Attached files
file | filename |
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8-K - FORM 8-K - Crestwood Midstream Partners LP | h81153e8vk.htm |
EX-4.4 - EX-4.4 - Crestwood Midstream Partners LP | h81153exv4w4.htm |
EX-4.3 - EX-4.3 - Crestwood Midstream Partners LP | h81153exv4w3.htm |
EX-3.1 - EX-3.1 - Crestwood Midstream Partners LP | h81153exv3w1.htm |
EX-4.1 - EX-4.1 - Crestwood Midstream Partners LP | h81153exv4w1.htm |
EX-10.1 - EX-10.1 - Crestwood Midstream Partners LP | h81153exv10w1.htm |
EX-99.2 - EX-99.2 - Crestwood Midstream Partners LP | h81153exv99w2.htm |
EX-23.1 - EX-23.1 - Crestwood Midstream Partners LP | h81153exv23w1.htm |
Financial Statements and Report of Independent
Certified Public Accountants
Certified Public Accountants
Frontier Gas Services, LLC
December 31, 2010, 2009 and 2008
Report of Independent Certified Public Accountants
Members
Frontier Gas Services, LLC
Frontier Gas Services, LLC
We have audited the accompanying balance sheets of Frontier Gas Services, LLC as of December 31,
2010 and 2009, and the related statements of operations, members equity, and cash flows for each
of the three years in the period ended December 31, 2010. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America established by the American Institute of Certified Public Accountants. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Frontier Gas Services, LLC as of December 31, 2010 and 2009,
and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2010, in conformity with accounting principles generally accepted in the United
States of America.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
February 22, 2011
February 22, 2011
Frontier Gas Services, LLC
Balance Sheets
December 31, 2010 and 2009
2010 | 2009 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash |
$ | 2,083,517 | $ | 5,547,661 | ||||
Accounts receivable |
11,327,900 | 4,071,970 | ||||||
Prepaid assets |
898,978 | 137,627 | ||||||
Total current assets |
14,310,395 | 9,757,258 | ||||||
PROPERTY AND EQUIPMENT |
150,730,186 | 29,915,124 | ||||||
Less- accumulated depreciation |
(9,107,746 | ) | (1,863,689 | ) | ||||
Property and equipment, net |
141,622,440 | 28,051,435 | ||||||
DEFERRED LOAN COSTS, net |
644,762 | - | ||||||
INTANGIBLE ASSETS, net |
21,925,582 | 12,119,454 | ||||||
OTHER LONG-TERM ASSETS |
364,583 | - | ||||||
Total assets |
$ | 178,867,762 | $ | 49,928,147 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 6,849,050 | $ | 2,303,036 | ||||
Amounts due to related parties |
59,398 | 173,083 | ||||||
Other liabilities, current |
632,826 | 57,656 | ||||||
Current portion of capital leases |
2,468,399 | - | ||||||
Total current liabilities |
10,009,673 | 2,533,775 | ||||||
LONG-TERM DEBT |
6,000,000 | - | ||||||
CAPITAL LEASES |
6,376,699 | - | ||||||
COMMITMENTS AND CONTINGENCIES (Note H) |
||||||||
MEMBERS EQUITY, per accompanying statement |
156,481,390 | 47,394,372 | ||||||
Total liabilities and members equity |
$ | 178,867,762 | $ | 49,928,147 | ||||
The accompanying notes are an integral part of these financial statements.
Frontier Gas Services, LLC
Statements of Operations
For the years ended December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
REVENUES: |
||||||||||||
Gas sales |
$ | 21,225,303 | $ | 12,411,461 | $ | 4,573,258 | ||||||
Natural gas liquids sales |
18,155,382 | 13,197,309 | - | |||||||||
Gathering |
21,360,415 | 3,209,574 | 1,621,340 | |||||||||
Compression and other |
5,011,229 | 1,273,490 | 199,728 | |||||||||
Condensate sales |
519,614 | 194,755 | - | |||||||||
Total revenues |
66,271,943 | 30,286,589 | 6,394,326 | |||||||||
EXPENSES: |
||||||||||||
Gas purchases |
34,350,512 | 23,041,098 | 4,525,515 | |||||||||
Operating |
10,122,996 | 2,839,569 | 798,367 | |||||||||
General and administrative |
3,738,524 | 2,812,280 | 1,847,093 | |||||||||
Depreciation and amortization |
8,627,930 | 1,944,922 | 489,560 | |||||||||
Total expenses |
56,839,962 | 30,637,869 | 7,660,535 | |||||||||
OPERATING INCOME (LOSS) |
9,431,981 | (351,280 | ) | (1,266,209 | ) | |||||||
OTHER INCOME (EXPENSE): |
||||||||||||
Gain on business combination |
11,190,000 | - | - | |||||||||
Interest income |
84,606 | 21,478 | 78,145 | |||||||||
Interest expense |
(119,569 | ) | - | (34,779 | ) | |||||||
Total other income |
11,155,037 | 21,478 | 43,366 | |||||||||
NET INCOME (LOSS) |
$ | 20,587,018 | $ | (329,802 | ) | $ | (1,222,843 | ) | ||||
The accompanying notes are an integral part of these financial statements.
Frontier Gas Services, LLC
Statements of Members Equity
For the years ended December 31, 2010, 2009 and 2008
Members | ||||
Equity | ||||
BALANCE, January 1, 2008 |
$ | (414,426 | ) | |
CONTRIBUTIONS |
19,826,187 | |||
NET LOSS |
(1,222,843 | ) | ||
BALANCE, December 31, 2008 |
18,188,918 | |||
CONTRIBUTIONS |
29,535,256 | |||
NET LOSS |
(329,802 | ) | ||
BALANCE, December 31, 2009 |
47,394,372 | |||
CONTRIBUTIONS |
88,500,000 | |||
NET INCOME |
20,587,018 | |||
BALANCE, December 31, 2010 |
$ | 156,481,390 | ||
The accompanying notes are an integral part of these financial statements.
Frontier Gas Services, LLC
Statements of Cash Flows
For the years ended December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 20,587,018 | $ | (329,802 | ) | $ | (1,222,843 | ) | ||||
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
8,627,930 | 1,944,922 | 489,560 | |||||||||
Noncash general and administrative expenses |
- | 535,256 | 1,826,187 | |||||||||
Amortization of loan costs |
42,486 | - | - | |||||||||
Gain on business combination |
(11,190,000 | ) | - | - | ||||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(7,255,930 | ) | (3,399,663 | ) | (615,712 | ) | ||||||
Prepaid assets |
(1,125,934 | ) | (126,128 | ) | (6,064 | ) | ||||||
Accounts payable |
4,495,999 | 1,960,363 | 255,521 | |||||||||
Other current liabilities |
470,240 | 3,473 | (108,616 | ) | ||||||||
Amounts due to related parties |
(113,685 | ) | 2,451 | (43,667 | ) | |||||||
Net cash provided by operating activities |
14,538,124 | 590,872 | 574,366 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Additions to property and equipment |
(59,944,434 | ) | (3,501,163 | ) | (8,866,385 | ) | ||||||
Cash paid for acquisition |
(49,402,187 | ) | (25,000,000 | ) | - | |||||||
Net cash used in investing activities |
(109,346,621 | ) | (28,501,163 | ) | (8,866,385 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Contributions |
88,500,000 | 29,000,000 | 18,000,000 | |||||||||
Borrowings on long-term debt |
6,000,000 | - | - | |||||||||
Payments of loan costs |
(687,248 | ) | - | - | ||||||||
Payments on capital leases |
(2,468,399 | ) | - | - | ||||||||
Payment on FES line of credit |
- | - | (8,500,000 | ) | ||||||||
Borrowings on FES line of credit |
- | - | 3,000,000 | |||||||||
Net cash provided by financing activities |
91,344,353 | 29,000,000 | 12,500,000 | |||||||||
NET (DECREASE) INCREASE IN CASH |
(3,464,144 | ) | 1,089,709 | 4,207,981 | ||||||||
CASH, beginning of year |
5,547,661 | 4,457,952 | 249,971 | |||||||||
CASH, end of year |
$ | 2,083,517 | $ | 5,547,661 | $ | 4,457,952 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
||||||||||||
Cash paid for interest, net of interest capitalized of $0, $0 and $45,510 |
$ | 70,139 | $ | - | $ | 227,142 | ||||||
NONCASH INVESTING AND FINANCING ACTIVITES: |
||||||||||||
Purchase of fixed assets on capital lease |
$ | 11,313,497 | $ | - | $ | - | ||||||
Accrued purchases of property and equipment |
$ | 154,945 | $ | - | $ | - | ||||||
The accompanying notes are an integral part of these financial statements.
Frontier Gas Services, LLC
Notes to financial statements
December 31, 2010, 2009 and 2008
A - | BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. | General |
Frontier Gas Services, LLC (Gas or the Company), a Delaware limited liability company is
engaged in the acquisition, enhancement, operations and divesting of gathering, processing,
transportation and other midstream assets, including product marketing. The Company is
headquartered in Tulsa, Oklahoma. |
||
Frontier Gas Services is a subsidiary of Frontier Midstream, LLC (Midstream). Midstream was
formed in 2006 as a wholly owned subsidiary of Frontier Energy Services, LLC (FES). On
February 25, 2008, a majority interest in Midstream was acquired by Energy Spectrum Partners V
LP (ESP), an equity investment group located in Dallas, Texas with a capital contribution of
$18,000,000. Gas was formed on July 17, 2009. In August 2009, Midstream contributed its Indian
Creek System to Gas in conjunction with a $5,000,000 cash contribution from TPF II Gas Services,
LLC (TPF). Midstreams other gathering systems, Wilson Creek and Rose Bud, were later
contributed to Gas in November 2009. The contribution of the gathering systems from Midstream
to Gas was accounted for as a combination of entities under common control, which is similar to
the pooling of interest method of accounting for business combinations. Accordingly, these
financial statements give retrospective effect to these transactions; and therefore, the
Companys results from January 1, 2008 through the dates contributed include all operations and
transactions of the contributed gathering systems. |
||
The Company currently has six gathering systems. The Rose Bud System was constructed and
brought online in 2007. The Wilson Creek System was constructed and brought online in 2008.
Both are located in the Fayetteville Shale Play in Arkansas. The Indian Creek System was
acquired in January 2009 from Indian Creek Gas Processing, L.P. and Central Plains Pipeline
Company, L.L.C. and is located in Roberts County, Texas. In 2010, the Company purchased two
systems (Note C) and constructed the Woolly Hollow System. The Twin Groves, Prairie Creek and
Woolly Hollow systems are located in the Fayetteville Shale Play in
Arkansas. |
2. | Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities, if any, at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Although management believes the estimates
are appropriate, actual results could differ from those
estimates. |
1
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
3. | Concentration and Credit Risks |
The Company places its cash with high-quality institutions. At times, such balances may be in
excess of the Federal Deposit Insurance Corporation insurance limit. The Company derives its
revenue from customers in the natural gas industry. This industry concentration has the
potential to impact the Companys overall exposure to credit risk, either positively or
negatively, in that its customers could be affected by similar changes in economic, industry or
other conditions. However, the Company believes that the credit risk posed by this industry
concentration is offset by the creditworthiness of its customer base. The Companys portfolio
of accounts receivable is comprised primarily of mid-size to large domestic corporate entities.
At December 31, 2010 and 2009, four and three customers accounted for approximately 100% of
total accounts receivable, respectively. Approximately 95%, 81%, and 95% of the Companys net
sales were provided by four, two and three customers in 2010, 2009 and 2008, respectively. |
4. | Accounts Receivable |
Accounts receivable are recorded at amounts billed to customers. Credit is extended based on an
evaluation of a customers financial condition and generally, collateral is not required.
Amounts outstanding longer than the contractual terms are considered past due. An allowance for
doubtful accounts, if necessary, is based on managements assessment of the realizability of
customer accounts. Managements assessment is based on the overall creditworthiness of the
Companys customers and specific disputes, if any. Management believes that no allowance for
doubtful accounts was necessary at December 31, 2010 and 2009. |
5. | Property and Equipment |
Property and equipment are stated at
cost, net of accumulated depreciation except when obtained through business combination (Note C). The Company charges
repairs and maintenance expense against income when incurred and capitalizes renewals and
betterments that extend the useful life or expand the capacity of the existing assets.
Depreciation on property and equipment is calculated using the straight-line method over the
estimated useful lives (ranging from 4 to 20 years) of the respective assets. Additionally, the
Company capitalizes interest directly related to the construction of assets. |
||
The cost of property and equipment sold or otherwise disposed of, and the related accumulated
depreciation is removed from the accounts, and any gain or loss is reflected in current
operations. |
||
The Company reviews long-lived assets for impairment upon the occurrence of events or changes in
circumstances that indicate that the carrying amount of such assets may not be recoverable. If
such a review should indicate that the carrying amount of long-lived assets is not recoverable,
the carrying amount of such assets is reduced to fair value. No impairment of long-lived assets
was required during the periods presented. |
6. | Intangible Assets |
Intangible assets consist of gas contracts. The gas contracts were acquired by the Company
during acquisitions - See Note C. These contracts are amortized over the contract lives using
the straight-line method. |
2
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
7. | Revenue Recognition |
The Companys natural gas sales and purchase arrangements are accounted for on a gross basis in
the statement of operations as sales and purchases, respectively. These transactions are
contractual arrangements that establish the terms of the purchase of natural gas at a specified
location and the sale at a different location at the specified date. Both sale and purchase
transactions require physical delivery of the natural gas and the risk and reward of ownership
are evidenced by title transfer, assumption of environmental risk, transportation scheduling,
credit risk and counterparty nonperformance risk. |
||
Service revenues generated include fee-based arrangements for natural gas gathering or
compressing, treating or processing of those volumes of natural gas that flow through the
gathering systems. The service revenues are recognized in the period when the service is
provided. |
8. | Income Taxes |
The Company is structured as a limited liability company. Therefore, no provision for income
taxes has been recorded in the Companys financial statements. The Companys earnings and
losses for federal and state income tax purposes are included in the tax returns for the
individual members. |
||
The Company evaluates uncertain tax positions for recognition and measurement in the financial
statements. To recognize a tax position, the Company determines whether it is more likely than
not that the tax positions will be sustained upon examination, including resolution of any
related appeals or litigation, based on the technical merits of the position. A tax position
that meets the more likely than not threshold is measured to determine the amount of benefit to
be recognized in the financial statements. The amount of tax benefit recognized with respect to
any tax position is measured as the largest amount of benefit that is greater than 50% likely of
being realized upon settlement. The Company had no uncertain tax positions that required
recognition in the financial statements at December 31, 2010 and 2009. Any interest or
penalties would be recognized as a component of income tax expense. |
9. | Equity Compensation |
The Company accounts for equity-based compensation to employees at fair value. The cost of
employee services received in exchange for equity instruments is measured based on the
grant-date fair value of those instruments. That cost is recognized as compensation expense
over the requisite service period (often the vesting period). Awards subject to performance
criteria vest when it is probable that the performance criteria will be met. Generally, no
compensation cost is recognized for equity instruments that do not vest. |
3
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
B - | PROPERTY AND EQUIPMENT | |
Property and equipment consist of the following at December 31: |
2010 | 2009 | |||||||
Property and equipment |
||||||||
Construction in progress |
$ | 16,332,900 | $ | 3,034,053 | ||||
Pipeline systems |
133,628,738 | 26,666,512 | ||||||
Trucks |
411,410 | 108,504 | ||||||
Furniture and fixtures |
357,138 | 106,055 | ||||||
150,730,186 | 29,915,124 | |||||||
Accumulated depreciation |
9,107,746 | 1,863,689 | ||||||
$ | 141,622,440 | $ | 28,051,435 | |||||
For the years ended December 31, 2010, 2009 and 2008, the Company recorded depreciation
expense of $7,244,057, $1,307,056 and $489,560, respectively. Interest in the amount of $0, $0
and $45,510 was capitalized to pipeline systems for the years ended December 31, 2010, 2009 and
2008, respectively. |
||
At December 31, 2010, the construction in progress represents costs incurred in the ongoing
construction of the Companys gathering systems. Accordingly, no depreciation expense was
recorded for these costs. |
||
During 2010, the Company leased certain compressors which are accounted for as capital leases.
The total capitalized cost of the leases is $11,313,497 with accumulated depreciation of
$2,468,399. |
||
C - | ACQUISITIONS | |
On January 1, 2010, the Company entered into an asset sale agreement with Arkansas Midstream Gas
Services, Corp., to acquire 100% of the natural gas gathering systems located in Conway and
Faulkner counties in Arkansas for $49.4 million. The Company assumed no liabilities in the
transaction. As part of the transaction, the Company executed a 10 year contractual
arrangement, with a renewal option, for which they receive monthly gathering fees. The
acquisition was funded through capital contributions and was accounted for using the purchase
method of accounting. Accordingly, the assets acquired were recorded at their fair values. The
tangible assets were valued utilizing the cost approach and the intangible asset was valued
using the income approach. The assumptions used to estimate the fair values reflect the best
estimate of how the Company believes market participants would benefit from the use of the
assets being valued. The Company did utilize an expert in valuation techniques to assist in the
formulation of the fair value estimates. The resulting valuation resulted in the Company
recognizing a gain of approximately $11.2 million for the excess of the fair value of assets
acquired compared to the consideration paid. |
||
There were several factors that the Company believes contributed to the $11.2 million gain
recognized in the acquisition including: sellers business strategy and capital requirements,
limited potential buyers in the region, and the historical business relationship created between
the seller and the Company. The operating results of the business acquired have been included
in the Companys results of operations from the date of acquisition. |
4
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
The value of the Twin Groves and Prairie Creek acquisition has been allocated to the assets
acquired at the date of the acquisition as summarized in the table
below: |
Property and equipment |
$ | 49,402,187 | ||
Gas contracts |
11,190,000 | |||
Total fair value |
$ | 60,592,187 | ||
Gain recognized on business combination |
$ | 11,190,000 | ||
On January 9, 2009, the Company purchased certain assets of Indian Creek natural gas
processing plant and related gathering system, and the Central Plains gas liquids pipeline,
which are located in Roberts County, Texas, for $25,000,000. The acquisition was primarily
funded through capital contributions from ESP, which totaled $24,000,000. The acquisition was
accounted for using the purchase method of accounting, and the operating results of the business
acquired have been included in the Companys results of
operations from the date of acquisition. |
||
The cost of the Indian Creek acquisition has been allocated to the assets acquired at the date
of the acquisition as summarized in the table below: |
Property and equipment |
$ | 12,242,680 | ||
Gas contracts |
12,757,320 | |||
Total fair value |
$ | 25,000,000 | ||
D - | INTANGIBLE ASSETS | |
Intangible assets consist of gas contracts. The following table summarizes the Companys investment in and net carrying value of its recorded intangible assets: |
December 31, | ||||||||
2010 | 2009 | |||||||
Intangible assets, gross |
$ | 23,947,320 | $ | 12,757,320 | ||||
Accumulated amortization |
2,021,738 | 637,866 | ||||||
Intangible assets, net of amortization |
$ | 21,925,582 | $ | 12,119,454 | ||||
Amortization expense recorded for the year ended |
$ | 1,383,872 | $ | 637,866 | ||||
Future amortization expense for intangible assets is currently expected to be: $1.4 million
in each of the years 2011 - 2015; and $14.9 million cumulatively in 2016 and beyond. The
intangible assets have useful lives of 15 to 20 years. |
5
Frontier Gas Services, LLC
Notes
to financial statements - continued
December 31, 2010, 2009 and 2008
E - | LONG-TERM DEBT | |
On October 7, 2010, the Company entered into a revolving credit agreement and note agreement
with a bank. The initial line of credit is $50.0 million and has a maturity date of October 7,
2014. Interest is paid quarterly at either the Daily Adjusting LIBOR Rate or the Prime-based
Rate plus an applicable margin as defined in the agreement (5.0% at December 31, 2010). The
Company had $6.0 million outstanding on the revolving credit
agreement at December 31, 2010. |
||
Substantially all of the Companys fixed assets serve as collateral under the agreement. The
Company is subject to certain financial and nonfinancial covenants including, but not limited
to, maintenance of an interest coverage ratio and debt to consolidated EBITDA ratio. The
Company was in compliance with its debt covenants at December 31, 2010. |
||
The Company had a $10,000,000 line of credit agreement with FES that was terminated in March
2008 upon receipt of the capital contribution from ESP. Under the agreement, amounts borrowed
were charged interest at a rate plus .5% for the first $5,000,000 borrowed and at the Bank of
Oklahoma financial corporation prime rate less .5% for the second $5,000,000. Prior to
termination of the agreement, the base rate charged was 7.75%. |
||
F - | CAPITAL LEASES | |
As discussed in Note B, the Company entered into several new leases for compressors during the
year which are accounted for as capital leases. The total liability outstanding at December 31,
2010 related to these leases was $8.8 million. |
||
Future minimum lease payments of capital leases: |
2011 |
$ | 2,859,840 | ||
2012 |
2,859,840 | |||
2013 |
2,859,840 | |||
2014 |
1,161,810 | |||
Total payments |
9,741,330 | |||
Imputed interest |
(896,232 | ) | ||
Present value of future payments |
$ | 8,845,098 | ||
G - | FINANCIAL INSTRUMENTS | |
The approximate fair values of all the financial instruments, including cash, accounts
receivable and accounts payables approximate their carrying values, due to their short-term
nature. Additionally, the estimated fair value of borrowings under the revolving credit facility
approximates its carrying value due to the debt agreements being so recent in nature. |
6
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
H - | COMMITMENTS AND CONTINGENCIES |
1. | Leases |
In addition to the capital leases discussed above, the Company entered into operating leases
during 2010 and 2009 for operating equipment, specifically compressors. |
||
Future minimum lease payments for all non-cancelable operating leases at December 31, 2010 are
$3,591,700 in 2011; $1,694,160 in 2012 and $141,024 in 2013. |
||
For the years ended December 31, 2010, 2009 and 2008, rent expense was $5.5 million, $1.0
million, and $138,662, respectively. |
||
At December 31, 2010, the Company had a commitment to purchase a cryogenic unit for $6,029,295.
Milestone payments under the commitment are due upon completion of certain steps in the
production process for the cryogenic unit. Production of the unit is expected to be completed
by August 2011. As of December 31, 2010, the Company had made payments under the commitment of
$602,930. Cancellation fees apply if the Company cancels the commitment prior to completion. |
2. | Litigation |
From time to time, the Company may be a party to various legal and/or regulatory proceedings
incidental to its business. Certain claims, suits and complaints arising in the ordinary course
of business have been filed or are pending against the Company from time to time. The Company
cannot predict with certainty the outcome or effect of the pending matters. However, in the
opinion of management, such pending matters would not have a significant effect on the financial
position or results of operations of the Company. |
I - | RELATED PARTY TRANSACTIONS | |
As provided by the limited liability company agreement, Midstream and Gas have management
agreements with FES whereby FES agreed to provide management, general and administrative
services to the Company. To the extent the Company has cash to reimburse FES, FES is reimbursed
by the Company for all direct general and administrative expenses, including office equipment
and other necessary office expenses. Expenses that are not reimbursed are deemed to be capital
contributions by FES. During the years ended December 31, 2010, 2009 and 2008, the Company
incurred $0, $535,256 and $1,826,187 of unreimbursed expenses under this agreement,
respectively. This amount is included in general and administrative expenses in the statement
of operations. At December 31, 2010 and 2009, $59,398 and $173,083 was payable to FES and there
were no receivables from FES, respectively. |
||
The Company also had sales of gas to Tenaska Marketing Ventures, an affiliate of TPF of $18.0
million and $11.6 million for the years ended December 31, 2010 and 2009, respectively.
Receivables from TPF at December 31, 2010 and 2009 were $1.6 million and $1.5 million,
respectively. |
7
Frontier Gas Services, LLC
Notes to financial statements - continued
December 31, 2010, 2009 and 2008
J - | SUBSEQUENT EVENTS | |
On February 18, 2011, the Company entered into an agreement with Crestwood Midstream Partners LP
to sell all of its pipeline systems and related assets for $338.0 million and an additional
$15.0 million to be paid to the Company if certain operational objectives are met within
six-months of the closing date. |
||
Management has evaluated subsequent events through February 22, 2011, the date the financial
statements were available to be issued. No additional subsequent events were identified
requiring recognition or disclosure in the accompanying financial statements. |
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