SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS

EQUITY AND WARRANTS

Redeemable Noncontrolling Interest — Common Unit Limited Partners

On February 22, 2022, the Company consummated the previously announced business combination transactions contemplated by the Contribution Agreement, dated as of October 21, 2021. Pursuant to the Contribution Agreement, in connection with the Closing, (i) Contributor contributed all of the equity interests of the Contributed Entities to the Partnership; and (ii) in exchange for such contribution, the Partnership issued 50,000,000 common units representing limited partner interests in the Partnership and the Company issued 50,000,000 shares of the Company’s Class C Common Stock, par value $0.0001 per share, to Contributor. Please refer to “The Transaction” above.

The redemption option of the Common Unit is not legally detachable or separately exercisable from the instrument and is non-transferable, and the Common Unit is redeemable at the option of the holder. Therefore, the Common Unit is accounted for as redeemable noncontrolling interest and classified as temporary equity on the Company’s Condensed Consolidated Balance Sheet. During the first half of 2022, 5,550,000 common units were redeemed on a one-for-one basis for shares of Class A Common Stock and a corresponding number of shares of Class C Common Stock were cancelled. There were 94,450,000 Common Units and an equal number of Class C Common Stock issued and outstanding as of June 30, 2022. The Common Units fair value was approximately $3.25 billion as of June 30, 2022.

Redeemable Noncontrolling Interest — Preferred Unit Limited Partners

Upon Closing, the Company assumed certain Preferred Units that were issued and outstanding on acquisition date. The Preferred Units will be exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders upon the occurrence of specified events, unless otherwise redeemed by the Company. Refer to Note 11—Series A Cumulative Redeemable Preferred Units for further discussion. In July 2022, the Company redeemed all outstanding redeemable noncontrolling interest Preferred Units. See Note 18—Subsequent Events in the Notes to our Condensed Consolidated Financial Statements for additional information.

Public Warrants

As of June 30, 2022, there were 12,577,350 Public Warrants (as defined below) outstanding. Each whole public warrant entitles the holder to purchase one tenth of a share of Class A Common Stock at a price of $115.00 per share (the “Public Warrants”). The Public Warrants will expire on November 9, 2023 or upon redemption or liquidation. The Company may call the Public Warrants for redemption, in whole and not in part, at a price of $0.01 per warrant with not less than 30 days’ notice provided to the Public Warrant holders. However, this redemption right can only be exercised if the reported last sale price of the Class A Common Stock equals or exceeds $180.00 per share for any 20-trading days within a 30-trading day period ending three business days prior to sending the notice of redemption to the Public Warrant holders.

Private Placement Warrants

As of June 30, 2022, there were 6,364,281 Private Placement Warrants (as defined below) outstanding, of which Apache holds 3,182,140. The private placement warrants will expire on November 9, 2023 and are identical to the Public Warrants discussed above, except (i) they will not be redeemable by the Company so long as they are held by the initial holders or their respective permitted transferees and (ii) they may be exercised by the holders on a cashless basis (the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”).

The Company recorded a fair value of $0.1 million for the Public Warrants and a fair value of $0.1 million for the Private Warrants as of June 30, 2022 on the Condensed Consolidated Balance Sheet in other non-current liabilities. Refer to Note 15—Fair Value Measurement in the Notes to our Condensed Consolidated Financial Statements in this Form 10-Q for additional discussion regarding valuation of the Warrants.

Dividend

On February 22, 2022, the Company entered into a Dividend and Distribution Reinvestment Agreement (the “Reinvestment Agreement”) with certain stockholders including BCP Raptor Aggregator, LP, BX Permian Pipeline Aggregator, LP, Buzzard Midstream LLC, APA Corporation Apache Midstream LLC, and certain individuals (each, a “Reinvestment Holder”). Under the Reinvestment Agreement, each Reinvestment Holder is obligated to reinvest at least 20% of all distributions on Common Units or dividends on shares of Class A Common Stock in the Company’s Class A Common Stock. Additionally, the Audit Committee and subsequently the Company’s Board of Directors (the “Board”) resolved that for the calendar year 2022, 100% of all distributions or dividends received by each Reinvestment Holder would be reinvested in newly issued shares of Class A Common Stock. As described in these Condensed Consolidated Financial Statements, as the context requires, dividends paid to holders of Class A Common Stock and distributions paid to holders of Common Units may be referred to collectively as “dividends.”

On May 17, 2022, the Company made cash dividend payments of $11.7 million to holders of Class A Common Stock and Common Units and $87.7 million was reinvested in shares of Class A Common Stock by each Reinvestment Holder.

On July 20, 2022, the Board declared a cash dividend of $0.75 per share on the Company’s Class A Common Stock and a distribution of $0.75 per Common Unit from the Partnership to the holders of Common Units. Dividends are payable on August 17, 2022. Certain holders of Class A Common Stock and Class C Common Stock will receive a cash dividend with the balance receiving additional shares of Class A Common Stock under the Reinvestment Agreement.

Stock Split

On May 19, 2022, the Company announced that its Board approved and declared a two-for-one stock split with respect to its Class A Common Stock and Class C Common Stock, in the form of a stock dividend (the “Stock Split”). The Stock Split was accomplished by distributing one additional share of Class A Common Stock for each share of Class A Common Stock outstanding and one additional share of Class C Common Stock for each share of Class C Common Stock outstanding. The additional shares of Common Stock were issued on June 8, 2022 to holders of record at the close of business on May 31, 2022.

All corresponding per-share and share amounts for periods prior to June 8, 2022 have been retroactively restated in this Form 10-Q to reflect the Stock Split.

  SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS

Prior to the Closing Date of the Transaction, the Partnership had 625,000 Preferred Units issued and outstanding. Immediately prior to the Closing, on February 22, 2022, the Partnership redeemed for cash, 100,000 Preferred Units in an amount equal to approximately $120.1 million. The Company assumed the remaining 525,000 Preferred Units as well as 29,983 paid-in-kind (“PIK”) Preferred Units that were issued and outstanding at the close of the acquisition. 150,000 of these Preferred Units and a pro rata amount of the PIK units contain a mandatory redemption feature as further discussed below.

Mandatorily Redeemable Preferred Units

At the close of the Transaction, the Company effectuated the Third Amended and Restated Agreement of Limited Partnership of the Partnership (“Partnership LPA”), which among other things, provides for mandatory pro-rata redemptions by the Partnership of 50,000 Preferred Units at or prior to each of the six-, twelve- and eighteen-month anniversaries of the effectiveness of the Partnership LPA, for an aggregate of 150,000 Preferred Units over the eighteen-month period. Given this mandatory redemption feature and pursuant to ASC 480, liability classification is required for these 150,000 Preferred Units and the pro rata PIK units. The Company values the liability as of each reporting date and records the change in valuation in the “Other income (expenses)” in the Condensed Consolidated Statements of Operations.

During the first half of 2022, the Partnership declared and paid mandatorily redeemable Preferred Units holders distribution of $1.9 million and the Partnership redeemed 125,000 units along with 7,138 PIK units for an aggregate amount totaling $152.6 million. Gains of $5.1 million and $9.6 million were recorded for the redemption for the three and six months ended June 30, 2022, respectively. For the remaining 25,000 Preferred Units that contain the mandatory redemption feature, the Company recorded $30.7 million as liability in “Other Liabilities” of the Condensed Consolidated Balance Sheet as of June 30, 2022. These remaining units were subsequently redeemed in July 2022. See Note 18—Subsequent Events in the Notes to our Condensed Consolidated Financial Statements for additional information.

Redeemable Noncontrolling Interest Preferred Units

The remaining 375,000 Preferred Units assumed on the Closing Date do not contain a mandatory redemption feature, and are accounted for on the Company’s Condensed Consolidated Balance Sheets as a redeemable noncontrolling interest classified as temporary equity in accordance with the terms of the Preferred Units, including the redemption rights with respect thereto. The Preferred Units are exchangeable for shares of the Company’s Class A Common Stock at the option of the Preferred Unit holders upon the occurrence of specified events, unless otherwise redeemed by the Company.

The Company applies a two-step approach to measure the redeemable noncontrolling interest related to the Preferred Units, by first allocating a portion of the Company’s net income in accordance with the terms of the Partnership LPA.

After consideration of the foregoing, the Company records an additional adjustment to the carrying value of the Preferred Unit redeemable noncontrolling interest at each period end, if applicable. The amount of such adjustment is determined based upon the accreted value method to reflect the passage of time until the Preferred Units are exchangeable at the option of the holder. Pursuant to this method, the net transaction price is accreted using the effective interest method, to the Series A Redemption Price (as defined in the Partnership LPA) calculated at the seventh anniversary of the closing of the Preferred Unit Offering. The total adjustment is limited to an amount such that the carrying amount of the Preferred Unit redeemable noncontrolling interest at each period end is equal to the greater of (a) the sum of (i) the carrying amount of the Preferred Units determined in accordance with ASC 810, plus (ii) the fair value of the embedded derivative liability and (b) the accreted value of the net transaction price.

Activities related to Preferred Units for the six months ended June 30, 2022 are as follows:

	Units Outstanding	Amount (3)
	(In thousands, except for unit data)
Redeemable noncontrolling interest — Preferred Units, immediately upon Closing Date of Transaction(1)	396,417	$	462,717
Cash distribution paid to Preferred Unit limited partners	—	(6,937)
Distribution payable to Preferred Unit limited partners		(6,937)
Allocation of net income	—	17,420
Accreted redemption value adjustment	—	97,075
Redeemable noncontrolling interest — Preferred Units, as of June 30, 2022	396,417	563,338
Embedded derivative liability(2)		488
		$	563,826

(1)Included 21,417 PIK units on a pro rata basis.

(2)Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. Refer to Note 15—Fair Value Measurements for discussion of the fair value changes in the embedded derivative liability during the period.

(3)As of June 30, 2022, the Redemption Price would have been based on an 11.08% internal rate of return, which would equate to a redemption value of $700.0 million.

On July 8, 2022, the Company redeemed all outstanding redeemable noncontrolling interest Preferred Units. See Note 18—Subsequent Events in the Notes to our Condensed Consolidated Financial Statements for additional information.