INCOME TAXES

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Altus Midstream Company is subject to U.S. federal income tax and Texas Margin tax. At June 30, 2019, Altus Midstream Company had a net deferred tax asset of $68.0 million, primarily related to its net operating loss carryforward and its investment in Altus Midstream LP. Altus Midstream LP is a partnership for federal income tax purposes and passes through its taxable income to its partners. Thus, Altus Midstream LP does not record a federal income tax provision. Altus Midstream LP is subject to the Texas Margin tax and as such, records a state income tax provision. At June 30, 2019, Altus Midstream LP had a net deferred state income tax liability of $3.0 million.

On June 12, 2019, Altus Midstream issued and sold the Preferred Units through a private offering that admitted additional limited partners with separate rights for the Preferred Unit holders. The Preferred Units are accounted for on the Company’s consolidated balance sheet as a redeemable noncontrolling interest classified as temporary equity. For financial statement reporting purposes, the Company applies a two-step approach to subsequent measurement of the carrying value. Under this approach, net income is attributed to the Preferred Unit holders in an amount commensurate with the Redemption Price calculated using the applicable internal rate of return. An additional adjustment may be made to increase the carrying amount after the attribution of net income, as further described in Note 12 — Series A Cumulative Redeemable Preferred Units. Both the allocation of net income and any subsequent adjustment based upon accretion of the net transaction price (if applicable) reflect income that will be taxable to the Preferred Unit holders. Accordingly, Altus Midstream Company’s federal income tax provision reflects this income allocation as a reduction in the Company’s effective tax rate.

During the three and six months ended June 30, 2019, the Company’s effective income tax rate was primarily impacted by net income attributable to the noncontrolling interest, income allocated to the Preferred Unit holders, accretion of the net transaction price, and the impact of state income taxes. During the three and six months ended June 30, 2018, the Company’s effective income tax rate was primarily impacted by an increase in the U.S. valuation allowance and the impact of state income taxes.

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. Each quarter the Company assesses the recognition amount and, as a result, may increase (expense) or reduce (benefit) the amount of interest and penalties. Interest and penalties are recorded as a component of income tax expense. The contributor of Altus Midstream’s operating assets, Apache, is currently under IRS audit for the 2014 - 2017 tax years as part of its normal course of business.