Note 12. Business Combinations

Acquisition of Azure Midstream

In April 2017, we closed the acquisition of a midstream energy business from Azure Midstream Partners, LP and its operating subsidiaries (collectively, “Azure”) for $191.4 million in cash. The acquired business assets, which are located primarily in East Texas, include over 750 miles of natural gas gathering pipelines and two natural gas processing facilities (Panola and Fairway) with an aggregate processing capacity of 130 MMcf/d. The acquired business primarily serves production from the Haynesville Shale and Bossier, Cotton Valley and Travis Peak formations.

The financial results of the acquired business are reflected in our consolidated results from April 30, 2017, which was the effective date of the Azure acquisition. On a historical pro forma consolidated basis, our revenues, costs and expenses, operating income, net income attributable to Enterprise Products Partners L.P., and earnings per unit amounts for the years ended December 31, 2017 and 2016 would not have differed materially from those we actually reported had the Azure acquisition been completed on January 1, 2016 rather than April 30, 2017.

The following table presents the final fair value allocation of assets acquired and liabilities assumed in the Azure acquisition at April 30, 2017.

Assets acquired in business combination:
Current assets	$	3.1
Property, plant and equipment		193.1
Total assets acquired		196.2
Liabilities assumed in business combination:
Current liabilities		1.4
Long-term liabilities		3.4
Total liabilities assumed		4.8
Cash used for Azure acquisition	$	191.4

The contribution of this newly acquired business to our consolidated revenues and net income was not material for the year ended December 31, 2017.

Acquisition of EFS Midstream

In July 2015, we purchased EFS Midstream from affiliates of PXD and Reliance for approximately $2.1 billion, which was payable in two installments. The initial payment of $1.1 billion was paid at closing on July 8, 2015. The second and final installment of $1.0 billion was paid on July 11, 2016 using a combination of cash on hand and proceeds from the issuance of short-term notes under EPO’s commercial paper program.

The EFS Midstream System provides condensate gathering and processing services as well as gathering, treating and compression services for the associated natural gas. Our primary purpose in acquiring the EFS Midstream System was to secure the underlying production, particularly the processed condensate, for our midstream asset network. Under terms of the associated agreements, PXD and Reliance dedicated certain of their Eagle Ford Shale acreage to us under 20-year, fixed-fee gathering agreements that include minimum volume requirements for the first seven years. PXD and Reliance also entered into related 20-year fee-based agreements with us for natural gas transportation and processing, NGL transportation and fractionation, and for processed condensate and crude oil transportation services.

In connection with the agreements to acquire EFS Midstream, we are obligated to spend up to an aggregate of $270 million on specified midstream gathering assets for PXD and Reliance, if requested by these producers, over a ten-year period. If constructed, these new assets would be owned by us and be a component of the EFS Midstream System.

Since the effective date of the EFS Midstream acquisition was July 1, 2015, our Statements of Consolidated Operations do not reflect any earnings from this business prior to this date. Our consolidated revenues and net income for the last six months ended December 31, 2015 include $117.8 million and $59.9 million, respectively, from EFS Midstream. The following table presents selected unaudited pro forma earnings information for the year ended December 31, 2015 as if the acquisition had been completed on January 1, 2015. This pro forma information was prepared using historical financial data for EFS Midstream and reflects certain estimates and assumptions made by our management. Our unaudited pro forma financial information is not necessarily indicative of what our consolidated financial results would have been for the year ended December 31, 2015 had we acquired EFS Midstream on January 1, 2015.

Pro forma earnings data:
Revenues	$	27,148.5
Costs and expenses		23,937.1
Operating income		3,585.0
Net income		2,594.4
Net income attributable to noncontrolling interests		37.2
Net income attributable to limited partners		2,557.2

Basic earnings per unit:
As reported basic earnings per unit	$	1.28
Pro forma basic earnings per unit	$	1.30
Diluted earnings per unit:
As reported diluted earnings per unit	$	1.26
Pro forma diluted earnings per unit	$	1.28

Acquisition of Oiltanking

On October 1, 2014, we acquired Oiltanking GP and the related IDRs, 15,899,802 common units and 38,899,802 subordinated units of Oiltanking from OTA. We paid total consideration of approximately $4.4 billion to OTA comprised of $2.21 billion in cash and 54,807,352 Enterprise common units for these ownership interests and rights. We also paid $228.3 million to assume the outstanding loans, including related accrued interest, owed by Oiltanking or its subsidiaries to OTA. Collectively, these transactions are referred to as “Step 1” of the Oiltanking acquisition. We funded the cash consideration for the Step 1 transactions using borrowings under our 364-Day Credit Agreement, proceeds from the sale of short-term notes under our commercial paper program and cash on hand.

Oiltanking owned marine terminals located on the Houston Ship Channel and at the Port of Beaumont featuring a number of ship and barge docks and extensive crude oil and petroleum products storage capacity. We had a strategic relationship and enjoyed mutual growth with Oiltanking and its predecessors since 1983. The combination of our legacy midstream assets and Oiltanking’s access to waterborne markets and crude oil and petroleum products storage assets extended and broadened our midstream energy services business.

Step 2 of the Oiltanking acquisition. As a second step (“Step 2”) of the Oiltanking acquisition (separately negotiated by the conflicts committee of Oiltanking GP on behalf of Oiltanking), we entered into an Agreement and Plan of Merger (the “merger agreement”) with Oiltanking in November 2014 that provided for the following:

	the merger of a wholly owned subsidiary of ours with and into Oiltanking, with Oiltanking surviving the merger as our wholly owned subsidiary; and



all outstanding common units of Oiltanking at the effective time of the merger held by Oiltanking’s public unitholders (which consisted of Oiltanking unitholders other than us and our subsidiaries) to be cancelled and converted into our common units based on an exchange ratio of 1.30 of our common units for each Oiltanking common unit.

In accordance with the merger agreement and Oiltanking’s partnership agreement, the merger was submitted to a vote of Oiltanking’s common unitholders, with the required majority of unitholders (including our ownership interests) voting to approve the merger on February 13, 2015. Upon approval of the merger, a total of 36,827,517 of our common units were issued to Oiltanking’s former public unitholders. With the completion of Step 2, total consideration paid by Enterprise for Oiltanking was approximately $6.02 billion.

Since we had a controlling financial interest in Oiltanking before and after completion of Step 2, the increase in our ownership interest in Oiltanking was accounted for as an equity transaction with no gain or loss recognized. Step 2 represented our acquisition of the noncontrolling interests in Oiltanking; therefore, approximately $1.4 billion of noncontrolling interests attributable to Oiltanking were reclassified to limited partners’ equity to reflect the February 2015 issuance of 36,827,517 new common units.

Upon completion of the merger, the IDRs of Oiltanking were cancelled since we now own 100% of the future cash flows attributable to the Oiltanking business we acquired. As a result, the $1.46 billion carrying value of the IDR intangible asset was reclassified to goodwill and allocated among our business segments (see Note 7).