Business Combinations

6 Months Ended

Jun. 30, 2022

Note 12. Business Combinations

On February 17, 2022, an affiliate of Enterprise acquired all of the member interests in Navitas Midstream Partners, LLC (“Navitas Midstream”) for $3.2 billion in cash. We funded the cash consideration using proceeds from the issuance of short-term notes under our commercial paper program and cash on hand.

Navitas Midstream's assets (the “Midland Basin System”) include approximately 1,750 miles of pipelines and over 1.0 Bcf/d of cryogenic natural gas processing capacity. The acquired business expands our natural gas processing and NGL businesses to the Midland Basin in West Texas.

The acquisition of Navitas Midstream was accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The preliminary allocation of purchase consideration was based upon the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The preliminary allocation was made to major categories of assets and liabilities based on management’s best estimates and supported by an independent third-party analysis.

The following table presents the preliminary fair value allocation of assets acquired and liabilities assumed in the acquisition at February 17, 2022 (the effective date of the acquisition). The allocation is provisional and subject to ongoing efforts to clarify the values assigned to tangible and identifiable intangible assets.

Purchase price for 100% interest in Navitas Midstream	$	3,231
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	27
Property, plant and equipment		2,080
Contract-based intangible asset		989
Assumed liabilities, net of acquired other assets (1)		(24	)
Total identifiable net assets	$	3,072
Goodwill	$	159

(1)

Assumed liabilities primarily include accounts payable, other current liabilities, lease liabilities and asset retirement obligations. Acquired other assets primarily include accounts receivable, other current assets and right-of-use (“ROU”) assets. None of these amounts were considered individually significant.

The estimated fair value of the acquired property, plant and equipment was determined using the cost approach. The fair value of property, plant and equipment primarily consisted of personal property of $1.6 billion, real property of $250 million and construction in progress of $175 million. See Note 4 for additional information regarding our property, plant and equipment.

The contract-based intangible asset represents the estimated value we assigned to the acquired long-term contracts with customers that dedicate future lease production to our system. The estimated fair value of the acquired contract-based intangible assets was determined using an income approach, specifically a discounted cash flow analysis. The fair value estimate incorporates Level 3 inputs including: (i) management’s long-term forecast of cash flows generated by the Midland Basin System based on the estimated economic life of the hydrocarbon resource basin served and resource depletion rates; and (ii) a discount rate of 15.5%, which is based on a benchmarking analysis with reference to the implied rate of return on the Navitas Midstream acquisition and a market participant weighted average cost of capital. We will amortize the value assigned to this intangible asset using a units-of-production method. The estimated useful life of the acquired contract-based intangible asset is 30 years.

We recorded $159 million of goodwill in connection with this transaction. In general, we attribute this goodwill to our ability to leverage the acquired business with our existing NGL asset base to create future business opportunities.

The financial results for the processing activities of the acquired business will continue to be reported under the NGL Pipelines & Services business segment and the gathering activities will continue to be reported under the Natural Gas Pipelines & Services business segment.

The contribution of this newly acquired business to our consolidated revenues and net income was not material during the three and six months ended June 30, 2022. Additionally, acquisition related costs were not material during the three and six months ended June 30, 2022.

On a historical pro forma basis, our revenues, costs and expenses, operating income, net income attributable to common unitholders and earnings per unit for the three and six months ended June 30, 2022 and 2021 would not have differed materially from those we actually reported had the acquisition been completed on January 1, 2021 rather than February 17, 2022.