIONS

~~Related party~~Related-party transactions include transactions with Diamondback. The Partnership has entered into certain agreements that govern these transactions, the most significant of which are commercial agreements for the provision of midstream services to Diamondback. The Partnership derives substantially all of its revenue from these commercial agreements, which consist of the following amounts for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Produced water gathering and disposal $ 63,202 $ 66,067 $ 194,895 $ 211,353
Sourced water gathering 16,833 11,948 48,105 46,845
Natural gas gathering 5,696 5,076 17,021 14,506
Crude oil gathering 1,835 2,745 6,022 7,730
Surface revenue 47 10 227 26
Total $ 87,613 $ 85,846 $ 266,270 $ 280,460


	Three Months Ended March 31,
	2022		2021
	(In thousands)
Produced water gathering and disposal	$	68,196	$	64,306
Sourced water gathering	20,276		15,243
Natural gas gathering	—		5,400
Crude oil gathering	1,830		2,030
Surface revenue	—		99
Total	$	90,302	$	87,078

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Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements - Continued

(Unaudited)

~~13.~~

14. INCOME TAXES

The following table provides the Partnership’s provision for (benefit from) income taxes and the effective income tax rate for the periods indicated:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2021			2020			2021			2020				2022			2021
		(In thousands, except for tax rate)													(In thousands, except for tax rate)
Provision for (benefit from) income taxes	Provision for (benefit from) income taxes	$	2,551		$	2,851		$	7,761		$	7,754		Provision for (benefit from) income taxes	$	2,384		$	1,671
Effective tax rate	Effective tax rate	6.1		%	6.8		%	6.1		%	6.8		%	Effective tax rate	6.0		%	6.1		%

The Partnership’s effective income tax rates for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period, primarily due to net income attributable to the non-controlling interest and to state taxes, net of federal benefit. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ the Partnership recorded immaterial discrete income tax expense primarily related to unit-based compensation.

The Partnership’s total net deferred tax assets consist primarily of the tax basis over the financial statement carrying value of its investment in the Operating Company and of net operating loss carryforwards. In the second quarter of 2020, the Partnership recorded an adjustment through unitholders’ equity to the carrying value of its investment in the Operating Company, resulting in a decrease in the Partnership’s deferred tax liability related to its investment in the Operating Company. As a result of management’s assessment each period, including consideration of all available positive and negative evidence, management continued to determine that it is more likely than not that the Partnership will realize its deferred tax assets as of ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

~~14.~~15. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The Partnership’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The Partnership uses appropriate valuation techniques based on available inputs to measure the fair values of its assets and liabilities.

Level 1 - Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.

Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3 - Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

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Rattler Midstream LP

Condensed Notes to Consolidated Financial Statements - Continued

(Unaudited)

Assets and Liabilities Not Recorded at Fair Value

The following table provides the fair value of financial instruments that are not recorded at fair value in the condensed consolidated balance sheets:

September 30, 2021 December 31, 2020
Carrying Value(1)
Fair Value
Carrying Value(1)
Fair Value
(In thousands)
Debt:
5.625% Senior Notes due 2025 $ 492,456 $ 522,330 $ 490,947 $ 528,125
Operating Company revolving credit facility $ — $ — $ 79,000 $ 79,000


	March 31, 2022				December 31, 2021
	Carrying Value(1)		Fair Value		Carrying Value(1)		Fair Value
	(In thousands)
Debt:
5.625% unsecured Senior Notes due 2025	$	493,460	$	508,000	$	492,956	$	521,250
Credit Agreement	$	230,000	$	230,000	$	195,000	$	195,000

(1) The carrying value includes associated deferred loan costs and any remaining discount or premium, if any.

The fair value of the ~~Operating Company’s revolving credit facility~~Credit Agreement approximates its carrying value based on borrowing rates available to the Partnership for bank loans with similar terms and maturities and is classified as Level 2 in the fair value hierarchy. The fair value of the Notes was determined using the quoted market price at the respective period ends, and is considered a Level 1 classification in the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in certain circumstances. These assets and liabilities can include inventory, midstream assets and other long-lived assets that are written down to fair value when they are impaired or held for sale. Refer to Note 6—Property,, Plant and Equipment for additional discussion of nonrecurring fair value adjustments.

Fair Value of Financial Assets

The Partnership has other financial instruments consisting of cash, accounts receivable, other current assets, accounts payable, accrued liabilities and various other current liabilities. The carrying value of these instruments approximates fair value because of the short-term nature of the instruments.

~~15.~~16. COMMITMENTS AND CONTINGENCIES

The Partnership may be a party to various routine legal proceedings, disputes and claims from time to time arising in the ordinary course of its business, including those that arise from interpretation of federal and state laws and regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. The Partnership’s management believes there are currently no such matters that, if decided adversely, will have a material adverse effect on the Partnership’s financial condition, results of operations or cash flows.

Commitments

As of ~~September 30, 2021,~~March 31, 2022, the Partnership’s anticipated future capital commitments of $12.8 million for its equity method investments ~~include $6.0~~consist of $5.3 million ~~for~~due in the remainder of ~~2021~~2022 and ~~$22.7~~$7.5 million due in ~~aggregate.~~2023.

~~16.~~17. SUBSEQUENT EVENTS

Cash Distribution

On ~~October~~April 27, ~~2021,~~2022, the board of directors of the General Partner approved a cash distribution for the ~~third~~first quarter of ~~2021~~2022 of ~~$0.25~~$0.30 per common unit, payable on ~~November 22, 2021,~~May 20, 2022, to unitholders of record at the close of business on ~~November 15, 2021.~~

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~~Rattler Midstream LP~~

~~Condensed Notes to Consolidated Financial Statements - Continued~~

~~(Unaudited)~~

~~Acquisitions and Divestitures~~May 13, 2022.

~~WTG Joint Venture Acquisition~~

On October 5, 2021, the Partnership and a private affiliate of an investment fund formed Remuda Midstream Holdings LLC (the “WTG joint venture”). The Operating Company invested approximately $104.0 million in cash to acquire a 25% interest in the WTG joint venture, which then completed an acquisition of a majority interest in WTG Midstream LLC (“WTG Midstream”) from West Texas Gas, Inc. and its affiliates. WTG Midstream’s assets primarily consist of an interconnected gas gathering system and 6 major gas processing plants servicing the Midland Basin with 925 MMcf/d of total processing capacity with additional gas gathering and processing expansions planned.

~~Drop Down Transaction~~

On October 19, 2021, the Partnership entered into a definitive purchase and sale agreement with Diamondback and certain of its subsidiaries (the “Seller”) for the Operating Company’s acquisition from the Seller of certain water midstream assets (the “Drop Down assets”) for $160.0 million in cash in a drop down transaction (the “Drop Down”). The Partnership and the Seller have also mutually agreed to amend their commercial agreements covering produced water gathering and disposal and sourced water gathering services to add certain Diamondback leasehold acreage to the Partnership’s dedication. The Drop Down assets have a carrying value of $160.0 million and include 9 active saltwater disposal injection wells with 330 MBbl/d of capacity, 7 produced water recycling and storage facilities, 20 fresh water pits and approximately 4,000 acres of fee surface. Also included are 55 miles of produced water gathering pipeline and 18 miles of sourced water gathering pipeline. The Partnership intends to fund the transaction with cash on hand and borrowings under its revolving credit facility. The Drop Down, which was approved by the Conflicts Committee of the board of directors of the General Partner, will be accounted for as a transaction between entities under common control and is expected to close in the fourth quarter of 2021, subject to customary closing conditions.

~~Pecos County Gas Gathering Divestiture~~

On November 1, 2021, the Partnership completed the sale of its gas gathering assets to Brazos Delaware Gas, LLC, an affiliate of Brazos Midstream, for aggregate total gross potential consideration of $93.0 million, consisting of (i) $83.0 million due at closing, subject to customary closing adjustments, (ii) a $5.0 million contingent payment due in 2023 if the aggregate actual deliveries of gas volumes into the gas gathering system by and/or on behalf of Diamondback and its affiliates exceed certain specified thresholds during 2022, and (iii) a $5.0 million contingent payment due in 2024 if the aggregate actual deliveries of gas volumes into the gas gathering system by and/or on behalf of Diamondback and its affiliates exceed certain specified thresholds during 2022 and 2023. The contingent payments will be recorded if and when they become realizable.

1918

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto presented in this report as well as our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. See “Cautionary Statement Regarding Forward-Looking Statements.”

Overview

We are a Delaware limited partnership formed by Diamondback ~~in July 2018~~ to own, operate, develop and acquire midstream and energy-related infrastructure assets in the Midland and Delaware Basins of the Permian Basin, one of the most prolific oil producing areas in the world. Our assets and operations are reported in one operating business segment. We have elected to be treated as a corporation for U.S. federal income tax purposes.

We provide crude oil ~~natural gas~~ and water-related midstream services (including water sourcing and transportation and produced water gathering and disposal) to Diamondback under long-term, fixed-fee contracts. In addition to our midstream infrastructure assets, we own equity interests in ~~three~~four long-haul crude oil pipelines, which run from the Permian to the Texas Gulf Coast. In addition, we own equity interests in third-party operated gathering systems and processing facilities supported by dedications from Diamondback. We are critical to Diamondback’s development plans because we provide a long-term midstream solution to its increasing crude oil ~~natural gas~~ and water-related services needs through our robust infield gathering systems and produced water disposal capabilities.

As of ~~September 30, 2021,~~March 31, 2022, our ~~general partner~~General Partner held a 100% general partner interest in ~~us and~~us. Diamondback held no common units and beneficially owned all of our 107,815,152 outstanding Class B units, representing approximately ~~73%~~74% of our total outstanding units. Diamondback also owns and controls our ~~general partner.~~General Partner.

As of ~~September 30, 2021, we own~~March 31, 2022, the Holding Company owned a ~~27%~~26% controlling membership interest and 100% of the sole managing membership interest in the Operating Company, and Diamondback ~~owns,~~owned, through its ownership of the Operating Company units, a ~~73%~~74% economic, non-voting interest in the Operating Company. ~~However, as~~As required by GAAP, we consolidate 100% of the assets and operations of the Holding Company and the Operating Company in our financial statements and reflect a non-controlling interest.

2022 Transactions and Recent Developments

~~COVID-19 and~~ Commodity Prices

~~In early March 2020, oil~~Commodity prices ~~dropped sharply and continued to decline briefly reaching negative levels as a result of multiple factors affecting the supply~~ and demand ~~in global~~for oil and natural gas ~~markets, including (i) actions taken~~have been impacted in recent periods by ~~OPEC members and other exporting nations impacting commodity price and production levels, and (ii) a significant decrease in demand~~economic challenges due to the ~~COVID-19 pandemic. However, certain restrictions on conducting business that were implemented in response to the~~Russian-Ukrainian military conflict, COVID-19 pandemic ~~have since been lifted as improved treatments~~ and ~~vaccinations for COVID-19 have been rolled-out globally since late 2020. As a result,~~other macroeconomic factors which continued to contribute to economic and pricing volatility and cautious oil and natural gas ~~prices have improved~~production outlook for 2022, On March 31, 2022, OPEC and its non-OPEC allies, known collectively as OPEC+, agreed to continue their program (commenced in August 2021) of gradual monthly output increases, raising its output target by 432,000 Bbl per day for May 2022, which is expected to further boost oil supply in response to rising demand. In its report issued on April 12, 2022 OPEC noted its expectation that world oil demand will rise by 3.7 million Bbls per day in 2022, down 480,000 Bbls per day from its previous forecast due to the impact of the Russian-Ukrainian conflict, rising inflation and the resurgence of the Omicron coronavirus variant in China. Additionally, the Russian-Ukrainian military conflict may continue to impact the global energy markets. Although this demand outlook is expected ~~increase~~to underpin oil prices, already seen at a seven-year high in March 2022, we cannot predict any future volatility in commodity prices or demand for ~~production. However, the COVID-19 Delta variant emerged in March 2021 and became highly transmissible in July 2021, which contributed to additional pricing volatility during the third quarter of 2021.~~crude oil.

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We derive substantially all of our revenue from our commercial agreements with Diamondback, which do not contain minimum volume commitments. ~~In response to the decrease in~~Diamondback has announced its 2022 production target of between 218,000 and 222,000 barrels of oil prices in early 2020 discussed above, Diamondback reduced its drilling and development plan on the acreage dedicated to us, which directly and adversely impacted Diamondback’s demand for our midstream services. Diamondback resumed completion activity to stem production declines and respond to rising commodity prices in the third and fourth quarters of 2020, but has kept production relatively flat during the first nine months of 2021, using excess cash flows for debt repayment and to return capital to its stockholders rather than expanding its drilling program. Diamondback also indicated that it intends to continue exercising capital discipline and maintaining its fourth quarter 2021 oil production flat in 2022. As a result, we adjusted our operations to this new level of completion and production activity in the second half of 2020 and into 2021.per day. We cannot predict the extent to which Diamondback’s business would be impacted if conditions in the energy industry were to deteriorate, ~~again,~~ nor can we estimate the impact such conditions would have on Diamondback’s ability to execute its drilling and development plan on the dedicated acreage or to perform under our commercial agreements.

~~Table of Contents~~

During ~~2021,~~2022, we expect to ~~reduce~~increase our operated capital expenditures ~~significantly~~ to ~~a level~~more than double our 2021 expenditures, as we build out greenfield water infrastructure on assets acquired in the fourth quarter of ~~less than half~~2021, and expand gas processing and NGL takeaway for Diamondback and other producers as part of ~~2020 amounts. Combined with our equity method~~the WTG and BANGL joint ~~venture build cycle nearing its end and changing from a net outflow of capital contributions to a net inflow of cash distributions, we believe that this stabilized volume outlook~~ventures. We expect such expenditures will ~~present a meaningful~~result in sustainable free cash flow ~~generation even~~growth in ~~this volatile commodity price environment.~~2023.

~~Acquisitions~~Acquisition

~~WTG~~BANGL Joint Venture Acquisition

On ~~October 5, 2021,~~January 19, 2022, we ~~and a private affiliate of an investment fund formed the WTG joint venture. The Operating Company~~ invested approximately ~~$104.0~~$22.2 million in cash to acquire a ~~25%~~10% interest in the ~~WTG~~BANGL joint ~~venture,~~venture. The BANGL pipeline, which then completed an acquisition of a majority interest in WTG Midstream from West Texas Gas, Inc. and its affiliates. WTG Midstream’s assets primarily consist of an interconnected gas gathering system and six major gas processing plants servicing the Midland Basin with 925 MMcf/d of total processing capacity with additional gas gathering and processing expansions planned.

~~Drop Down Transaction~~

On October 19, 2021, we entered into a definitive purchase and sale agreement with Diamondback and certain of its subsidiaries to acquire certain water midstream assets for $160.0 million in cash in a drop down transaction. We intend to fund the transaction with cash on hand and borrowings under our revolving credit facility. The Drop Down will be accounted for as a transaction between entities under common control and is expected to closebegan full commercial service in the fourth quarter of 2021, ~~subject customary closing conditions.~~provides NGL takeaway capacity from the MPLX and WTG gas processing plants in the Permian Basin to the NGL fractionation hub in Sweeny, Texas and has expansion capacity of up to 300,000 Bbl/d.

~~The Drop Down assets include nine active saltwater disposal injection wells with 330 MBbl/d~~Divestiture

Amarillo Rattler Divestiture

In the first quarter of ~~capacity, seven produced water recycling~~2022, we acquired Amarillo Midstream, LLC’s share of the contingent consideration earn-out payments from the sale of Amarillo Rattler for $2.8 million. We will record the contingent earn-out payments if and ~~storage facilities, 20 fresh water pits and approximately 4,000 acres of fee surface. Also included are 55 miles of produced water gathering pipeline and 18 miles of sourced water gathering pipeline.~~when they become realizable.

The WTG transaction and the pending Drop Down will increase our exposure to Diamondback's development in the Northern Midland Basin, where approximately 75% of its drilling capital is currently being allocated, while retaining financial flexibility to continue to return capital to our unitholders. See Note ~~16—~~4—~~Subsequent Events~~Acquisitions and Divestitures included in the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of our acquisitions ~~in the fourth quarter of 2021.~~

~~Divestitures~~

~~Amarillo Rattler Divestiture~~

~~On April 30, 2021, we~~ and our joint venture partner, Amarillo Midstream, LLC, each sold our respective 50% interests in Amarillo Rattler to EnLink Midstream Operating, LP. Net of transaction expenses and working capital adjustments, we received $23.5 million at closing. An incremental $5.0 million is payable to us in April 2022, and we could receive up to $7.5 million in total contingent earn-out payments from 2023 to 2025.

~~Real Estate Divestiture~~

On June 28, 2021, we closed on the sale of one of our real estate properties located in Midland, Texas for proceeds of $9.1 million, including closing adjustments, which resulted in a loss on disposal of $1.6 million which is included in gain (loss) on disposal of property, plant and equipment on the consolidated statement of operations.

~~Pecos County Gas Gathering Divestiture~~

On November 1, 2021, we completed the sale of our gas gathering assets to Brazos Delaware Gas, LLC, an affiliate of Brazos Midstream, for aggregate total gross potential consideration of $93.0 million, consisting of (i) $83.0 million due at closing, subject to customary closing adjustments, (ii) a $5.0 million contingent payment due in 2023 if the aggregate actual deliveries of gas volumes into the gas gathering system by and/or on behalf of Diamondback and its affiliates exceed certain specified thresholds during 2022, and (iii) a $5.0 million contingent payment due in 2024 if the aggregate actual deliveries of gas volumes into the gas gathering system by and/or on behalf of Diamondback and its affiliates exceed certain specified thresholds during 2022 and 2023. The contingent payments will be recorded if and when they become realizable.

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~~See Note 4—Divestitures~~ ~~and Note 16—Subsequent Events~~ ~~included in the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of our~~ divestitures.

Operational Update

Highlights

For the three months ended ~~September 30, 2021,~~March 31, 2022, as compared with the three months ended ~~September 30, 2020:~~March 31, 2021 and the three months ended December 31, 2021:

•average crude oil gathering volumes were ~~72,665~~77,989 Bbl/d, a decrease of ~~20%~~8% year over ~~year;~~

•~~average natural gas gathering volumes were 134,602 MMBtu/d,~~year and an increase of ~~12% year~~5% quarter over ~~year;~~quarter;

•average produced water gathering and disposal volumes were ~~747,009~~845,835 Bbl/d, ~~a decrease~~an increase of 2%10% year over ~~year;~~year and an increase of 3% quarter over quarter; and

•average sourced water gathering volumes were ~~256,288~~387,542 Bbl/d, an increase of ~~26%~~45% year over ~~year.~~year and an increase of 26% quarter over quarter.

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Pipeline Infrastructure Assets

The following tables provide information regarding our gathering, compression and transportation system as of ~~September 30, 2021~~March 31, 2022 and utilization for the quarter ended ~~September 30, 2021:~~March 31, 2022:

(Miles)(1)
Delaware Basin Midland Basin Permian Total
Crude oil 112 46 158
Natural gas 160 — 160
Produced water 270 251 521
Sourced water 27 74 101
Total 569 371 940

(Capacity/capability)(1)
Delaware Basin Midland Basin Permian Total Utilization
Crude oil gathering (Bbl/d) 240,000 65,000 305,000 24 %
Natural gas compression (Mcf/d) 151,000 — 151,000 75 %
Natural gas gathering (Mcf/d) 180,000 — 180,000 63 %
Produced water gathering and disposal (Bbl/d) 1,330,000 1,784,000 3,114,000 24 %
Sourced water gathering (Bbl/d) 120,000 455,000 575,000 45 %


(Miles)(1)	Delaware Basin	Midland Basin	Permian Total
Crude oil	113	46	159

Produced water	273	327	600
Sourced water	27	101	128
Total	413	474	887


(Capacity/capability)(1)	Delaware Basin	Midland Basin	Permian Total	Utilization
Crude oil gathering (Bbl/d)	240,000	65,000	305,000	26	%


Produced water gathering and disposal (Bbl/d)	1,330,000	2,112,000	3,442,000	23	%
Sourced water gathering (Bbl/d)	120,000	544,000	664,000	40	%

(1)Does not include any assets of our equity method investment joint ventures.

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~~Results of Operations~~

~~The following table sets forth selected historical operating data for the periods indicated:~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands, except operating data)
Revenues:
Revenues—related party $ 87,613 $ 85,846 $ 266,270 $ 280,460
Revenues—third party 5,885 7,229 19,973 23,504
Other income—related party 2,080 2,431 7,162 5,419
Other income—third party 992 1,033 3,104 5,286
Total revenues 96,570 96,539 296,509 314,669
Costs and expenses:
Direct operating expenses 22,335 31,173 81,145 101,425
Cost of goods sold (exclusive of depreciation and amortization) 10,951 6,663 30,060 27,368
Real estate operating expenses 558 494 1,619 1,812
Depreciation, amortization and accretion 11,443 10,990 37,928 35,596
Impairment and abandonments — — 3,371 —
General and administrative expenses 5,338 3,140 14,928 11,829
(Gain) loss on disposal of assets 1,144 (16) 6,155 2,765
Total costs and expenses 51,769 52,444 175,206 180,795
Income (loss) from operations 44,801 44,095 121,303 133,874
Other income (expense):
Interest income (expense), net (8,172) (5,817) (23,717) (10,364)
Gain (loss) on sale of equity method investments 31 — 23,020 —
Income (loss) from equity method investments 4,825 3,369 6,474 (9,910)
Total other income (expense), net (3,316) (2,448) 5,777 (20,274)
Net income (loss) before income taxes 41,485 41,647 127,080 113,600
Provision for (benefit from) income taxes 2,551 2,851 7,761 7,754
Net income (loss) 38,934 38,796 119,319 105,846
Less: Net income (loss) attributable to non-controlling interest 30,449 29,578 92,374 80,775
Net income (loss) attributable to Rattler Midstream LP $ 8,485 $ 9,218 $ 26,945 $ 25,071
Operating Data:
Throughput(1)
Crude oil gathering (Bbl/d) 72,665 91,090 80,584 93,205
Natural gas gathering (MMBtu/d) 134,602 119,951 135,538 115,089
Produced water gathering and disposal (Bbl/d) 747,009 763,475 771,453 825,254
Sourced water gathering (Bbl/d) 256,288 203,785 255,188 242,710

~~(1) Does not include any volumes from our equity method investment joint ventures.~~

~~Table of Contents~~

Sources of Our Revenues

We currently generate a substantial portion of our revenues under fee-based commercial agreements with Diamondback, each with an initial term ending in 2034, utilizing our ~~infrastructure assets~~existing or ~~our~~ planned infrastructure assets to provide an array of essential services critical to Diamondback’s upstream operations on certain dedicated acreage in the Delaware and Midland Basins.

Commodity price fluctuations indirectly influence our activities and results of operations over the long-term, since they can affect production rates and investments by Diamondback and third-parties in the development of new crude oil and natural gas reserves. Commodity prices are volatile and influenced by numerous factors beyond our or Diamondback’s control, including the domestic and global supply of and demand for crude oil and natural gas. Furthermore, our ability to execute our development strategy in the Permian Basin will depend on crude oil and natural gas production in that area, which is also affected by the supply of and demand for crude oil and natural gas.

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Results of Operations for the Three Months Ended March 31, 2022 and 2021

The following table sets forth selected historical operating data for the periods indicated:


	Three Months Ended March 31,
	2022		2021
	(In thousands, except operating data)
Revenues:
Midstream revenues—related-party	$	90,302	$	87,078
Midstream revenues—third-party	10,446		8,121
Other revenues—related-party	1,751		2,540
Other revenues—third-party	964		1,069
Total revenues	103,463		98,808
Costs and expenses:
Direct operating expenses	21,628		32,511
Cost of goods sold (exclusive of depreciation and amortization)	15,180		8,811
Real estate operating expenses	533		517
Depreciation, amortization and accretion	20,687		11,246
Impairment and abandonments	1,082		3,371
General and administrative expenses	5,345		4,634
(Gain) loss on disposal of assets	(71)		6
Total costs and expenses	64,384		61,096
Income (loss) from operations	39,079		37,712
Other income (expense):
Interest income (expense), net	(8,684)		(7,310)

Income (loss) from equity method investments	9,080		(2,823)
Total other income (expense), net	396		(10,133)
Net income (loss) before income taxes	39,475		27,579
Provision for (benefit from) income taxes	2,384		1,671
Net income (loss)	37,091		25,908
Less: Net income (loss) attributable to non-controlling interest	29,160		19,893
Net income (loss) attributable to Rattler Midstream LP	$	7,931	$	6,015

Operating Data:
Throughput(1)
Crude oil gathering (Bbl/d)	77,989		85,210
Natural gas gathering (MMBtu/d)	—		130,437
Produced water gathering and disposal (Bbl/d)	845,835		765,588
Sourced water gathering (Bbl/d)	387,542		267,834

(1) Does not include any volumes from our equity method investment joint ventures.

Comparison of the Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020 and Nine Months Ended September 30, 2021 and 2020~~

Revenues

~~There were no significant changes in total~~Total revenues increased by $4.7 million to $103.5 million for the ~~three months ended September 30, 2021~~first quarter of 2022, compared to $98.8 million for the same period of 2021, primarily due to increases in ~~2020; however, decreases in revenues~~revenue from produced water ~~volumes~~gathering and disposal of ~~$2.9~~$4.7 million and ~~crude oil volumes gathered of $1.6 million, were offset by increases of $4.2 million in revenues from~~ sourced water ~~volumes gathered and $0.6~~gathering of $6.4 million, largely resulting from placing assets acquired in ~~natural gas volumes gathered. Total revenues decreased by $18.2 million to $296.5 million for~~ the ~~nine months ended September 30, 2021 from $314.7 million for~~Drop Down in service as well as the ~~nine months ended September 30, 2020, due to decreases in revenues from produced water volumes~~continued buildout of ~~$17.8 million and revenues from crude oil volumes gathered of $3.1 million, which~~our gathering systems. These increases were partially offset by ~~increases of $1.2 million~~a decline in ~~revenues from sourced water volumes gathered and $2.5 million in revenues from~~ natural gas ~~volumes.~~

~~The decreases~~gathering revenues of $5.4 million due to the sale of substantially all of our natural gas gathering assets in ~~revenues from produced water volumes~~the fourth quarter of 2021, and crude oil ~~volumes in each period were~~gathering of $0.6 million, primarily due to a reduction in volumes transported by Diamondback through the systems on our dedicated acreage. ~~The increases in revenues from sourced water volumes and natural gas volumes gathered in each period were due to an increase in Diamondback’s drilling and completion activity.~~

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Direct Operating Expenses

Direct operating expenses ~~totaled $22.3~~decreased by $10.9 million ~~and $81.1~~to $21.6 million for the ~~three and nine months ended September 30, 2021, respectively,~~first quarter of 2022, compared to ~~$31.2 million and $101.4~~$32.5 million for the ~~three~~same period in 2021 primarily due to reductions of (i) $1.9 million, $1.6 million and ~~nine months ended September 30, 2020, respectively. The decreases~~$1.1 million, respectively, for generators, workover expense and roustabouts due to lower levels of workover activity and the release of multiple generators in the ~~2021 periods compared to the 2020 periods are largely~~first quarter of 2022, (ii) $1.6 million due to a ~~focus on cost cutting efforts along with a reduction~~decline in ~~expenses related~~third-party disposal, and (iii) $2.9 million due to ~~declining produced water and oil volumes~~the sale of the Pecos gas gathering assets in the fourth quarter of 2021.

Cost of Goods Sold

Cost of goods sold (exclusive of depreciation and amortization) increased by ~~$4.3~~$6.4 million to ~~$11.0~~$15.2 million for the ~~three months ended September 30, 2021 from $6.7~~first quarter of 2022, compared to $8.8 million for the three months ended September 30, 2020. The increase primarily relates to higher sourced water and gas gathering volumes due to Diamondback’s increased level of drilling and completion activity in the third quarter of 2021 compared to the same period in ~~2020.~~

~~Cost of goods sold (exclusive of depreciation and amortization) increased by $2.7 million~~2021 primarily due to ~~$30.1 million for the nine months ended September 30, 2021 from $27.4 million for the nine months ended September 30, 2020. The~~a 45% increase ~~primarily relates to higher~~in average sourced water ~~and gas~~ gathering volumes ~~transported~~transported. Additionally, we incurred $0.7 million in ~~the second and third quarters of 2021, which was partially offset by a reduction in the volumes of produced water gathered and disposed and crude oil volumes gathered due to lower~~costs associated with higher levels of ~~drilling and completion activity~~evaporation on our frac ponds in the first quarter of ~~2021.~~2022.

Depreciation, Amortization and Accretion

~~There were no significant changes in depreciation,~~Depreciation, amortization and accretion increased by $9.4 million to $20.7 million for the ~~three months ended September 30, 2021~~first quarter of 2022, compared to $11.2 million for the same period in ~~2020. Depreciation, amortization~~2021 primarily due to (i) the accelerated depreciation of $8.0 million in assets that were plugged and ~~accretion was $37.9 million~~abandoned in the first quarter of 2022, and ~~$35.6 million for the nine months ended September 30, 2021 and 2020, respectively. The~~(ii) an increase of ~~$2.3~~$2.0 million ~~was largely due to further~~

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~~development of existing gathering and compression, transportation and disposals systems, which increased our depreciable asset base,~~associated with assets acquired in the Drop Down. These increases were partially offset by ~~abandoned and sold assets during the fourth quarter~~a reduction of ~~2020 and first quarter of 2021.~~

~~Interest Expense, Net~~

~~Net interest expense was $8.2~~$1.2 million and $23.7 million for the three and nine months ended September 30, 2021, respectively, compared to $5.8 million and $10.4 million for the three and nine months ended September 30, 2020, respectively. The increases in the 2021 periods compared to the 2020 periods primarily relate to interest accrued on the Notes which were issued in July 2020 and bear interest at a rate of 5.625% per annum.

~~Gain (loss) on Sale of Equity Method Investments~~

~~The gain on sale of equity method investments for the three and nine months ended September 30, 2021 related to~~resulting from the sale of ~~our interest in Amarillo Rattler in~~ the ~~second quarter of 2021. See Note 4—Divestitures~~ ~~included in the condensed notes to the consolidated financial statements included elsewhere in this report for discussion of the sale.~~Pecos gas gathering assets.

Income (loss) from Equity Method Investments

~~There were no significant changes in income from equity method investments for the three months ended September 30, 2021 compared to the same period in 2020.~~

Income from equity method investments ~~was $6.5~~increased by $11.9 million to $9.1 million for the ~~nine months ended September 30, 2021~~first quarter of 2022, compared to a loss of ~~$9.9~~$2.8 million for the ~~nine months ended September 30, 2020. The loss~~same period in 2021 primarily due to the addition of $5.3 million in income from the WTG joint venture, which was acquired in the ~~2020 period~~fourth quarter of 2021. The remaining change stemmed primarily ~~related~~from a general recovery in the operations of our other equity method investments beginning in the second quarter of 2021 after the oil and gas industry downturn due to ~~a proportional charge of $15.8 million~~the COVID-19 pandemic and other economic factors in ~~goodwill impairment recorded by an investee.~~2020. See Note 7—8—Equity Method Investments included in the condensed notes to the consolidated financial statements included elsewhere in this report for additional ~~discussion.~~

~~Non-GAAP Financial Measures~~

~~Adjusted EBITDA~~

~~Adjusted EBITDA is a supplemental non-GAAP financial measure used by management and external users~~discussion of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations period to period without regard to our financing methods or capital structure.

We define Adjusted EBITDA as net income (loss) attributable to Rattler Midstream LP plus net income (loss) attributable to non-controlling interest before interest expense (net of amount capitalized), depreciation, amortization and accretion on assets and liabilities of the Operating Company, our proportional depreciation and interest expense related to equity method investments, our proportional impairments and abandonments related to equity method investments, non-cash unit-based compensation expense, impairment and abandonments, (gain) loss on disposal of assets, (gain) loss from sale of equity method investment, provision for income taxes and other. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). However, Adjusted EBITDA is not a measure of net income (loss) as determined by GAAP. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as historic costs of depreciable assets.

investments.

Adjusted EBITDA should not be considered an alternative to net income (loss) or any other measure of financial performance or liquidity presented in accordance with GAAP. Our computation of Adjusted EBITDA excludes some, but not all, items that affect net income (loss), and these measures may vary from those of other companies. As a result, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.

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Results of Operations for the Three Months Ended March 31, 2022 and December 31, 2021

As noted in “—2022 Transactions and Recent Developments,” our business is highly dependent on the operational decisions made by Diamondback and our other customers in the Permian Basin which are affected by highly volatile oil and natural gas markets and can lead to significant changes in our results of operations and management’s operational strategy on a quarterly basis. As a result, beginning with the first quarter of 2022, we have elected to change our results of operations discussion to focus on a comparison of the current quarter’s results of operations with those of the immediately preceding quarter. We believe the change in our discussion will provide investors with a more meaningful assessment of our quarterly performance based on current market and operational trends.

The following table ~~presents a reconciliation of net income to Adjusted EBITDA~~sets forth selected historical operating data for ~~each of~~ the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(In thousands)
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
Net income (loss) attributable to Rattler Midstream LP $ 8,485 $ 9,218 $ 26,945 $ 25,071
Net income (loss) attributable to non-controlling interest 30,449 29,578 92,374 80,775
Net income (loss) 38,934 38,796 119,319 105,846
Interest expense, net of amount capitalized 8,172 5,817 23,717 10,364
Depreciation, amortization and accretion 11,443 10,990 37,928 35,596
Depreciation and interest expense related to equity method investments 9,799 9,330 30,360 20,340
Impairments and abandonments related to equity method investments 551 676 3,484 16,515
Non-cash unit-based compensation expense 2,491 2,216 7,308 6,555
Impairment and abandonments — — 3,371 —
(Gain) loss on disposal of assets 1,144 (16) 6,155 2,765
Gain (loss) on sale of equity method investments (31) — (23,020) —
Provision for income taxes 2,551 2,851 7,761 7,754
Other (28) 687 6 471
Adjusted EBITDA 75,026 71,347 216,389 206,206
Less: Adjusted EBITDA attributable to non-controlling interest 54,614 50,670 156,833 146,582
Adjusted EBITDA attributable to Rattler Midstream LP $ 20,412 $ 20,677 $ 59,556 $ 59,624


	Three Months Ended
	March 31, 2022		December 31, 2021
	(In thousands, except operating data)
Revenues:
Midstream revenues—related-party	$	90,302	$	90,228
Midstream revenues—third-party	10,446		6,920
Other revenues—related-party	1,751		1,747
Other revenues—third-party	964		937
Total revenues	103,463		99,832
Costs and expenses:
Direct operating expenses	21,628		21,780
Cost of goods sold (exclusive of depreciation and amortization)	15,180		13,410
Real estate operating expenses	533		612
Depreciation, amortization and accretion	20,687		11,268
Impairment and abandonments	1,082		—
General and administrative expenses	5,345		6,683
(Gain) loss on disposal of assets	(71)		(1,199)
Total costs and expenses	64,384		52,554
Income (loss) from operations	39,079		47,278
Other income (expense):
Interest income (expense), net	(8,684)		(8,363)

Income (loss) from equity method investments	9,080		8,305
Total other income (expense), net	396		(58)
Net income (loss) before income taxes	39,475		47,220
Provision for (benefit from) income taxes	2,384		2,769
Net income (loss)	37,091		44,451
Less: Net income (loss) attributable to non-controlling interest	29,160		34,616
Net income (loss) attributable to Rattler Midstream LP	$	7,931	$	9,835

Operating Data:
Throughput(1)
Crude oil gathering (Bbl/d)	77,989		74,582
Natural gas gathering (MMBtu/d)	—		42,672
Produced water gathering and disposal (Bbl/d)	845,835		818,291
Sourced water gathering (Bbl/d)	387,542		307,047

(1) Does not include any volumes from our equity method investment joint ventures.

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Comparison of the Three Months Ended March 31, 2022 and December 31, 2021

Revenues

Total revenues increased by $3.6 million to $103.5 million for the first quarter of 2022, compared to $99.8 million for the fourth quarter of 2021, primarily due to (i) a $3.9 million increase in sourced water gathering revenue as a result of placing certain assets acquired in the Drop Down in service as well as the continued build out of the systems, and (ii) $0.9 million in additional produced water revenues due to a 3% increase in produced water volumes transported. These increases were partially offset by a decline in revenues from natural gas gathering volumes of $1.8 million due to the sale of substantially all of our natural gas gathering assets in November 2021.

Direct Operating Expenses

Direct operating expenses incurred in the first quarter of 2022 remained consistent with the fourth quarter of 2021.

Cost of Goods Sold

Cost of goods sold (exclusive of depreciation and amortization) increased by $1.8 million to $15.2 million for the first quarter of 2022, compared to $13.4 million for the fourth quarter of 2021 primarily due to an increase of 26% in the average sourced water gathering volumes transported. Additionally, we incurred $0.8 million in costs associated with higher levels of evaporation on our frac ponds during the first quarter of 2022.

Depreciation, Amortization and Accretion

Depreciation, amortization and accretion increased by $9.4 million to $20.7 million for the first quarter of 2022, compared to $11.3 million for the fourth quarter of 2021 primarily due to (i) the accelerated depreciation of $8.0 million in assets that were plugged and abandoned in the first quarter of 2022, and (ii) an increase of $1.4 million associated with assets acquired in the Drop Down.

Income (loss) from Equity Method Investments

Income from equity method investments increased by $0.8 million to $9.1 million for the first quarter of 2022, compared to $8.3 million for the fourth quarter of 2021 primarily due to reductions of (i) $2.3 million in losses recorded for our EPIC investment as capacity utilization of the EPIC pipeline continues to increase as economic conditions in the Permian Basin improve and (ii) $1.1 million in losses recorded for our Wink to Webster investment as the pipeline began full commercial operations in February 2022. These were partially offset by reductions in income of $1.2 million and $1.1 million from our Gray Oak and OMOG investments, respectively.

Liquidity and Capital Resources

Overview of Sources and Uses of Cash

As we pursue our business and financial strategy, we regularly consider which capital resources, including cash flow and equity and debt financings, are available to meet our future financial obligations and liquidity requirements. Our primary sources of liquidity have ~~been~~included cash generated from operations, borrowings under the Credit Agreement and the issuance of the Notes. Our primary uses of capital have been for additions to property, plant and equipment, contributions to equity method investments, distributions to our unitholders and repurchases of our common units. As of March 31, 2022, we had approximately $383.7 million of liquidity consisting of $13.7 million in cash and $370.0 million available under the Credit Agreement.

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Our working capital requirements are supported by our cash and the Credit Agreement. We believe that cash generated from ~~these~~the sources ~~as well as proceeds received from the sale of assets in the fourth quarter~~discussed above will be sufficient to meet our short-term ~~working capital requirements~~ and long-term funding requirements, including our capital ~~expenditure requirements~~spending programs, distribution payments, repayment of the Credit Agreement, common unit repurchase program, expenses under the services and ~~to make quarterly cash distributions.~~secondment agreement with Diamondback and other amounts that may ultimately be paid in connection with commitments and contingencies. We do not have any commitment from Diamondback, our ~~general partner~~General Partner or any of their respective affiliates to fund our cash flow deficits or provide us with other direct or indirect financial ~~assistance~~assistance. Although we expect that our sources of capital will be adequate to ~~us. Should~~fund our short-term and long-term liquidity requirements, should we require additional capital, the indirect effect of volatile commodity markets and/or adverse macroeconomic conditions may limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all.

~~Cash Distributions on Common Units~~

On October 27, 2021, the board of directors of our general partner approved a cash distribution for the third quarter of 2021 of $0.25 per common unit, payable on November 22, 2021, to common unitholders of record at the close of business on November 15, 2021. The board of directors of our general partner may change the distribution policy at any time and from time to time. See Note 10—~~Unitholders’ Equity and Distributions~~ ~~included in the condensed notes to the consolidated financial statements included elsewhere in this report for additional discussion of our distribution policy.~~

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Cash Flows

The following table presents our cash flows for the periods indicated:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Cash Flow Data:	Cash Flow Data:					Cash Flow Data:
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	185,799	$	177,374	Net cash provided by (used in) operating activities	$	59,888	$	52,668
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	10,825		(187,208)		Net cash provided by (used in) investing activities	(54,105)		(416)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(207,471)		15,777		Net cash provided by (used in) financing activities	(11,978)		(66,419)
Net increase (decrease) in cash	Net increase (decrease) in cash	$	(10,847)	$	5,943	Net increase (decrease) in cash	$	(6,195)	$	(14,167)

Operating Activities

Net cash provided by operating activities increased by ~~$8.4~~$7.2 million during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, due primarily to the receipt of distributions representing returns on investment from our equity method investments of ~~$23.3~~$7.6 million, ~~and~~ decreases in direct operating expenses of ~~$20.3 million.~~$10.9 million and an increase of $4.7 million in revenues. These increases were partially offset by ~~the $18.2 million decline in revenues,~~ an increase of $6.4 million in ~~cash paid for interest of $22.8 million, and less significant increases in cost~~costs of goods ~~sold and general and administrative costs.~~sold. The remaining change stems largely from fluctuations in working capital due primarily to the timing of when collections are made on accounts receivable and payments are made on accounts payable and accrued liabilities. See —Results of Operations for further discussion of changes in revenue and operating expenses and ~~interest expense and~~ Note 7—8—Equity Method Investments included in the condensed notes to the consolidated financial statements included elsewhere in this report for further discussion of distributions.

Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$10.8~~$54.1 million during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and consisted primarily ~~consists~~ of ~~$23.5~~(i) $29.1 million in proceeds from the sale of our Amarillo Rattler equity method investment, $9.2 million in proceeds from the sale of a real estate asset, and $9.1 million in distributions considered to be returns of investment received from certain of our equity method investments prior to placing constructed assets in service. These proceeds were partially offset by capital expenditures for property, plant and equipment of $24.1 million and contributions to our equity method investments, ~~of $7.1~~including the $22.2 million ~~which continue~~initial investment in BANGL, and (ii) $17.9 million in capital expenditures related to ~~decrease as discussed in~~ ~~—Recent Developments~~.our midstream and real estate assets.

Net cash used in investing activities was ~~$187.2~~$0.4 million during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, and primarily related to ~~additions to property, plant~~(i) $5.9 million in capital expenditures, and ~~equipment and~~(ii) $3.7 million in contributions to our equity method investments, which were partially offset by $9.1 million in distributions considered to be returns of investment received from our Gray Oak and OMOG equity method investments.

Financing Activities

Net cash used in financing activities was ~~$207.5~~$12.0 million during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and primarily related to ~~distributions~~the return of ~~$96.7 million~~capital to our unitholders ~~net payments on the credit facility~~through distributions of ~~$79.0~~$43.8 million ~~as we continue to reduce our borrowings~~ and ~~$28.6~~$2.6 million in repurchases of common units under our repurchase ~~program during the period.~~

~~Net~~program. These cash ~~provided by financing activities was $15.8 million during the nine months ended September 30, 2020, and primarily related to proceeds from the notes offering of $500.0 million, which~~outflows were ~~largely~~partially offset by ~~net~~ borrowings on the credit facility of ~~$339.0~~$35.0 million.

Net cash used in financing activities was $66.4 million ~~distributions~~during the three months ended March 31, 2021, and primarily related to the return of capital to our unitholders through distributions of ~~$132.0~~$29.8 million ~~during the period~~ and ~~debt issuance costs incurred~~$11.1 million in repurchases of common units under our repurchase program. Additionally, we made payments, net of borrowings, on the ~~notes offering.~~Credit Agreement of $25.0 million.

~~Common Unit Repurchase Program~~

On October 29, 2020, the board of directors of our general partner approved a common unit repurchase program to acquire up to $100 million of our outstanding common units. The common unit repurchase program was authorized to extend through December 31, 2021, but in October 2021, the repurchase program authorization was further increased to $150.0 million and the program was extended indefinitely. We intend to purchase common units under the repurchase program

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~~opportunistically with cash on hand, free cash flow from operations~~Capital Resources

The Operating Company’s Credit Agreement

The Credit Agreement provides for a revolving credit facility in the maximum credit amount of $600.0 million, which is expandable to $1.0 billion upon our election, subject to obtaining additional lender commitments and ~~proceeds from potential liquidity events such as the sale~~satisfaction of ~~assets. The repurchase program may be suspended from time to time, modified, extended or discontinued by the board~~customary conditions. As of ~~directors of our general partner at any time. Purchases~~March 31, 2022, there was $230.0 million in outstanding borrowings under the ~~repurchase program may be made from time to time in open market or privately negotiated transactions~~Credit Agreement, which matures on May 28, 2024.

As of March 31, 2022, the Operating Company was in compliance with ~~Rule 10b-18~~all financial covenants under the Securities Exchange Act of 1934, as amended, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. Any common units purchased as part of this program will be retired. During the nine months ended September 30, 2021, we repurchased approximately $28.6 million of common units under the repurchase program. As of September 30, 2021, $56.6 million remained available for use to repurchase common units under our program.its Credit Agreement.

For additional information regarding the Credit Agreement and other outstanding debt, see Note 9—Debt included in the condensed notes to the consolidated financial statements included elsewhere in this report.

Capital Requirements ~~and Sources of Liquidity~~

2022 Capital Budget

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. However, with respect to capital expenditures incurred for acquisitions or capital improvements, we have some discretion and control. In times of reduced operational activity, we may choose to defer a portion of our budgeted capital expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive. We consistently monitor and may adjust our projected capital expenditures in response to factors both within and outside our control.

For the nine months ended September 30, 2021, our total capital expenditures were $24.1 million, which primarily consisted of $20.8 million related to produced water disposal assets, $2.2 million related to crude oil gathering assets, $1.3 million related to real estate assets and $0.2 million related to natural gas gathering assets. We estimate that our total capital expenditures related to midstream assets for ~~2021~~2022 will be between ~~$30~~$80 million and ~~$40~~$100 million, excluding our anticipated total capital commitments related to our equity method investments of approximately $10 million to $15 million. We also estimate that distributions from our equity method investments will be between ~~$40~~$45 million ~~to $45~~and $55 million. However, this range could decrease due to the continued impact, either directly or indirectly, of the Russian- Ukrainian military conflict, the COVID-19 pandemic or volatile crude oil prices on our business.

We own equity interests in ~~the~~several joint ventures including EPIC, Gray Oak, Wink to Webster, OMOG, the WTG joint venture and ~~OMOG joint ventures.~~BANGL. Each of these joint ventures is accounted for using the equity method. The following table sets forth our cumulative capital contributions and anticipated future capital commitment for each of our equity method ~~investment interests:~~investments:


		Ownership Interest		Acquisition Date	Cumulative Capital Contributions to Date		Anticipated Future Capital Commitment			Ownership Interest		Acquisition Date	Cumulative Capital Contributions to Date		Anticipated Future Capital Commitment
					(In thousands)								(In thousands)
EPIC Crude Holdings, LP	EPIC Crude Holdings, LP	10	%	February 1, 2019	$	137,534	$	2,466	EPIC Crude Holdings, LP	10	%	February 1, 2019	$	139,334	$	900
Gray Oak Pipeline, LLC	Gray Oak Pipeline, LLC	10	%	February 15, 2019	$	142,096	$	—	Gray Oak Pipeline, LLC	10	%	February 15, 2019	$	142,096	$	—
Wink to Webster Pipeline LLC	Wink to Webster Pipeline LLC	4	%	July 30, 2019	$	87,732	$	20,268	Wink to Webster Pipeline LLC	4	%	July 30, 2019	$	90,053	$	9,947
OMOG JV LLC	OMOG JV LLC	60	%	October 1, 2019	$	218,555	$	—	OMOG JV LLC	60	%	October 1, 2019	$	218,569	$	—
WTG joint venture									WTG joint venture	25	%	October 5, 2021	$	106,513	$	—
BANGL LLC									BANGL LLC	10	%	January 19, 2022	$	25,150	$	2,000

As of ~~September 30, 2021,~~March 31, 2022, we anticipate making additional contributions of ~~$6.0~~$5.3 million to our equity method investments during the remainder of 2021. Other than the purchase price of $104.0 million, we do not currently anticipate making additional capital contributions to our equity method investment, the WTG joint venture, which was acquired in October 2021.2022. For further discussion regarding these investments see Note 7— 8—Equity Method Investments ~~and Note 16—Subsequent Events~~ included in the condensed notes to the consolidated financial statements included elsewhere in this report.

Based upon current expectations for 2021, we believe that our cash flows from operations, cash on hand and borrowing under our revolving credit facility will be sufficient to fund our operations and anticipated future capital commitments through the 12-month period following the filing of this report and thereafter.

~~Indebtedness~~

At September 30, 2021, we have $500.0 million in principal amount of outstanding indebtedness, which consists of Notes and borrowings under the Operating Company’s revolving credit facility, if any, as discussed further below.

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~~The Operating Company’s Revolving Credit Facility~~

The Operating Company’s credit agreement provides for a revolving credit facility in the maximum credit amount of $600.0 million, which is expandable to $1.0 billion upon our election, subject to obtaining additional lender commitments and satisfaction of customary conditions. As of September 30, 2021, there were no outstanding borrowings and $600.0 million available for future borrowings, under the Operating Company’s revolving credit facility. The weighted average interest rate on borrowings under the Credit Agreement was 1.34% and 1.38% for the three and nine months ended September 30, 2021, respectively. The credit agreement matures on May 28, 2024.

~~As of September 30, 2021, the Operating Company was in compliance with all financial covenants under its Credit Agreement.~~

~~Notes Offering~~

On July 14, 2020, we completed an offering of our 5.625% senior notes due 2025 in the aggregate principal amount of $500.0 million. We received net proceeds of approximately $489.5 million from the notes offering. We loaned the gross proceeds of $500.0 million of the notes offering to the Operating Company, which used the proceeds from the notes offering to repay then outstanding borrowings under its revolving credit facility. Interest on the notes is payable semi-annually, and the first interest payment was made on January 15, 2021.Common Unit Repurchase Program

~~For additional information regarding~~During the ~~outstanding debt, see~~three months ended March 31, 2022, we repurchased approximately $2.6 million of common units under our common unit repurchase program. As of March 31, 2022, $85.1 million remained available for future repurchases of our common units under our program. See Note 8—11—~~Debt~~ ~~included in the condensed notes to the consolidated financial statements included elsewhere in this report.~~

~~Contractual Obligations~~

~~Except as may be discussed in Note 8—Debt~~Unitholders' Equity and ~~Note 15—Commitments and Contingencies~~Distributions included in the condensed notes to the consolidated financial statements included elsewhere in this report ~~there were~~for further discussion of the common unit repurchase program.

Cash Distributions on Common Units

On April 27, 2022, the board of directors of our general partner approved a cash distribution for the first quarter of 2022 of $0.30 per common unit, payable on May 20, 2022, to common unitholders of record at the close of business on May 13, 2022. The board of directors of our general partner may change the distribution policy at any time and from time to time. See Note 11—Unitholders’ Equity and Distributions included in the condensed notes to the consolidated financial statements included elsewhere in this report for additional discussion of our distribution policy.

Critical Accounting Estimates

There have been no ~~material~~ changes toin our ~~contractual obligations and other commitments,~~critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for recent accounting pronouncements and accounting policies not yet adopted, if any.

~~Critical Accounting Policies~~

~~There have been no changes in our critical accounting policies from those disclosed in our~~ ~~Annual Report on Form 10-K~~ ~~for the year ended December 31, 2020.~~

~~Off-Balance Sheet Arrangements~~

~~We currently have no significant off-balance sheet arrangements.~~

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including the effects of adverse changes in commodity prices and interest rates as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses.

Commodity Price Risk

We currently generate the majority of our revenues pursuant to fee-based agreements with Diamondback under which we are paid based on volumetric fees, rather than the underlying value of the commodity. Consequently, our existing operations and cash flows have little direct exposure to commodity price risk. However, Diamondback and our other customers are exposed to commodity price risk, and an extended reduction in commodity prices could reduce the production volumes available for our midstream services in the future below expected levels. Although we intend to maintain fee-based pricing terms on both new contracts and existing contracts for which prices have not yet been set, our efforts to negotiate such terms may not be successful, which could have a materially adverse effect on our business.

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 ~~natural gas liquids~~NGLs 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.

Credit Risk

We are subject to counterparty credit risk related to our midstream commercial contracts, lease agreements and joint venture receivables. We derive substantially all of our revenue from our commercial agreements with Diamondback. As a result, we are directly affected by changes to Diamondback’s business related to operational and business risks or otherwise. We cannot predict the extent to which Diamondback’s business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Diamondback’s ability to execute its drilling and development program or to perform under our agreements. While we monitor the creditworthiness of purchasers, lessees and joint venture partners with which we conduct business, we are unable to predict sudden changes in solvency of these

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counterparties and may be exposed to associated risks. Nonperformance by a counterparty could result in significant financial losses.

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on our indebtedness under the ~~Operating Company’s credit agreement.~~Credit Agreement. The terms of the Credit Agreement provide for interest at a rate elected by the Operating Company that is based on the prime rate or LIBOR, in each case plus margins ranging from 0.250% to 1.250% for prime-based loans and 1.250% to 2.250% per annum for LIBOR loans, in each case depending on the Consolidated Total Leverage Ratio (as defined in the Credit Agreement). The Operating Company is obligated to pay a quarterly commitment fee ranging from 0.250% to 0.375% per annum on the unused portion of the commitment, which fee is also dependent on the Consolidated Total Leverage Ratio.

As of ~~September 30, 2021,~~March 31, 2022, we had no$230.0 million outstanding borrowings and ~~$600.0~~$370.0 million available for future borrowings under the Credit Agreement. During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the weighted average interest rate on borrowings under the Credit Agreement was ~~1.34% and 1.38%, respectively.~~1.40%.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Control and Procedures. Under the direction of the Chief Executive Officer and Chief Financial Officer of our general partner, we have established disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of our general partner, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

As of ~~September 30, 2021,~~March 31, 2022, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner have concluded that as of ~~September 30, 2021,~~March 31, 2022, our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting. In July 2021, we implemented an enterprise resource planning system covering various financial and accounting processes. As a result of this implementation, certain internal controls over financial reporting have been automated, modified or implemented to address the new environment associated with the implementation of this system. We believe we have maintained appropriate internal control over financial reporting during the implementation and believe this new system will strengthen our internal control system. However, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our assessment of internal control over financial reporting throughout 2021. There have not been ~~no other~~any changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Due to the nature of our business, we may be involved in various routine legal proceedings, disputes and claims from time to time arising in the ordinary course of our business activities. In the opinion of our management, there are currently no such matters that, if decided adversely, will have a material adverse effect on our financial condition, results of operations or cash flows. See Note ~~15—~~16—Commitments and Contingencies included in the condensed notes to the consolidated financial statements included elsewhere in this report.

ITEM 1A. RISK FACTORS

Our business faces many risks. Any of the risks discussed in this report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also materially impair our business operations, financial condition or future results.

As of the date of this filing, we continue to be subject to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on February ~~25, 2021. There~~24, 2022. Except as set forth below, there have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

We cannot predict the impact of the ongoing military conflict between Russia and Ukraine and the related humanitarian crisis on the global economy, energy markets, geopolitical stability and our business.

Our midstream assets are currently located exclusively in the Permian Basin and we derive substantially all of our revenue from our commercial agreements with Diamondback. However, the broader consequences of the Russian-Ukrainian conflict, which may include further sanctions, embargoes, supply chain disruptions, regional instability and geopolitical shifts, may have adverse effects on global macroeconomic conditions, increase volatility in the price of and demand for oil and natural gas, increase exposure to cyberattacks, cause disruptions in global supply chains, increase foreign currency fluctuations, cause constraints or disruption in the capital markets and limit sources of liquidity. We cannot predict the extent of the conflict’s effect on our business and results of operations as well as on the global economy and energy markets.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

Our common unit repurchase activity for the three months ended ~~September 30, 2021~~March 31, 2022 was as follows:

Period
Total Number of Units Purchased(1)
Average Price Paid Per Unit (2)
Total Number of Units Purchased as Part of Publicly Announced Plan
Approximate Dollar Value of Units that May Yet Be Purchased Under the Plan (3)
($ in thousands, except per unit amounts)
July 1, 2021 - July 31, 2021 332,465 $ 10.33 272,465 $ 65,511
August 1, 2021 - August 31, 2021 544,359 $ 10.58 544,359 $ 59,750
September 1, 2021 - September 30, 2021 271,917 $ 11.46 331,917 $ 56,634
Total 1,148,741 $ 10.72 1,148,741


Period	Total Number of Units Purchased(1)	Average Price Paid Per Unit (2)		Total Number of Units Purchased as Part of Publicly Announced Plan	Approximate Dollar Value of Units that May Yet Be Purchased Under the Plan (3)
	($ in thousands, except per unit amounts)
January 1, 2022 - January 31, 2022	216,966	$	11.90	216,996	$	85,086
February 1, 2022 - February 28, 2022	—	$	—	—	$	85,086
March 1, 2022 - March 31, 2022	4,052	$	13.81	—	$	85,086









Total	221,018	$	11.94	216,996

(1)Includes 4,052 common units repurchased from employees in order to satisfy tax withholding requirements. Such units are retired immediately upon repurchase.

(2)The average price paid per common unit includes commissions paid to repurchase common units.

(3)In October 2020, the board of directors of our ~~general partner~~General Partner approved an initial common unit repurchase program to acquire up to ~~$100~~$100.0 million of our outstanding common units through December 31, 2021. In October 2021, the repurchase program authorization was increased to $150.0 million and the program was extended indefinitely. This repurchase program may be suspended from time to time, modified, extended or discontinued by the board of directors of our general partner at any time.

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ITEM 6. EXHIBITS


Exhibit Number						Description


~~2.1~~						Purchase and Sale Agreement, dated October 19, 2021, by and among Diamondback E&P LLC, QEP Energy Company and Guidon Anchor LLC, as seller, and Rattler Midstream Operating LLC, as purchaser (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on October 21, 2021).
3.1						Certificate of Limited Partnership of Rattler Midstream LP (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on August 7, 2018).
3.2						Certificate of Amendment to the Certificate of Limited Partnership of Rattler Midstream LP (incorporated by reference to Exhibit 3.2 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on January 22, 2019).
3.3						First Amended and Restated Agreement of Limited Partnership of Rattler Midstream LP, dated May 28, 2019 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on May 29, 2019).
3.4						Certificate of Formation of Rattler Midstream Operating LLC (formerly White Fang Energy LLC) (incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on August 7, 2018).
3.5						Certificate of Amendment to the Certificate of Formation of Rattler Midstream Operating LLC (formerly White Fang Energy LLC) (incorporated by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on August 7, 2018).
3.6						Certificate of Amendment to the Certificate of Formation of Rattler Midstream Operating LLC (formerly Rattler Midstream LLC) (incorporated by reference to Exhibit 3.6 of Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on January 22, 2019).
3.7						Second Amended and Restated Limited Liability Company Agreement of Rattler Midstream Operating LLC (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on May 29, 2019).
~~3.8~~						Certificate of Formation of Rattler Midstream GP LLC (incorporated by reference to Exhibit 3.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-226645) filed on August 7, 2018).
~~3.9~~3.8						First Amended and Restated Limited Liability Company Agreement of Rattler Midstream GP LLC (incorporated by reference to Exhibit 3.3 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on May 29, 2019).
3.9						Third Amended and Restated Limited Liability Company Agreement of Rattler Midstream Operating LLC (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on December 27, 2021).
4.1						Indenture, dated as of July 14, 2020, among Rattler Midstream LP, as issuer, Rattler Midstream Operating LLC, Tall City Towers LLC, Rattler OMOG LLC and Rattler Ajax Processing LLC, as guarantors, and Wells Fargo Bank, National Association, as trustee (including the form of Rattler Midstream LP’s 5.625% Senior Notes due 2025) (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (File 001-38919) filed on July 14, 2020).























4.2						Supplemental Indenture, dated as of December 8, 2021, among Rattler WTG LLC, as guaranteeing subsidiary, Rattler Midstream LP, as issuer, Rattler Midstream Operating LLC, Tall City Towers LLC, Rattler OMOG LLC and Rattler Ajax Processing LLC, as the other guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 of the Registrant's Current Report on Form 10-K (File No. 333-226645) filed on February 24, 2022).
4.3						Supplemental Indenture, dated as of December 22, 2021, among Rattler Holdings LLC, as guaranteeing subsidiary, Rattler Midstream LP, as issuer, Rattler Midstream Operating LLC, Tall City Towers LLC, Rattler OMOG LLC and Rattler Ajax Processing LLC, as the other guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.5 of the Registrant's Current Report on Form 10-K (File No. 333-226645) filed on February 24, 2022).
31.1*						Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*						Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1**						Certification of Chief Executive Officer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101						The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Changes in Unitholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Condensed Notes to Consolidated Financial Statements.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


*			Filed herewith.
**			The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

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


		RATTLER MIDSTREAM LP

		By:	RATTLER MIDSTREAM GP LLC,
			its general partner

Date:	~~November 4, 2021~~May 5, 2022	By:	/s/ Travis D. Stice
			Travis D. Stice
			Chief Executive Officer
			(Principal Executive Officer)

Date:	~~November 4, 2021~~May 5, 2022	By:	/s/ Teresa L. Dick
			Teresa L. Dick
			Chief Financial Officer
			(Principal Financial Officer)

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